VIRGINIA HOSPITAL & HEALTHCARE ASSOCIATION

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2 A VIRGINIA HOSPITAL & HEALTHCARE ASSOCIATION This report was prepared by the Virginia Hospital & Healthcare Association: Jay Andrews, Vice President of Financial Policy Sheila Gray, Vice President of Communications & Public Relations Steven Hill, Director of Communications

3 VIRGINIA HOSPITAL & HEALTHCARE ASSOCIATION 4200 INNSLAKE DRIVE, SUITE 203, GLEN ALLEN, VIRGINIA P.O. BOX 31394, RICHMOND, VIRGINIA (804) FAX (804) Over the past several years, Medicaid and the financial challenges facing Virginia s hospitals, as well as their interconnectedness, have been at the forefront of the public policy debate in the Commonwealth. As our elected leaders again look to address these issues during the 2015 General Assembly Session, the Virginia Hospital & Healthcare Association is issuing this report A Snapshot of Virginia s Medicaid Program as a primer on one of Virginia s most important safety net programs. Medicaid is not welfare. Rather, it provides a safety net as the health insurer of last resort for some of Virginia s most fragile citizens: children, the aged, the blind and the physically and mentally disabled. In 2013, Medicaid provided health insurance to 1.15 million Virginians. Despite the number of enrollees, Virginia s Medicaid program is extraordinarily lean: we rank 20 th in the number of Medicaid recipients; 44 th in the number of Medicaid recipients as a percentage of population; and 49 th in terms of total Medicaid expenditures per capita. Virginia spent $7.6 billion on Medicaid in 2013, with half of the funding provided by the federal government. Despite the program s importance, Virginia s Medicaid program faces a number of growing challenges, including: spending growth due to increases in enrollment and costs; vulnerability to state and federal budget woes; and the program pays providers well below the costs of care for patients. For example, since 2000, the number of people enrolled in Virginia s Medicaid program has increased by 70 percent. Much of this growth has occurred with individuals who are aged and disabled. This growth is problematic because inflationary and intensity of service costs have grown by 43 percent in this category of beneficiaries. Seniors and the disabled, while representing less than 30 percent of beneficiaries, account for 66 percent of Medicaid spending. Meanwhile, low-income children and their parents represent 70 percent of enrollees, but account for only 34 percent of Medicaid spending. VHHA is working with providers and the Department of Medical Assistance Services to bend the cost curve and target areas of change so that the program can remain viable to the people it serves. Looking to the future, we are committed to working with all parties to improve upon this critical program and provide greater access to health care for Virginia s most fragile citizens. We hope this report is insightful, and thank you for your interest in the future of Virginia s health and health care system. Should you have any questions or if you would like any additional information, please feel free to contact VHHA or your local hospital. James B. Cole Chairman Sean T. Connaughton President/CEO n alliance of hospitals and health delivery systems ADVANCING EXCELLENCE IN HEALTH CARE AND HEALTH

4 Medicaid is a joint federal-state program that was authorized in 1965 under Title XIX of the Social Security Act. It is not a welfare program but rather serves as the health insurer of last resort for children, the aged, blind and physically and mentally disabled. During the recession and as private insurance coverage has eroded, Medicaid has become the safety net for millions in the United States who have lost health insurance coverage. Growth in Medicaid enrollment and federal and state budget constraints jeopardize the future of the Medicaid program. Virginia s hospitals, health systems, physicians and nursing homes, among others, serve as the major providers of health care services for all Virginians and are committed to providing the best care possible. There are four critical areas of concern to providers serving Virginia s Medicaid program: 1. Medicaid funding is growing due to increases in enrollment and cost. 2. Medicaid is vulnerable to state and federal budget issues. 3. Virginia s Medicaid program is extraordinarily lean compared to other states. 4. Medicaid pays providers well below the cost of care for patients. This report explains how the Medicaid program works, who is covered, how it has grown, where funding comes from and how health care providers are affected by the program. Its purpose is to provide a historical and current view of the Medicaid program; it does not address potential changes that may occur with national and state health reform. 1

