Program Review and Investigations Committee




<MeetMDY1> October 13, 2011


Call to Order and Roll Call

The<MeetNo2> Program Review and Investigations Committee met on<Day> Thursday,<MeetMDY2> October 13, 2011, at<MeetTime> 10:00 AM, in<Room> Room 131 of the Capitol Annex. Representative Fitz Steele, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Representative Fitz Steele, Co-Chair; Senators Vernie McGaha, Joey Pendleton, John Schickel, and Katie Kratz Stine; Representatives Leslie Combs, Terry Mills, David Osborne, Rick Rand, and Arnold Simpson.


Legislative Guests: Representatives Derrick Graham, Keith Hall, Jimmie Lee.


Guests: Betsy Dunnigan, Deputy Commissioner; Kevin Mudd, Director, Division of Administration and Financial Management; Department for Behaviorial Health, Developmental and Intellectual Disabilities, Cabinet for Health and Family Services. Steve Shannon, Executive Director, Kentucky Association of Regional Mental Health-Mental Retardation Programs. Virginia Gray, Resource Coordinator, Pennyroyal Mental Health Center.


LRC Staff: Greg Hager, Committee Staff Administrator; Rick Graycarek; Christopher Hall; Sarah Harp; Colleen Kennedy; Van Knowles; Lora Littleton; Jean Ann Myatt; Cindy Upton; Kris Harmon, Graduate Fellow; Stella Mountain, Committee Assistant.


Approve Minutes for September 8, 2011

Upon motion by Senator McGaha and second by Representative Simpson, the minutes of the September 8, 2011 meeting were approved by voice vote, without objection.


Staff Report: Kentucky’s Community Mental Health System Is Expanding and Would Benefit From Better Planning and Reporting

Cindy Upton presented the report. The original report from 2007 included data for 5 fiscal years. The update has data for 10 years through FY 2010.


The regional mental health and mental retardation boards are established in statute. Statute sets oversight authority and funding decisions with the secretary of the Cabinet for Health and Family Services. The cabinet’s oversight role is exercised by the Department for Behavioral Health, Developmental and Intellectual Disabilities.


The 14 regional boards are the statutory planning authorities for community services. They are required to submit an annual plan and budget to the department each year. The approved plan and budget are incorporated into the contract between the department and each board. The budget process does not take full advantage of the work of a number of other statutory planning partners, including the 843 Commission (Kentucky Commission on Mental Illness, Alcohol and Other Drug Abuse Disorders, and Dual Diagnoses) and the 144 Commission (Kentucky Commission on Services and Supports for Individuals with Mental Retardation and Other Developmental Disabilities). The two commissions were established in statute to assess statewide needs, develop state plans for program development, and identify funding requirements.


Recommendation 1.1 is repeated from the 2007 report: If it is the intent of the General Assembly that the 843 Commission and the 144 Commission develop comprehensive plans for needed services and funding, then the General Assembly may wish to direct the commissions to present a plan to the governor and the Legislative Research Commission in sufficient time before each biennium so that the plan could be useful in the budgetary process. The plan should include specific population and service targets, funding needs, and measurable outcomes.


Recommendation 1.2 is repeated from the 2007 report: The General Assembly may consider merging the 843 Commission and the 144 Commission to identify needs, prepare a plan for services and associated funding, and identify expected outcomes for individuals with mental illness, substance abuse disorders, mental retardation and other developmental disabilities, and dual diagnoses. The General Assembly may consider requiring the combined commission to have a legislator and the secretary of the Cabinet for Health and Family Services as co-chairs. If the commissions are merged, then recommendation 1.2 would apply to the combined commission.


Recommendation 1.3 is repeated from the 2007 report: Each regional board should develop a strategic plan that describes clearly set objectives, strategies to implement them and a timetable, and cost estimates. The board’s plan should include expected outcomes and measurable indicators. The plans should be an integral part of statewide planning decisions.


In this update, Program Review staff concluded that the boards’ strategic plans could be shared with local government officials, who could then share the plans with their state senators and representatives. In this way, the plans can become a part of statewide planning decisions.


From FY 2001 to FY 2010, the number of people receiving services increased by nearly 38,000 unique individuals. The number of services they received increased from just over 14 million to nearly 21 million.


Comparing FY 2010 to FY 2002, federal revenue increased more than 19 percent, from about $178 million to almost $213 million in FY 2010; state revenue increased more than 16 percent, from about $104 million to $121 million; local revenue increased more than $3 million; and other revenue increased more than $5 million.


