Virginia Medicaid officials don’t want another November surprise in the state’s Medicaid budget to spoil Thanksgiving for state policymakers, who choked on a $462.5 million gap between revenue and reality in the two-year budget they now must balance.

The cost overrun emerged in early November from an annual forecasting process that state officials now want to overhaul. They want to ensure that Virginia is getting its money’s worth from a program that delivers critical health care services to more than 1.2 million Virginians, including the elderly and severely disabled.

“We’ve been working since November with a single-minded focus on what led to the gap,” said Dr. Jennifer Lee, director of the Department of Medical Assistance Services, or DMAS, which runs the $12 billion program.

Senate Majority Leader Tommy Norment, R-James City, pressed Lee on Monday to answer when Gov. Ralph Northam’s administration knew it might have a big problem with its Medicaid forecast, especially managed care rates that had been set the previous January.

“Clearly it didn’t come like a bolt of lightning from the sky,” Norment said during Lee’s presentation to the Senate Finance Health and Human Resources Subcommittee.

Lee said she did not know until mid-October that a newly implemented program designed to save costs instead would require a big boost in rates the state pays to insurance companies to serve the most expensive and needy patients in the $12 billion Medicaid program.

“That’s not a good way to do it,” she acknowledged. “We need to have more time.”

The projected cost overrun is not related to expansion of Medicaid eligibility under the Affordable Care Act, which already has enrolled more than 205,000 Virginians for benefits that just began to flow on Jan. 1.

Expansion, financed primarily by federal funds with state costs offset by a new hospital tax, will save Virginia about $358 million in the two-year general fund budget, DMAS estimates.

New steps on oversight

Lee sought to reassure legislators on Monday that her agency is taking steps to improve oversight of program spending and the quality of services it now delivers through managed-care contracts with private insurers.

It plans to hire an independent health care finance expert to review the agency’s processes for forecasting costs and setting rates for the companies that manage care. The agency plans to hire the outside consultant early this year.

The current cost overrun grew primarily from overly optimistic projections last year for savings in the Commonwealth Coordinated Care Plus program, which delivers services to more than 230,000 Virginians who require complex long-term care. The state had to raise managed care rates that didn’t cover the cost of the services they provided.

In a presentation to a Senate Finance subcommittee, Lee said the agency has changed the timing of when it will set rates for the program. It is moving the deadline from Jan. 1 to June 30, so it will follow the same schedule as rates for the Medallion 4.0 program, which pays for less-expensive services to most Medicaid participants.

The change aims to avoid a repeat of what happened last fall, when the agency didn’t get the actuarial rate analysis for the Commonwealth Coordinated Care Plus program until mid-October, with no time to evaluate options or adjust.

“We didn’t know until very late,” Lee told the subcommittee.

Between the CCCP and Medallion programs, about 96 percent of Medicaid recipients are served through managed care contracts, so “rate-setting is the major driver of the forecast,” she said.

The second biggest driver of unforeseen costs was payments to hospitals under the old fee-for-service system, in which the state pays bills from providers without any insurance oversight of the services. The $92.6 million in payments included services at veterans care centers and locally owned nursing homes that the General Assembly had explicitly exempted from managed care, finance staff said.

“It wasn’t built into the forecast,” Lee told the subcommittee.

DMAS plans to create a Managed Care Accountability Committee to oversee the two programs and an Office of Quality and Population Health to monitor the health outcomes for people served. The agency wants to know “what has been the impact of managed care on people,” she said.

The creation of an oversight committee will allow the state to have a clearer understanding of the Medicaid program’s operating results on an ongoing basis, with quarterly reports and access to data that the General Assembly’s money committee analysts say they haven’t been able to get.

“We’re stepping up transparency, reporting and more data sharing,” Lee said. “If we don’t have the data, we don’t know how we’re doing.”

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‘We need to have more time,’ Medicaid director says in defense of forecast –