Medicaid Managed Care Oversight Advisory Committee (HB 785)


<MeetMDY1> June 9, 2003


The<MeetNo2> Medicaid Managed Care Oversight Advisory Committee (HB 785) met on <Day> Monday,<MeetMDY2> June 9, 2003, at<MeetTime> 10:30 AM, in<Room> Room 131 of the Capitol Annex. Senator Richard Roeding, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Richard Roeding, Co-Chair; Representative Paul Bather, Co-Chair; Senators Walter Blevins, Tom Buford, Julie Denton, and Dan Seum; Representatives Stephen Nunn, and Dottie Sims.


Guests:  Johnny Callebs for Independent Opportunities; Kelley Hawkins and Dr. Viginia for Everyday Matters; Carol Filson for Close to Home; Clyde Lang for the Kentucky Association of Residential Resources; Jeff Bradford for Kentucky Independent Case Management; Jane Hart for the Kentucky Disability Coalition; Donna Tooill for Mattinly Center; Rita Osborn for GuardianCare Services; Karen Gardnew for Christian Church Homes; Sue Orwick and Kenny Draper for Kentucky Opportunities; Donna Turner for Supported Living; David Hanna for Medicaid Services; Cathy Mobley for the Cabinet for Families and Children; John Sammons for the Cabinet for Health Services; Cathy Allgood Murphy for the American Association of Retired Persons; David Allgood for the Center for Accessible Living; Ellen Kershaw for the Alzheimer’s Association; Mary Crowley Schmidt for the Bluegrass Area Agency on Aging; Marian Haydon for Cull, Hayden & Vance; Amanda Stanley for Christian Church Homes; Sheila Schuster for the Kentucky Mental Health Coalition; Dough Duly for Abbott Labs; Pam Jenkins for Central Baptist Hospital; Marybeth Crouch for Doral Dental; Betty Olingar for the Department for Public Health; Regina Washington for the Rural Health Policy; Mike Wooden for Wooden and Associates; Prentice Harvey for Norton Healthcare; Melissa Lawson for the Children’s Alliance; Marty White for the Kentucky Medical Association; Jan Gould for the Kentucky Retail Federation; Mike Porter for the Kentucky Dental Association; and Donovan Fornwalt for the Council on Mental Retardation.


LRC Staff:  Barbara Baker, Robert Jenkins, Murray Wood, Eric Clark and Cindy Smith.


The first item on the agenda was an update on Medicaid by Marcia Morgan, Secretary of the Cabinet for Health Services.  Secretary Morgan highlighted initiatives completed or underway.  She said the key strategies are : (1) assure only those eligible receive services; (2) manage pharmacy expenditures; (3) manage utilization and medical necessity; (4) eliminate cost-based Medicaid reimbursement; (5) utilize cost sharing; (6) cost-avoid utilizing edits/audits; maximize estate recovery; and (6) fully access all available federal matching revenues/funds.  Secretary Morgan also discussed initiatives that the Cabinet has either implemented or are currently working on relating to program integrity and eligibility; pharmacy management; utilization management; reimbursement restructuring; cost sharing; cost avoidance and post payment recovery.  Secretary Morgan also discussed the impact of cost containment initiatives.  She said that at the end of FY 2001, predictions for the next two years indicated that a worst case scenario would be that Medicaid would face a 10.85 percent yearly increase in expenditures and a best case scenario would be that Medicaid would face a 6.74 percent yearly increase in expenditures.  These scenarios yielded the following predictions: (1) FY 2002 PMPY would range from $6,051 to $6,284 and the expenditures would range from $3.79B to $3.93B; and (2) FY 2003 PMPY would range from $6,459 to $6,966, and expenditures would range from $4.21B to $4.54B.  The actual expenditures for FY 2002 and FY 2003 were much less.  Secretary Morgan discussed the fiscal relief effort and its impact on the Medicaid budget.  She said Kentucky’s Medicaid program has a predicted expenditure short-fall of $169M in FY ’04. 


