2004-2005 NEW YORK STATE EXECUTIVE BUDGET
HEALTH AND MENTAL HYGIENE
ARTICLE VII LEGISLATION
MEMORANDUM IN SUPPORT

CONTENTS

MEMORANDUM IN SUPPORT

A BUDGET BILL submitted by the Governor in
Accordance with Article VII of the Constitution

AN ACT to amend the state finance law, in relation to appropriations to the Alzheimer’s disease assistance fund; to amend the public health law, in relation to the patient health information and quality improvement act; to amend the public health law and the penal law, in relation to control of forged and altered prescriptions; to amend the public health law, in relation to general public health work reimbursement; to amend the public health law, in relation to directing the comptroller to establish the quality of care improvement account; to amend the public health law, in relation to the clinical reference fee paid by clinical laboratories and blood banks for permitting and evaluation activities; to amend the executive law, in relation to the elderly pharmaceutical insurance coverage program; to amend the public health law and the insurance law, in relation to early intervention program parental fees, provider fees and other local cost efficiencies; and to repeal chapter 438 of the laws of 2002 relating to providing for a study by the department of health of infection control in endoscopy; and to repeal certain provisions of the public health law relating thereto (Part A); to amend the mental hygiene law, in relation to the reinvestment of funds into state operated community-based programs for persons with serious mental illness, including children and adolescents with serious emotional disturbances, based upon inpatient bed closures and the closure of state-operated psychiatric centers (Part B); to amend part R2 of chapter 62 of the laws of 2003, amending the mental hygiene law and the state finance law relating to the community mental health support and workforce reinvestment program, and the membership of subcommittees for mental health of community services boards and the duties of such subcommittees and creating the community mental health and workforce reinvestment account, in relation to extending the effectiveness of the provisions thereof; and in relation to the creation of the commission for the closure of state psychiatric centers for the purpose of recommending future closures of state psychiatric centers (Part C); to amend the social services law, the public health law and the insurance law, in relation to hospital payments and reimbursements from certain pool distributions; to amend chapter 2 of the laws of 1998 amending the public health law, the social services law and the insurance law relating to expanding the child health insurance plan, in relation to the effectiveness thereof; to amend chapter 703 of the laws of 1988 relating to enacting the expanded health care coverage act of nineteen hundred eighty-eight and amending the insurance law and other laws relating to expanded health care and catastrophic health care coverage, in relation to the effectiveness thereof; to amend chapter 383 of the laws of 2001, amending the tax law and other laws relating to authorizing the division of the lottery to conduct a pilot program involving the operation of video lottery terminals at certain racetracks; and to repeal subparagraphs (xi) and (xii) of paragraph (e) of subdivision 1 and subdivision 4 of section 369-ee and title 11-A of article 5 of the social services law, clause (I) of subparagraph (i) of paragraph (b) of subdivision 1 of section 2807-l of the public health law and section 7 of part J of chapter 63 of the laws of 2001 amending chapter 20 of the laws of 2001 amending the military law and other laws relating to making appropriations for the support of government, relating thereto (Part D); in relation to requiring the commissioner of mental health to review the rates of payment for services at outpatient mental health facilities subject to licensure by the office of mental health and the department of health and to determine if modification of such rate methodology is appropriate (Part E); to address inequities in medical assistance reimbursement rates for methadone maintenance treatment services licensed in accordance with article 28 of the public health law (Part F); and to amend the social services law and the public health law, in relation to reimbursement rate for certain services; to amend the public health law and the social services law, in relation to hospital and personal care assessments; to establish a medicaid long term care task force; to amend the social services law, in relation to reimbursement for certain services; to amend the public health law, the social services law and the executive law, in relation to creating the preferred drug program; to amend chapter 433 of the laws of 1997 amending the public health law and other laws relating to the rate of reimbursement paid to hospitals and residential health care facilities, in relation to the applicability of certain provisions of such chapter; to amend the social services law, in relation to medical assistance; to amend the social services law, in relation to co-payments for prescription drugs; to amend the social services law, in relation to temporary management of health maintenance organization and prescription drug coverage for dual eligibles; to amend chapter 474 of the laws of 1996 amending the education law and other laws relating to rates for residential health care facilities, in relation to certain periods of effectiveness; to amend chapter 1 of the laws of 2002 amending the public health law, the social services law and the tax law relating to the Health Care Reform Act of 2000, in relation to the certain time periods within which certain funds are transferred; to amend chapter 659 of the laws of 1997 constituting the Long Term Care Integration and Finance Act of 1997, in relation to the effectiveness of certain provisions of such act; to amend the social services law, in relation to definition of medical assistance; to amend the public health law, in relation to certain research and demonstration projects regarding reimbursement, delivery or eligibility for medical assistance; and to amend the public health law, in relation to powers of the commissioner of health; and to repeal certain provisions of the social services law and section 3-a of part Z2 of chapter 62 of the laws of 2003, amending the general business law and other laws relating to implementing the state fiscal plan for the 2003-2004 state fiscal year relating thereto; and providing for the repeal of certain provisions upon expiration thereof (Part G)

PURPOSE:

This bill contains provisions needed to implement the Health and Mental Hygiene portion of the 2004-05 Executive Budget.

