A long-pending plan to bring more federal Medicaid dollars to more than two dozen private Virginia hospitals has run into opposition from Gov. Terry McAuliffe and General Assembly budget leaders who now fear the plan could cost the state big money in the long run.

The proposal, first made to federal Medicaid officials in 2011 and approved a year ago, would allow private hospital systems to contract to provide services now performed by state human resources agencies to free up state money to match federal dollars on a 50-50 basis. Hospitals would pay for services the state provides so the state money would be freed to bring more federal funds to pay for uncompensated medical care.

The 25 hospitals that would receive “supplemental payments” through Virginia’s Medicaid program include four operated by HCA Hospitals (counting Chippenham and Johnston-Willis hospitals as one) in the Richmond and Tri-Cities areas, and three owned by Community Health Systems in Petersburg, Emporia and Franklin.

But McAuliffe has proposed to strip language included in the pending state budget that would allow the plan to proceed — and the leaders of the General Assembly money committees are beginning to have second thoughts of their own.

“The supplemental payments language is certainly problematic on its face,” House Appropriations Chairman S. Chris Jones, R-Suffolk, said Friday.

The Senate Finance Committee has similar reservations, prompted by revelations that the federal Centers for Medicare and Medicaid Services, or CMS, disallowed almost $27 million in payments in Texas last fall and $311 million in Louisiana in late 2014.

“Obviously, it seems right now we’re getting signals that it’s a no-no,” said Senate Finance Co-Chairman Emmett W. Hanger Jr., R-Augusta, who indicated that he’s prepared to support McAuliffe’s proposed amendment to remove the language from the budget when the General Assembly convenes Wednesday for its veto session.

The hospitals that proposed the plan are owned by four health care systems: HCA, which also owns four hospitals in Southwest Virginia; Community Health Systems; LifePoint Health; and Mountain States Health Alliance. HCA’s hospitals include Chippenham, Johnston-Willis, Henrico Doctors’ and Retreat Doctors’ in the Richmond area and John Randolph in Hopewell. Community owns Southside Regional Medical Center in Petersburg.

Hospital officials declined to publicly address the specific concerns about the plan raised by the governor, but the Virginia Hospital and Healthcare Association said hospitals have no choice but to look for ways to make up for losses from uncompensated care and cuts in reimbursements under both the Affordable Care Act and Republicans’ failed plan to repeal and replace the law.

“For some time now, Virginia hospitals have raised the alarm about continuing reimbursement cuts for health services provided to poor, elderly and disabled patients,” association spokesman Julian Walker said in a statement Friday.

“Medicare and Medicaid reimbursement cuts under the Affordable Care Act, as well as the lack of inflation adjustments for Medicaid, equate to billions of dollars and will adversely impact Virginia’s hospitals and our health care system,” Walker said. “Given these challenges, Virginia’s hospital community must explore opportunities that exist to address reimbursement shortfalls.”

Joe Flores, Virginia’s deputy secretary of health and human resources, said the proposed plan would operate differently than other efforts to increase federal supplemental payments for health care providers, including the governor’s revived proposal to use a voluntary “provider assessment” on hospitals to generate the state’s share of the cost to expand its Medicaid program.

“This is not the usual supplemental payment,” Flores said.

The hospitals have not said how much they would hope to raise in supplemental payments under the plan, which would create a private nonprofit foundation, Virginia Charitable Care Services, to provide services now handled by the Virginia Department of Aging and Rehabilitative Services with state general tax funds.

The state tax money saved from the provider donations would be sent to the state Department of Medical Assistance Services to match an equal amount of federal money under Medicaid that then would be disbursed among the participating hospitals as supplemental payments to help reduce the gap between their uncompensated costs and what they are reimbursed for services.

CMS approved the arrangement last year, two years after issuing guidance to states about how to administer the program under upper payment limits established by the federal government and after Virginia hospitals modified the plan to reflect federal concerns raised over Louisiana’s program.

Subsequently, however, CMS informed Texas Medicaid officials that its program violated rules against “hold harmless” provisions that would ensure that providers are repaid for services to a governmental entity. In Texas, “a group of private hospitals indirectly assumed financial responsibilities once held by the local governments and, in exchange, received payments under the Medicaid program,” CMS said in the Sept. 1, 2016, letter, which required repayment of $26.8 million to the federal government.

The federal Medicaid program approved Virginia’s plan in March with the condition that no payment would be “dependent on any agreement or arrangement for providers or related entities to donate money or services to a governmental entity.”

Virginia Medicaid officials are not sure how the proposed plan would work and whether it potentially could cross the line drawn by the federal government.

“Until it is clear exactly how this would happen, you don’t know whether CMS would, in the end, allow the federal funding,” said Scott Crawford, deputy director for finance at the state Medicaid agency.

The General Assembly included language in the budget to allow the Medicaid agency to pay the state’s share of supplemental payments to hospitals under the plan approved by CMS, with the condition that if the federal government no longer allowed the payments, the state would have no obligation to continue making them to hospitals.

McAuliffe proposed Tuesday to eliminate the language from the budget because it would require state agencies not involved with Medicaid to transfer money into the program to pay for services that private hospitals could not assure of providing without violating federal rules.

“Should the federal government determine any arrangements exist between enhanced payments and services being provided by the hospitals on behalf of the state, the associated Medicaid payments would be deemed improper, leading to disallowances and creating a financial liability for the commonwealth,” the governor said in his amendment.

Legislators say they were not aware of the potential liabilities or Department of Medical Assistance Services concerns when they included the language in the budget. The state agency initially proposed the plan in 2011, under then-Gov. Bob McDonnell, whose secretary of health and human services, Bill Hazel, serves in the same role for McAuliffe.

Hazel acknowledged Friday that he had “helped keep this alive for a while,” but he said the concerns about potential state liability have made it unwise to proceed with such a complex and uncertain arrangement.

“That’s why we’ve been very wary,” he said, “that these types of things would jump up and bite us sooner or later.”

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