Budget Agreement Reached by General Assembly – Awaits Governor’s Approval

After a months-long delay, the Virginia General Assembly adopted a state budget late Thursday, acting after heated debate over whether the budget contained sufficient safeguards to ensure that Governor McAuliffe could not unilaterally authorize expansion of the Commonwealth’s Medicaid Program.  As midnight approached, the Senate approved plan moved over for consideration by the House of Delegates, where it quickly passed. It was expected to then head to the Governor’s desk, still lacking certainty that he would approve it and avert a government shutdown before July 1.

While the discussion over Medicaid Expansion had hijacked the 2014 General Assembly and the 2015-2016 Appropriations Act became the leverage in that debate, one thing was clear:  for the first time in many years, nursing facilities were poised to receive an additional $111.3 million (total funds) over the course of the biennium through adherence to regulations calling for rebasing and inflation of payment rates (plus another $11.4 million associated with the 2015 Fair Rental Value payment restoration).  As has been the case in recent years, the payment regulations had been pushed aside to meet the savings targets imposed on Medicaid all too often as the Commonwealth dealt with dwindling revenue growth and multiple spending priorities.  But this time, both the House and Senate budgets, even though passage was held up over Medicaid Expansion, were in agreement over rebasing and inflation for nursing facilities, and both recognized how vital this was in order to implement the new price-based payment methodology and the Commonwealth Coordinated Care (CCC) program.

And then, the floor dropped out prompting the question of how, in the course of the last three weeks, did the State’s financial picture get from an assumption of a budget surplus to the serious reduction in projected revenues available for the next two fiscal years?  The answer:  primarily “nonwithholding” tax collections (capital gains, for example), and secondarily “anemic” growth rates in payroll withholding.  According to a presentation to the House Appropriations Committee on June 11, it is anticipated that collection of nonwithholding taxes will be short by approximately $350 million in SFY 2014.  As far as payroll withholding, growth is hovering around three percent, while the revenue forecast assumes a four percent growth rate.

While a funding cushion exists to cover State obligations in SFY 2014 despite the revenue reduction, this cushion had been expected to carry over into SFY 2015.  Since the money will be used in 2014, this money will not be available in 2015 and thus causes an immediate budgetary shortfall.  Compounding the immediate shortfall, the same assumptions that resulted in the overestimated tax collections in 2014 were utilized for the development of the 2015/16 Biennial Budget.  Suddenly, the assumed 4.2 percent growth in nonwithholding taxes for 2015 and 2016 does not look as probable when compared to an estimated actual growth rate of -8.3 percent for 2014.  The result:  an estimated $900 million shortfall for 2015 and an estimated $500 million shortfall for 2016.

So what does this mean for nursing facilities?  It was made clear, as recently as June 11 in front of the House Appropriations Committee, that the starting point for dealing with the revenue shortfall was to “level fund” the majority of state programs at the FY 2014 level; in other words, the rebasing and inflation adjustment that had been so hard fought was in clear jeopardy by default – it was “new spending”.   Thus, the discussion became one of holding onto as much as the “gains” for nursing facilities as possible through a full court press with legislators and other policy-makers.  It meant re-emphasizing the importance of the rebasing and inflationary adjustments in order to support the change in payment methodology and our challenges for facilities as they transitioned to managed care under CCC; and, it meant reminding them of the previous savings extracted from nursing facility payments over the last several years.  

The result:  On the positive side, and it is a significant “positive” in light of the revenue situation, the General Assembly’s budget has protected the rebasing and inflationary adjustments for SFY 2015.  It is important to note that the rates that result from the 2015 rebasing and inflation will carry forward to 2016 as the “base” funding.  In other words, the bar moves up in 2015 and (at least) stays there for 2016.

The Department of Medical Assistance Services has informed us that they are now working to recalculate prospective Medicaid rates to be paid to nursing facilities effective July 1, 2014.  DMAS intends to publish the draft rates during the week of June 16th.

While rebasing and inflation to 2015 represent gains, on the negative side, the General Assembly’s budget reduces the FRV rental rate floor to 8.0 percent for fiscal years 2015 and 2016 (thus accelerating the scheduled reduction under the new payment methodology), resulting in a reduction of $14.1 million (total funds) over the Biennium.  More significantly, the budget removes the additional year of inflation scheduled for rates effective in SFY 2016, resulting in a reduction of $27.2 million (total funds) in SFY 2016.  Combined, these actions amount to a reduction relative to the previous budget being considered of approximately $41.3 million.

The bottom line:  the original introduced budget contained $122.7 million (total funds) in new Medicaid money for nursing facilities; the budget just passed by the General Assembly contains $81.4 million (total funds) in new money.  Overall, this reflects that two-thirds of the previously expected payment improvements have been retained.  More importantly, nearly 85 percent of the new money in 2015, vital to successfully meeting the challenges ahead, have been preserved (and we live to fight another day to gain back some of the losses relative to 2016).  This positive outcome reflects the understanding by the General Assembly of the needed services our members provide.  We will watch with anticipation to see what the Governor now does, and in the meantime, we have a lot of folks to thank for preserving as much of the funding as they did.