SD27 - Interim Report: Review of the Virginia Medicaid Program

  • Published: 1992
  • Author: Joint Legislative Audit and Review Commission
  • Enabling Authority: Senate Joint Resolution 180 (Regular Session, 1991)

Executive Summary:
The Virginia Medical Assistance Program, more commonly known as Medicaid, is the largest health care financing program available to indigent persons in Virginia. As such, it provides reimbursement for a variety of health care services on behalf of qualified indigent persons. In FY 1991,the program provided reimbursement for 428,650 recipients at a total cost of about $1.3 billion (including administrative expenses). Since FY 1987, the number of Medicaid recipients has grown by about 35 percent, from 318,026 to 428,650. At the same time, the cost of the program has increased approximately 85 percent, from $717 million to $1.3 billion.

The rapid growth in the cost of the Medicaid program and the significant amount of State general funds expended on it have fueled legislative concern. During the 1991 Session of the General Assembly, questions were raised about whether the Virginia Medicaid program could be implemented in a more cost-effective manner. Senate Joint Resolution (SJR) 180 was passed to address this issue.

SJR 180 directed the Joint Legislative Audit and Review Commission (JLARC) to conduct a comprehensive review of the Medicaid program. SJR 180 mandated that JLARC: (1) provide interim reports to the Commission on Health Care for All Virginians and the 1992 Session of the General Assembly, and(2) complete the review and present findings and recommendations to the Governor and 1993 Session of the General Assembly.

This interim report is the first in a series on the Virginia Medicaid program. It provides a general description of the program. Information presented in the report focuses on Medicaid expenditures, eligibility for Medicaid, services reimbursed by the program, service providers, and the structure for funding services.

Recent changes to the program are also examined, along with their effects on program costs and eligibility. Specific items mandated by SJR 180 are addressed, including: (1) preliminary research on the sufficiency of certain reimbursement rates and (2) a review of the Medicaid forecast and budget process.

Funding of the Medicaid Program

The Medicaid program is jointly financed by the states and federal government. The federal government's financial participation rate is based on a per-capita income funding formula. Currently, in Virginia, the State funds about 50 percent of the program (up from 43.5 percent in 1980). In FY 1991, the State share of the program totaled about $646 million, approximately 10 percent of the general fund budget.

On the federal level, the Health Care Financing Administration (HCFA), part of the U.S. Department of Health and Human Services, has oversight responsibility for state Medicaid programs. In Virginia, the Department of Medical Assistance Services (DMAS) has responsibility for administering the Medicaid program.

DMAS expended a total of $1.3 billion to administer the Medicaid program in FY 1991. Medicaid program reimbursements for five types of medical services accounted for almost 80 percent of the total program expenditures in FY 1991. These reimbursements were for nursing facility services, inpatient hospital services, mental health and mental retardation services, physician services, and pharmaceutical services. Expenditures for nursing facility services and inpatient hospital services accounted for the largest portion of program expenditures (24 and 21 percent, respectively).

In FY 1991, eligible children (age 20 and younger) and adults with children comprised more than two-thirds of all program recipients. (Program recipients are defined as persons enrolled in the program who actually received Medicaid services.) However, these recipients incurred less than one-third of Medicaid expenditures for medical care. The majority of Medicaid expenditures were for care of aged and disabled recipients in institutional settings. In FY 1991, almost $493 million was spent on medical care for these institutionalized recipients.

Recent Medicaid Changes Have Resulted in Significant Program Growth

Some growth in the Medicaid program is expected, because it is an entitlement program. However, the program's growth since FY 1987 is unprecedented. Some of this growth has been the result of deliberate program expansions at the federal and State level. However, additional factors, including elements beyond the control of the program, have contributed to the program's growth.

Impact of Federally-Mandated Medicaid Changes. Federal program expansions have focused primarily on adding new eligibility classifications. The Medicaid program was originally intended to serve targeted groups of indigent persons who participated in other public assistance programs (primarily Aid to Dependent Children and the Supplemental Security Income programs). However, the U.S. Congress has recently passed several initiatives to mandate program expansions to provide health care to indigent pregnant women and children. In addition, federal mandates require Medicaid programs to pay the costs of Medicare insurance premiums, deductible amounts, and coinsurance for qualified Medicare beneficiaries.

