An Analysis of the Division of Medicaid’s Projected Fiscal Year 2010 Cash Shortfall, as of March 29, 2010
Executive Summary
Introduction
House Bill 71, Second Extraordinary Session of 2009, requires PEER to review the Division of Medicaid’s computations of expected cash shortfalls and report the results of its review to the Legislative Budget Office.
On March 11, 2010, the Division of Medicaid (DOM) notified PEER that the state’s Medicaid program had an estimated FY 2010 projected cash flow shortfall of $14.6 million, an estimate that the division had prepared on February 22, 2010.1 The DOM updated this projection on March 29, 2010, and revised the estimate to a projected cash flow shortfall of approximately $14.3 million.
PEER sought to review, understand, and where possible, verify the components of DOM’s estimated FY 2010 cash flow projections and thereby provide decision makers with the information necessary for an informed and appropriate course of action. PEER sought to verify the March 29, 2010, projection because it represented the most recent estimate available.
Impact of Unexpected Items and Contingencies on the Division of Medicaid’s Budget
The largest component of DOM’s budget is medical services and the actual expenditures for medical services differ from the estimate due to variances in the actual number of Medicaid recipients compared to the estimated number and due to differences in the actual mix of medical services.
Also, changes in state law, changes in federal regulations, and rulings and decisions by the Centers for Medicare and Medicaid Services (CMS), the federal agency that oversees Medicare and Medicaid programs, may affect DOM’s expenditures. Further, contingencies may arise during a year of which the outcome may be unknown for a lengthy period, but their impact, either positive or negative, must be considered.
The following are examples of the types of unforeseen items and uncertain situations encountered during FY 2010 that had or could have had an impact on DOM’s projected shortfall:
The Division of Medicaid’s Cash Flow Projection and Proposed Actions
DOM’s Cash Flow Projection Process
The Division of Medicaid’s process to project cash flow is based on reasonable methodology and estimates, given available information. On March 29, 2010, the DOM projected a FY 2010 cash flow shortfall of approximately $14.3 million.
The DOM’s cash flow projections determine the total amount of state funds available to the division and estimate, based on current information, the fiscal year-ending cash surplus or deficit.
As shown in Exhibit A below, as of March 29, 2010, DOM projected a cash shortfall of approximately $14.3 million for Fiscal Year 2010 based on projections and estimates at that time. PEER believes that the projected shortfall was determined through a process containing reasonable methodology and estimates.
Exhibit A: The Division of Medicaid’s Projected FY 2010 Cash Shortfall as of March 29, 2010
| Estimated Funds Available | |
| Total cash available as of March 29, 2010 | $ 40,459,349 |
| Estimated other funding sources through June 30, 2010 | 121,021,038 |
| Estimated total funds available | $161,480,387 |
| Estimated Expenditures | |
| Estimated medical service claims and administrative expenses through June 30, 2010 | $153,092,563 |
| Estimated other medical service type expenses through June 30, 2010 | 22,726,608 |
| Estimated total expenditures through June 30, 2010 | $175,819,171 |
| Projected cash shortfall June 30, 2010 | ($14,338,784) |
SOURCE: PEER review and compilation of DOM records.
PEER cautions the reader that the projected $14.3 million shortfall is only an estimate and the projected year-ending cash balance will change as variables in the Medicaid program change during the remainder of FY 2010. Pages 11 through 17 of the report contain an analysis of the components of the cash flow projection.
Issues Regarding DOM’s Cash Flow Projections
PEER believes that overall, the Division of Medicaid’s method of estimating cash flow projections is sound and reasonable. However, PEER believes a more rigorous approach is needed for estimating expenditure increases for the remaining months of any given fiscal year. Also, the division does not perform projections on a predetermined schedule or on the same day of each month.
Although PEER believes DOM’s overall cash flow projection process to be sound and reasonable, slight modifications could improve accuracy of the process.
Although DOM used historical experience to determine the FY 2010 year-to-date expenditure increase of 8.6% in medical services expenditures, DOM did not use historical experience to arrive at the 1.75% add-on for medical services expenditures (see page 17 of the report). Also, in determining the FY 2010 year-to-date expenditure increase of 8.6%, DOM used expenditure amounts for only two points in time: July 2009 and February 2010.
PEER believes a more rigorous approach is needed when estimating medical service expenditure increases for the remaining months of any given fiscal year. PEER endorses the use of historical experience to estimate future expenditure increases. However, PEER believes that more points in time must be used to determine a more accurate estimate. PEER suggests the use of a methodology that analyzes changes in expenditures from one month to the following month for a twelve- to eighteen-month window.
From August 2009 through March 2010, the DOM performed a cash flow projection at last once each month, on the following dates:
The projections were not performed on a predetermined schedule or on the same day of each month so that DOM staff and appropriate legislative chairs could be kept apprised of the cash flow situation on a regular basis.
After projecting an estimated cash flow shortfall of $4.5 million as of January 18, 2010, DOM did not utilize the authority granted to it under House Bill 71, Second Extraordinary Session of 2009, to fund the projected shortfall. Although House Bill 71 directs DOM to notify the PEER Committee of expected shortfalls, DOM did not notify PEER following the projected $4.5 million shortfall from the January 18, 2010, estimate.
How the Division of Medicaid Plans to Address the FY 2010 Shortfall
DOM’s proposed actions to address the $14.3 million shortfall estimated March 29, 2010, are not barred by the provisions of MISS. CODE ANN. §43-13-117 (1972).
To address the projected $14.3 million shortfall, DOM has proposed:
The following chart shows the approximate amounts that would be yielded by these actions.
| Reductions to Medicaid providers and hospital assessments | $9.5 million |
| Reductions to DOM administration* | $ .2 million |
| Collection of unpaid assessments from long-term care facilities | $4.6 million |
| Total | $14.3 million |
* These reductions would be in addition to a $4.2 million reduction taken in December 2009. To date, FY 2010 administrative reductions total $4.4 million.
DOM notes that the proposed reductions are for April, May, and June 2010 and DOM intends to resume payments at regular rates on July 1, 2010. The Division of Medicaid is awaiting CMS’s approval of these provider reimbursement reductions.
Recommendations
1 The cash flow projections in this report refer to the state matching funds required for the Medicaid program and do not include federal program dollars.