SUMMARY OF PROVISIONS, EXISTING LAW, PRIOR LEGISLATIVE HISTORY AND STATEMENT IN SUPPORT:

Part A – Enact public health initiatives to eliminate low-priority programs, strengthen pharmacy fraud prevention, achieve cost savings and facilitate access to the new Medicare Discount Card for low-income EPIC enrollees.

This bill enacts the provisions necessary to implement the 2004-05 Executive Budget recommendations for the State’s Public Health programs, including initiatives to eliminate low priority programs, strengthen pharmacy fraud prevention efforts, achieve savings in the Early Intervention (EI), Elderly Pharmaceutical Insurance Coverage (EPIC) and General Public Health Works programs, facilitate access to the new Medicare drug benefit for EPIC enrollees and authorize other actions needed to finance various Department of Health (DOH) programs.

• Sections 1 through 6 amend the Public Health Law to repeal the following requirements that were enacted in the 2001 and 2002 legislative sessions and delayed for one year in the 2003-04 Budget:
  • General Fund Match for Alzheimer’s Tax Check-off — Chapter 359 of the Laws of 2002 requires a General Fund match for the taxpayer contributions to the Alzheimer’s Disease Prevention Fund.
  • Endoscopy Study — Chapter 438 of the Laws of 2002 requires the Health Commissioner to conduct studies on the efficacy of various methods of sterilizing a flexible endoscopy and report the Commissioner’s findings to the Governor and the Legislature.
  • Reflex Sympathetic Dystrophy Syndrome — Chapter 429 of the Laws of 2002 requires DOH to establish a Reflex Sympathetic Dystrophy Syndrome Prevention and Education Program to promote awareness of the causes of this disease, encourage early detection, identify possible treatments and research measures to identify, diagnose and test for the disease.
  • Obesity Prevention — Chapter 538 of the Laws of 2002 requires DOH to conduct a study of the causes and treatment of obesity despite the fact that DOH already has several programs evaluating the various factors leading to obesity.
  • Tattooing and Body Piercing — Chapter 562 of the Laws of 2001 requires the Health Commissioner to license and regulate tattoo parlors and body piercing establishments and to create a fee structure for licenses and permits.
  • Durable Medical Equipment (DME) — Chapter 618 of the Laws of 2002 requires DOH to regulate the provision of DME and establish an inspection fee to finance the regulatory program. Chapter 127 of the Laws of 2003 increased the triennial inspection fee from $500 to $1,150, but fees are not sufficient to cover the program’s costs.
  Although these are laudable public health initiatives, they are not essential to health and safety and the limited resources available to DOH, at this time, must be dedicated to higher priority programs.
• Section 7 amends the Public Health Law to permanently allow the financing of the costs of the Physician Profiling Program from the Professional Medical Conduct (OPMC) Account, which is supported with physician fees.
  
  The 2003-04 Enacted Budget granted such authority for one year only.
  
  Use of the OPMC Account to finance Physician Profiling activities is appropriate because it is consistent with the purpose of that Account — which is to ensure quality health care for New Yorkers. In addition, the Account has sufficient revenues to finance the Physician Profiling Program.
• Sections 8 through 21 establish a Forge-Proof Prescription Program to reduce the illegal marketing of prescription drugs. The Program requires non-reproducible prescription blanks for all prescriptions to reduce the illegal marketing of prescription drugs, strengthens criminal penalties for possessing or falsifying prescriptions and engaging in drug diversion, and eliminates the fees that physicians are charged for prescription forms for controlled substances.

Existing law requires forge-proof prescriptions for controlled substances only.

A similar bill to establish a Forge-Proof Program was proposed as part of the 2003-04 Executive Budget, but was not enacted.

This new Program is an effort to combat the problem of drug diversion and counterfeit prescriptions, which creates a public health hazard through the distribution, adulteration and resale of potentially dangerous drugs in both the Medicaid and private health insurance programs. Drug diversion and fraud in New York State is estimated to cost Medicaid over $100 million per year and private insurers in excess of $75 million annually, amounts which far exceed the costs of this Program.

Section 22 amends Article 6 of the Public Health Law to reduce the reimbursement to counties for optional public health services, from 30 percent to 20 percent of the total cost, and to give counties the flexibility to prioritize spending within the optional services category. State reimbursement for core services and emergency activities will remain at the existing levels of 36 percent and 50 percent, respectively.

