Steve Shannon, remarks to Blue Ribbon Tax
Wednesday, May 30, 2012 3:22 pm

      Hello my same is Steve Shannon and I am the Executive Director of the KY Association of Regional Mental Health and Mental Retardation Programs, Inc. (KARP).  KARP is the association of the fourteen (14) Community Mental Health – Mental Retardation Centers (CMHCs) throughout the Commonwealth.   

     The CMHCs are the public safety net for Kentuckians needing mental health, addictions and intellectual & developmental disability services and supports.  The CMHCs were established by the KY General Assembly in 1966 (KRS 210.370 – 485) following The Community Mental Health Act signed by President Kennedy on October 31, 1963.   The CMHCs served over 179,000 individuals in FY ’11 – this represents approximately 1 out of every 25 Kentuckians.  

     I want to re-emphasize that point – the CMHCs serve and support approximately 1 out of every 25 Kentuckians.  This is a great way to quantify the impact the CMHCs have on all communities throughout Kentucky.   In addition to serving a huge number of our neighbors, we employ approximately 9,000 individuals in a wide array of positions from administrative to clinical to medical.  Based upon data from the KY Chamber of Commerce, the CMHCs employ approximately 1 out of every 200 working Kentuckians.   

      As required by statute, the CMHCs have Board members representing all 120 counties; there are approximately 310 CMHC Board members who volunteer their time to provide oversight to the CMHCs.  We support local communities through employment, leadership and, most importantly, services to our most vulnerable neighbors.  We manufacture opportunities.      

       Lt. Governor Abramson and members of the Commission thank you for the opportunity to address you this evening. 

      As you know there are five (5) areas the Commission is charged with addressing: 1. Fairness 2. Competitiveness 3. Simplicity and Compliance 4. Elasticity 5. Adequacy

      I intend to focus my comments on Adequacy of the tax code and how tax code Adequacy directly impacts the CMHCs.  Adequacy is defined as “the Commonwealth’s tax structure should generate sufficient funds to support critical state services. The Commission is charged with reviewing the adequacy of revenues from the current tax structure and making recommendations for improvement.”

There are three (3) primary areas I want to discuss this evening:

(1) Impact on Individuals’ ability to access services and supports at their CMHC. (2) Impact on revenue at the CMHCs (3) Public policy decisions causing CMHC costs to escalate.

Impact on Individuals’ ability to access services and supports

      Please remember the CMHCs also include the 179,000 family members, friends, neighbors, and co-workers served and supported by them, their families and over 9,000 employees.  We are much more than fourteen 501 (c) (3) organizations.

      As I have previously stated, the CMHCs served over 179,000 individuals in FY ’11 (July 1, 2010 – June 30, 2011).  This is a significant number.  However, let’s put that figure in context to help us all understand this number is a measure of supply not a measure of demand for services.  Tax code adequacy must be a key measurement when calculating the Commonwealth’s ability to provide sufficient human service supply meets the escalating service demand. 

      The CMHCs increased people served from approximately 135,000 in FY ’01 to 169,745 in FY ’06: this represents an annual increase in people served of approximately 4.7%.  This analysis is based upon people served between 2001 – 2006; not the total demand for services.  The CMHCs were not serving 100% of people needing services and supports during this five-year period. 

      Now, let’s look at the next five year window (FY ’06 to FY ’11).  The CMHCs served 169,745 in FY ’06 and 179,495 in FY ’11: this represents a 1.1% annual increase in people served. 

      Now, I would like to be able to tell you we only served approximately 1.1% more people each year because that is the demand.  Unfortunately, that is not the case. 

      During economic downturns demand for human services increases, we are a counter-cyclical industry, there is probably an elasticity calculation for human services.  If we had continued to increase at 4.7%, in FY ’11 the CMHCs would have served over 213,500 individuals.  The difference is approximately 34,000 people – 34,000 daughters, sons, brothers, moms and dads . . . An easy way to quantify this number is 34,000 is just a bit more than 50% of the population of McCracken County: therefore, as you leave tonight think about 1 of every 2 people you see being denied access to or waiting for services. 

      Now, the question is what happened to all those folks?  Did they sit at home waiting patiently for their opportunity to see a therapist, psychiatrist, participate in a day program, be visited by a case manager, attend school or more significantly make friends or have a date?  No, emphatically NO.  Folks who need services do not disappear, they will spend their day somewhere, doing something.  Such as:

1.  ALONE 2.  Fighting with their family 3.  Having a really, really hard time 4.  Jail 5.  Hospital Emergency Rooms 6.  Alternative Schools 7.  Suspended from School 8.  State Psychiatric Hospital 9.  Institution 10.  Losing their jobs or their chance to work 11.  Living on the Streets 12.  Homeless Shelter 13.  Contemplating Suicide or worse 14.  Overdosing

      The CMHCs strive to serve 100% of the individuals who need services and supports; not 99% not 101%.  We are not serving nearly enough people who need services and I believe the tax code’s inability to generate sufficient revenue for the Commonwealth is the number 1 reason why.  How does the current tax code’s inability impact the CMHCs revenue picture? 

