Current and Emerging Fiscal Policy Issues

1. Current and Emerging Fiscal Policy Issues Presentation to Virginia Network of Private Providers Susan Massart, House Appropriations Committee Mike Tweedy, Senate Finance Committee October 15, 2015

2. Health & Human Resources2015 Session • How Did We Begin the 2015 Session? • What Changed in the 2015 Session? • Spring Revenue Changes • Impact of Revenue Changes and Adoption of HB 1400 • Looking toward the 2016 Session

3. How Did We Begin the 2015 Regular Session? • At the beginning of the 2015 Regular Session, the Governor’s proposed biennial budget (HB 1400) included a net spending increase of $87.2 million for the FY 2014-16 biennium • HB 1400 amended the 2014-16 budget passed in the 2014 Special Session I. • Assumed $94.8 million in additional resources • Included $51.7 million in year-end balances and $272 million in savings strategies • Contained an unappropriated balance of $7.6 million GF • Assumed growth rates in revenue (no change from prior budget): • FY 2015: 2.7% • FY 2016: 2.9%

4. How Did We Begin the 2015 Session?Health & Human Resources (HHR) • HB 1400 included a net decrease of $193.5 million GF over the biennium for HHR, with 69% of new funding driven by mandated programs • Additional spending of $85.6 million offset by $279.1 million in declining expenditure forecasts and savings strategies • Net decrease of $267.7 million GF for Medicaid and FAMIS forecasts • Medicaid forecast savings would have been greater except for inclusion of $116.9 for the Governor’s “A Healthy Virginia” initiatives • Mandatory spending was mainly related to lower revenue for the Health Care Fund, expected loss of Medicaid revenue at Piedmont Geriatric and Catawba Hospitals, delay in individuals transitioning from training centers, increase in involuntary mental commitment costs, offset loss of child support enforcement revenue, and backfill loss of Medicare incentive payments. • Discretionary spending included costs to redesign the Day Support Waiver along with rent subsidies ($1.9 million GF). • Included savings of: • $194.7 million GF in Medicaid forecast savings • $51.4 million by using a cash balance in the Health Care Fund • $21.6 million GF in FAMIS forecast savings

5. HHR Issues for 2015 Session • Governor’s Access Program (GAP) for the Seriously Mentally Ill • Foster Care to 21 • ID/DD Waiver Redesign • Provider Rates • Mental Health Services • Other Medicaid Provider Rates • Safety Net Programs for the Uninsured • Fee Increases in the Governor’s Budget

6. HB 1400: Major Differences BetweenHouse and Senate HHR Budgets (GF $ in millions)

7. HB 1400: Major Differences BetweenHouse and Senate HHR Budgets • Behavioral Health (biennial amounts) • House: Modified Income Eligibility for GAP Program from 100 to 60% and eliminated a waiting list for services • House: Therapeutic Drop-Off Centers ($1.6 million GF) • House: Child Crisis Psychiatry and Crisis Services ($2.5 million GF) • Senate: Permanent Supportive Housing ($4.3 million GF) • ID/DD Waivers (biennial amounts) • Senate: Increased rates per consultant rate study ($8.2 GF) – included a one percent rate increase for group homes • House: Delayed Day Support waiver redesign (-$1.9 million GF)

8. HB 1400: Major Differences BetweenHouse and Senate HHR Budgets • Medicaid Provider Rates • Senate: Increased personal care rates by two percent ($5.5 million GF) • Senate: Eliminated ER fee reduction for non-ER claims ($2.2 million GF) • Senate: Increased Medicaid supplemental payments to Children’s Hospital of the King’s Daughters ($1.4 million GF) • Health Safety Net Services • House: Expanded Services at Free Clinics ($3.1 million GF) • House: Expanded Services at Community Health Centers ($2.5 million GF) • House: Funded additional Medication Assistance ($0.5 million GF)

9. HB 1400: Major Differences BetweenHouse and Senate HHR Budgets • Services for People with Disabilities • House: Increased funding for Vocational Rehabilitation Program ($1.0 million GF) • House: Increased funding for Brain Injury Program ($750,000 GF) • House: Increased support for Public Guardianship ($500,000 GF) • Other HHR • House: Eliminated Foster Care to 21 Program (-$3.2 million GF) • Senate: Included language directing development of a Medicaid Provider Assessment for Hospitals