Proposals made in recent Executive Budgets to modify the General Public Health Works Program (GPHW) reimbursement levels were not enacted.

The GPHW Program reimburses counties for a wide range of public health activities. In recent years, this Program, driven by county activities, has grown significantly — State costs will exceed $216 million in the current year — and the increasing costs must be addressed. Counties will have flexibility in implementing this proposal. For example, current statute permits localities — and many do — to charge fees for such services that could generate revenue exceeding the lost State assistance and these would be sufficient to make up the lost reimbursement.

Section 23 amends the Public Health Law to establish the Quality of Care Improvement Account to receive the Federal portion of civil penalties collected for violations related to the operation of residential health care facilities. Such funds will be used to protect the health or property of residents of residential health care facilities that are found to be deficient, including, but not limited to, payment for the cost of relocation of residents to other facilities and the maintenance and operation of a facility pending correction of deficiencies or closure.

A civil money penalty may be imposed by the Federal Center for Medicare and Medicaid Studies (CMS) or the State when a nursing facility is not in compliance with rules and regulations. This represents a valuable enforcement tool that not only is effective in addressing poor performing facilities, but also provides the State with funds to improve service delivery. However, under Federal law, for the State to receive the penalty funds they “must be applied to the protection of the health or property of residents of nursing facilities that the State or CMS finds deficient.” CMS has refused to distribute New York’s portion of the penalties because the State does not have a dedicated fund into which these funds would be deposited. This will correct that situation.

Sections 24 and 25 amend the Public Health Law to modify the methodology by which clinical laboratories are assessed for the DOH’s laboratory certification program. Assessments will be based on the prior year amount of the enacted appropriation and a laboratory’s gross receipts, rather than current method of assessing the laboratories for the prior year’s actual regulatory program costs.

This change will continue to generate the needed revenue to support the Department’s cost of clinical laboratory oversight activities while simplifying the collection process.

Section 26 amends the Executive Law to modify the pharmacy reimbursement levels for EPIC. Specifically, reimbursement will be reduced from the current level of Average Wholesale Price (AWP) less 12 percent to: AWP less 15 percent for brand name drugs, and AWP less 30 percent for generic drugs.

Amendments to the Health Care Reform Act (HCRA) enacted in 2002 reduced EPIC’s pharmacy reimbursement from AWP less 5 percent to AWP less 10 percent; required EPIC to use the same manufacturers' rebate methodology as Medicaid; and required private health insurers to match membership files with EPIC to facilitate coordination of benefits. In 2003, legislation reduced EPIC’s pharmacy reimbursement from AWP less 10 percent to AWP less 12 percent.

The EPIC Program is among the most generous state pharmaceutical programs for the elderly in the country both in scope and the value of benefits provided. With pharmaceutical prices continuing to increase at alarming rates, it has become necessary to control the growth in program expenditures to ensure that the EPIC Program can continue to provide affordable pharmaceuticals to New York’s seniors.

Section 27 amends the Executive Law to authorize DOH to waive existing participant fees for low-income EPIC enrollees (those with incomes below 135 percent of the Federal Poverty Level [FPL]) to encourage those individuals to obtain the Medicare Interim Discount Drug Card.

Congress recently enacted the Medicare Prescription Drug Improvement and Modernization Act of 2003, adding a drug benefit to Medicare. The Medicare Interim Drug Discount Card, which will be available from the spring of 2004 until permanent drug benefits begin in 2006, will provide discounts ranging from 10 to 25 percent to all seniors who enroll and an annual subsidy of $600 to enrollees below 135 percent of the FPL.

Both the Discount Card and the eventual drug benefit are voluntary programs. By encouraging EPIC enrollees eligible for the $600 subsidy to use the Medicare Discount Card, the EPIC Program will save $30 million and the costs for eligible EPIC enrollees will be reduced.

Sections 28 through 33 amend the Insurance and Public Health laws to implement a series of measures to control the escalating growth in costs for the Early Intervention (EI) Program and improve its management. These include:

