Testimony Before The Senate Appropriations Committee
Senator Ray Holmberg, Chairman
House Bill 1012 - Department of Human Services Budget
March 1, 2005
Chairman Holmberg and members of the Senate Appropriations Committee, I am Carol Olson, Executive Director of the Department of Human Services.
The Executive Budget request for the 2005-2007 biennium is $1.68 billion, representing an overall increase of 9.7% from the 2003-2005 biennium budget. The general fund request is $490.4 million, an increase of 19.3% or $79.3 million over the 2003-2005 biennium budget. This is necessary in order to maintain the current services, given rising caseloads, rising costs, and diminishing federal reimbursement in Medicaid, and to include the salary and health benefit package for state employees as recommended by the Governor.
- Nearly half of the increase is due to the FMAP change. The decrease in the federal reimbursement for Medicaid accounts for $32.0 million of the requested general fund increase.
- Of the remaining $47.3 million:
- $14.3 million goes to Nursing Homes and Basic Care. Despite the fact that these facilities are being utilized less, statutory requirements for reimbursement create the need for a $12.5 million general fund increase. Another $3.2 million is needed for re-basing and the proposed 20/20/10 rate-setting method.
- $10.5 million goes to pay other providers of care, including DD providers, Medicaid providers, Home and Community Based Care providers, Foster Care for Children, and Subsidized Adoption for increases due to higher caseloads, higher utilization in Medicaid and cost changes.
- $6.1 million goes to providers of service who have no statutory inflation allowance (excludes nursing homes and basic care). This budget includes a 2% inflation each year of the biennium, in recognition of the hardship under which they have provided services without an inflation allowance for the past three years.
- $3.7 million goes to the re-write of the antiquated Medicaid Management Information System (MMIS) that is necessary in order to pay Medicaid claims to providers of services.
- $2.8 million goes to the State Hospital to maintain an increasing number of civilly committed dangerous sex offenders.
- $1.4 million goes to offset the decrease in third party payments the State Hospital receives for patients that are treated at the Institution.
- $600,000 goes to match federal funds to implement new federal regulations, referred to as the Payment Error Rate Measurement (PERM), issued for the Medicaid program. These regulations require states to review a higher number of eligibility determinations along with estimating over and under payments made through Medicaid.
- $400,000 goes to increase the amount allowed under the Medicaid program for funeral set-aside from its current level of $3,000 to $5,500.
- $200,000 goes to increase the Indian County allocation in order to comply with state statutory requirements.
- $6.8 million funds the salary and health benefit package recommended by the Governor.
This leaves $500,000 to cover all other net operating increases for the Department. This amounts to less than one-third of 1% of the increase. This is a budget driven by state and federal requirements, federal reductions, and the payments to providers for services.
Who Gets The Money?
Over 80 percent of the total budget of the Department goes to the providers of goods and services to benefit our clients in the communities of our state.
During State Fiscal Year (SFY) 2004:
- We paid hospitals $59.7 million for 10,677 hospital admissions and 71,045 outpatient visits.
- We paid nursing homes $149.5 million to care for an average of 3,572 residents per month.
- We paid home healthcare agencies and Qualified Service Providers (QSPs) $7 million to care for several thousand people in their homes.
- We paid pharmacies $46 million (includes rebates) for 1,121,549 prescriptions.
- We paid clinics, doctors, and dentists $38 million.
The economic impact of payments to medical providers in each of your communities can be overlooked or underestimated. For example, in Cass County alone, the Department paid medical providers approximately $62 million in SFY 2004. Medical providers in Grand Forks County received just over $28 million in reimbursement. Burleigh County providers received close to $52 million and Ward County providers received just over $33 million. Even in the more rural McLean County, providers received approximately $6 million in reimbursement through the Medicaid program.
In addition to the traditional medical services, during SFY 2004,
- We paid DD providers $88 million for an average monthly caseload of 2,531 individuals.
- Residential treatment facilities, residential childcare facilities, and other foster care providers received $24.9 million to serve an average of 989 children per month.
While the numbers are not as large, the local community providers of non-medical and non-residential support and care also receive funding through this budget.
- During SFY 2004, local providers of services to older persons statewide, received funding in the amount of $4 million to provide meals, outreach, and supportive services for just over 25,000 frail and elderly people.
- During SFY 2004, we paid childcare providers $11.2 million to care for an average of 4,927 children per month.
Again, this money goes into the communities, supporting local providers of services and improving the lives of North Dakota's citizens. In SFY 2004, local providers in Region V (Fargo) were paid over $3 million for these services. In Region II (Minot) $2 million in provider payments were issued, and Region III (Devils Lake) providers received $2.5 million. Again, the impact on the local economies is substantial.