Federal mandates have expanded Medicaid coverage to certain eligible two-parent families during periods of unemployment. In addition, Medicaid coverage was extended for certain families who lose their eligibility for assistance from the Aid to Dependent Children (ADC) program and who meet federal income guidelines. Other federal mandates have expanded service coverage for children, required additional training for nurse aides who work in nursing facilities, and dictated reimbursement rate adjustments for hospitals that serve a disproportionate share of Medicaid and indigent patients.

The Virginia Department of Planning and Budget (DPB) estimated that the total cost of funding federally-mandated Medicaid changes has been about $85 million over the last five fiscal years. DPB also estimated that the State may incur additional costs of approximately $58 million between FY 1992 and FY 1995 as a result of these existing federal mandates.

While federally-mandated expansions have contributed to the increasing costs of the Virginia Medicaid program, many of these expansions seem reasonable because they offer opportunities for long-term cost savings. The average cost to provide Medicaid reimbursed services to indigent pregnant women and children is low compared to the long-term costs associated with lack of routine and preventive health care. Payment of Medicare benefits for qualified Medicare beneficiaries may offset the costs which could be incurred by the Medicaid program if these impoverished individuals were not able to retain their Medicare coverage.

Impact of State Policies on the Medicaid Program. Despite federal requirements and recent federal expansions, the State has some flexibility in structuring program coverage. To some extent, the State has used this flexibility to contain Medicaid program costs. However, some of these State policies may have magnified the impact of federal mandates. Also, in some cases, State policies for the Medicaid program have resulted in program growth.

The State applies restrictive eligibility criteria to its ADC program, which is used to determine eligibility for many Medicaid enrollees. Because the income limits for ADC have not changed since 1986, growth in the number of individuals who could become eligible for the program over time has been controlled and the costs associated with Medicaid coverage of this group have also been contained.

Nevertheless, State ADC income limits and payment standards may have exacerbated the impact of recent federally-mandated eligibility expansions. The maximum ADC payment standard is equivalent to about 31 percent of the federal poverty income level. However, recent federal expansions have been targeted at individuals with incomes equivalent to 133 percent (or less) of the federal poverty income level.

State policies to increase provider reimbursement rates have also contributed to growing program costs. For example, physician reimbursement rates for certain services have been increased several times in the past six years, as part of an effort to increase provider participation and thereby enhance enrollee access to care.

Finally, State efforts to increase Medicaid coverage for programs previously funded solely through general funds contribute to overall increases in Medicaid costs. However, providing Medicaid coverage for these programs ultimately reduces the State's general fund burden, because State funds are matched by federal Medicaid funds.

Other Factors Which Impact Medicaid. A number of other factors over which the State has little control have contributed to Medicaid growth. For example, inflation of health care costs affects how much the Medicaid program pays for medical services. Worsening economic conditions, increasing numbers of frail elderly individuals, and increases in the number of uninsured citizens influence the number of people who may qualify for the program.

State Approach to Medicaid Coverage of Individuals Is Modest

The State's approach to providing Medicaid coverage is relatively modest. The Medicaid program covers categorically and medically needy individuals. However, compared to other states, Virginia applies strict income and resource eligibility standards for public assistance programs, which impact the ability of these public assistance recipients (and others whose eligibility is based on these standards) to obtain Medicaid coverage. In addition, to control costs, Virginia has chosen to comply with only the minimum federal requirements for providing Medicaid coverage to indigent pregnant women and children.

Virginia Coverage of Categorically and Medically Needy Individuals, The Virginia Medicaid program is required to provide services to individuals who are "categorically needy." In addition, the State has opted to provide Medicaid coverage for individuals who are deemed to be "medically needy."

Categorically needy individuals either receive or are deemed to be receiving public assistance through the ADC program or the Supplemental Security Income (SSI) program. Two additional groups are also considered categorically needy: (1) indigent pregnant women who have incomes at or below 133 percent of the federal poverty income level and (2) indigent children younger than age eight whose family income is at or below 133 percent of the federal poverty income level.

In 1970, Virginia chose to provide optional Medicaid coverage to individuals who are determined to be medically needy. These individuals have countable income and/or resources which exceed the limits set for categorical eligibility. They often must reduce their countable resources and/or "spend down" their excess income by sustaining medical expenses in order to qualify for coverage.

In FY 1991, approximately 91 percent of all Medicaid recipients were classified as categorically needy (390,407 of 428,650 recipients). The remaining nine percent were classified as medically needy.

