Interim Joint Committee on Appropriations and Revenue


Minutes of the 3rd Meeting

of the 2001 Interim


November 29, 2001


The 3rd meeting of the Interim Joint Committee on Appropriations and Revenue was held Thursday, November 29, 2001, at 1:00 p.m., in Room 131 of the Capitol Annex. Senator Richard Sanders, Jr., Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:  Senator Richard Sanders, Jr., Co-Chair; Representative Harry Moberly, Jr., Co-Chair; Senators Robert Leeper, Vernie McGaha, Daniel Mongiardo, Gerald Neal, Dan Seum, Tim Shaughnessy, Johnny Turner, and Jack Westwood; Representatives Royce Adams, Rocky Adkins, Joe Barrows, Dwight Butler, Jim Callahan, Mike Cherry, Larry Clark, Jack Coleman, Barbara White Colter, Jesse Crenshaw, Danny Ford, Bob Heleringer, Joni Jenkins, Jimmie Lee, Mary Lou Marzian, Thomas McKee, Lonnie Napier, Fred Nesler, Stephen Nunn, Charles Siler, John Will Stacy, Mark Treesh, and John Vincent.


Guests Appearing Before the Committee:  Dr. Jim Ramsey, State Budget Director, John Scott and Gene Brown, Governor's Office for Policy and Management; Secretary Marcia Morgan, Cabinet for Health Services; and Kathy Kustra, Special Medicaid Assistant to the Governor. 


Guests:  John Brazel, Kentucky Pharmacists Association; Peter Hasselbader, University of Louisville; April DuVal, Council on Mental Retardation; Brian McFarland and Missy McKiernan, CFC-OPS; Gay Dwyer, KFR; Dean Blake, PAIKY; Johnna Reeder, United Way of NKY; Randy Smith, Kentucky Racing Commission; Darla Baily, Kaleidoscope, Inc.; Don Fornwalt, CMR; Sharon Fields, KDC; Delores Sellers, Theresa Zellers, Sheriall Cunningham, Mental Health Association; Anne Montgomery, PROOF; Mike Porter, KY Dental Assocation; Ursula Barber; Louise Vanderwood; Martha and Jim Bazzell; Pamela Jarboe, Dept. of Voc. Rehab; Mary Belle Crouch, Dora Dental;Gil Lawson, CHS; Karen Jones, Ky Agency for Substance Abuse Policy; Ann Skinner, Behavioral Support Services; Kim Chandler, PSC; Annette DuPont-Ewing, Kentucky Energy Policy Advisory Board; Sue Jeffers, Blue Grass C.A.A.; Jack Couch, KCADD; Shelly Cameron, KREC; Steve Shannon, KARP; Ronny Pryor, Life Point/HCA Hospital; Lavell Jones, CHI; Ann Gordon, CHS; Sean M. Cutter, MMC&K; Bill Doll, KMA; John Cooper KBA/KMA; Dan Walton, KATP; Sheila Schulster, KyMH Coalition; and Jan Gould, KY Retail Federation.   


LRC Staff:  Terry K. Jones, Louis Pierce, Susan Viers Wobbe, and Kathy King.   


Chairman Sanders asked for a motion to approve the minutes of the October 25, 2001 meeting. A motion to approve the minutes was made by Senator McGaha, seconded by Representative Siler, and adopted by voice vote without objection.


Dr. Jim Ramsey addressed the committee on a proposed federal economic stimulus package and its impact on Kentucky.


The stimulus package has some favorable components for the state of Kentucky. One feature is the extension of the unemployment insurance benefits from 26 weeks to 39 weeks with the cost of that extra 13 weeks picked up by the federal government. Another favorable is the potential for an increase in a federal match on Medicaid. One issue of the stimulus package that may be a concern is a tax cut for corporations. It is estimated that the bill could have an immediate impact on the General Fund of a negative $122 million.


Chairman Moberly asked if the $122 million is already in the Consensus Forecasting estimate. Dr. Ramsey said that negative impact on our General Fund has been incorporated in the October 15 estimates, but since this has not been enacted into law, it has not been incorporated into the estimates.


Representative Treesh asked if these changes will affect your stance on conforming our tax code to the federal tax code. Dr. Ramsey said he does not think so, but the income tax part does require a code update.


Representative Ford asked if the impact would be the $122 million per year. Dr. Ramsey said the total corporate impact would be $124 million in the first year, then $117 million the next fiscal year, and then $90 million. The total negative impact on just the corporate piece would be $264 million.


Senator Mongiardo asked what would be the total federal money available for Medicaid. Dr. Ramsey said they have talked about a one and one-half percent increase and that would be temporary. Each one percent accounts for about $30 million.


Representative Heleringer offered a resolution urging a reduction in unnecessary and non-essential spending and retention of current spending levels for mental health and mental retardation programs. Representative Heleringer moved for adoption of the resolution. The motion was seconded by Representative Colter and adopted by voice vote.


Next, Secretary Marcia Morgan discussed Medicaid and Medicaid growth trends.   She stated the Medicaid growth trends are accelerating because of increased eligibles. For every person that was ruled ineligible we have picked up at least one additional eligible. Increased utilization and the lack of management have created a return of the health care inflation. The predicted annual average cost of the aged, blind, and disabled eligible in FY 2002 is 8,184 versus care of the TANF program for a woman or a child of $2,500.


Chairman Sanders asked if Medicaid eligibility was increasing. Secretary Morgan said that there has been changes in the handling eligibility, but the program is still picking up one eligible person for every person that was decertified. Ms. Kustra said denials were up but applications were up as well.