Two of the Department's programs that are 100% federally funded, Food Stamps and the Low Income Home Energy Assistance Program (LIHEAP), pay local community grocery stores and the energy companies for food and heating needs of people in our state. Without any requirement for general fund participation, these programs are expected to pay $113.2 million in the current biennium.
- For 424 local North Dakota grocery stores, this amounted to a combined $3.7 million in food stamp revenue in November 2004.
- Energy providers, ranging from Xcel Energy, MDU and Ottertail Power to Farmer's Union and Cenex as well as small rural oil companies, received LIHEAP payments amounting to $8.8 million last winter.
In total, for the current biennium, of the $1.5 billion you appropriated to the Department, almost $1.3 billion goes “out the door” and directly into the local communities. In our request of $1.68 billion for the upcoming biennium, almost $1.4 billion will go out the door.
What Does The Money Do?
The Department's mission is to provide quality, efficient and effective human services, which improve the lives of people. This mission is the foundation of our strategic plan and defines the work we do every day.
The basic components of this statement are quality, efficient and effective services that form a safety net for the state's most vulnerable citizens.
The Department provides quality services.
- In 2003 North Dakota's Child Support Enforcement program, overall, ranked number three in the nation.
- The Child and Family Service Review, conducted by the federal government in 2001, measured the safety, permanency, and well-being of children in the foster care system. The federal review gave North Dakota an overall rating of 80%. In 2003 and 2004, North Dakota's internal reviews rated these three areas at 90%.
- Both the Developmental Center and the State Hospital are nationally accredited.
- In 2003 North Dakota ranked first in the number of people with mental retardation or developmental disabilities receiving residential services in settings serving 15 or fewer people.
- In 2003 North Dakota ranked eighth in the nation for accuracy in food stamp determinations. The Food Stamp error rate for FFY 2003 was 4.85%, compared to a national average of 6.64%.
The Department provides efficient services.
- Leveraging of federal dollars for local needs: In 1993 and again in 2002, the national consulting firm, Maximus, determined that the Department was accessing all the federal dollars available, and that they would be unable to improve our system in this regard.
- For example:
- For every 16 cents of general fund, the Division of Children and Family Services is able to capture 84 cents in federal/other dollars that are then invested directly into North Dakota's economy.
- Regional human service centers are able to generate considerable federal Medicaid reimbursement for services provided to eligible clients, particularly individuals who received services because of a severe and persistent mental illness or a developmental disability. In the 2005-2007 budget request, the centers project generating $26.1 million in federal Medicaid reimbursement.
- In April 2000 upon the resignation of the Superintendent of the Developmental Center, the Department appointed Alex Schweitzer as Superintendent of the State Hospital and the Developmental Center. Subsequently, upon the retirement of four regional human service center directors in 2002-2003, shared directorships were established, reducing the number of regional directors from the previous eight to four. This has created efficiencies not only in the cost of administration, but also in the core service alignment among centers and in the sharing of resources between centers.
- Low administrative overhead: The Department is very proud of our overall administrative cost, calculated at 5.8%. Our administrative rate is well within the allowable government rate for most grants of 10% - 15%, and compares favorably with the published rate of Blue Cross/ Blue Shield of 8.2%.
- The overall cost to administer medical services, including the administrative costs incurred by the counties, is 4.1%. This is under private industry norms.
- FTEs have decreased by over 250 since the 1997 – 1999 legislatively approved level of employees.
- North Dakota was awarded a $1,319,990 TANF high performance bonus on September 30, 2004, for success in client job entry in 2003, improvements in job entry over 2002, and for improvements in Food Stamp participation over 2002.
- The cost effectiveness in Child Support continues to increase, rising to $5.37 collected to every dollar spent in FFY 2004, up from $5.10 the previous year.
- Pharmacy Services have implemented a variety of cost saving measures including co-pays for brand name medications, maximum allowable costs for over a thousand drugs, quantity limits for certain medications, and prior authorization. These program changes have saved an estimated $600,000 for the three years of implementation.
The Department provides effective services.
- In SFY 2004, children receiving services for serious emotional disturbance showed a 76.5% decrease in the annual number of psychiatric hospitalizations in the year following admission to services as compared to the year before admission.
- Child Support ranked second in the nation in FFY 2003 at collecting current support due each month with over 71% collected. In calendar year 2004, the program collected about $96 million, an increase of about 5% over the previous year.
- 90% (12 month average) of all Medicaid claims are paid to providers within 30 days and 98% (12 month average) are paid within 90 days.