From FY 2001 to FY 2010, the number of consumers increased more than 27 percent. The number of services they received increased almost 45 percent. Inflation-adjusted revenue increased less than 19 percent.


The community care support grants to each region from the state general fund are flexible dollars intended to support the safety net by funding services for people who have no other payer source. Adjusted for inflation, safety net funding declined more than 18 percent from FY 2001 to FY 2010.


The department, the centers, and legislators need to know how much charity care is being provided. The cost of charity care is not the only unreimbursed cost the centers have, but it is the only one required by KRS Chapter 210.


Recommendation 3.1 is repeated from the 2007 report: The Department for Behavioral Health, Developmental and Intellectual Disabilities should develop a standardized method to calculate charity allowances. The department should require the boards to use that method and report annually, in conjunction with their annual financial statement audit, a separate schedule of charity allowances. The boards’ independent auditors should be required to certify that the charity allowances are reported in accordance with the department’s instructions. The recommendation has been partially implemented. The department has instructed the regions on how to calculate charity allowances. But the regions are not required to include the calculation in a separate schedule with their financial statements or to have their auditors certify that the calculation was made according to the department’s instructions.


On average over the period FY 2001 to FY 2010, a higher regional poverty rate correlated to a larger percentage of the population receiving services from the centers. The correlation between a region’s uninsured rate and the percentage of its population that received services was less pronounced than the one for poverty rates, but some comparisons can still be made. For example, NorthKey had the lowest uninsured rate and served the smallest percentage of its regional population over the period FY 2001 to FY 2010.


Financial results vary among the regions. Net assets across the system nearly doubled from $94.5 million in FY 2001 to about $185 million in FY 2010. There are similar variations between regions in the average operating margin, which is a measure of profitability. It shows the proportion of what was earned compared to the expenses incurred. The department considers an operating margin of 2 percent to be acceptable. The statewide average margin from FY 2001 to FY 2010 was 2.6 percent.


In general, the system statewide appears to be stable in terms of providing current services to current populations. But the system’s capacity to expand services or serve larger populations is questionable, particularly in some regions.


Ms. Upton concluded by saying that the community mental health system continues to expand and still would benefit from better planning and reporting.


            Referring to figures from the report on revenues for the 14 regions, Senator Stine asked whether funding was distributed on something other than a per capita basis. Ms. Upton said that reimbursement is mostly for services provided. Senator Stine asked whether people are getting the necessary services and whether there are waiting lists. Ms. Upton said that there are not waiting lists. Patients get appointments based on severity of need. In response to a question from Senator Stine, Ms. Upton said that she did not know if there were differences in caseloads among regions. Senator Stine noted that annual revenue per capita ranged from $53 in NorthKey to $160 in River Valley. She asked whether “per capita” was based on the number of consumers or the population of a region. Ms. Upton replied that it was based on population.


            In response to a question from Senator Stine, Ms. Littleton said that the poverty rate was based on household income thresholds. If the household is below the threshold, everyone in the household is defined as living in poverty.


            Senator Stine said that it appeared that regions with larger populations received less per capita revenue. Ms. Upton said that staff did not do specific enough breakdowns of revenue to determine if this was the case.


            In response to a question from Senator McGaha, Ms. Upton said that net assets are defined as what the regional board owns such as buildings, equipment, cash, and investments. Senator McGaha commented that operating margin per region seems to reflect assets per region.


            In response to questions from Senator McGaha, Ms. Upton said the income source category “other” is sources such as grants from private foundations, money received from the sale of an asset, investment income, and everything else that was not included in the federal, state, and local revenue categories. She did not know what the major contributor to the “other” category was but she said that she would get that information to him.


            Representative Hall said that he was surprised by the figure in the report showing that the trend was flat for the percentage of consumers being treated for substance abuse. Ms. Upton said that the department could better explain the reasons for this.


            In response to a question from Representative Hall, Ms. Upton said that the “other” service type includes all services that could not be categorized as mental health, intellectual or developmental disabilities, or substance abuse. The major service included in this category is the work/adult habilitation program that serves a group of clients in all categories at the same time. Each client’s primary diagnosis could not be determined from the available information.


