DHHS, Hospitals, Medicaid Big Losers in Senate Budget

In a short legislative session that’s moving quickly, Senate budget writers presented a document that many advocates found troubling.

By Rose Hoban

After a year of missteps by the Department of Health and Human Services and years of budgeting problems in the state’s Medicaid program, members of the state Senate sent a message to the department: We’ve had enough of problems with Medicaid.

In the Senate budget presented to the General Assembly early Thursday, budget writers indicated they want to pull the Medicaid program out from DHHS and have it run separately.

“We are going to reorganize Medicaid. We are going to make it its own entity and have top-notch nationwide stars to come in here and run this program,” said Sen. Louis Pate (R-Mt Olive).

And senators are also sending the message that they want hospitals, doctors and other health care providers to bear more of the cost of providing Medicaid services to the state’s low-income patients and those with disabilities.

Cuts to Medicaid

For years, legislators have struggled to predict Medicaid growth from year to year and to control the increases in cost.

“I’m getting sick and tired of coming up here every year to find $400 or 500 million dollars every year to prop up Medicaid,” Pate told members at the Senate Appropriations Committee meeting.

Because Medicaid is an entitlement program, those patients who meet the qualifications for the program are entitled to the services unless state lawmakers change the parameters of the program. Some legislators have argued that part of Medicaid’s money woes in past years have been a function of the legislature allocating too little money to the program during the budget process.

“We have shored up and cleaned up so many things that were off budget that have all been paid for now, and we’re in much better shape,” Rep. Nelson Dollar (R-Cary), who chairs the House Appropriations Committee, said last month.

As Dollar predicted, in the past year the Medicaid budget has been more stable, despite well-publicized troubles with the NCTracks claims-management system.

And the proof is in the numbers: During last year’s budget process, lawmakers predicted that the annual rebase – the recalculation of what it takes to run the Medicaid program – would cost $557 million more in this fiscal year than last year. But Senate budget writers predict that this year’s Medicaid rebase will be lower, at $206 million.

This means legislators would have $351 million more to spend than they anticipated last year.

Part of the reason for the lower costs is that this past year lawmakers predicted a large “woodwork” effect of more than 70,000 people who were eligible for Medicaid but who were not in the program. Those people were anticipated to enroll in Medicaid while they were in the process of signing up for insurance under the Affordable Care Act.

But all those new Medicaid recipients didn’t materialize, according to the Office of State Management and Budget, with fewer than 35,000 people being added to the program.

Nonetheless, Medicaid has a shortfall, though it’s a fraction of last year’s gap: The Senate budget estimates this year’s shortfall at about $93.9 million.

The Senate budget also accounts for $49.9 million in leftover cash from Medicaid’s unpaid claims and enrollment backlogs that won’t be paid by the end of the fiscal year but will end up being paid in July, bringing the Medicaid overrun to $143.8 million.

In contrast, the governor’s budget office estimates the shortfall at only about $70 million. Office of State Budget and Management chief Art Pope described a different strategy for addressing the DHHS budget, which allowed the department to keep its extra cash to help pay down any shortfall instead of reverting it back into the General Fund.

Pope’s budget then uses the Medicaid reserve written into last year’s budget to pay for any other shortfall.

The governor’s budget also lacks some of the cuts advocates find worrisome.

Cuts to special populations

Currently, people who receive federal disability benefits or who receive combined state- and county-funded special assistance in North Carolina automatically qualify for Medicaid, even though they can make as much as 100 percent of the federal poverty level, which is $11,650.

Generally, Medicaid eligibility for adults in North Carolina stops for people who earn more than $5,720.

But Senate budget writers tightened the eligibility for many of these “medically needy” people who have disabilities or are low-income seniors, saving the state about $28.7 million.

Sen. Ralph Hise (R-Spruce Pine) claimed many of these people would now qualify for insurance on the federal exchanges and would also qualify for subsidies on the exchange.

“That’s a population … who can have private insurance coverage that wasn’t available to them previously as well as pre-existing condition coverage that also wasn’t available to them before,” he said. “There are individuals who are cut by this; but [if] you look at the numbers, a vast majority of them either qualify for the exchange or qualify for Medicaid under the existing qualifications.”

Advocates for people with disabilities and seniors found these cuts particularly disturbing, even as they struggled to quantify how many people would be affected.

Mary Bethel, a lobbyist for AARP, said she was disheartened by the cuts. “These are some of the most vulnerable citizens in our state who need assistance with care, and the loss of Medicaid will greatly impact their ability to receive the health services they need,” she said.

