DHHS: Medicaid budget solid for 2015

Posted November 18, 2014

Lawmakers get update on DHHS operations

— State Department of Health and Human Services leaders had some good news for lawmakers Tuesday: Medicaid is expected to stay within budget this year. But the agency still faces other money woes.

At an oversight committee hearing Tuesday morning, consultant and acting Medicaid Finance Director Rudy Dimmling rolled out budget projections for fiscal year 2014-15 based on the first quarter's spending.

According to Dimmling, the forecasting model developed by his employer, Alvarez and Marsal, shows Medicaid staying within its certified budget for the first time in years.

"As of now, our base case assumes we’ll be $68 million lower than budget," he said.

First-quarter spending was $528 million higher this year than last, Dimmling said, but most of that is due to timing quirks that will resolve as the year goes on. About $144 million of the difference was due to increased enrollment of 5.8 percent over last year, a figure well within the expected growth lawmakers budgeted for. Only $74 million of the difference was a surprise: increased spending on prescription drugs.

"That is quite alarming. We need to be aware of that," Dimmling warned lawmakers.

In past years, higher prescription spending has been mostly due to rising drug prices. Some of this year's increase is, too, specifically some expensive new drugs for hepatitis C. But most of the $74 million jump is due to higher drug utilization. 

“Physicians are writing more prescriptions," said DHHS Secretary Aldona Wos. “We are forming a SWAT team on this issue.”

Reps. Donny Lambeth, R-Forsyth, and Marilyn Avila, R-Wake, urged Wos to be careful about attempts to crack down on the increase. 

Avila pointed out that current trends in medicine favor prevention and management of conditions, often through prescription drugs, instead of acute care responses such as surgeries or more expensive therapies.

"Let’s look at cost avoidance," she urged Wos. "We’ve got to do a deep analysis of why these doctors are writing these prescriptions." 

"There is a lot of pressure on the medical community to keep patients out of the hospital," Lambeth said. "I think you'll see some things there that are saving money in other categories."

Dimmling also warned lawmakers that the forecast is "constantly evolving" and could change if there's an outbreak of disease this year, such as flu or enterovirus D68, or if the state has to spend money on potential emerging threats like Ebola.  

Mental health shortfall

Not all of the DHHS budget news was good, though. Legislators also learned that the Division of Mental Health has been operating under a structural deficit since 2008. 

According to DHHS Budget Director Jim Slate and State Operated Healthcare Facilities Director Dale Armstrong, Medicaid rule changes at the federal level in 2007 increased the operating costs of the state's mental hospitals.

In addition, Broughton and Cherry hospitals lost their certifications at points in 2007 and 2008, making them ineligible for Medicaid reimbursement for care. That meant the state had to pay the entire cost for those periods, far more than its budgeted share.  

Tens of millions more were needed from 2009 to 2011 to keep the doors of Dorothea Dix Hospital open while the transfer of patients to the new Central Regional Hospital was delayed. That, too, was money not included in the division's operating budget.  

Those shortfalls and overruns snowballed from one year to the next, leaving the division with a structural shortfall that has ranged from nearly $38 million in June 2011 to $13.5 million in June 2014.

As a result, Slate said, the division has run out of cash before the end of each fiscal year, delaying end-of-year payments into the next budget year, perpetuating the shortfall.  

Pam Kilpatrick with the Office of State Budget and Management, said state budget officials have helped out where they could by adding lapsed salary and other funds to shore up the division's bottom line. In addition, Armstrong said better budget management, consolidation and efficiencies have helped shave about $14 million off its operating costs to date, and more changes this year should save another $9 million. 

Still, Slate said, the agency will need about $11 million more this year to resolve the structural deficit, and more ongoing funding will be needed to make the agency financially stable.

Slate said several changes have cut into hospital revenue in recent years. The state hospital system cares for about 3,000 patients "with significant disabilities," most of whom have no insurance and no ability to pay, he said. The increased acuity of their illnesses also requires higher staffing levels. 

"I still think we’re going to have an issue that needs to be addressed," he told lawmakers. "We've got to be able to adjust these facilities for inflation and payer-mix changes."  

Legislators expressed "disappointment" that the division had not been able to save more money through cuts and efficiencies. 

Armstrong said he'll continue to look for further savings.

"It gets to the point where you can't cut any further, and if you do, it begins to affect services that are rendered," he said. "The only way to look at additional cuts is to look at changing the array of services we provide, and we hope we don't get to that point." 

Hiring still a problem

DHHS is also still facing trouble with job vacancies and turnover, officials said Tuesday. 

The turnover rate at the agency has declined from 21 percent in 2009 to 16 percent in 2014.  But vacant positions aren't being filled quickly. Out of 18,509 positions statewide at DHHS, 2,441 are currently unfilled – a vacancy rate of 13.2 percent.

DHHS Human Resources Director Mark Gogal thanked lawmakers for giving the agency more salary flexibility and additional money to attract and retain key employees, such as physicians and information technology professionals, who could make much more money in the private sector.

Gogal urged lawmakers to extend DHHS' salary flexibility and to consider giving the agency more hiring flexibility as well. He said regulations requiring outside approval of some hires can delay the hiring process by as much as six weeks – a real problem in a field as competitive as health care services. 

"When approval takes longer, we lose candidates," he said. “We have lost people because of that turnaround time.”


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  • stymieindurham Nov 21, 2014

    Hmmmmm. Even with 4 million new comers????

  • jimcricket15 Nov 20, 2014

    Well good luck with this. The TRUTH is, if costs are not greater than your guesstimate of what will transpire in 2015, you were lucky.

    "A clever spin, considering it's really easy to still be within budget in the first quarter - that just means you haven't spend your entire year's budget, yet!"

    Disagree, I worked a job where I created the budget and we watched it carefully, plus in a typical year we could expect to get cuts during the course of the year. We had the ability to control the actual spending, and DHHS doesn't have the ability to control how many people obtain medical care. Truth is this program will rise in cost every year until it is no longer sustainable. Should be fun when that brick wall arrives.

  • Matt Wood Nov 20, 2014
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    I take this with a grain of salt. It's only within budget because they FINALLY started budgeting more, instead of making tons of cuts at the beginning of the fiscal year and then having to supplement the budget later in the fiscal year.

    It's also disconcerting that first-quarter spending alone is already over $528 MILLION more than last year, "due to timing issues." Here's another timing issue for ya: ACA enrollment just started. How much higher do you think that will go once enrollment closes?

    It's interesting to note that they're still "within budget" despite the noted overages, as well as the Division of Mental Health deficit. A clever spin, considering it's really easy to still be within budget in the first quarter - that just means you haven't spend your entire year's budget, yet!

    I have zero faith in Wos, but Dimmling is a new name to me, so we'll see how well he does.

  • miseem Nov 19, 2014

    View quoted thread

    Correct. And it seems like the NCGA has started doing realistic projections of costs, now that they don't have any way to point fingers at someone else. But with the recent election victories, forget about suggestions in the last days of the campaigns that NC may join states expanding Medicaid. Or that they will double down on their efforts to repeal the ACA. And forget the rest of their promise to replace it with something better.

  • CherryDarling Nov 19, 2014

    "expected to" doesn't mean "it will"...