Senate Bill 1249 and House Bill 2276, which were introduced during the 2001 General Assembly Session, addressed concerns regarding the need for more timely reimbursement of extraordinary expenses encountered by nursing facilities. The bills were not identical but addressed similar reimbursement issues. SB 1249 addressed the issues of (i) extraordinary cost increases faced by nursing facilities because of the shortage of nurses, and (ii) reimbursement of nursing facilities which increase their bed capacity.

Neither SB 1249 nor HB 2276 was passed by the General Assembly. SB 1249 was left in the Senate Committee on Education and Health. The Senate Committee approved a motion that the issues included in SB 1249 be included in the 2001 study plan for the Joint Commission on Health Care (JCHC). HB 2276 was reported by the House Committee on Health, Welfare and Institutions but was subsequently tabled by the Committee on Appropriations.

Based on our research and analysis during this review, we concluded the following:

• Virginia's Medicaid methodology historically has not adequately reimbursed nursing facilities. A 2000 report by the Joint Legislative Audit and Review Commission reported that in 1997, Medicaid reimbursement was only paying for approximately 92 percent of the cost of caring for a patient.

• Changes have been made in the Medicaid reimbursement methodology in order to provide more adequate compensation of nursing facilities. Additional funding was appropriated for Medicaid reimbursement for nursing facilities beginning in FY 2000, first to fund increases in salaries for direct care providers and later to fund changes in the Medicaid methodology. The average per diem rate is expected to be $89.81 for 2001 (in 1999, the average per diem rate was $78.12).

• Nursing facilities often pay significant but unreimbursed cost increases while waiting for an updated per diem rate. Nursing facilities receive an initial "calculated" per diem rate that is based on their previous year's rate which is then inflated for one year's costs. Any significant cost increases experienced in the previous year will not be addressed until after the cost reports for that year have been submitted and approved by DMAS.

• DMAS was not able to readily provide information regarding the total amount of the payments that nursing facilities received as compared with the total amount that had to be paid back. DMAS staff indicated that total payments to facilities are typically substantially higher than total collections from facilities. The time it takes to receive reimbursement for actual costs can be very difficult for nursing facilities if they are experiencing financial pressures. The American Health Care Association reported that 26 or 9.9 percent of nursing facilities in Virginia filed for bankruptcy protection in 1999 and 2000.

• DMAS staff indicated that they would not support amending the Medicaid reimbursement methodology as recommended in SB 1249 or HB 2276. DMAS staff specifically object to bill provisions that would allow nursing facilities to receive payments that might be in excess of what they are entitled to receive. DMAS prefers to continue its nursing facility work group to resolve reimbursement issues.

A number of policy options were offered for consideration by the Joint Commission on Health Care regarding the issues discussed in this report. These policy options are listed on pages 17 and 18. Public comments were solicited on the draft report. A summary of the public comments is attached at Appendix B.

On behalf of the Joint Commission on Health Care and its staff, I would like to thank the Virginia Department of Medical Assistance Services, Blue Ridge Nursing Home, the Virginia Association of Nonprofit Homes for the Aging, the Virginia Health Care Association, the Virginia Hospital and Healthcare Association, and the other agencies and individuals who provided input and information during this study.

Patrick W. Finnerty
Executive Director
January 2002