10. 2015 Session: Conference • The House and Senate Budget Conferees found common ground on most of the major differences in each Chamber’s budget in late February • During Conference, an update to the revenue forecast occurred, resulting in additional GF resources available • Additional money helped resolve many differences in Conference • Forecast of 4.7% in FY 2015 and 3.3% in FY 2016 • The Final Conference Report reflected an adjustment to the biennial revenue forecast of $532.2 millionwhich was primarily used for: • High-Need Capital Outlay ($141.4 million GF) • Rainy Day Fund deposit ($129.5 million GF) • Compensation Increase ($113.9 million GF) • VRS Rates ($32.3 million GF)

11. HHR Conference Actions • Adopted New Program for the Seriously Mentally Ill ($96.5 million GF) • Provides targeted mental health and medical services to individuals with serious mental illness • Income eligibility up to 60 percent of the poverty level • Allows nearly 22,000 individuals access to needed care, eliminates waiting list • Provided $42.1 million GF of additional funding in HHR • Community Behavioral Health Services ($8.9 million GF) • $3.0 million GF for 3 additional PACT teams • $1.8 million GF for 6 additional therapeutic drop-off centers • $2.0 million GF to expand children’s psychiatry and crisis services • $2.1 million GF to provide stable, supportive housing for 150 individuals with serious mental illness • Safety Net Services ($27.6 million GF) • $23.0 million GF to enroll 35,000 children in Medicaid and FAMIS, allow state employees to enroll their children in FAMIS, and provide dental coverage to 45,000 pregnant women enrolled in Medicaid for FAMIS MOMS • $3.1 million GF for Free Clinics • $1.0 million GF for Community Health Centers • $500,000 for medication assistance counselors

12. HHR Conference Actions • Medicaid Provider Rates ($15.4 million GF) • $8.2 million GF and $8.2 million NGF in FY 2016 to increase Medicaid Intellectual and Development Disability waiver rates • Includes a 2% increase for congregate care rates, 5.5% for in-home residential supports, 2% for day support and prevocational services, 10% for therapeutic consultations and 15.7% for skilled nursing services • $3.5 million GF and $3.5 million NGF in FY 2016 to increase Medicaid personal care rates by 2% • $2.2 million GF and $2.2 million NGF to eliminate the practice of pending and reducing Medicaid payments for emergency room triage services • $1.4 million GF and $1.4 million NGF in FY 2016 to increase supplemental physician payments at Children’s Hospital of The King’s Daughters • Services for Individuals with Disabilities ($4.2 million GF) • $1.0 million GF for the vocational rehabilitation program to address the waiting list • $864,943 GF to restore and expand funding for long-term employment support services • $750,000 GF to restore and expand funding for community-based brain injury services • $600,000 to restore funding for personal care services for disabled individuals who are not eligible for Medicaid • $580,800 GF to restore funding reductions for the Centers for Independent Living • $400,000 to restore funding for Didlake • $605,000 GF in FY 2016 for Part C early intervention services for infants and toddlers • $500,000 for public guardianship services

13. HHR Conference Actions • Elimination of Fee Increases • $3.7 million GF in FY 2016 to rollback the proposed restaurant inspection fee from $285 to $40 • $947,000 GF in FY 2016 to eliminate the proposed licensing fee for providers of adult behavioral health and developmental services • $221,568 GF in FY 2016 to eliminate a proposed increase in the tobacco stamp tax • $117,000 GF to eliminate proposed fees for Community Services Boards and private providers in order to use on-line training courses offered by the Dept. of Behavioral Health and Developmental Services • Key Budget Language • Directs the Secretary of Health and Human Resources to conduct an analysis of provider assessments and present a plan with options for consideration by the 2016 General Assembly • Requires the Secretary to convene a workgroup on the Certificate of Public Need (COPN) process and report back to the General Assembly prior to the 2016 Session • Directs the Department of Medical Assistance Services and the Department of Behavioral Health and Developmental Services (DBHDS) to develop a comprehensive plan for the redesign of the Medicaid Intellectual and Developmental Disability waiver programs • Directs DBHDS to review Piedmont Geriatric and Catawba hospitals and examine alternate options for care • Continues a joint subcommittee of the House Appropriations and Senate Finance Committees to monitor training center closures, options for transitioning individuals into the community, and plans for redesigning Medicaid waivers

14. Virginia’s General Fund Budget82% of the GF Budget goes to Education, Health and Human Resources, and Public Safety • 30% of the general fund budget is comprised of HHR funding • Medicaid and Children’s Health Insurance makes up 71% of the HHR general fund budget at $7.8 billion • DBHDS’ budget is the next largest at almost $1.4 billion comprising only 12.3% of the HHR general fund budget