Virginia Limits Coverage of Categorically and Medically Needy Individuals By Applying Strict Eligibility Standards. The State is able to limit the number of categorically and medically needy persons covered by the Medicaid program by setting relatively strict income limits and payment standards for the ADC program. Virginia also limits the number of SSI-related individuals who qualify for Medicaid by implementing more restrictive resource criteria for these applicants.

The ADC income limits and payment standards are used to determine Medicaid eligibility for categorically needy individuals who are receiving or deemed to be receiving ADC. The State has set the maximum ADC payment standard or grant amount to a level equivalent to about 31 percent of the federal poverty income level ($231 per month for a family of two residing in the City of Richmond). In addition, federal statute limits the income level for individuals qualifying as medically needy to 133 percent of a state's ADC payment standard (the maximum monetary grant amount paid to ADC recipients). Consequently, a medically needy individual in Virginia has to spend down excess income to a level equivalent to approximately 41 percent of the federal poverty income level to qualify for Medicaid in Virginia.

If an individual is receiving SSI, eligibility for Medicaid is not automatic because the State imposes more restrictive resource limits for purposes of determining Medicaid eligibility. For example, the SSI program allows an individual to exclude his home and all contiguous property in determining eligibility. However, for purposes of Medicaid eligibility, the maximum value of the contiguous property which can be excluded is $5,000.

While the Medicaid program appears to comply with minimum federal requirements for eligibility expansions, the State has not chosen to provide broader coverage for indigent pregnant women and children as allowed by the federal government. Virginia could provide Medicaid coverage to indigent pregnant women with incomes up to 185 percent of federal poverty income levels. All states adjoining Virginia and the District of Columbia provide coverage above the federal minimum requirement of 133 percent.

In addition, Virginia could provide Medicaid coverage to indigent children up to age 19 whose family income is at or below 100 percent of the federal poverty income level. However, Virginia has chosen to phase in coverage of these children over the next 11 years, largely due to the added cost of serving this group and the State's severe budget problems.

Complement of Covered Healthcare Services Is Similar to Other States

The Medicaid program offers a variety of health care services to its enrollees. The complement of Medicaid services available in Virginia appears to mirror services available in many other states. The services covered by the program provide basic health care and do not appear extravagant.

The program provides a number of services which are mandated by the federal government for categorically needy enrollees. These include inpatient and outpatient hospital services, nursing facility services, physician services, diagnostic laboratory and x-ray services, and family planning services, among others. The program also provides coverage for a number of optional services, such as pharmaceutical services, and limited dental, optometry, and podiatry services. Certain optional services are not available to all enrollees, however.

Virginia has chosen to provide a similar package of services to both its categorically needy and medically needy enrollees, within certain limits. Children and pregnant women receive a broader array of mandatory and optional medical services than other enrollees. Generally, adults who are not pregnant receive less extensive service coverage than children because the program imposes more limits on services offered to them. Additional limits are imposed on the services medically needy enrollees receive. Qualified Medicare beneficiaries are treated somewhat differently. Medicaid pays the Medicare premiums, deductible amounts, and coinsurance for these qualified beneficiaries.

In FY 1991 , the Medicaid program spent approximately $320 million on optional services. This accounted for about 25 percent of medical care expenditures. The most costly optional services provided were pharmaceutical services (almost $103 million) and nursing facility services for medically needy individuals (about $94 million). In fact, most expenditures for optional services were for health care for medically needy enrollees (about $300 million).

Health Care Providers and Reimbursement

The Medicaid program does not directly provide health care services to its enrollees. Instead, the program provides financial reimbursement to enrolled providers for approved medical services. More than 21,300 health care providers have agreements with DMAS to provide medical services to Medicaid enrollees. The types of providers who are enrolled in the program include: physicians, pharmacies, transportation providers, dental care providers(dentists and clinics), hospitals, nursing facilities, home health care providers. clinics, laboratories, other practitioners (such as nurse practitioners, optometrists, and podiatrists), and medical supply and equipment providers. Approximately 20 percent of these providers are located in other states.

Several different reimbursement methodologies are used to reimburse providers for services rendered to Medicaid enrollees. This interim report does not assess these reimbursement methodologies. However, additional research and analysis will be conducted during 1992 to evaluate current reimbursement methodologies and rates for Medicaid providers.