5 Virginia Medicaid Basics Medicaid is a federal-state partnership where the federal and state governments jointly fund the cost of the program. In Virginia, Medicaid is administered by the Department of Medical Assistance Services (DMAS). While all states must meet minimum federal standards for benefits and eligibility, states have flexibility in setting income and asset eligibility criteria. Medicaid does not provide financial assistance directly to beneficiaries; rather, it reimburses health care providers for the covered medical service. The federal medical assistance percentage (FMAP) is the federal government s share of a state s expenditures for most Medicaid services. FMAP varies by state; it is higher in states with lower per capita incomes relative to the national average. In federal fiscal year (FFY) 2013, FMAP had a statutory floor of 50 percent and went up to percent. As a relatively wealthy state, Virginia receives the 50 percent match: for every $1 that Virginia allocates to Medicaid spending, the state receives $1 in federal funding. Conversely, when Virginia cuts $1 from state General Fund spending on Medicaid, the total cut equals $2 because of the foregone federal match. Who does Medicaid cover in Virginia? Individuals in specific categories including low-income children, pregnant women, the elderly, persons with disabilities and parents or caregivers of children meeting specific low-income thresholds are eligible for Medicaid. In Virginia, income and resource requirements vary by category, as shown below Annual Income Limitations for Medicaid $25,000 $23,000 $21,000 $19,000 $17,000 $15,000 $13,000 $11,000 $9,000 $7,000 $5,000 $3,000 $1, Federal Poverty Level $11,670 (one person) $9,336 80% Aged, Blind & Disabled $23,340 $23, % 200% Pregnant Woman 2 $ % Adult (with Medicaid eligible Child) Child ages 0-18 By state regulation, children and pregnant women are covered up to 133% of the federal poverty level (FPL) through Medicaid. However, Virginia also participates in the federally supported State Children s Health Insurance Program (CHIP), providing additional federal matching dollars if the state provides coverage to children and pregnant women up to 200% of the FPL. Though technically a separate program, Virginia operates CHIP as part of Medicaid.

6 What benefits does Medicaid provide? While the federal government maintains minimum benefits criteria, states have some latitude to offer additional services. Virginia has expanded its Medicaid program with services directed toward the care and well-being of children. Additionally, the federal government grants states flexibility to cover more individuals through federally approved waivers of three federal requirements: 1) statewide availability; 2) comparability of services; and 3) family income and resource rules. Virginia s waiver programs provide home and community-based long-term care services as an alternative to institutionalization. Services Covered by Virginia s Medicaid Program Federal Mandated Inpatient and Outpatient Hospital Services Emergency Hospital Services Nursing Facility Services Physician and Nurse Midwife Services Laboratory and X-ray Services Transportation Services Home Health Services (Nurse Aid, Supplies and Treatment) Early & Periodic Screening, Diagnosis and Treatment Programs for Children Family Planning Services and Supplies Federally Qualified Health Centers and Rural Health Clinic Services Assistance with Medicare Premiums Virginia Added Optional Services Prescription Drugs Routine Dental Care for Persons Under 21 Rehabilitation Services such as Physical Therapy (PT) Occupational Therapy (OT) and Speech Language Pathology (SLP) Services Home Health Services Some Mental Health Services Certified Pediatric Nurse & Family Nurse Practitioner Services Some Substance Abuse Services Case Management Services Intermediate Care Facility Services for Persons with Developmental and Intellectual Disabilities and Related Conditions Home and Community-Based Waiver Programs Home and Community-Based Waiver Programs HIV/AIDS Waiver Alzheimer s Waiver Day Support for Persons with Intellectual Disabilities Waiver Elderly or Disabled with Consumer-Direction Waiver Intellectual Disablitiy Waiver Technology Assisted Waiver Individual & Family Developmental Disabilities Support Waiver 3

7 Medicaid Funding Is Growing Due to Increases in Enrollment and Cost Enrollment Growth From , Medicaid has experienced significant enrollment increases in all categories except for the aged and pregnant women. As expected with a struggling economy over the last few years, enrollment has grown at an accelerated pace. Since 2000, the number of people enrolled in Virginia s Medicaid program has increased by 70 percent, with total unduplicated enrollment in 2010 exceeding one million recipients for the first time. Since 2008, enrollment has increased 28 percent primarily driven by the statewide expansion for children. 1, ,200 1, Thousands Medicaid Enrollment by Category, Million Low-Income Children Adults/Pregnant Women Parent or Caregiver of Children Pregnant Women Aged, Blind & Disabled 2013 Medicaid Enrollment by Patient Type Pregnant Women 4% Low-Income Caretaker Adult 15% Aged 7% Blind & Disabled 20% Low-Income Children 54% 4