- The Medicaid claims division had an average accuracy rate of 99.35% during FFY 2003.
- From 2001 to 2004, the Division of Children and Family Services, through contracts with the Adults Adopting Special Kids (Catholic Charities, Lutheran Social Services, and the Village Family Service Center) increased the number of children in special needs adoptions by 150%.
- The Department has received two major federal grants – an Alzheimer's Demonstration grant and a Real Choice Systems Change-Rebalancing Initiative grant which will support home and community based services, thereby reducing the reliance on institutional care and enhancing home and community based systems.
While the Department strives to ensure that the clients we serve become self sufficient members of the state of North Dakota, there will always be clients for whom self sufficiency is not possible: the elderly in nursing homes, some people with severe disabilities, and vulnerable children. It is important to note that as a society we will always need to provide a safety net to ensure their well-being. It has been said that a society is measured by the way it treats its young, old, helpless and ill. The Department lives by this standard and believes that through this budget North Dakota can say it truly measures up.
Highlights Of Significant Changes To The Executive Budget Made In The House
Medicaid Management Information System (MMIS)
- The removal of the entire funding for a new MMIS system compromises the processing of payments for medical services. This action could negatively impact the payment of claims to providers in a timely and accurate manner. It also potentially jeopardizes the 90/10 match from the federal government to develop the system.
- The current MMIS system is more than 26 years old, outdated, and no longer is capable of meeting the needs of our providers and clients (nursing homes, hospitals, clinics, physicians, pharmacists, dentists, ambulance providers, DD providers, QSPs, etc.).
- The federal government has 90/10 matching funds to help procure this system, and CMS approved the 90 percent funding for North Dakota on January 5, 2005. The President's proposed budget eliminates this enhanced funding and would replace it with a 75/25 match. If we postpone this process for two years, it could possibly cost approximately $5.2 million more in general funds.
- Major program enhancements such as the federally required Health Insurance Portability and Accountability Act (HIPAA) have caused major processing problems and were the direct cause of the claims backlog during the current biennium.
- If not replaced in time, new federal modifications that are coming could overwhelm our current system and could cause new delays in payments to our providers.
- The last legislature appropriated $1.6 million ($160,000 general fund) to contract with an independent vendor to help plan for the procurement of a new system. The vendor evaluated different alternatives and based on numbers from other states, determined that a turn-key or in-house system would save the state about $13.5 million in total funds or $3.5 million in general funds for the first eight years of operations. Although 36 other states use a Fiscal Agent (outsourcing with a vendor), no one to date disputes that an in-house system would be more cost effective.
- There is no guarantee that a fiscal agent operation would keep the entire system within the state of North Dakota. It could be built into the RFP but we would probably pay more since we are a very small program.
- A fiscal agent diminishes the control of the Governor, the Legislature, and the state for future cost operations, as potential change orders could increase the costs above the existing numbers.
Medicaid Grants – Drugs
- There was a $1 million general fund reduction to prescription drugs. This reduction is a concern because of the ever-present inflationary increases for medication.
- Also eliminated was $476,000 ($236,000 general funds) for a generic prescription drug detailing service and a reduction of an FTE to assist in the scrutiny of this program area.
Long Term Care
- HB 1252 changed the statutory requirement relating to inflation rates for nursing facilities. The House Appropriations Committee reduced the inflation factor to 2% per year, which is the same as all other Medicaid providers. An additional $4.9 million ($1.8 million general funds) would be necessary to restore to the Executive Budget level.
- The House Appropriations Committee reduced the number of nursing facility beds to 3,600 per month resulting in a reduction of $2.9 million ($1 million general funds). For the first five months of the 2005 SFY, the monthly average of fully occupied beds was 3,646.
Children and Family Services
- Reductions in Foster Care/Subsidized Adoption totaled $594,106, ($250,000 general funds). However, the trend in foster care and subsidized adoption caseloads is increasing not decreasing.
- Reductions of $1.4 million ($700,000 general funds) in DD grants were made by the House.
- If reductions remain, this could force families to seek a higher level of care for their children rather than keeping them at home.
- The Executive budget recognized the potential vacancies that may occur in the upcoming biennium and reduced the salary request by $725,000 from the general fund.
- Absorbing another $250,000 general fund reduction could not be sustained while still being expected to provide the same level of care.
- This reduction would result in a loss of $462,000 of federal funds.
Human Service Centers
- The operating reductions and salary underfunding in the human service centers seriously impacts their ability to retain sufficient staff and provide for adequate payment to providers. Since the centers serve as the safety net for the people with serious mental disorders and chronic chemical dependency, this will also impact the referrals to the State Hospital.