Problems in the Timeliness of Medicaid Eligibility Determinations Reflect Strain on Social Service System

DMAS contracts with the Department of Social Services (DSS) for Medicaid eligibility processing. DSS administers this process through local social services departments. The numerous rules and regulations guiding eligibility decisions for families and children are continuously being revised. In addition, spousal support requirements and transfer of assets rules used to determine eligibility for the aged and other institutionalized individuals have changed recently. To complicate the process further, federal regulations related to the changes have not been published or distributed in a timely manner. These factors, along with the lack of an automated system to efficiently track eligibility decisions, have made it difficult for local social services departments to make timely eligibility decisions.

The federal government requires that Medicaid eligibility determinations be completed within specified time frames. In addition, State policies require certain Medicaid applications to be processed within established time frames. DSS data on initial Medicaid applications and redeterminations for FY 1991 indicate that eligibility determinations were not made within federal and State time limits for almost 24 percent of the cases. Redeterminations receive an even lower priority, causing severe system backlogs.

Local eligibility workers are currently concentrating their efforts on processing initial applications for the program. Eligibility redeterminations have been given a low priority, because delays in making redeterminations will not cause individuals to lose eligibility. Therefore, the current emphasis on processing initial applications appears appropriate.

The Secretary of Health and Human Resources provided additional funding for 49 localities to help them administer their public assistance programs. These additional resources should also assist localities in meeting the deadlines for Medicaid application processing.

Recommendation. The Secretary of Health and Human Resources should continue to monitor efforts by local social services departments to conduct initial Medicaid eligibility determinations and Medicaid redeterminations within federal and State time limits. Further assistance should be provided to local departments if compliance with requirements for application processing does not improve.

Lagging Enrollment Among Indigent Pregnant Women and Children May Indicate Inadequate Outreach Efforts

Program expansions for indigent pregnant women and children appear to be an appropriate and cost-effective emphasis of the Medicaid program. However, enrollment of these new groups appears to be lagging behind projected program expansions. This may indicate problems in the current outreach efforts to encourage enrollment among the targeted groups.

Enrollment of indigent pregnant women and children in the Medicaid program may have a number of long-term benefits. A number of studies have demonstrated that increased access to prenatal care can reduce the incidence of low birth-weight infants, reduce the number of sick mothers and babies. and reduce infant mortality. In addition, preventive care for children can result in substantial long-term savings for the State.

One initiative to enhance enrollment of these groups, the BabyCare program, appears to be meeting with some early success. As part of the initiative, DMAS is providing funding for eligibility workers from local social services departments to co-locate at ten local health departments. These workers are able to enroll indigent pregnant women in Medicaid when they initially visit the health departments and receive results of pregnancy tests.

Local administrators are pleased with the early success of this program; however, the precise impact of the program is not clear. DMAS currently intends to continue the program through the 1992-1994 biennium. However, no plans exist to expand the program to additional sites. Efforts should be made to evaluate this program for possible future expansion.

Recommendation. The Department of Medical Assistance Services should review its projections of indigent pregnant women and children, compare them with actual enrollees and recipients, and determine if these projections are accurate. In addition, the Department of Medical Assistance Services should ensure the Department of Social Services expands its efforts to increase the number of locations equipped to accept Medicaid applications from indigent pregnant women and children. At a minimum, these efforts should include increasing the number of disproportionate share hospitals and federally qualified health centers participating in the outstationing program.

Recommendation. The Department of Medical Assistance Services should evaluate the success of placing eligibility workers at local health departments as part of the BabyCare program. At a minimum, this evaluation should include the collection and analysis of the following data: enrollment increases, pregnancy stage at enrollment, and number of prenatal visits. The evaluation should also assess application processing times and the feasibility of expanding the pilot effort to additional sites. Findings and recommendations should be presented to the General Assembly prior to the 1994 Session.

Medicaid Enrollees Experience Difficulties in Accessing Primary Care

Several studies have documented problems with access to primary care for all Virginians, due to the existence of an uneven distribution of primary care physicians throughout the State. Many of these studies have suggested that inadequate Medicaid reimbursement rates are related, at least in part, to the access problems experienced by Medicaid enrollees. Because SJR 180 requires JLARC to determine the sufficiency of reimbursement rates, it was necessary to first examine Medicaid enrollee access to primary care. Research scheduled next year will further examine the adequacy of provider reimbursement.

Although problems in the supply and distribution of primary care physicians within the State affect all citizens, preliminary findings indicate that Medicaid enrollees experience greater difficulties in accessing primary care physicians than many other citizens. All licensed primary care physicians are not enrolled in the Medicaid program. In addition, almost 50 percent of those who are enrolled do not routinely provide care to Medicaid enrollees.

