Interim Joint Committee on Appropriations and Revenue


Minutes of the 3rd Meeting

of the 2003 Session Break


January 28, 2003


The 3rd meeting of the Interim Joint Committee on Appropriations and Revenue was held on Tuesday, January 28, 2003, at 10:00 a.m., in Room 131 of the Capitol Annex. Representative Harry Moberly, Jr., Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:  Representative Harry Moberly, Jr., Co-Chair; Senator Robert Leeper, Co-Chair; Senators Brett Guthrie, Paul Herron, Jr., Ray Jones, II, Daniel Kelly, Alice Kerr, Vernie McGaha, Gerald Neal, R. J. Palmer, II, Joey Pendleton, Larry Saunders, Dan Seum, Robert Stivers, and Jack Westwood; Representatives Royce Adams, Rocky Adkins, Joe Barrows, Scott Brinkman, Dwight Butler, Jim Callahan, Larry Clark, Jesse Crenshaw, Bob DeWeese, Jon Draud, Danny Ford, Joni Jenkins, Jimmie Lee, Mary Lou Marzian, Thomas McKee, Lonnie Napier, Fred Nesler, Stephen Nunn, John Will Stacy, Tommy Turner, John Vincent, Jim Wayne, and Rob Wilkey.


Guests:  Burr Lawson and Lisa Wilhoite, Personnel Cabinet; David Cox; Damian Bartale, Council on Mental Retardation & Parent Advocate; Glenna Glass, GOT; Robin Rhoads, Ky. Adult Day Association; Jean Miller, Home Child Care; Karen Jones, Ky-ASAP; Mike Carr, KASA; Jill Seyfred, Prevent Child Abuse Kentucky; Cathy Allgood Murphy, AARP; Beth Wagon, KRTA; Jim Bondurant, Auditor of Public Accounts; Yvonne Stuart; Judy and Ron Guthals; Darla Bailey; Mary Hass, BAK/KDC; Jacqueline Unseld, Unseld Child Care; Brenda Williams; DCBS; and Norma Blevins and Joyce Maupin, Casey Adult Day.


LRC Staff:  Terry K. Jones, Pam Thomas, and Kathy King.


Chairman Moberly recognized Secretary Marcia Morgan, Cabinet for Health Services, and Kathy Kustra, Chair of the Medicaid Steering Committee, for an update on Kentucky's Medicaid program.


Secretary Morgan said Medicaid will cover one in five Kentuckians this year for a total of 869,000 citizens. Almost 50 percent of all births in FY 2002 were paid for out of Medicaid funds and Medicaid currently has 32,000 providers. Medicaid spending has increased 64 percent in the last seven years. Over 20 percent of Kentucky's state budget goes to Medicaid and 11 percent of all General Fund dollars are in the Medicaid program. The Department for Medicaid Services and the Medicaid Steering Committee have been working for two years in an attempt to contain Medicaid expenditures without cuts to service, the number of eligibles, or rates. Secretary Morgan said there has been a Medicaid expenditure problem since FY 2001. The department has achieved $201 million in savings and $185 million in new federal revenue through intergovernmental transfers. There have been 33 cost containment initiatives completed that focused on program integrity, utilization management, and rate restructuring.


Since 2001, the economic downturn has increased the number of eligibles and there has been a return of double-digit inflation in the health care delivery system because of labor market costs, technology, and pharmacy costs. Because of the decline in state revenues, the Medicaid budget was flat funded in FY 2003 and FY 2004. The number of Medicaid eligibles has grown rapidly since a projection made in January 2002. In December, there were 604,000 citizens on the Medicaid roll.


Secretary Morgan said a serious impact on the Medicaid budget is pharmaceuticals. Pharmacy programs across the nation are experiencing tremendous growth and pharmacy is Kentucky's largest Medicaid program at $750 million. Kentucky leads the nation in the number of prescriptions per person.


Secretary Morgan said Governor Patton announced $250 million in reductions on January 16, 2003, bringing the total cost of reductions to $551 million, which is 13.7 percent of the budget. These cost containment efforts are 13 initiatives divided into two phases. Phase I initiatives are ready for implementation and will save an estimated $165 million in costs. Phase II initiatives will avoid an estimated $85 million in costs.