8 Expenditure Growth There are three main factors that drive Medicaid expenditures: 1) the number and type of people covered (enrollment); 2) changes in the volume, costs and mix of services that people receive (utilization); and 3) changes in state and federal policies. Since state fiscal year (SFY) 2011, Medicaid expenditures (both state and federal funds) have exceeded $7 billion each year. Medicaid providers are paid in one of two ways: fee-for-service (FFS) or a managed care structure (MCO). Total Medicaid expenditures have increased over $3.7 billion in 10 years with the bulk of the increase being in FFS. Total Virginia Medical Expenditure Trends by Service Delivery Type $9000 $7.6 billion $8000 $7000 $6000 $5000 $4000 $3000 $2000 $1000 Million2$ Fee-For-Service Managed Care Total Expenditures Growth in Medicaid Expenditures by Type of Service $ in Millions $8000 $ % Growth 537% Growth $ % Growth $ % Growth $4000 $3000 $2000 Acute Care Services have grown 230% $1000 $ Fiscal Year Acute Care Services Long-Term Care Services MH / ID Services Health Insurance Premiums Waiver Services 5

9 Waivers Since 2001, Virginia s Medicaid waivers have experienced on average an annual growth of 12.8 percent in expenditures and 9.5 percent in the number of recipients. In 2009, the Mental Retardation/Intellectual Disability (MR/ID) and the Elderly or Disabled with Consumer Direction (EDCD) waivers accounted for 94 percent of total Virginia waiver costs. (The average cost of an MR/ID waiver is $74,674; the EDCD waiver costs about $21,283.) Home and Community-Based Care (HCBC) waiver expenditures in long-term care have increased from $252 million in 2000 to over $952 million in Enrollment in the waivers programs has increased over 70 percent since 2000 as state policy decisions have added about 12,000 slots. In 2009, there were 27,748 waiver recipients with total expenditures of over $1 billion. Ninety-five percent of the waiver recipients were in two categories: 18,640 EDCD recipients; 7,748 MR/ID recipients. In SFY 2013, the General Assembly approved an additional 425 waiver slots, and in SFY 2014 an additional 250 slots were approved. For SFY 2015 no additional waivers were approved. Growth in Medicaid Waiver Expenditures $1,200 $ in Millions $1,000 $800 $600 $400 $200 $ Fiscal Year 6

10 Enrollment vs. Expenditures Children and their parents/caregivers represent 70 percent of Medicaid beneficiaries but account for only 34 percent of Medicaid spending. Seniors and disabled individuals account for 66 percent of Medicaid spending due to the intensive use of more costly acute and long-term care services. Even with the disparities in spending by enrollment type, Virginia expenditures by category compare similarly to national figures. Enrollment to Expenditure Comparison, FY 2013 Aged Blind & Disabled 8% 22% 18% Aged Adults 16% 48% Blind & Disabled Children 54% 11% Adults 23% Children Recipients Expenditures 7

11 The overall cost and rate of growth is much higher for the aged and disabled, including those in waiver slots. From 1990 to 2012, the cost and intensity of services utilized by the aged and disabled recipients accounted for 43 percent of total Medicaid spending growth. Drivers of Medicaid Spending Factors that Contribute to Increased Expenditures 1. Enrollment Growth Non-Disabled Adults & Children Aged & Disabled 2. Inflation & Intensity of Services Non-Disabled Adults & Children Aged & Disabled 3. Behavioral Health Services Total Increase Increase in Millions % of Total Increase $523 10% $734 13% $1,233 23% $2,331 43% $572 11% $5.4 B 100% All areas have experienced significant dollar growth, but the waiver programs, community mental health and intellectual disabilities and Medicare premiums and other payments have grown at a faster rate than the other services. 8

12 Comparison of Expenditures by Service Type FY 2003 & FY 2013 $ in Millions $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 FY 2003 FY 2013 Acute Care Services $2,159.2 $4,001.5 Medicare Premiums & Other Payments $93.5 $446.8 Nursing Facility $619.0 $836.9 Waiver Services $356.6 $1,233.7 MH/ID Community $140.9 $662.3 MH/ID Facility $297.1 $453.2 Total Expenditures $3,666.3 $7,634.4 Acute Care Services by Category $ in Millions $4,500 $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 Dental Pharmacy Outpatient Hospital Physicians Other Inpatient Hospital Managed Care Total Expenditures FY 2003 FY 2013 $12.0 $136.9 $425.4 $1.0 $111.1 $134.1 $122.1 $153.1 $176.8 $317.9 $540.6 $980.5 $771.2 $2,278.0 $2,159.2 $4,

