State Budgets at the Crossroads Implications for Medicaid System Funding for 2005 and Beyond NAMI July 2004

Other Key Issues in 2004 and 2005 Criminalization Children and adolescents Commitment (both inpatient and outpatient standards) Inpatient access Parity (enactment of new laws and refinement of existing laws) Access to services Shrinking priority population

Budgets and Medicaid “We are surrounded by insurmountable opportunities” Walt Kelly POGO

Medicaid Is Complex Confusing Changing And critically important

Medicaid Spending Medicaid spent $280 billion (est.) in more than Medicare! Serves 50 million people. Expected to grow 8 - 9% a year within the next decade; by that time it will exceed half a trillion dollars. After education, Medicaid is the largest component of State spending. On average, Medicaid accounts for nearly 20% of general fund expenditures in state budgets. Only Medicaid and corrections gained in budget share over the last decade.

Medicaid Spending as a Percentage of State General Fund Expenditures, FY 1999 (Kaiser Commission on Medicaid and the Uninsured) Public Assistance 3% Higher Education 13% Elementary & Secondary Education 35% Transportation <1% All Other 24% Medicaid 16% Total = $420 Billion SOURCE: National Association of State Budget Officers, 2004 State Expenditure Report, June Corrections 7%

Medicaid: Mandated Services Inpatient hospital services Outpatient services Physician Services Early, Periodic, Screening, Diagnosis and Treatment (EPSDT)

Medicaid: Optional Services Two-thirds of Medicaid expenditures are on optional services. Services provided by private practitioners IMD services for people under 21 or over 65 Clinic Services Home and Community based Service PACT Personal Care Services Prescription Medications Case management Screening, preventive and rehabilitative services

Source of Support: All MH Clients

State-level MH Financing Trends

The Budget Picture The last two years have been the toughest years for state government in recorded history. 44 states experienced revenues below projections. Overall shortfalls in FY 2002 amounted to 7.8% of revenues. The rate of Medicaid growth was 13%. Medicaid began to take away from other accounts in state budgets.

State Governments Reactions in 2004 to Budget Shortfalls General Strategies Reduce tax cuts Increase taxes Short term borrowing Hiring freezes/employee furloughs Use Rainy Day funds Delay planned expenditures Use Tobacco settlement monies Specific Strategies Reduce reimbursement rates to providers Use 1115 health Insurance Flexibility and Accountability (HIFA) waivers to CMS: reduce coverage by population served or benefit design Enhance utilization review and managed care in Medicaid Use across the Board Cuts Use targeted cuts while exempting some services: local education Enhance fraud and abuse capacity in Medicaid Maximizing federal match in Medicaid Restrict medication access

Medicaid pays for publicly financed mental health Medicaid now pays for more than 60% of the public MH services that states administer (SAMHSA) They are 30% of the “high cost” enrollees (NGA). Depending on the state, between 25% and 50% of persons receiving state MH services only receive them from Medicaid (NGA). Among 6-14 year olds, about 25% of Medicaid spending is for MH services: In some states it is as high as 40% (SAMHSA)

State Efforts to Control Pharmacy Costs Prior Authorization Fail First Deep Supplemental Rebates Generic First policies Co-payments 1998 Lewin Study (federally funded) found reductions in Medicaid Rx budgets gained by excluding effective drugs from coverage is more than offset by increases elsewhere in the system, such as increased hospitalization and ER visits.

Prescription medicines account for about 10% of total Medicaid spending SOURCE: Centers for Medicare and Medicaid Services (CMS, formerly HCFA). Medicaid Expenditures, FY1998 (the most recent data available from CMS). Includes fee-for-service and managed care.

Impact of Medicaid Drug Reimbursement Limits Source: Soumerai S, et al. Effects of limiting Medicaid drug-reimbursement benefits on the use of psychotropic agents and acute mental health services by patients with schizophrenia. New Eng J Me. Sept. 8, 1994

FY 2004 Medicaid Pharmacy Policy and Payment Changes AWP less greater discount 17 States More Rx under Prior Authorization 32 States Preferred Drug List 30 States (2003 and 2004) New or Higher Co-payments 17 States Seek Supplemental Rebates 21 States Require generics 5 States Limit Number of Rx per month 5 States Kaiser Commission Medicaid and the Uninsured

Impact of Lack of Access to Treatment Impact on Patient Impact on Illness Occasional Incomplete Recovery Positive Symptoms Relapse Days Weeks Months Optimal Loss of Job Rehospitalization Danger to Self/Others Negative Symptoms Relapse Loss of Confidence Full Recovery Family Discord Demoralization

HIFA 1115 Waivers Health Insurance Flexibility and Accounting Demonstration Initiative (HIFA). Waivers to expand Medicaid to groups currently not eligible. Federal budget neutrality requirement. New state discretion and incentives to cut benefits and impose cost-sharing for optional Medicaid beneficiaries. –Potential benefits cuts include rehabilitation services, case management, prescription drugs, and inpatient treatment.

The Medicaid Budget Dilemma Medicaid need goes up just when the state’s ability to pay for it goes down. States must cut total Medicaid spending $2-$4 to save one state general fund dollar. Every Medicaid cut affects local health care providers and individuals who need health care services. Medicaid spending cuts are usually needed immediately, but it takes time to achieve savings,

The Outlook Medicaid cost pressure will be driven by enrollment growth, more elderly and disabled, double-digit cost growth in the medical market place where Medicaid operates Even with a rebounding economy, increases in state revenues will be dwarfed by Medicaid expenditure growth Even if the economy improves, state revenues are not likely to recover as fast. State fund balances will be less available in FY 2005, adding pressure to cut costs. States will use HIFA and Section 1115 waivers to expand and restructure Medicaid coverage, and to relieve fiscal pressure.

Advocacy Strategies Get involved with decision making and advisory committees: DUR, Medicaid Advisory, Pharmacy and Therapeutics Committee and MH Planning Committee. Participate in state level coalitions. Collect stories and information about the impact of Medicaid cuts. Work with media. Support increase to FMAP. Remember Medicaid Policy is traditionally an “insiders game”. Invite the Medicaid Director and Pharmacy Director to speak at your convention and forums. Encourage DMH control of MH Medicaid allocations. Get involved in local, state and federal candidate education in the 2002 election. Become familiar with your state Medicaid Plan. Hold states accountable for outcomes !!!!!

Other Key Issues in 2003 Criminalization Children and adolescents Commitment (both inpatient and outpatient standards) Inpatient access Parity (enactment of new laws and refinement of existing laws) Access to services Shrinking priority population

Policy Advocacy “If you don’t have a strategy, you will be permanently reactive and part of someone else’s strategy.” Alan Toffler, Future Shock “All Politics is Local “ Tip O’Neil

Developing the Policy Battle Plan Identify the problem Get organized Choose the Right Target (who can solve the problem) Line Up Your Ducks (who is in favor/who is against) Watch the Clock (strategy and deadlines) Use the media Build your diverse coalition Create noise and momentum

Election 2004 Campaign GREAT OPPORTUNITY Forums Surveys