“While some people will be eligible for other coverage, there will certainly be folks in the medically needy category who fall through the cracks,” said Corye Dunn, who represents Disability Rights North Carolina at the legislature. “Medicaid is designed to cover these vulnerable populations. It’s low cost-sharing requirements are particularly important for medically needy folks.”

“We just got the budget this morning and we have to do all of our homework,” said Julia Adams, a lobbyist for the Arc of North Carolina, an organization that provides services and advocacy for people with intellectual and developmental disabilities.

Adams explained that the Senate cut special-assistance funding, funds provided by the state and county that people with disabilities use to pay for living in small group homes.

“The special-assistance money supplements your federal disability allowance,” she said. “But if people are no longer going to qualify for that funding, it means they will no longer receive payments that allow them to stay in their homes.”

“There will certainly be folks in the medically needy category who fall through the cracks,” Dunn said.

Cuts to providers

In recent years, hospitals, which in the past were held in esteem by lawmakers, have seen multiple cuts to their state reimbursement for providing services to Medicaid beneficiaries.

One way the state has trimmed hospitals’ payments is by requiring them to give back to the state a percentage of what they earn from Medicaid reimbursement. These assessments only appeared several years ago and have grown since then.

Last year, hospital assessments were bumped up to 25.9 percent of their Medicaid earnings. In addition, last year the legislature levied a 3 percent assessment that would be used to create a shared savings program that would incentivize hospitals to be more efficient; in return, they would get back part of that 3 percent. Hospitals saw that 3 percent assessment as a rate cut, while lawmakers assured them they’d see that money again at the end of the year.

This Senate budget eliminates the shared savings program, but keeps the 3 percent cut, as well as adding a 2 percent cut in Medicaid reimbursement rates. And the total assessment on Medicaid payments for hospitals was increased by an additional 1.8 percent, meaning that hospitals will return an additional $10.8 million to the state.

The document also cuts the rate paid to home health care providers who provide personal-care services to people who are unable to care for themselves.

And, for the first time, the budget requires mental health managed care organizations to return more than $59 million in Medicaid receipts to the state.

Finally, the budget eliminates Community Care of North Carolina, the state’s award-winning Medicaid management program. CCNC was instrumental in creating the medical home model now followed by many other states in providing health care services to Medicaid recipients.

Many health-policy experts have credited CCNC with keeping year-over-year increases in North Carolina’s Medicaid spending the lowest in the nation.

Rejecting the Medicaid reform plan

Last year, Gov. Pat McCrory and Secretary of Health and Human Services Aldona Wos presented an initial plan to bring managed care companies to North Carolina to run the state’s Medicaid program.

But doctors, hospitals and other members of the medical community pushed back – hard – against the kind of care management that’s been controversial in other states.

In the fall, the governor appointed a five-member panel to come up with a reform plan for Medicaid, and in February the panel unveiled a plan that would use accountable care organizations to place some risk on physicians and hospitals while returning more modest savings for the state.

But Pate, who sat on the advisory committee, raised strong objections about lack of savings in the reform plan

“We said that we would like to have budget predictability and we would like to cover the whole person’s health, and what they came up with did not do either of those two things,” he said.

The bill includes language that would force DHHS to “cease any activities related to implementing Medicaid reform based on its proposed accountable care organization (ACO) model.”

When asked if the Senate plan to bring in managed care was a case of forcing providers into the position where they need to “take it and like it,” Pate had a quick reaction.

“I did not say that. That’s not the flavor at all,” he retorted. “We do want to work with all providers, including the hospitals, to agree upon a plan that is going to, first of all, provide better health care for Medicaid patients, and, secondly, to be more efficient.”

But Medical providers were quick to respond to the elimination of a plan they’d expended a lot of political capital to achieve.

“Hospitals recognize that the State needs budget predictability in Medicaid and we believe that an ACO model that is provider-led is the best approach to achieving that goal and keeping the focus on patients, not profits,” wrote Julie Henry, spokesperson for the N.C. Hospital Association.

Henry stated that association leaders believe that the ACO model incentivizes doctors and hospitals to provide better care.

In other states, the use of managed care organizations to run Medicaid has had mixed results, with some states having success while others have kicked out the managed care companies after only a few years.

Bob Seligson, head of the state Medical Society, said the Senate plan is “no solution” to Medicaid issues.

“Patient care under the Senate plan will suffer, especially for the aged, blind and disabled citizens of our state, who will no longer be eligible for Medicaid if the Senate has its way,” Seligson wrote in a release.

Read all of our joint coverage with The Charlotte Ledger here.