            In response to an earlier question from Representative Hall, Ms. Dunnigan said that the percentage of consumers being treated for substance abuse as shown in the report has stayed steady over the years mainly because Medicaid coverage for substance abuse is limited and substance abusers have to seek treatment to be consumers of services at the centers.


Ms. Dunnigan said that the department has used information and recommendations contained in the 2007 LRC report and has, over the last two bienniums, focused on expansion and improvement in community based services for persons with severe mental illness, intellectual and developmental disabilities and substance use disorders. The recommendations have not been fully implemented, but incremental changes have been occurring. The updated report provides a snapshot and supports the gradual shift from institutional care to a more community based system of services and supports.


It is unknown whether resolution of the charity care reporting issue would resolve the larger goal. Approximately 2.6 percent of the adult population will have serious mental illness, with the Community Mental Health Centers (CMHCs) currently serving 48 percent of them; 5 percent of the child population will have severe emotional disturbance, 51 percent are currently being served; and 10 percent of the population will have substance use disorders, and only 6.5 percent of them are receiving services.


The department’s goals have included better resource utilization, moving toward community based services, looking at establishing priority populations, and at how nonpriority populations might access appropriate services. Current efforts include assessing all areas for maximum use of state General Funds, including using these funds to leverage additional federal funds; analyzing and standardizing the CMHC sliding fee scale practices; quantifying any shortfalls for inclusion in the biennial budget process; focusing on shifting from the more costly institutional care to less restrictive and preventive community based care; and continuing toward shifting the system to focus on prevention, recovery, employment, and housing in community settings.


Ms. Dunnigan concluded by saying that the report demonstrates that funding decreases and inflationary impacts have had to be absorbed by the centers. Given that, it must be conceded that impacts to services and programs have occurred over the last decade.


            Representative Steele asked if there has been an increase in the number of veterans receiving services. Ms. Dunnigan said that she could provide information on this.


            Senator Stine asked whether anything is being done to address the differences in funding across regions. Ms. Dunnigan said that the department started to address this 2 years ago and will be implementing a gradual change in the allocation of state general funds based on utilization and performance over the next 5 to 10 years.


            Senator Stine asked how the reimbursement rates have changed with the transition to managed care. Ms. Dunnigan said that she did not know what the final rates would be. In response to a question from Senator Stine, Ms. Dunnigan said that she is being told that the managed care system will be in place by November 1.


            Senator Pendleton said that he is concerned about veterans. He noted that a facility has been built in Hopkinsville for homeless veterans. He said that Virginia Gray of Pennyroyal Mental Health could talk about the facility. On a recent trip, he saw men, women, and children living under bridges in Kentucky.


Responding to the report, Mr. Shannon said that the CMHCs were established by the General Assembly in 1966. The centers served over 178,000 individuals in FY 2010, approximately 1 out of every 25 Kentuckians. The system employs approximately 9,000 individuals, approximately 1 out of every 200 working Kentuckians. The approximately 310 CMHC board members represent all 120 counties.


The CMHCs concur with Recommendation 1.1. It would be beneficial for all members of both HB 843 and HB 144 to participate in the deliberative process in developing funding needs and measurable outcomes.


Regarding Recommendation 1.2, a combined commission would be less effective than the two distinct commissions. The size needed to insure adequate representation of HB 843 and HB 144 on the new combined commission would diminish its effectiveness. The service needs of the two broad groups represented by HB 843 and HB 144 are not necessarily consistent with each other. The CMHCs support the combined recommendations of both HB 843 and HB 144. The regional planning councils are essential to HB 843, assuring that the recommendations from the HB 843 Commission are based upon local need. The grassroots focus of the regional planning councils is not included in the HB 144 Commission process. Having a legislator as co-chair would be effective for both commissions.


The CMHCs agree with Recommendation 1.3 that the strategic plans of the regional boards should be an integral part of statewide planning decisions.


Regarding Recommendation 3.1 on charity care, if the goal of gathering information covered in the report is to accurately reflect the financial status of the CMHCs, it would be beneficial to include a broader definition of charity care that includes bad debts, usual and customary charges, and other uncompensated care.


Mr. Shannon updated the committee on Medicaid managed care. Twelve of the 14 CMHCs have either signed or are negotiating contracts to provide behavioral health services with the three managed care organizations (MCOs) operating outside the Passport region. The two CMHCs in the Passport region are working with Passport to expand Medicaid managed care to behavioral health services.