• Measures to increase the health insurance reimbursement of medical services provided through EI by clarifying that insurers cannot deny coverage for a medical service that is normally covered under the terms of the policy because of any of the following: the provider is out of network, the services are provided at the child’s home, or the child suffers from a chronic condition. The changes also require insurers to accept the child’s service plan, certified by the county Early Intervention Official (EIO), as proof of medical necessity without requiring prior approval or recertification.
• Tools that allow counties to more effectively manage EI including: authorizing county EIO’s to require that a child be re-evaluated at the time of the six month review to determine continued eligibility for EI services; allowing children who have benefited from EI services such that their development is age-appropriate to be discharged from the program; and giving counties the option of using the rates established by the State or negotiating lower rates with providers.
• Management of EI utilization through a new requirement for State approval, if the number of services recommended for a child exceeds 7 services per week. Similar new administrative actions will require county supervisory approval for more than 5 services per week. Currently, approximately 25 percent of the children in EI receive 5 or more services per week.
• Modification of the provider rates by restructuring the reimbursement for home visits to establish one rate, rather than separate rates for basic and extended visits.
• A provider registration fee of $275 per certified individual and $900 per licensed agency is also proposed to strengthen the DOH oversight of providers through an enhanced approval and certification program to ensure the safety of vulnerable clients. In addition, the Department would establish standards to ensure appropriate advertising by providers.
• Assessment of fees on families making at least 250 percent of the FPL. The income-based fees will range from $25 to $215 per month. Fee waivers — based on hardship — would be available to ensure that necessary services to severely disabled children are not interrupted.

Chapter 428 of the Laws of 1992 established EI to provide services to children with developmental delays from birth until age three, with costs shared equally by the counties and the State. Efforts have been made in previous Executive Budgets to control costs with legislative proposals that would have mandated insurance coverage of EI services and required parents to pay up to 20 percent of the cost of their child’s EI services. Such proposals were not enacted.

The number of children participating in EI has increased significantly, from 22,600 in 1994 to an estimated 82,000 children in 2003-04. Likewise, the Program’s cost is projected to reach over $730 million in 2003-04, more than double the $350 million spent in 1999-2000. These proposed measures are required to curtail the growth in EI spending, ensure that taxpayer monies are used efficiently and are justified as follows:

• Currently, private health insurance plans reimburse only slightly more than one percent of EI costs in New York while insurance companies reimburse up to 43 percent of the cost of the Massachusetts EI Program.
• Presently, there is no clear authority to re-evaluate or discharge a child from EI even if a developmental delay no longer exists. Also, counties are currently required to pay the State rates for EI services and are prohibited from negotiating lower rates. In some parts of the State, there is a surplus of providers and counties may be able to achieve savings by negotiating their own rates. Negotiated rates are commonly used in managed care and have the potential to reduce EI costs.
• The existing fee structure for home visits (basic & extended fees) is not cost-efficient efficient in that it provides an incentive for providers to extend visits to obtain additional reimbursement.
• The current service determination process needs improvement to ensure that the services being provided are necessary and appropriate.
• Parental sharing of costs is appropriate and has precedents in 15 other states' EI programs, as well as in most medical insurance plans. The proposal provides a waiver process for parents who, due to financial hardship and the high cost of their child’s medical treatments, are unable to make such a contribution.
• Section 34 establishes the effective dates.

Part B – Close the Middletown Psychiatric Center on April 1, 2005 and require that 50 percent of the savings from facility closures be reinvested into State-operated community services.

This bill authorizes the closure of one adult psychiatric center and amends the Reinvestment Act to require half of the facility closure savings be used for the expansion of State-operated community programs.

Effective immediately, this bill authorizes the closure of Middletown Psychiatric Center on April 1, 2005 and amends section 41.55 of the Mental Hygiene Law (MHL) relating to the Community Mental Health Support and Workforce Reinvestment Program to require that one-half of the savings from facility closures be reinvested to expand State-operated community programs located within the catchment area. In addition, this bill changes the release date for the statewide five year plan for the mental hygiene agencies and the reporting requirements specified in the Reinvestment statute to coincide with the release of the Executive Budget.

The Community Mental Health Support and Workforce Reinvestment Program (Chapter 62 of the Laws of 2003) re-established that reinvestment funds be made available in the same proportion by which the General Fund appropriations are reduced as a result of adult non-geriatric inpatient bed closure and/or facility closure. The Program also expanded the formula to include children’s inpatient bed closures.

The State institutional system, by far the largest in the nation, continues to have excess inpatient capacity due to improved treatment approaches and significant expansion of community mental health services to assist clients in avoiding hospitalization. In the past few years alone, there have been several initiatives to reorganize and significantly expand the capacity of community mental health services, including the Assisted Outpatient Treatment Program, the Enhanced Community Services Program, the NY/NY II housing agreement, and other housing initiatives.

This bill recognizes that there is no longer a need to operate 17 adult civil psychiatric centers across the State to provide access to intermediate and long-term inpatient psychiatric care. By closing an unneeded psychiatric center and transferring inpatient bed capacity to vacant space at a nearby facility, the State continues to maintain its commitment to those requiring inpatient care while achieving administrative and operating efficiencies totaling $6.8 million on a full annual basis. In addition, the closure of the Middletown Psychiatric Center will avoid significant capital improvements, which would otherwise be needed should the inpatient bed capacity remain in the current physical space.