Representative Adkins asked what changes were made in the eligibility requirements that have made the eligibles increase. Secretary Morgan said the policy changes allow individuals to mail-in applications and to self-declare salaries. The requirement of income documentation was eliminated, but has since been reenacted.


Next, Ms. Kathy Kustra discussed the Medicaid Steering Committee which was created by Governor Patton to address budget imbalances and potential program cuts.


We had several goals to bring Medicaid spending into balance with the budget and to implement Medicaid managed care statewide: (1) focus on utilization management; (2) utilize third party administrator to assist cabinet in utilization management; (3) change cost-bases of provider payments, which escalates on a guaranteed and certain level year after year that your provider payments are going to go up. Health care generally, the federal government is also moving from cost base to case based or prospective payments and we are doing that with most of our provider groups and our goal is to do it for all of our providers. (4) reengineered the Medicaid department to support clinical policy making and management and make it more reflective of the provider groups that we work with so that we have a Division of Hospital Services so that we focus on the providers who are out there doing good work on behalf of the cabinet and the department; and (5) improve coordination of the eligibility process.


Senator Seum asked if the increase in pharmacy spending was to keep Medicaid eligibles out of hospitals in lieu of surgery. Ms. Kustra said an increase in pharmacy spending is keeping eligibles healthier and out of hospitals. There has not been a correlation between what is happening with hospital inpatient so


Representative Butler asked if there are effort to control growth in the adult day care program. Ms. Kustra replied that it is a fairly new program and it has grown by leaps and bounds. The last number was twelve hundred percent, but that was from start. Secretary Morgan said she did not know where it started out but in terms of its newness, I think it was an authorized service in 1995 and we are now looking at a $14 to $16 million program. Representative Butler asked what the program involves. Ms. Kustra said it is a service for individuals who are at risk of being institutionalized in a long-term care facility. Adult day care is more cost effective than long-term inpatient care.


Representative Stacy asked what the $960.00 for pharmacy costs per eligible Kentucky Medicaid represent. Ms. Kustra said that represents everybody in the non-Passport region of Kentucky, everywhere in Kentucky except Passport and except those in nursing facilities, or long-term care facilities. Representative Stacy said their average is $960. Ms. Kustra said it also includes over the counter drugs in the Medicaid program.


Senator Mongiardo said a lot of mail-in pharmacies will give a prescription for 90 days instead of 30 days. Has there been any thought for people who are on chronic medications for years at a time, instead of having them go to the pharmacy every month which we may pay transportation and the $4.51, to go to maybe a 90 day or six-month prescription. Ms. Kustra said the mail-in is very controversial but states are starting to look at it for individuals who have chronic problems or chronic illnesses.


Representative Cherry asked if there a way the free market could be used to get better rates. Ms. Kustra said many state right now are doing a study of costs looking at what the market is paying and what they think is a reasonable rate. The Kentucky statute said pharmacies, all prescriptions, and infusion therapies are to use the average price. The actual average is $5.99, but not including the infusion therapies the average is $5.88. Representative Cherry said we need to stop this ever-increasing cost to Medicaid is a burden to the taxpayers.


Representative Lee said local pharmacies and pharmacists provide a valuable service to over 600,000 Kentuckians who depend on them to fill their prescriptions in a reliable and safe manner.


Senator Mongiardo asked if there any way that we can have some type of differential cost for those smaller pharmacies that we need in these small counties that do not have that much volume and they depend on this fee versus large corporations and chains that have high volume and are not affected by. Ms. Kustra said Michigan has a rate differential. Both their acquisition costs and dispensing fees have variables according to size of the company.


Senator Mongiardo asked how the reductions in fees to hospitals will impact hospitals especially the smaller hospitals in rural areas. Secretary Morgan said it is not a true reduction, but we did not give them their inflationary increase. In terms of maintaining the rates on the hospitals, we are reimbursing 84 percent of costs for inpatient and 100 percent for outpatient services.


Next, Secretary Morgan discussed the Medicaid budget. Our predicted expenditure shortfall for this fiscal year based on the June forecast is $197.6 million. In terms of the potential adjustment, $77.6 million, which gives us a revised both revenue and expenditure shortfall totaling over $325 million. Through the additional revenues brought about from the enhanced provider tax, the intergovnermental transfers, and our carry forward as a result of our management initiatives, we have $221.3 million to go towards that figure and with our cost containment initiatives of $90.3 million, which does not include any pharmacy savings in this figure, so our revised shortfall is $13.6 million for the Medicaid budget.


Secretary Morgan said going in to FY 2003, the Medicaid structural imbalance is $183 million. However, with the budget reduction of $50 million, we are going to have to add that to the structural imbalance resulting from the expenditure issue. So our revised structural imbalance, when we start our budget submission for FY 2003 and 2004 is $233 million.


Secretary Morgan then discussed intergovernmental transfers (IGT).  Thirty to forty states perform some type of IGT. The Federal government has already begun to limit and may  eliminate IGTs. There are two very different types of IGTs: (1) a straight transfer between departments; and (2)  transfers between local and state governments.


Representative Lee stated that he urges the committee to take a long hard look at the Medicaid base and urges the members of the General Assembly to not let our Medicaid base erode.


With no further business, the meeting adjourned at 4:00 p.m.


A cassette tape of the meeting in its entirety, and all meeting materials are available in the Legislative Research Commission library.