Senator Stivers asked if there is any way to track drug abuse and fraud for prescription drugs. Secretary Morgan said the KASPER program has a database that can track doctor shopping and patients looking for additional prescriptions. The data, however, is about one month behind. The program was slated for a major upgrade but the upgrade cannot be done under the current spending plan.


Senator Stivers asked how much it would cost to upgrade the KASPER system, and if an upgrade would reduce prescription drug abuse, or Medicaid abuse. Secretary Morgan said she would provide the information on the cost of upgrading the system. She said the cabinet has followed several scheduled drugs and the findings show that most drug abuse is through cash and carry rather than through the Medicaid program. Because of Kentucky's increasing drug abuse problem, the cabinet has assigned regional nurses out in the state to look at Medicaid's top 50 prescribers and their patient loads.


Chairman Moberly said 27 states have eliminated the "medically needy" category under Medicaid. He asked what population is covered under "medically needy." Ms. Kustra said "medically needy" is a category that covers patients who are eligible because their medical costs exceed their resources. Many Kentuckians are eligible under this category because of Kentucky's general health status and the fact that it leads the nation in smoking, cardiac, and cancer rates.


Representative Brinkman asked why pharmacy costs are rising so dramatically. Ms. Kustra said one reason for rising pharmacy costs is pathology. Kentucky leads the nation in smoking, cardiac, and cancer rates. Another reason is prescription advertising on TV. A recent study indicates that 60 to 65 percent of all patients are requesting and receiving specific prescriptions by name because of direct TV advertising. Representative Brinkman said pharmacy costs are real cost-drivers and drug companies have become very adept at advertising. He said it is ironic that the TV commercials show remarkably healthy people using these drugs. He said strategies need to be developed to rein in some of the costs and inappropriate use of pharmaceuticals.


Representative Napier asked if it is known how many prescription drugs are written for children who misbehave in school. He said he is aware of some children who act out in the classroom so the family will receive a disability check for their misbehavior. Secretary Morgan said there are families who qualify for disability when their children misbehave in school and disability numbers have increased dramatically in Kentucky. She said Disability Determinations may be able to provide the exact number. Ms. Kustra said the cabinet monitors ADHD drugs and has not seen an increase in the number of prescription drugs.


Representative Ford asked about pharmaceutical reimbursement rates. Ms. Kustra said the fee for service is $3.51 plus $1.00 co-pay per prescription, and the fee is $4.51 if the individual is not eligible for co-pay.


Representative Ford asked about the KCHIP program. Secretary Morgan said the initial concept of the KCHIP program was like a private insurance program, but it was difficult to get started at the time because of federal rules. As a result, Kentucky implemented the program in multiple phases and made it part of the Medicaid program. Phase II was 100 to 150 percent of the federal poverty level, and Phase III is 151 to 200 percent of the federal poverty level. The cabinet excluded nonemergency transportation and early periodic screening diagnosis and treatment. Ms. Kustra said Kentucky is one of only two states that does not have cost-sharing in its KCHIP program. Representative Ford asked how much money was spent promoting the program. Secretary Morgan said the cabinet spent somewhere between $6 million to $9 million to promote the program through media, outreach workers, and training. Ms. Kustra said Kentucky received a 90:10 federal match per system change to expand coverage for children. Representative Ford said the program has been expanded beyond federal guidelines. He asked how much the expansion is costing the state. Secretary Morgan said the KCHIP program has not cost the state any additional dollars because the appropriation is the same. However, there are more costs associated with the Medicaid program because of outreach. Representative Ford asked what the minimum eligibility requirement is for Medicaid. Secretary Morgan said it is 100 percent of the federal poverty level. Representative Ford asked for be provided with information on each category under the federal guidelines, what the national average is, what Kentucky's average is, and what the cost is to Kentucky.


Representative Ford asked about adult day care for those under 21 years of age. Secretary Morgan said patients under 21 are no longer eligible for adult day care but there are other services available to those particular patients.


Representative Lee said the state is mandated to take care of Medicaid eligible individuals under any mandatory program. He said it is important not to lose the infrastructure by reducing the waivers for the providers. Providers have remained loyal to the system and loyal to the Medicaid program without receiving any increase in overhead, or cost of living since 2001. The state is facing some very difficult choices in a short period of time and further reductions are going to cause even more pain because the eligible individuals are not going to disappear - they will just reappear in either emergency rooms or jails.