Representative Bather asked Secretary Morgan to address some of the Supports for Community Living (SLC) issues and any concerns the Cabinet may have.  Secretary Morgan said that there was important legislation that effected Supports for Community Living.  House Bill 144 set out a 10 year plan to help Kentucky keep pace with its program and eliminate the waiting list.  Significant progress has been made with this.  In 2000, Kentucky had more people with mental retardation living in the community than in an institution.  Since that fiscal year, over 250 slots have been added each fiscal year.  In fiscal year ‘04, an additional 500 positions will be added.  After the passage of  House Bill 144, the Cabinet introduced a provision to their regulations that increased reimbursement for new providers to 120 percent of the median rate.  At the same time, they moved all providers below the median reimbursement rate to the median.  The cabinet was successful in attracting new providers.  Today they have over 100 SCL providers.  House Bill 501 directed the Cabinet and the Department to look at self-determination as a means by which to give people maximum choice and to achieve maximum efficiencies in serving those individuals.  Another area of concern is the method of assessing the intensity of the client’s needs.  The Cabinet implemented the North Carolina Support Needs Assessment Profile (NC-SNAP), an acronym for how intensity is addressed on the part of the individual that is being served, either behavioral or physical.  Almost every provider group said this tool has been a miserable failure.  The proposed rate structure is uniform on a budget neutral basis.  The exact same amount of money currently being utilized will be expanded, but it will be distributed in a different fashion.


Senator Denton asked about co-payments for other provider services, such as chiropractic and optometric services.  She asked about a law that would prohibit a physician from denying services once the physician is on record for the particular recipient.  Secretary Morgan said the co-payments are parallel with the pharmacy policies.  Secretary Morgan noted that she is not aware of the law that Senator Denton referred to, but said she would have their Office of Counsel check into it.  Senator Denton asked if it was correct that with optometric services, co-pays are only to optometrists, but not to opthamologists for optometric services.  Secretary Morgan said that is not correct.  Initially, when implementing the co-pay, the optometrists came to the Cabinet and said it was not fair because opthamologists should have the same co-pay available.  In response, the Cabinet looked at the most used optometric and opthamoligical codes, and four codes on each side were identified for which co-pays would be applied.  Senator Denton said there is parity then with how the co-pays are being applied to both providers of service.  Secretary Morgan said she doesn’t think the optometrists are happy with this policy, because they would like absolute parity between the optometrists and opthamologists.  Secretary Morgan said that the Cabinet would recognize the four most utilized codes between the two provider groups and would impose the co-pay on the opthamologists in order to be fair.  She indicated that the Cabinet could have eliminated the optometry line, but they did not want to do that.  At the same time, the federal government recognizes physicians as being mandatory and some of the services that opthamologists provide, are not provided by optometrists.  Senator Denton summarized the statements by saying the Cabinet applied a co-payment to the same four services no matter where the services are provided.  They are provided receive a co-pay. Senator Denton asked if a co-pay is applied for all services provided by optometrists.  Secretary Morgan said yes.  Senator Denton asked why the Cabinet would put a co-pay on all the other services outside of those four when those same services could be provided at an opthamologist without a co-pay.  Secretary Morgan said the Cabinet thought the argument was valid on the equity issue in terms of those codes that were most utilized between the two and where those services were most exclusively done either place. Senator Denton asked if under the statute, the Cabinet is going to legally be able to define most utilized services versus those that are not and apply co-pays based on point of service.  Secretary Morgan said the Cabinet thinks the statute is very clear that it applies to rate parity, not to procedures.  Senator Denton asked if the rate parity will be different because the payments are different on the other codes outside the four.  Secretary Morgan said they don’t believe so and their legal opinion indicates they could sustain challenge on that point.  Senator Denton asked if the Attorney General has issued an opinion on this.  Secretary Morgan said no.  Senator Denton said she is concerned about that because they may be fighting over something that may not save any money. 


Senator Buford asked if the SCL rates will take effect in July.  Secretary Morgan said if they move forward, they will be ready by July 1.  Senator Buford said providers have asked him about having a meeting somewhere where most providers can attend.  He asked if Secretary Morgan would be able to do that sometime in July.  Secretary Morgan said she will go anywhere, anytime to meet with any group of people. 


Senator Denton said she talked with staff about having a meeting with providers and with the Cabinet on Thursday, June 12, prior to the meeting of the Kentucky  Commission on Services and Supports for Individuals with Mental Retardation and Other Developmental Disabilities. That meeting could be opened up to providers to come in with their issues before the Cabinet and interested legislators.  She asked if Secretary Morgan was available.  Secretary Morgan said the Cabinet would be available for that meeting Thursday morning.


Representative Nunn asked if there would be a shortfall of $39 million even with the additional federal relief funds. Secretary Morgan said the shortfall is $30.2 million.