A concern with the implementation of managed care is the increased administrative cost. The CMHCs will have three additional billing and claims processes to implement while continuing to be able to bill Medicaid directly. Outpatient treatment requests must be submitted to two MCOs; the third MCO requires notification of services provided. The time to complete the forms is uncompensated and will take time away from providing services. The MCOs will impose a utilization review process. Reporting requirements will also increase. CMHCs are required to report the same data to the MCOs and the Department for Behavioral Health, Developmental and Intellectual Disabilities. It would make sense to report it one time and let the MCOs and department share the information. Administrative expenses will increase and revenues CMHCs that derive from Medicaid services are anticipated to decrease, which will mean less access to services for individuals currently served or needing services in the coming years.


There is some opportunity in Medicaid managed care, especially in the area of substance abuse treatment. Based on a 2009 letter from the Centers for Medicare and Medicaid Services (CMS), it appears that the US Mental Health Parity and Addictions Education Act (2008) applies to Medicaid MCOs. This will result in additional substance abuse treatment services being available to the Medicaid population. [The letter was distributed to committee members.]


            Citing the report, Senator Stine said that NorthKey and Seven Counties seem to be best at maximizing their use of funds. In response to a question from Senator Stine, Mr. Shannon said that MCOs treating everyone equally will possibly change the disparity in funding per region. The MCOs are going to ensure that their members have access to care, which should benefit NorthKey.


            Senator Stine asked whether larger population areas have more people with unmet needs, given Ms. Dunnigan’s statement that 2.6 percent of Kentuckians need mental health services and 10 percent need services related to substance abuse. Mr. Shannon said demand for services is greater than what can be provided. The centers could do a better job of meeting needs if additional resources were available. He said that the reimbursement rates for each type of service were the same as they were in 2001.


            In response to questions from Senator McGaha, Mr. Shannon said that each regional board negotiated its own contracts with the MCOs. Of the regions that are not in Passport’s service area, one region has contracts with two MCOs and the other regions have contracts with all three MCOs.


Continuing his statement, Mr. Shannon said the significant increase in the employers’ contribution to the Kentucky Employee Retirement Systems (KERS) since the end of FY 2006 poses the greatest threat to the financial stability of the 13 CMHCs participating in the system. The KERS-mandated employers’ contribution has increased from 5.89 percent to 19.82 percent. Each 1 percent increase represents approximately $2.8 million, and additional increases are anticipated. This escalating unfunded mandate poses a huge risk to the CMHCs and the individuals served and supported by them. The employer contribution hampers the CMHCs’ ability to secure competitive grant funding and restricts service expansions to new markets and service diversification. The centers are reluctant to hire new staff since they must be able to support the employer contribution. Salary levels have become less competitive since dollars must be directed to the employers’ contribution and away from direct wages.


Mr. Shannon thanked the General Assembly for addressing the escalating KERS employer contributions by including approximately $2.5 million in FY 2011 and $3.8 million in FY 2012. Language was included in the legislation that the funding expansion could be used as state match to draw down federal dollars through the Medicaid program. The CMHCs have not realized any of the additional funding. The centers have worked with Kentucky Medicaid to submit a state plan amendment required to increase CMHCs rates. CMHC Medicaid rates have not increased since 2001


He concluded by saying that Medicaid managed care poses significant challenges to the CMHCs due to increasing administrative costs and—most likely—decreasing revenue. KERS has increased personnel costs and will continue to do in the coming years. Already, CMHCs have been seeing more people and providing more services while revenues have not kept pace. This formula cannot be sustained; the financial viability of Kentucky’s behavioral health safety net is at risk.


            Senator Pendleton noted that two recent studies of retirement systems rate Kentucky’s system as the worst in the country. He had hoped that the committee could have done something on this before the session.


            In response to a question from Senator Pendleton, Mr. Shannon said that the centers are seeing more veterans and more members of the National Guard.


            In response to a question from Senator Stine, Mr. Shannon said that the employees of the centers are not state employees. Senator Stine noted that the Senate has been encouraging stabilization of the retirement plan since 2005.


Ms. Gray said that the US Department of Veterans Affairs provided a $1.5 million grant for the Hopkinsville facility for veterans, which is the second largest in the country. The facility has 50 beds for male veterans, who can stay up to 2 years. It is scheduled to open in November or early December and will create 12 to 15 jobs.


            Senator Pendleton said that he was proud to have this facility addressing the needs of veterans.


            The meeting was adjourned at 11:27 a.m.