Senator Leeper asked if prescriptions written for the Medicaid population mirror the general population. Ms. Kustra said the average per person prescription is 12, and the number is higher for the Medicaid population. She said it is not surprising that the per prescription for the Medicaid population is higher because of the elderly population which can average as many as 18 or 19 prescriptions per patient.


Senator Leeper said the prescription drug commercials being shown on TV are absurd and only a recent phenomena. He asked if there are any indications that the advertising will be stopped. Ms. Kustra said she thinks the advertising is here to stay. Physicians like it because it brings more people to their offices and the drug companies like it because it has boosted sales. She added that TV stations also benefit from the advertising. Senator Leeper said it is very discouraging because health care costs will only continue to rise.


Next, the committee heard from Secretary Carol Palmore on the number of state employee positions. Secretary Palmore said the total number of state employees in the Executive Branch in December 1991 was 41,972. When the Governor issued an Executive Order on December 4, 2002 to reduce the state work force by 1,000 employees, there were 38,725 state employees. Prior to July 1998, there was a proliferation of employee categories such as full-time, seasonal, and part-time working 100 hours in addition to full-time employees. House Bill 727, enacted in the 1998 Regular Session, required agencies to convert those seasonal and part-time employees into full-time positions resulting in a rather large increase of full-time employees in January 1999 and a corresponding decrease in the number of part-time and other employees.


Representative Moberly asked about the history of the cap on state employees. Secretary Palmore said the mandate for a cap on state employees was put into statute during the administration of Governor John Y. Brown. In a later session, the enacted budget funded more than 33,000 full-time employees. A lawsuit was filed and the Supreme Court ruled that when a statute is in conflict with a provision in the budget bill, the budget will supersede that statute for the time period during which it was in effect. Every budget bill since that time has funded more full-time employees than the mandated number of state employees.


Secretary Palmore said the increase in funded positions for state government have been in the areas of criminal justice, the state parks systems, veteran's nursing homes, and education related initiatives. Under criminal justice, the increase in positions are in juvenile justice, prison bed expansion, Commonwealth attorneys, probation and parole, and the public defender program. As a result of legislation passed during the 1996 session, Kentucky is now a model for the nation in its juvenile justice department and program. The enabling legislation created the Department of Juvenile Justice in the 1996 session and 696 new positions have been funded in each subsequent budget and also in the Governor's 2003 spending plan. Expansion of prison beds was initially funded in House Bill 2 in the 1994 session funding a total of 382 new positions. These increases have been funded in each subsequent budget and in the Governor's spending plan. In 1996, there was testimony from Commonwealth Attorneys about the difficulty part-time attorneys have funding and staffing their offices. Many were having to pay for office and equipment to operate their offices. As a result, 33 Commonwealth attorneys were made full-time attorneys under the unified prosecutorial system and some of their support staff, such as victim advocates were also added to the state personnel complement. House Bill 455 from the 1998 General Assembly provided funding for 169 new positions for probation and parole officers and to oversee new responsibilities in mental health treatment. The Public Defender Program was greatly enhanced in the 2000 session. In addition to the number of employees, there was a substantial salary increase for Assistant Public Defenders. Funding was included in the 2000 budget bill and carried forward into the Governor's 2003 spending plan. House Bill 455 also funded additional criminal justice training positions. In the state parks system, new recreational facilities were built, or improved at seven state parks. In addition, five golf courses required additional maintenance staff. The 2000 budget allowed construction of two new veteran's nursing homes in Hazard and in Hopkins County. The number of new employee positions funded was 320. Staff at the Kentucky Higher Education Assistance Authority was increased; the Kentucky Professional Standards Board was elevated and enhanced; and the Kentucky Virtual University was created in Post-Secondary Education Reform. The funding for these initiatives was included in the 1998 and 2000 budgets and carried forward in the Governor's 2003 spending plan. The number of new positions budgeted was 148.


