NC General Assembly building
Lawmakers return to Jones St. this week for the short legislative session. Photo credit Rose Hoban

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Lawmakers use this one weird trick to balance their Medicaid budgets year after year. But the practice of accounting for savings from the state plan amendments to Medicaid before they’re implemented has its problems.

By Rose Hoban

Legislative budget writers are looking to SPAs to find savings. But put away any thought of skin care, massages or cucumber slices on the eyes of lawmakers.

The SPAs in question are actually “state plan amendments,” changes to the state’s Medicaid plan that require approval by federal regulators because they change how the entitlement program works.

Image courtesy of Images of Money, flickr creative commons

Over the past four years, lawmakers at the General Assembly have made changes to Medicaid that require federal approval before they can be implemented, changes that have been essential to meeting annual budget goals.

But if an SPA is not approved by federal regulators, the savings don’t come. And, many years, that contributes to the Medicaid shortfall.

But despite the fact that many lawmakers from both sides of the aisle object to their use, SPAs end up finding their way into the Health and Human Services section of the budget, year after year. And this year was no exception.

“It’s a way to balance their budget,” said Rep. Verla Insko (D-Chapel Hill).

Tick, tick, tick

SPAs have been notorious for not yielding the kinds of savings lawmakers want out of the state budget.

“I’m personally uncomfortable with the way it runs,” said Rep. Marilyn Avila (R-Raleigh). She said that placing a line item for savings in a budget is not something that’s done in the business world. “You recognize the savings the year after you attain them, not before.”

“It’s not a prospective kind of thing that you take advantage of and hope to goodness that you achieve it,” Avila said.

Because of repeated problems with SPAs, legislators wrote a section in last year’s budget on “clarifying state plan amendment procedures,” which instructed the Department of Health and Human Services to only submit amendments to federal regulators that have enough lead time built into them to realize the savings lawmakers want.

Lawmakers then proceeded to ask DHHS to submit dozens of SPAs in this past year.

One problem with SPAs is that the approval process can take months, perhaps a year, as state officials write the SPA, run it past lawmakers, then submit it to federal regulators.

Avila explained that once state officials send the SPA to regulators at the Centers for Medicare and Medicaid Services, the federal officials have 90 days to review it.

“You’ve got a period of time that [federal regulators] have to look at it, and they can request new information. And when they do that, the clock starts ticking all over again,” she said.

The federal-approval process is a frustration to Senate HHS committee chair Ralph Hise (R-Spruce Pine), who bemoaned the fact that submitting an SPA is the only way to change the state’s Medicaid program.

“Unless the feds change their priorities and allow us to make changes to Medicaid without federal approval, we don’t have options to do that,” he said.

Federal officials maintain they are entitled to oversight because the federal government pays more than 65 percent of the cost of Medicaid in North Carolina.

Unapproved

During Joint Legislative Oversight Committee on Health and Human Services meetings this past winter, Rod Davis, chief financial officer for the state Medicaid program, and DHHS Sec. Aldona Wos told lawmakers that SPAs put in last year’s budget were slow to be submitted and slow to be approved.

Insko wondered if staff vacancies at DHHS slowed down that process.

DHHS Secretary Aldona Wos’ department has submitted about 90 state plan amendments to CMS since the beginning of the fiscal year. Photo credit: Rose Hoban

“Those people are really overworked,” she said. “And I expect the same thing is existing in D.C. because of the cuts up there.”

During last fiscal year, some SPAs were not submitted at all and some were not approved when they were. In the current budget, lawmakers noted that about $63.6 million in cuts made last year were unachieved from Medicaid, contributing to this year’s budget shortfall.

One set of SPAs never approved was a 3 percent cut to service providers in last year’s budget that would have saved North Carolina $27 million. The cut was associated with a shared-savings plan, where doctors and hospitals would give up part of their reimbursement in hopes of earning some of those dollars back by providing care more efficiently.

Hise said only the rate-cut SPA was ever submitted. DHHS never finished creating the plan, and so federal officials never approved the program. The cut was never implemented, the savings were never achieved.

That contributed a significant chunk to this year’s Medicaid shortfall.

Another state plan amendment that was slow to come was for changes to personal care services for people who need help with daily-life activities. That SPA was only approved in May, 10 months after the legislature ordered the changes. Because of the delay, any anticipated savings were lower than hoped.

Rate freezes for midwives, hearing aides, private-duty nurses and other services were only approved in December, months after they were requested in the state budget.

Deja vu all over again

Even though both Democrats and Republicans can agree that the better way to handle SPAs is to claim the savings only after they’ve come, this year lawmakers once again looked to the amendments to find savings for Medicaid, and then asked for the changes on tight timelines.

“I think the important thing is that we really expeditiously process all state plan amendments, and that they all be carefully thought through and analyzed, and that we get some kind of pre-clearance or reading in Washington before they’re submitted,” said Sen. Floyd McKissick (D-Durham), who serves on the Joint Legislative Oversight Committee on Health and Human Services .

That kind of pre-clearance scotched a proposed $60 million savings in both the Senate and the governor’s budget.

In moments of candor, lawmakers will admit that the asked-for savings in SPAs are often unachievable.

In this year’s budget, legislators submitted an SPA to reduce Medicaid eligibility for low-income people who are “medically fragile” but make too much to qualify for the program. The desired savings are about $400,000 for the current fiscal year.

In an exchange on Twitter, when it was noted that the proposal was unlikely to pass muster by federal regulators, Rep. Nathan Ramsey (R-Fairview) agreed, but defended the move.

“If negotiating & other side wants provision u believe won’t happen, u make concession w/ limited risk,” Ramsey tweeted. But he did not address the risk inherent in proposing Medicaid budget savings that cannot be achieved.

 

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