This bill also recognizes the need for the State to provide a one year notice for the facility closure and conduct a thorough local planning process to explore investments in community services and discuss alternate use plans for the campus. Furthermore, one-half of the projected $6.8 million in savings, or $3.4 million, will be reinvested into State-operated services in the Middletown catchment area. The Office of Mental Health (OMH) will also evaluate the potential to convert a portion of the State inpatient capacity into general hospital beds in the community, thereby retaining inpatient bed capacity and jobs locally.

Lastly, this bill improves the statewide five year planning process for the mental hygiene agencies by changing the release date of the plan to coincide with the release of the Executive Budget. The current October 1 deadline for the statewide plan and other reporting requirements is impractical for planning purposes because it circumvents the Executive Budget process.

Part C – Establish the bipartisan Commission for the Closure of State Psychiatric Centers and extend the Community Mental Health Support and Workforce Reinvestment Act to 2010.

This bill authorizes the creation of a bipartisan commission to eliminate excess capacity in the Office of Mental Health’s institutional system by providing facility closure recommendations based on the overall need for State inpatient beds.

Effective immediately, this bill establishes the Commission for the Closure of State Psychiatric Centers. The Commission will be composed of eight voting members, appointed by the Governor — two are at the recommendation of the Temporary President of the Senate, and two are at the recommendation of the Speaker of the Assembly. The Commissioner of the Office of Mental Health shall serve as the chairperson of the Commission and shall serve as a voting member only in the event of a tie. The Commission’s mission will be to develop recommendations to eliminate excess inpatient bed capacity by closing unneeded State psychiatric centers.

Furthermore, this bill requires that the Commissioner provide information within 60 days after the effective date of the bill on the current inpatient capacity and a projection of the future need for inpatient capacity in the State institutional system. In addition, the Commissioner will provide the Commission with selection criteria for facility closures.

The bill also establishes a process and timeline for the development and approval of the Commission’s recommendations for facility closures. The Commission must submit recommendations for closures in a report to the Governor and Legislature (by April 1, 2005) including justification for its recommendations and how the selection criteria were applied. The Commission will also recommend the actual closure timeframe for each recommended facility.

The Commissioner is required to implement the facility closures within the specified timeframe unless both houses of the Legislature pass resolutions rejecting all recommendations in their entirety within 45 days of receipt of the list of recommended closures. Furthermore, beginning in 2006-07, this bill stipulates that all of the recommended facility closures need to begin and be completed no later than March 31, 2010. It is further provided by this bill that not less than 10 percent and not more than 40 percent of the total excess inpatient capacity shall be eliminated in any given fiscal year.

Lastly, this bill amends section 41.55 of the Mental Hygiene Law to extend the expiration date of the Community Mental Health Support and Workforce Reinvestment Program to March 31, 2010.

In past years, the Executive proposed closing several psychiatric centers to eliminate excess capacity in the State institutional system. These proposals did not require any reduction in services. All the State-operated community programs, including clinics, day treatment, and residential programs would continue to operate in their existing locations, and State-operated inpatient capacity would continue to be available in vacant space at other State psychiatric centers. However, no consensus was reached on the proposed facility closures.

New York’s institutional system, by far the largest in the nation, continues to support excess inpatient bed capacity and maintain unneeded infrastructure. During the 1950’s, New York operated 20 adult psychiatric centers with an inpatient census of 93,000. While the mental health system has changed dramatically over the years because of advances in treatment and medications and the significant expansion of community services including housing, case management and other supports, New York continues

to operate more psychiatric hospitals than any other state in the nation. Today, New York operates 26 psychiatric centers serving fewer than 5,300 inpatients. With the number of people requiring inpatient treatment only a fraction of the size it was years ago, there is no longer a need to continue operating this many facilities.

A companion Article VII bill amending the provisions of the Community Mental Health Support and Workforce Reinvestment Program (Chapter 62 of the Laws of 2003) proposes that one-half of the administrative, support and overhead costs achieved through future facility closures be reinvested into State-operated community-based services. As a result, the Commission’s recommendations for facility closure will fully support the principle that future investments should be in the community-based system of care where the vast majority of the people are currently served.

Importantly, this bill will create a bipartisan Commission to review and analyze the existing State-operated inpatient system and solicit stakeholder input and participation in determining future closure recommendations. Moreover, the process will provide ample time to explore redirecting a portion of the savings for jobs in the affected communities and possible alternate redevelopment uses of the State properties.

Part D – Amend the Health Care Reform Act (HCRA) and amend the Insurance Law to authorize additional non-profit insurance company conversions to for-profit entities and invest a portion of the proceeds from such conversions in HCRA.

This bill amends the Health Care Reform Act (HCRA) in concert with the 2004-05 Executive Budget. This bill also amends the Insurance Law to authorize additional non-profit insurance company conversions to for-profit entities and requires the investment of a portion of proceeds from such conversions in HCRA.