There have been 2,541 new employee positions added over the past seven or so years through enabling legislation, or budget provisions that have continued to be funded in each budget. The only major loss of positions is the transfer of technical post-secondary education to the Kentucky Community and Technical College System. The number of employees who were transferred as a result of that reform was 2,577. Secretary Palmore said the actual reduction during the Patton administration from December 11, 1995 to the number of employees on December 3, 2002 is 1,133. She said the Governor is committed to reduce the number of employees by 1,000 by December 2003.


Other cost saving measures that were actually put into place in the summer of 2001, before the Governor's Executive Order have resulted in an estimated $25 million in savings. Constraints have been put in place on overtime and compensatory time. The Governor has also issued a moratorium on the execution of new and amended personal service contracts for the balance of the 2003 fiscal year. A contract requires special permission from the Secretary of Finance and Administration. Other cost saving measures are a reduction of 500 vehicles in the state motor pool, a reduction in utility costs, and restrictions on leases of state properties. The Governor has ordered a reduction in travel expenses and a 25 percent additional reduction on out-of-state travel, which was already reduced in FY 2002 by about $2.5 million. There is a moratorium on equipment and furniture purchases and all surplus property will be evaluated for possible disposal. Because the Governor does not have authority over Constitutional officers and management employees of the Commonwealth's elementary, secondary, and post-secondary educational systems, he has requested them to carefully review the provisions of the Executive Order and attempt to implement similar cost cutting measures.


Representative Moberly asked for an estimate of merit versus non merit employees. Secretary Palmore said there were 34,405 merit employees and 4,320 non merit employees as of December 3, 2002. The non merit employees include direct gubernatorial appointees and approvals for cabinet secretaries, commissioners, division directors, and executive secretaries. There were 369 executive secretaries.


Representative Moberly asked how many employees are in the principal assistant category and if that category is non merit. Secretary Palmore said as of December 3, 2002, there were 171 principal assistants and they are non merit positions.


Representative Moberly asked if there is a history of when the state started having the category of principle assistant and if that category has grown, or held steady since its implementation. Secretary Palmore said she believes the principal assistant category was created during the Carroll administration. She said her agency is running numbers on how many positions have been held.


Representative Barrows asked for the number of employees in the principal assistant category who may have reversion rights because they went from a merit position to a non merit position. Secretary Palmore said she would provide that information.


Representative Moberly asked how many state employees have retired and been rehired full-time by the state. Secretary Palmore said as of January 27, there were 197 returned retirees. She said the Executive Branch developed administrative regulations that greatly restricted the hiring of retirees. Included in those regulations, anyone who is receiving a retirement benefit and comes back to work for the Executive Branch must be treated as a brand new employee.


Representative Moberly asked if the rehired state employees fit into high salary bracket or lower salary bracket. Secretary Palmore said she would provide that information.


Representative Moberly said some employees are under the state's supervision, but they have been hired on a personal service contract and are not being treated like regular state employees. Secretary Palmore said the Personnel Cabinet does not deal with personal service contracts. She said the Finance and Administration Cabinet could provide information about personal service contracts.


Senator Kelly said it is interesting that the overall number of state employees has been reduced from 42,000 employees in 1991, to about 39,000 employees currently, but the growth in personal service contracts has gone from $175 million to $350 million over the same period of time.


Senator Seum asked how gasoline mileage is determined. Secretary Palmore said the Finance and Administration Cabinet sets forth procedures for travel.


Representative Lee asked for the number of retired employees who come back to the state and work on a hourly rate.


Chairman Moberly asked why the state could not receive immediate monetary relief if an additional 1,000 employees are eliminated. Secretary Palmore said statutes passed in the early 1980s to lay-off state employees requires about 23 steps and takes about four and one-half to six months to complete before effecting any savings. In addition, the state would have to pay to unemployment dollar-for-dollar the amount of unemployment that is then paid to those persons who are laid off. Another problem is if an employee takes it to court, lay-off cases are very difficult to win and the court cases would be multiplied. She said some states are using a furlough program to avoid lay-offs and the legal problems.


Senator McGaha asked how much the state saved by transferring the KCTCS employees. Mr. Hintze said there were no savings.


Chairman Moberly asked if non merit employees will be affected by a lay-off. Secretary Palmore said they would not be affected because they are employees "at will."


With no further business, the meeting adjourned at 12:55 p.m.


All meeting materials and a tape of the full meeting is available for review in the Legislative Research Commission library.