Because access to primary care physicians is problematic, Medicaid enrollees may have to rely on local health department clinics to obtain needed care, rather than primary care physicians located in their communities. Also, some enrollees may not seek necessary early treatment at times when it is more cost effective to do so, because they do not have an ongoing relationship with a primary care physician. Consequently, many enrollees may wait to obtain care until their condition deteriorates to a level requiring more extensive treatment. They may use hospital outpatient and emergency departments which could result in more expensive, sporadic care.

Ensuring access to primary health care for Medicaid enrollees is especially important because the costs associated with primary care are low relative to potential costs if routine, preventive care is not widely available or appropriately accessed. The Virginia Department of Health defines primary care as the first-level contact by individuals for routine consultations, diagnosis, and treatment of an acute medical problem or for treatment of a chronic condition. It may also include preventive care such as periodic screening for early detection of disease, immunizations, counseling about health risks, and prenatal and post-partum care for pregnant women. Low participation levels by primary care physicians enrolled in the Medicaid program may have long-term negative consequences.

Some of the access problems are related to primary care physician distribution problems and are not unique to those experienced by Medicaid enrollees. Therefore, long-term solutions and broad strategies to address problems with primary care physician supply and geographic distribution will be required. In addition, more research needs to be conducted to determine ways in which the Medicaid program can alleviate access problems experienced by its enrollees. These research efforts will continue during the upcoming year as JLARC staff proceed to examine issues regarding provider reimbursement.

Medicaid Forecasting and Budget Practices Are Sound

Rapidly increasing Medicaid program expenditures over the past few years have raised concerns about the State's ability to anticipate and meet the increased costs to operate the program. Accordingly, the Medicaid forecast and budget process was assessed to determine the adequacy of the current process. Review of the Medicaid forecast and budget process in Virginia revealed that the process is sound. Recent forecasts produced by the executive branch have generally been accurate. In addition, Virginia's forecast accuracy compares favorably with national forecasts and those produced by other states in the mid-Atlantic and southeastern regions.

Some minor problems in past forecasts of specific Medicaid expenditures were noted during this review. The roles of the three agencies currently involved in developing expenditure estimates are appropriate. However, additional review of Medicaid expenditures estimated by one agency -- the Department of Mental Health, Mental Retardation and Substance Abuse Services -- is needed by DMAS.

JLARC staff also reviewed the adequacy of technical aspects of the forecast process. The forecast model substantially meets the criteria established for the review. Some minor weaknesses were found in certain components of the current model and with model documentation. However, some of these weaknesses will be addressed if planned improvements to the model are completed.

Because Medicaid funding has significantly increased, the General Assembly may wish to consider options for enhanced legislative monitoring and oversight of the technical components of the forecast process. However, overall findings in this area do not suggest that an enhanced level of oversight is warranted at this time. The following recommendations are made in this area:

Recommendation. The Department of Medical Assistance Services should review the methodology used by the Department of Mental Health, Mental Retardation and Substance Abuse Services to develop the mental health and mental retardation portion of the Medicaid budget. This review should include at least one meeting between the two agencies prior to the Department of Mental Health, Mental Retardation and Substance Abuse Services' formal submission of revenue projections to the Department of Medical Assistance Services. In addition, the Department of Mental Health, Mental Retardation and Substance Abuse Services should provide written documentation, for reference and review purposes, to the Department of Medical Assistance Services on the methods used to estimate the mental health and mental retardation revenues related to the Medicaid budget.

Recommendation. The Department of Medical Assistance Services should ensure that sufficient and timely documentation exists for each component of the Medicaid forecast. In the event that judgmental adjustments are made to the baseline components of the forecast, or the anticipated effects of policy changes are added to the forecast, these adjustments or changes should be identified in the forecast documentation.

Recommendation. The Department of Medical Assistance Services forecast review panel should be expanded to include Department of Mental Health, Mental Retardation and Substance Abuse Services staff as appropriate. Participation should include a presentation and review of the methods used to develop the State mental health and mental retardation services component of the Medicaid forecast at least once each year.

Recommendation. Given the relative accuracy of recent Medicaid forecasts and the overall adequacy of the forecast model and process, increased legislative monitoring of the Medicaid forecast and expenditures is not required at this time.