In 1996, New York enacted landmark health care reform legislation — the Health Care Reform Act (HCRA) — that replaced the hospital reimbursement system established in 1983 with a deregulated system for most non-Medicare payers. This Act was designed to improve the fiscal health of hospitals and ensure that affordable and quality health care coverage was available to all New Yorkers. The Act was subsequently extended and modified in both 2000 and 2002. Last year (2003), this Act was extended through June 30, 2005.

This bill makes further amendments to HCRA programs and allocations to maximize the use of available revenue sources and modify programs to control costs to secure the fiscal viability of HCRA. These amendments include:

• Sections 1 through 8 amend section 369-ee of Social Services Law (SSL) to make changes to the Family Health Plus (FHP) program to implement cost sharing proposals and ensure that the program is serving its target population — low-income families without access to other forms of health insurance. These changes include:
• Imposing a co-payment on pharmaceuticals and other services consistent with those charged by private health insurance plans;
• Establishing an asset/resource test, similar to the Medicaid program, for eligibility;
• Modifying the benefit package to eliminate reimbursement for dental and vision services;
• Requiring a 12-month waiting period (extended from a 6-month period in current law) for individuals who previously had group health insurance coverage, similar to the Healthy New York Program. Exceptions are provided in certain instances where health insurance coverage was lost involuntarily;
• Prohibiting coverage of governmental employees (consistent with the Child Health Plus Program) and individuals working for businesses with more than 50 employees (consistent with the Healthy New York Program); and
• Eliminating funding for facilitated enrollment, which is no longer needed as the FHP program is fully implemented.
• Sections 9 and 10 amend Chapter 2 of the Laws of 1998 to modify the provisions of the Child Health Plus (CHP) Program to transfer children ages 6 to 19 in families with incomes between 100 and 133 percent of Federal Poverty Level (FPL) from Medicaid to CHP. Not only is CHP less costly for the State, it is generally the preferred choice for families;
• Sections 11 through 13 modify Section 2807 of the Public Health Law (PHL) to maximize Federal Medicaid reimbursement for Graduate Medical Education (GME) that both benefits teaching hospitals and allows the HCRA subsidy to be reduced;
• Sections 14 through 17 make changes to the Insurance Law to direct $400 million in proceeds from the conversion of any not-for-profit insurer to for-profit status — similar to the Empire Blue Cross conversion — to HCRA;
• Sections 18 through 25 amend SSL and PHL to eliminate the Individual Subsidy and the Catastrophic Health Care Expense programs — two insurance demonstrations, which are no longer needed given the implementation of the FHP and Healthy New York programs. In addition, program allocations are adjusted accordingly;
• Sections 26 through 30 establish or revise multi-year HCRA program allocations through June 30, 2005 (the sunset of the current HCRA statute), including:
• A new allocation to promote and reduce the cost of long-term care insurance;
• A new allocation to explore the expanded use of technologies in the management and delivery of health care services;
• Continued support for HIV/AIDS services through HCRA; and
• A reduction in the annual subsidy to the Roswell Park Cancer Institute from $83 million to $78 million.
• Sections 31 through 33 amend the Insurance Law to establish a demonstration program to evaluate approaches to encourage the use of private long-term care insurance. Furthermore, these sections modify the Partnership Plan to make private long-term care insurance more accessible;
• Sections 34 and 35 retire the scheduled General Fund repayment of a $44.8 million loan to the New York Prospective Hospital Reimbursement Methodology (NYPHRM) pools as such repayment is unnecessary; and
• Sections 36 through 39 allow for severability and establish effective dates.

Part E – Authorize the Commissioner of the Office of Mental Health to review and retroactively certify the rate methodology for dually licensed mental health outpatient programs.

This bill requires the Commissioner of the Office of Mental Health (OMH) to review the methodology for determining rates of payment for mental health outpatient programs operated by facilities licensed by both OMH and the Department of Health (DOH). It also deems that rates for such dually licensed mental health outpatient programs are certified through December 31, 2003.

Effective immediately, this bill requires the Commissioner of OMH to review the methodology for determining the rates of payment for dually licensed mental health outpatient programs. Any modification would be subject to the approval of the Division of the Budget. It also certifies Medicaid rates for providers of outpatient mental health programs dually licensed by OMH and DOH through December 31, 2003.

Section 43.02 of the Mental Hygiene Law authorizes the Commissioner of OMH to establish Medicaid rates for services provided by any facility subject to licensure pursuant to Article 31 of the Mental Hygiene Law (except for Article 28 inpatient facilities) and further provides that the Commissioner shall annually certify such rates. While rates for dually licensed mental health programs have been established and payments have been made, the rates have not been formally certified since 1993 and the net result of retroactive adjustments would likely be a decrease in total funding for these programs. This bill clarifies that the rates for dually licensed mental health outpatient programs have been fully certified and would recognize the need to review the rate methodology prospectively.