Representative Nunn asked about lower spousal impoverishment standards, and the relationship with the spend down program and the Homestead Act.  Secretary Morgan said Kentucky currently is at $27,000, and the Homestead is at $90,000.  The income permitted for spouses will be lowered, and the $90,000 stays in place.  Secretary Morgan said the Cabinet is looking at all the estate practices on the part of Medicaid and looking at resource limitations across the board because the Cabinet does not want to eliminate quarterly spenddown. There is more work to be done on resource limitations and estate recovery practices.


The next item on the agenda was a presentation on President Bush’s new proposal to improve Medicaid by Constantinos Miskis (Costas), Secretary’s Regional Representative, Immediate Office of the Secretary, Department of Health and Human Services.  Mr. Miskis said Kentucky’s budget is being strained by the Medicaid program. The tax relief bill that provided $20 billion to the states will make a difference, but will only take care of part of Kentucky’s issue.  This is where the President’s proposal would help.  Some people characterize this program as a cut in funding for the Medicaid program.  That is not the case.  Under current law, $2.7 trillion will be spent on Medicaid.  Under this proposal, $2.7 trillion will also be spent.  The issue is how it is spent, and how the most vulnerable can be benefited.  Throughout Medicaid, both underutilization and overutilization are being seen.  What needs to be looked at is the real mission of Medicaid. The Medicaid program, designed over 35 years ago, was designed to provide services to essentially a welfare population.  The fact is the Medicaid population today is not the same population for which it was designed.  Today, only one-third of kids on Medicaid receive cash assistance.  In some states, Medicaid coverage goes up to 350 percent of poverty.  He said the building blocks of modernization are (1) the success of SCHIP (or KCHIP); (2) the National Governor’s Association Policy; (3) HIFA guidance; and (4) the May 2002 Independence Plus Guidance.  All of these elements are the building blocks on which this proposal is based. He said the problems with the current system are: (1) complex federal rules; (2) “all or nothing” benefit package; (3) lack of flexibility; (4) tension between public and private health coverage; (5) institutional bias; and (6) 40 million uninsured.  He said if things continue as they are and nothing is done, beneficiaries are at risk because: (1) states are under financial pressure; (2) 38 states have made program reductions in the past year; (3) most states are currently considering new or further benefit or eligibility cutbacks; and (4) states need help managing their health care budgets while preserving and expanding coverage for low income Americans.  Some of the innovations that the modernization program are proposing include: (1) simplifying eligibility and administration of the program for the states; (2) enabling states to tailor benefit packages; (3) promoting preventive services; (4) enhancing flexibility without waivers; (5) providing predictable funding; (6) strengthening public and private partnership and access to employer sponsored insurance programs; (7) encouraging consumer control and independence; and (8) facilitating coverage of families, non-traditional, and special needs populations.  He said while states will see advances both in eligibility and benefits through the ability to target individuals to tailor the benefits to the individuals, a big plus is the independence options.  The emphasis is on consumer-directed care, ensuring community care, and avoiding the warehousing of elders that could be aging in place at home with few additional services.  An issue of interest to many is finance.  He said there is a lot of talk about cutting funds.  When it comes to mandatory services, there will be no cap.  It provides flexible, reliable funding streams with maintenance of effort.  The difference is the federal government would continue to provide funding, trending forward.  The states would only be required to provide a maintenance of effort at a healthcare CPI index.  The average projected increase in federal funding for 2004 is $3.25 billion. Under this proposal, funding would be based on the states own baseline (Medicaid services, plus administration, minus UPL, adding in SCHIP, trending forward to 2004, adding back in the UPL’s), states would continue to receive the UPL transition amounts and all the other services would be trended forward to 2004.  Under model one, Kentucky would receive $3.065 billion in 2004 for Medicaid, which is an increase of $152 million.  Under model two, based on Kentucky’s share of the national Medicaid budget, the total would be $3.045 billion, an increase of $132 million.  He reported that modernization of the administration would create new options for states that (1) simplify program administration; (2) provide flexibility without waivers; and (3) streamline and expedite the plan approval process.   Another major point of this proposal is the ability to separate preventative and acute care programs from community and long-term care programs. 