Impact on revenue at the CMHCs       CMHCs have two significant sources of revenue from the Commonwealth.   CMHCs receive state general fund dollars through the Department of Behavioral Health, Developmental and Intellectual Disabilities (DBHDID).  Some of these funds are for specific services like Crisis Response while the majority of the funds are categorized as Community Care Dollars which are designated for individuals who do not have a payer source, indigent care dollars.  This pot of dollars has not increased in over 14 years, actually we have really lost track of last increase.  There was a slight reduction in one biennium followed by a slight increase in the next; essentially this was a zero sum gain to the CMHCs.  We want to thank the Governor for not cutting us during the recent budget cuts.  However, these dollars have remained flat for at least 14 years.  I need to emphasize the amount has remained flat so when adjusted for inflation there has actually be a reduction in purchasing power of the Community Care Dollars. 

      The second significant source of funding for the CMHCs is Medicaid dollars.  The CMHCs provide Medicaid eligible services to Medicaid eligible individuals and get reimbursed for those services.  The CMHCs have specific rates for specific services.  The Medicaid rates paid to the CMHCs are based upon the FY 1999 cost report and went into effect on July 1, 2001.  Therefore, the CMHCs are receiving the same rate today for an outpatient clinic service as they received July 1, 2001; almost 11 years ago.  Like the Community Care Dollars, when the frozen Medicaid rates paid to the CMHCs are adjusted for inflation there has actually be a reduction in purchasing power of those rates.

      Is the inadequacy of the tax code the sole reason for flat state general funds and frozen Medicaid rates?  Probably not the sole reason but I am confident overall state revenues do contribute substantially to both the flat state general funds and frozen Medicaid rates.

Public policy decisions driven by insufficient tax revenues causing CMHC costs to escalate.

· KY Employee Retirement System · Medicaid Managed Care · Supports for Community Living & Michelle P. waiver services

   KY Employee Retirement System KERS employer contribution has steadily increased for all participating employers.  Public dollars have not been available to be invested to offset the KRS unfunded liability.  This creates an unsustainable burden on all participating employers including the Commonwealth and the CMHCs. 

    We believe the significant increase in the employers’ contribution to KERS since the end of SFY 2006 poses the greatest threat to the financial stability of the CMHCs participating in it.  Since the end of SFY 2006 (June 30, 2006) to present the KERS mandated employers’ contribution has increased from 5.89% to 19.82%.  Unfortunately, the CMHCs will experience additional increases in SFY 2013 and SFY 2014 to 23.61% and 26.79% respectively.  I cannot adequately emphasize the huge risk this escalating unfunded mandate poses to the CMHCs and the individuals served and supported by them.   The employer contribution impacts all facets of operations at the participating CMHCs.  Every decision made by the leadership of the CMHCs must be viewed through the KERS employer contribution lens.

· The CMHCs ability to secure competitive grant funding is hampered by it.  · Service expansions to new markets and service diversification are restricted by having to account for a 24% and increasing employer contribution.  · We are reluctant to hire new staff since we must be able to support the employer contribution. · The CMHCs salary levels have become less competitive since dollars must be directed to the employers’ contribution and away from direct wages.

FY ’06 – 5.89% FY ’07 – 7.75% FY ’08 – 8.5% FY ’09 – 10.01% FY ’10 – 11.61% FY ’11 – 16.98%  FY ’12 – 19.82 FY ’13 – 23.61% FY ’14 – 26.79%  Each 1% increase represents approximately $2.8 million.

Medicaid Managed Care

 As I am sure everyone knows Medicaid managed care was fully implemented on Tuesday November 1, 2011.  Currently, twelve (12) of fourteen (14) CMHCs are providing behavioral health services under contract with the three (3) managed care organizations operating outside of the Passport region.  The two (2) CMHCs in the Passport region, Communicare (Elizabethtown) and Seven Counties Services (Louisville) are working with Passport to expand Medicaid managed care to behavioral health services in their respective regions and are providing limited behavioral health services through the three (3) MCOs.  The fourteen (14) CMHCs have signed contracts with the three (3) MCOs.