Part F – Re-establish reimbursement parity among Methadone Maintenance Treatment Programs certified in accordance with Article 28 of the Public Health Law.

This bill re-establishes reimbursement parity among all Methadone Maintenance Treatment programs (MMTPs) certified in accordance with Article 28 of the Public Health Law, relative to current and future rates of payment. This bill is necessary to implement the 2004-05 Executive Budget and Financial Plan that includes $2.2 million in 2004-05 savings (and $4.5 million on a full annual basis).

This bill notwithstands existing statute that makes a distinction among reimbursement rates for facilities that are licensed to provide methadone maintenance treatment services in accordance with Article 28 of the Public Health Law, and requires that effective with the bill’s enactment, such rates of payment shall henceforth be equal.

Current provisions regarding rates of reimbursement for Article 28 licensed MMTP programs are contained in the Medicaid Cost Containment Article VII enacted into law as Chapter 62 of the Laws of 2003.

Several similar bills have previously been introduced by the Legislature, but they have not been enacted.

Medicaid reimbursement for freestanding (i.e., non-hospital sponsored) Article 28 MMTPs was frozen at $102.93 per week from 1995 through 2002, until the 2002-03 Enacted Budget provided them with a 3 percent rate increase, raising the rate to $106.02 per week, where it still remains. In contrast, the weekly rate for Article 28 hospital sponsored programs has been trended each year since 1995, resulting in a rate that is currently $126.11 per week, or $20.09 more than the non-hospital sponsored rate. This funding inequity has been partially offset by the Office of Alcoholism and Substance Abuse Services (OASAS) through 100 percent State aid net-deficit financing rate “supplements”. Equalizing the reimbursement will: 1) save State taxpayer dollars as a result of increased Federal Medicaid reimbursement; 2) ensure that non-hospital sponsored MMTPs receive inflationary trends commensurate with their hospital-sponsored counterparts; and 3) eliminate the overall disparity in funding for once and for all.

Part G – Restructure the State’s Medicaid program through initiatives to reduce costs, enhance revenues and maintain access to health care services.

This bill restructures the State’s Medicaid Program through initiatives to reduce costs, enhance revenues and maintain access to health care services.

• Sections 1 through 4 authorize the State to assume the local portion of long term care costs, effective January 1, 2005, over a 10-year period contingent on the enactment of certain long term care savings measures;
• Section 5 amends section 367-a of the Social Services Law to reduce pharmacy reimbursement from the current Average Wholesale Price (AWP) less 12 percent to AWP less 15 percent for brand name drugs and AWP less 30 percent for generics;
• Section 6 through 12 establish a Preferred Drug Program, which will require drug manufacturers to provide an enhanced drug rebate in order for their drugs to be listed on the primary Medicaid formulary;
• Section 13 amends section 2807-d of the Public Health Law to permanently re-establish a 0.7 percent assessment on total hospital revenues;
• Sections 14 and 15 permanently establish a 6 percent reimbursable assessment on total nursing home revenue and direct nursing home and hospital assessment funds to a Special Revenue account;
• Section 16 mandates that AIDS nursing facilities refinance capital debt at a lower interest rate;
• Sections 17 through 25 permanently re-establish a 0.7 percent non-reimbursable assessment on total home care revenue;
• Section 26 increases the home care savings target from the current $33 million to $44 million;
• Section 27 delays the last provider payment in 2004-05 by two days;
• Sections 28 through 31 eliminate the State statutory provision that allows spouses to refuse to contribute any assets towards the costs of health care services, and strengthen asset transfer provisions, such that individuals can no longer avoid penalties for inappropriate transfer of assets made to qualify for Medicaid;
• Section 32 continues the County Mentally Disabled payment reduction included in the 2003-04 Enacted Budget for one year;
• Sections 33 through 35 amend the Social Services Law to increase Medicaid pharmacy co-payments, require managed care recipients to make co-payments on prescription drugs similar to Medicaid recipients, and increase the limit on the maximum co-payments that can be made annually;
• Sections 36 through 50 amend the Managed Care Law to make changes consistent with Federal requirements and relieve county governments of the responsibility of administering Managed Care contracts with health plans. In addition, prescription drug coverage is authorized for dually-eligible recipients in health plans that provide both Medicaid and Medicare coverage;
• Sections 51 through 55 eliminate optional adult dental and other practitioner services (nurses, audiologists, psychologists, and podiatry services), and require prior authorization for drugs that are carved-out of nursing home rates;
• Section 56 limits payments for enteral nutrition products and food supplements conforming with Medicare policy with certain exceptions;
• Section 57 allows additional health plans to participate in the Managed Long Term Care Program;
• Section 58 provides Medicaid demonstration authority for the Commissioner of Heath to conduct demonstration projects related to improving health care service delivery through the use of technology;
• Section 59 phases-out, over a four-year period, the supplemental payment add-on for nursing facilities with 300-plus bed capacity;
• Section 60 reduces the supplemental payment to hospital-based nursing homes;
• Sections 61 and 61-a update the labor component of the nursing home rate (Wage Equalization Factor – WEF) to a 2001 base year contingent upon the elimination of the 300-plus bed and hospital-based rate add-ons;
• Sections 62 through 68 make technical changes related to shares of Medicaid costs that are attributed to the State and localities, including NYC.
• Sections 69 through 72 provide for a waiver of time frames of notice, emergency rule promulgation, severability and effective dates.