15. Budget Development Reality • The Governor and the General Assembly largely operate on the margin when it comes to the budget • Many decisions are driven by federal mandates, state law, and previous “high-priority” commitments that often require funding changes related to enrollment and/or population growth • Discretionary spending proposed by Delegates and Senators compete with new spending proposed by the Governor • While general fund revenues are improving, growth will not be sufficient to satisfy agency budget requests

16. Where Are We Now? • Surplus - What Surplus?

17. Where Are We in the Budget Process? • First time in several years that state agencies have not been asked to submit budget reduction proposals • State agencies have just completed the first round of budget requests to the Department of Planning and Budget • Requests reflect “have to do” or mandatory programs and other agency priorities • Requests for the current year total $77.5 million • Requests for the 2016-18 biennium total $2.1 billion • Increasing costs of mandatory programs appear to be significant • K-12 Standards of Quality Rebenchmarking • Per diem payments to local and regional jails • Inmate medical costs • Aid to local police departments

18. HHR Budget Drivers • For Health and Human Resources a number of big issues will drive budget decisions • Medicaid and Children’s Health Insurance Program forecast • Medicaid provider rates • U.S. Department of Justice Settlement Agreement • Redesign of the Medicaid waivers for individuals with intellectual and developmental disabilities • Behavioral health and substance use disorder treatment services, including psycho-geriatric system of care • Children’s Services Act (formerly Comprehensive Services Act or CSA) • Foster Care and Adoption Subsidy caseloads • Information technology needs

19. HHR Budget Drivers • Forecasts for HHR “mandatory” programs are still being developed • Medicaid and Children’s Health Insurance Program forecast • Foster Care and Adoption Subsidies • Budget requests for other mandatory and high priority programs indicate growing costs, for example: • Medicaid provider rate increases total $95.4 million GF over the 2016-18 biennium • Children’s Services Act (formerly Comprehensive Services Act) caseload and utilization • $16.4 million in FY 2016 • $32.8 million over the 2016-18 biennium • Medicaid decertification of Hancock Geriatric Treatment Center at Eastern State Hospital will require up to $4.7 million in FY 2016 and up to $20.3 million over the 2016-18 biennium, depending on policy decisions • Agency information technology requests total $38.6 million GF over the 2016-18 biennium

20. U.S. Dept. of Justice (DOJ) Settlement Agreement • Agency budget requests to comply with DOJ Settlement Agreement (not including waiver redesign) • $7.3 million GF in FY 2016 • $49.2 million GF over the 2016-18 biennium • October 23, 2015 status conference between parties in open court could influence funding decisions • DOJ filed a Statement of Issues and Motion for a Court-Ordered Schedule regarding the implementation of the Settlement Agreement • DOJ cites a number of issues that necessitates a court-ordered schedule for compliance • Failure to develop community services and integrated setting • Crisis services do not meet the needs of the ID/DD population • Failure to provide integrated living settings • Continued reliance on segregated housing and inappropriate placements • Failure to provide more integrated settings for children in nursing facilities and large institutions • Failure to provide skilled nursing services for medically complex individuals • Failure to provide integrated day opportunities • Failure to ensure quality and risk management

21. ID/DD Waiver Redesign • DBHDS proposal has been submitted to Department of Planning and Budget for fiscal review • Preliminary costs for the ID/DD waiver redesign • $24.8 million GF over the 2016-18 biennium for rate increases • $7.8 million GF over the biennium for new services • Costs will be refined during the fiscal review process • House Appropriations and Senate Finance Subcommittees on Health and Human Resources had preliminary briefings on the waiver redesign but several policy decisions and fiscal decisions had not been finalized

22. The Road Ahead • Caution will continue to be the guiding principle in any funding decisions going forward • Revenue growth will not meet programmatic requests, so difficult decisions will have to be made • Medicaid forecast will be key in any decision-making due to the magnitude of the program • Tenor and substance of court-ordered changes to the DOJ Settlement Agreement will impact budget decisions • Fiscal and operational uncertainties related to the state’s delivery system for psycho-geriatric treatment will be an issue • Health care safety net will continue to be an issue • Work of the Joint Subcommittee to Study Mental Health Services in the 21st Century may influence budgetary decision-making during the 2016 Session • Election results may play a role in defining key issues for Session

23. Sources of Budget Information House Appropriations Committee Website http://hac.virginia.gov/ Senate Finance Committee Website http://sfc.virginia.gov/ Department of Planning and Budget http://www.dpb.virginia.gov/ Commonwealth Datapoint (APA) http://datapoint.apa.virginia.gov/ Virginia Performs http://vaperforms.virginia.gov/