 The CMHCs have been very active with the three (3) MCOs during the implementation of Medicaid managed care.  This process has been very time consuming but our goal is to insure the individuals served will maintain their respective services and this can only be accomplished by the continued viability of the CMHCs in a Medicaid managed care environment. There are concerns that we continue to address.

1. The first concern is the increased administrative cost associated with Medicaid managed care.   

         A. The CMHCs now have three (3) additional billing and claims processes.  The CMHCs’ business offices have and continue to invest significant time on MCO claims submission, including in some cases an expansion of staff necessary to track and follow-up on the now cumbersome authorization, billing and collection processes.  

         B.  Also, we are required to submit outpatient treatment requests (OTRs) to two (2) MCOs and notify the third of services we have provided.  The OTRs are prior authorization forms.  These are completed by clinicians and the time needed to complete them is uncompensated; even if the time is relatively small it is still time taken away from providing services.   

         C. The utilization review process imposed by the MCOs will result in additional administrative costs.  

         D. The reporting requirements have also increased; therefore, the CMHCs are required to report additional information to each of the MCOs.  

         E. CMHCs are required to report the same data to the MCOs and the DBHDID – it would make sense to report it one time and let the MCOs and DBHDID share the information.  

         F. The CMHCs will need to confirm, each visit, with which MCO the person is enrolled to assure the proper procedures are taken for the specific MCO.  This is another step which must be completed for every Medicaid service delivered. 

         G. Since the CMHCs serve a relatively large number of individuals who are Medicaid beneficiaries, the compounded increase on administrative costs will be significant.

2. The second concern relates to the impact on the revenues the CMHCs derive from Medicaid services.  We know the administrative expenses have increased.  However, as anticipated by the CMHCs revenues (as measured by MCO payments) have decreased.   This was anticipated since the Cabinet for Health and Family Services reported savings to the Medicaid program due to the signed contracts with the MCOs and the MCOs reporting administrative costs and profits in the 6% to 10% range.  If the total funds available for Medicaid services are reduced either by saving or MCO costs, the CMHCs have and will continue to experience a reduction in revenues. 

 Medicaid managed care was solely implemented to balance the Medicaid budget.  There may be some better health outcomes achieved but the public policy driver was a significant Medicaid shortfall caused by an inadequate tax code to meet the physical and behavioral healthcare needs of over 800,000 of our family members, friends, neighbors and co-workers.

 Decreasing revenues and increasing administrative costs can only mean less access to services for individuals currently served or needing services in the coming years.  This is clearly problematic for individuals and families.

Supports for Community Living & Michelle P. Waiver Programs

      The Supports for Community Living and the Michelle P. waiver are both 100% Medicaid funded services for individuals with intellectual and developmental disabilities designed to enable individuals served to remain close to home, families and friends.

     The rates for both the SCL and Michelle P. have remained frozen for the past seven years.  As mentioned, the frozen rates have been caused by inadequate state revenues.  These frozen rates will ultimately impact access to community-based services and supports as providers either stop providing these services or elect not to expand their current service array.  In addition, some providers may opt to discontinue providing costly services and supporting individuals who need more intensive services and supports.    Medicaid managed care poses significant challenges to the CMHCs due to increasing administrative costs and most likely decreasing revenue.  Other Medicaid programs, like SCL and Michelle P., have frozen rates.  Clearly, KERS has increased personnel costs and will continue to do in the coming years.  The CMHCs continue to see more people (27% increase), provide more services (45% increase) while revenue does not keep pace (19% increase).  This is a formula which cannot be sustained and is strongly correlated to an inadequate tax code. 

     The future of the fourteen (14) CMHCs does not appear to be bright as costs continue to grow and revenue from our largest source most assuredly will decrease.  The financial viability of KY’s behavioral health safety net is in question.  Actually, as reported the KY Legislative Research Commission Program Review and Investigations Committee it may not be in question; it may be fairly certain to be at risk. 

    This risk forces us to ask what will happen to the 179,000 Kentuckians currently accessing services and what will happen to individuals in the coming years who show the first signs of a mental illness, an addiction or an intellectual or developmental disability?  It also leads directly to ask what will be the true impact of insufficient behavioral health safety net services on local communities and businesses as well as other community systems such as schools, law enforcement, courts, jails and hospital emergency departments.

     When President Kennedy signed the legislation creating the CMHC system of care he said: “There are risks and costs to action.  But they are far less than the long range risks of comfortable inaction.”

I respectfully ask you on behalf of the CMHCs please make yourselves uncomfortable and act to establish a tax code for the Commonwealth that insures everyone the opportunity to live a productive life without fear of institutionalization, abuse, or neglect, in a safe community where employment, yes having a job, is the outcome for all.