13 Virginia s Medicaid Program Is Vulnerable to State and Federal Budget Issues Medicaid is the largest source of federal revenue for states. In 2013, spending from Medicaid, Medicare and Social Security accounted for about 45 percent of all federal spending: 7.7 percent; 14.3 percent; and 23.2 percent, respectively. Compared to Medicare and Social Security, Medicaid has less impact on the federal budget because the funding is shared with state governments. The federal medical assistance percentage (FMAP) is the federal government s share of a state s expenditures for most Medicaid services. FMAP varies by state; it is higher in states with lower per capita incomes relative to the national average. In federal fiscal year (FFY) 2013, FMAP had a statutory floor of 50 percent and went up to percent. As a relatively wealthy state, Virginia receives the 50 percent match: for every $1 that Virginia allocates to Medicaid spending, the state receives $1 in federal funding. Conversely, when Virginia cuts $1 from state General Fund spending on Medicaid, the total cut equals $2 because of the foregone federal match. For budgeting purposes in Virginia, state revenues are divided into two broad categories: 1) General Funds and 2) Nongeneral Funds. General Fund revenues are derived primarily from individual income taxes, corporate income taxes and sales and use taxes. General Funds can be used for a variety of governmental programs; the Governor and the Virginia General Assembly have the most discretion over the use of these funds. Funding for Virginia s Medicaid program comes from the General Fund. The need to use General Funds for Medicaid spending has left a lower percentage of funding available for other discretionary state funding, such as education. Nongeneral Funds come from federal grants, institutional revenues (patient fees at teaching hospitals and mental health institutions as well as tuition and fees paid by higher education students), fees paid by citizens and businesses for licenses, profit on the sale of alcoholic beverages, sales of lottery tickets, sales of state property, fuel taxes, other road and vehicle taxes and unemployment taxes. These revenues are earmarked by law for a specific purpose and account for the majority of revenue in the state budget. The Nongeneral Fund percent as a total of the state budget has increased dramatically over the years. Nongeneral Fund vs. General Fund SFY 2004 SFY 2014 Budget Revenue Nongeneral Fund 52.9% General Fund 47.1% Nongeneral Fund 58.4% General Fund 41.6% 10

14 Due to the Medicaid program s high visibility, annual growth and proportion of state budget expenditures, funding for the program is always contentious during state budget deliberations. Over the past 10 years, the Secretary of Health and Human Resources budget (where Medicaid is funded) has expanded, while the transportation and public safety budget percentages have decreased. SFY 2004 General Fund Allocation SFY 2014 General Fund Allocation Transportation 1% Public Safety 11% Transportation 0% Public Safety 9% Education 45% Education 40% Other 4% Other 5% Health & Human Resources 23% Health & Human Resources 29% General Government 16% General Government 17% One patient group that is most affected by federal and state budget issues are individuals who qualify for both Medicare and Medicaid, called dual-eligibles. Over 40 percent of dual-eligibles are disabled. A study by the Medicare Payment Advisory Commission (a nonpartisan legislative branch agency that provides the U.S. Congress with analysis and policy advice on the Medicare program) showed that dual-eligibles account for about 1.9 times more in fee-for-service Medicare spending than non-dual-eligibles. In 2013, Virginia was approved by the Centers for Medicare & Medicaid Services (CMS) to participate in a demonstration program, Commonwealth Coordinated Care, which is a capitated program that will affect up to 78,000 of the almost 175,000 Virginians who are full benefit dual-eligible individuals. MEDI CARE + AID 11

15 Medicaid and the Economy In Virginia and nationally, trends show there is a counter-cyclical relationship between Medicaid and the state of the economy. Medicaid enrollment increases with a slow economy and resulting higher unemployment and lower state revenues. In 2009 the Kaiser Commission on Medicaid and the Uninsured reported that for every one percent increase in unemployment, there is a three percent to four percent drop in state revenues, a one percent increase in Medicaid enrollment and a 1.1 percent increase in the uninsured. The federal deficit, high unemployment, increases in Medicaid enrollment and reductions in state revenues all put the Medicaid program at risk for funding reductions to slow state spending. Percent Annual Medicaid Growth & Unemployment 15.0% 10.0% 5.0% 0.0% -5.0% % Annual Unduplicated Enrollment % Growth 013Annual Expenditures % Growth Average Expenditure per Enrollee % Growth Annual Unemployment Percentage 12

