by James C. Sherlock

Medicaid and Medicare are established under the Social Security Act. They creates federal and state organizations to set rules, monitor compliance, provide funding, sanction, and ultimately exclude those who misuse funds or fail to follow the rules.  

Federal and state governments have proven better at spending than at oversight. Virginia’s programs are literally out of control.  

Readers will see diagrams here that the author built describing Virginia’s two funding and oversight architectures, and may question whether such schemes could work.

In Olmstead v. L.C. (1999), the Supreme Court ruled in a major Americans with Disabilities Act (ADA) legal precedent that the unjustifiable institutional isolation of people with disabilities is discrimination. States must provide services in the least restrictive environment achievable. That ruling resulted in the shutdown of most state institutions for the intellectually disabled. Since Olmstead, intellectual disability services in Virginia are divided between state-run and private institutional services and private community-based services.  

The funding for these programs comes from Medicaid.

The ADA and Olmstead, as executed in Virginia, have resulted in a web of virtually countless providers and services, limitless opportunities for fraud, and an oversight nightmare.

Community Services Boards and Behavioral Health Authorities

Virginia Community Services Boards (CSBs), established under Code of Virginia § 37.2-500 et seq., and Behavioral Health Authorities (BHAs) under § 37.2-600 et seq. are single regional points of entry for publicly funded mental health, intellectual disability, and substance use disorder services.

They operate under contracts with the Virginia Department of Behavioral Health and Disability Services (DBHDS) and provide emergency, outpatient, residential, and case management services, with 41 locally run boards serving cities and counties across the Commonwealth. Some single-jurisdiction boards are constituted as city and county government departments.

CSB and BHA operating boards control federal and state funds for disability services. They represent 41 additional potential points of failure of the system. DBHDS is supposed to monitor their performance.

§ 37.2-508. Performance contract for mental health, developmental, and substance abuse services.

A. The Department shall develop and initiate negotiation of the performance contracts through which it provides funds to community services boards/behavioral health authorities to accomplish the purposes set forth in this chapter. In the case of operating boards, the Department may, notwithstanding any provision of law to the contrary, disburse state and federal funds appropriated to it for mental health, developmental, or substance abuse services directly to the operating board, when that operating board is authorized by the governing body of each city or county that established it to receive such funds.

§ 37.2-608. Performance contract for mental health, developmental, and substance abuse services.
A. The Department shall develop and initiate negotiation of the performance contracts through which it provides funds to behavioral health authorities to accomplish the purposes set forth in this chapter. The Department may, notwithstanding any provision of law to the contrary, disburse state and federal funds appropriated to it for mental health, developmental, and substance abuse services directly to the behavioral health authority.

Institutional Programs for the Intellectually Disabled

DBHDS operates the Southeastern Virginia Training Center (SEVTC) in Chesapeake as its primary state-run Intermediate Care Facility (ICF/IID) for individuals with intellectual disabilities. It provides specialized, intensive, and residential habilitation services. The next level of institutional care comprises 62 privately run institutions.

The ICF/IID level-of-care criteria require that individuals have an intellectual disability (or related condition), need 24-hour supervision, and require active, specialized treatment to manage significant functional limitations in major life activities. These institutional services are typically for individuals with an IQ of 70 or below, or those with significant adaptive behavior deficits.  

The federal rules for ICF/IID participation are found here. CMS publishes an inspection manual for ICF/IDDs to enforce federal regulations. The inspections are carried out by the Virginia Department of Health, under contract to CMS, and certify each facility’s eligibility to participate in Medicaid and Medicare.

DMAS is directed by 12VAC30-60-361. Criteria for supports and services in intermediate care facilities for individuals with intellectual disabilities.

Once the individual has been screened and found to meet these criteria, Medicaid covers the costs of care only when the individual is receiving appropriate supports and services and when active treatment, as set forth in 42 CFR 483.440(a), is being provided (emphasis added).

Yet government inspection records demonstrate that the oversight by DMAS, DBHDS, and CMS is ineffective. Some continue to operate and receive funding regardless of the quality of support, services, and active treatment provided.  

In May of 2025, the Virginia Board for People with Disabilities, a federally funded independent state agency, offered an overall assessment of ICF/IDDs titled, fittingly, Systemic Failures.

This diagram shows possibly why.

Community-based programs for the Intellectually Disabled

Now it gets complicated.  

• Medicaid Waivers, often called Home and Community-Based Services (HCBS) 1915(c) waivers, allow states, with a 50% federal match, to pay for specialized, non-institutional services to help individuals with disabilities live independently.
• Waivers cover a wide variety of services not included in standard Medicaid State Plans. Key among them are residential support, day options, employment services, and crisis intervention designed to promote independence and community integration.  
• The providers are paid different daily rates per client, depending on the complexity and combinations of the services provided.
• Virginia Medicaid (the Department of Medical Assistance Services – DMAS) administers DD Waivers jointly with DBHDS.
• Unlike institutional services, providers of waiver services are inspected by DBHDS using inspection criteria that emphasize court settlement conditions rather than the CMS inspection manual.  

There is a waiting list for these waivers, and the slots are assigned based on the urgency of need.  

In order to be approved for a DD waiver slot and services, an individual must meet the following criteria:
• Have a developmental disability;
• Have significant functional limitations in major life activities, as documented on the age-appropriate version of the Virginia Individual Developmental Disabilities Eligibility Survey (VIDES) form;
• Meet Medicaid financial eligibility criteria; and
• Indicate willingness to accept waiver services within 30 calendar days of slot assignment.

Providers of those services are inspected not by VDH, but by the Department of Behavioral Health and Disability Services (DBHDS) Office of Licensing (OL).

Here is that architecture described in a diagram.  It differs from ICF/IID in that DBHDS is the inspection authority: 

Bottom line.

Stein’s law, “If something cannot continue, it will stop,” did not adequately consider government programs.  

But indeed, the author hopes that this system in its current form does not survive the revelations in the next articles in this series. They will break your heart.

(Charts updated March 18)