Virginia Lawmakers Cut Funding Throughout Medicaid Program, But Avoid Reductions in ‘Direct-Care’ Costs

The budget plan approved by the Virginia General Assembly on Feb. 9 would cut Medicaid payments over two years to pharmacists, nursing homes, hospitals and managed care organizations, the Richmond Times-Dispatch reports. Funding for doctors and dentists, however, would remain "relatively unscathed," as the state has had problems encouraging such providers to accept Medicaid patients. Although providers said the appropriated funds are not adequate to cover the costs of treating beneficiaries, state officials said they attempted to "appease providers without limiting benefits." State Medicaid Director Patrick Finnerty said, "The reasons the reductions were placed in the areas they were is to minimize, if not completely shield, recipients from reductions in services. There are no cuts in services." Lawmakers approved the cuts to counter increasing Medicaid costs due to an aging population and higher medication and hospital expenses. Overall, the budget includes $3.5 billion for Medicaid for fiscal year 2003 and $3.7 billion for fiscal year 2004. About half those amounts are state funds, and the other half are federal funds.

Effect on Beneficiaries
While the recently approved budget would not "directly" cut funding for Medicaid services, the Times-Dispatch reports that it is "unclear" how the budget might impact beneficiaries. The budget would cut about $18 million over two years in payments to hospitals, $16 million from pharmacies, $24.8 million from nursing homes and $14.6 million from managed care plans. Nursing homes did receive funds to cover "direct-care" costs, such as nurses' salaries, but did not receive an increase in funding for operating costs, which are expected to increase over the next two years. Christopher Bailey, senior vice president for the Virginia Hospital and Healthcare Association, said, "The effects on hospitals are more than just the direct payments. Hospitals and health systems operate something like 15% of nursing home beds in the state. They own and operate the largest Medicaid contracting health plan (Sentara Family Care) and are affected by the full scope of provider payment reductions." The budget also calls for doctors to review prescriptions to ensure the prescribed treatment is "appropriate" and increase use of generic drugs, moves projected to save the state $4.3 million (Smith, Richmond Times-Dispatch, 3/16).