16 Virginia s Medicaid Program is Extraordinarily Lean Compared to Other States The growth in Virginia s Medicaid expenditures is comparable to that of other states; however, the absolute level of spending remains low. Virginia is a very wealthy state (eighth in per capita income) th but ranks 46 in the nation on per capita Medicaid spending. Strict eligibility requirements, tight utilization controls (especially in long-term care) and low provider payment levels explain Virginia s low ranking in Medicaid spending. Virginia is one of 14 states that has the 50 percent FMAP (lowest federal matching rate available to states), which means the state provides a higher percentage of Medicaid funding compared to those that receive a higher FMAP percentage. Virginia s Medicaid Comparison to Other States Total Population Per Capita Income 2013 Total Personal Income Number of Medicaid Recipients 2010 Number of Medicaid Recipients as % of Population Expenditure Per Medicaid Recipient Total Medicaid Expenditure Per Capita 1& Total Federal/State Medicaid Spending 2012 Growth in Total Medicaid Spending U.S. Census Bureau, Kaiser Commission, Virginia is a wealthy state but ranks 49 th in per capita Medicaid spending. 13

17 200016Medicaid Pays Providers Well Below Cost of Care for Patients With a few exceptions, Medicaid services are primarily delivered by a network of hospitals, physicians, nursing homes, pharmacies and other care providers. Provider reimbursement rates are set in the budget and rarely cover the cost of providing care. In the SFY 2016 budget, Medicaid will reimburse 66 cents on the dollar of cost for hospital inpatient care. Medicaid Cost to Payment Ratio 100% 90% 80% 70% 60% 50% Cost of Care % Medicaid Reimbursement Impact on Physician Coverage Physicians are the initial providers for the majority of Medicaid patients, highlighting the importance of physicians in terms of care delivery and access to care. In Virginia, Medicaid payments to physicians are extremely low. A study conducted by Health Affairs on 2008 Medicaid fees found that obstetric care was paid at 102 percent of Medicare rates, while all other physician services were paid at rates between 81 percent and 90 percent of Medicare rates. For a significant number of physician services, commercial insurance pays at least 120 percent of Medicare rates. In essence, physicians are paid about 15 percent 30 percent less to treat Medicaid patients compared to commercially insured patients. With this reimbursement discrepancy, it is difficult to recruit physicians to participate in the Medicaid program, increasing the likelihood of patient access issues. As of July 2014, there were over 37,300 active physicians in Virginia with 16,839 accepting Medicaid patients and 14,900 willing to accept new Medicaid patients. The Affordable Care Act (ACA) provided a temporary boost in Medicaid payments for primary care physicians, requiring states to pay primary care physicians at least Medicare rates for many primary care services in 2013 and 2014 in both fee-for-service and managed care. 14

18 Medicaid Reimbursement Impact on Long-Term Care Medicaid is the single largest source of financing for long-term care. Long-term care expenditures include payments for institutional nursing facility services (48 percent) and home- and community-based waiver programs (52 percent). In 2012, total national spending on long-term care services and support costs was $368 billion, with Medicaid covering 40 percent of the total expenditures. In Virginia, Medicaid paid 45 percent of the facility revenues to cover 65 percent of the population in institutional long-term care settings. Growth in Medicaid Waiver Expenditures $3,000 $2, $ in Millions $2, $1, $1,000 Community-Based Services have Increased 349% $ $ Institutional Services (Nursing Facility) have Increased 143% Fiscal Year In a January 2014 Eljay report on shortfalls in Medicaid funding for nursing home care, nationally the average shortfall in nursing home reimbursement was projected to be $24.26 per Medicaid patient day in Virginia fared better than the national average with a shortfall of $9.93 per patient day. For 2013 the Medicaid funding shortfall for Virginia is estimated to be almost $62 million. Average Medicaid Per Patient Day Medicaid Shortfall $ $ $ $ $ $ $ Nursing Home Cost Reimbursment Rate $ $ Proj 13 Source: Annual Eljay, LLC Report for AHCA 15

19 Outlook for Virginia s Medicaid Program Medicaid is not a welfare program; it is a safety net to ensure low income individuals have access to health care. During periods of economic slowdown and job loss, enrollment tends to rise, as General Fund revenue shrinks. With growing federal deficits, funding for the Virginia Medicaid program is vulnerable each year. Virginia s Medicaid program continued to serve over one million Virginians in 2013, providing access to hospitals, physician care and nursing home services. Virginia s Medicaid program is vital to providing care to our elderly, children, blind, disabled and physically and mentally disabled citizens for whom other insurance is not available. Low payments to providers, the risk of reduced funding from state and federal governments and growing enrollment all jeopardize the functionality and effectiveness of Medicaid. VHHA is working with providers and the Commonwealth to bend the cost curve and target areas of change so that the program can remain viable to the people it serves. We welcome comments and questions regarding this and future reports. Please contact VHHA or your local hospital for more information. 16

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