Senator Buford asked if there is anything the federal government could do to put dual eligibles under Medicare and quit asking the states to run that program.  He also asked about commercials relating to the senior prescription drug plan and what age the federal government considers a senior.  Mr. Miskis said the dual eligibles issue goes back to who the payor is of last resort.  It is putting a lot of strain on the states.  The National Governors Association has taken up that issue and made some proposals.  Until that association comes out with an official response to the President’s proposal, it would be premature to respond.  He stated that he recognized this an official concern of the states and it is something that will get addressed.  As for the senior drug program, the Senate is taking up a prescription drug benefit issue. The President has proposed a solution to the prescription drug benefit issue.  Over the long term, a prescription drug benefit would be the best approach.  In the plan, he believes the age to be considered a senior is 65  years old. 


Representative Bather asked how to make sure there is flexibility in funding.  Mr. Miskis said the flexibility is an issue that has been addressed in the President’s proposal. States will have to maintain their current efforts and the federal government’s money will continue to trend up as it would currently, which gives states a tremendous amount of freedom to provide resources where they would be best spent.  The other issue is that monies that are not spent from the allotment in one year will roll over to the following year to provide services.  Additional flexibility comes from the packages themselves.  The states will not be locked into the “one size fits all” coverage plans, and states will be able to reduce coverages in ways that are most effective for the state’s population.


Senator Roeding said he checked with Governor Patton’s office about the amounts that Kentucky would receive as a result of the Jobs and Growth Tax Relief Reconciliation Act of 2003.  The total amount of funds for Medicaid would be approximately $277 million.  The flexible grant would be $137.4 million, $68.7 million in 2003 and 2004.  In mid-July and October, Medicaid would receive $55.8 million the first year and $83 million the second year in increased mandatory funds.  The Governor has to act before we can end up with $277 million worth of federal funds that come into the state without too many strings attached.


Next, there was testimony heard from constituents regarding SCL rates.  Dr. Virginia Breslen, Clyde Lang, and Jeff Bradford testified.  First, Dr. Breslen noted several concerns regarding the proposed flat rate.  One is that it has not given agencies sufficient time to prepare.  Some agencies will incur as much as a 20 percent cut in their revenue.  There has been no official communication regarding the flat rate changes to providers.  Even with the phase-in, there will still be a three month projected time until they have to accommodate a significant decrease in revenues.  Their concerns are that it compromises the care to the people they have made a commitment to serve.  They were hoping to have a strategic plan to rationally and thoughtfully determine rates.


Next, Mr. Clyde Lang, of the Kentucky Association of Residential Resources (KAR), and vice-president of Cedar Lake.  KAR is Kentucky’s only statewide association of private and public providers of supports and services to persons with mental retardation.  He voiced his concerns about the flat rate payment system for the Supports for Community Living (SCL) program.  KAR’s mission of providing quality services to the state’s most vulnerable citizens coincides with that of Medicaid.  They believe that more work must be done to be sure that those who are served are not harmed for the sake of rushing to a funding system that may not work.  Providers have always been open to work with Medicaid services to insure that consumers receive the quality of care they deserve.  He feels that the Department for Medicaid Services has rushed the development of these new rates.  As proposed, every person receiving a specific service would receive the exact same dollar rate statewide.  On April 22, the draft proposed rates were received at the meeting of the Kentucky Commission on Services and Supports for Individuals with Mental Retardation and Other Developmental Disabilities.  Some of the rates have been reduced as much as 47 percent from their current level.  Since April 22 there have only been two public forums to discuss the impact of the recommendations.  They hope there will be an open dialogue with the department so an adequate payment system could be developed using relevant data and actual provider input.  A KAR survey found that up to 70 percent of Kentucky providers will experience a significant loss of SCL revenue under the proposed rates.  Kentucky SCL providers have strived by operating under the current rate system despite a three year rate freeze.  Next, he responded to some issues that Secretary Morgan addressed.  He discussed a vote by the Finance Subcommittee of 4-2, on May 13, to support the proposed rates by Medicaid.  He encouraged the members to review an amendment to that motion which was made at a subsequent meeting of that subcommittee on May 22 which further defined what the subcommittee had intended.  That amended motion was unanimously carried and also at the May 22 meeting, a motion was made and carried 5-1 to defer and to bring the rates in slowly.  A 40 percent cut on July 1 is significant.  Moving staff residence from three to four individuals sounds efficient, but there are hundreds served in these residential settings that are built and bought by providers for three people.  There is much work to be done and they encourage Medicaid take a slow and deliberate process with providers to develop a responsive system that will work in the future.


Jeff Bradford agreed with the testimony that had been given, and did not wish to add anything else.


The meeting was adjourned at 1:00 p.m.