Existing law related to the proposed provisions are primarily contained in the Social Services Law and Public Health Law. Specifically:

• Section 367-a of the Social Services Law establishes the lower level of reimbursement for pharmacies at AWP less 12 percent or the customary price as charged by pharmacies to the general public. Subdivision 6 of this section establishes a co-payment of $.50 on generic drugs or $2.00 on brand name drugs — and limits annual aggregate co-payments to $100 per recipient.
• Section 368-a of the Social Services Law aligns responsibility for the payment of Medicaid costs for specific services between the State, localities and the Federal government.
• Article 28 and section 2808 of the Public Health Law contain various components of the Medicaid nursing home reimbursement.

Medicaid cost-containment actions were enacted in 1996 (Chapter 85 of the Laws of 1996) and extended in 2003 (Chapter 62 of the Laws of 2003). In addition, sections 2807-d of the Public Health Law established hospital and nursing home provider assessments, which began in 1991 and were gradually phased-out by December 1999. However, the nursing home assessment was re-established in 2002 and is currently set at 5 percent. However, it is scheduled to be phased-out by March 31, 2005. Section 3614(a) of the Public Health Law established home care provider assessments, which began in 1992 and were also eventually phased-out by 1999.

Currently, New York State taxpayers support the most expensive Medicaid program in the nation, a program that provides a generous array of services to approximately 3.7 million recipients. This bill introduces a series of new measures to make New York’s Medicaid Program more affordable while maintaining New York’s position as a national leader in providing high quality health care services to the State’s neediest population. In addition, this legislation incorporates reform measures forwarded by the Governor’s Health Care Reform Working Group to restructure the long term care system, establish pharmacy initiatives and promote the use of technology to improve health care delivery.

Absent these reform measures, total Medicaid Program spending — Federal, State and local government combined — would reach $44 billion in 2004-05. In total, these new measures will save the State $715 million in 2004-05 and $573 million in 2005-06 by:

• Reducing reimbursement to pharmacies and implementing a Preferred Drug Program to encourage the appropriate use of prescription drugs in the Medicaid Program, thereby controlling drug costs that have been increasing at 20 percent annually;
• Modifying the Medicaid cycle provider payment schedule by delaying the last 2004-05 cycle by two days, from Wednesday to Friday;
• Re-establishing the non-reimbursable hospital and home care assessments at 0.7 percent and increasing the reimbursable nursing home assessment to 6 percent, which is necessary to address the State’s current financial situation;
• Eliminating certain adult optional services (e.g., private practitioner dental and other practitioners, including nurses, audiologist and psychologists) to be more in line with private health plans and services offered by other states; and
• Requiring Medicaid recipients, including those in managed care, to make higher co-payments on prescription drugs (co-payments have not been increased since 1995).

These cost-saving measures will save counties $160 million in 2004-05 and $431 million in 2005-06. This includes a proposal to require the State to assume the entire non-Federal cost of the long term care program over a 10 year period, saving counties $1.8 billion annually when fully implemented. To ensure that the long term care system is more affordable, the proposed takeover is contingent upon enactment of a series of savings measures including: closing eligibility loopholes, reinstating nursing home and home care provider assessments, increasing home care target savings to counties, and refinancing capital debt for AIDS nursing facilities.

BUDGET IMPLICATIONS:

Part A – Enact public health initiatives to eliminate low-priority programs, strengthen pharmacy fraud prevention, achieve cost savings and facilitate access to the new Medicare Discount Card for low-income EPIC enrollees.

The proposals in this bill are necessary to implement the Executive Budget and provide total savings of $82.5 million in 2004-05 and $156.7 million in 2005-06 as follows:

• The elimination of low-priority programs generates $1 million in annual savings;
• Use of the Professional Medical Conduct Account to finance the Physician Profiling Program saves $3.8 million annually;
• The Forge-Proof Prescription Program is estimated to reduce State Medicaid spending by $6.9 million in 2004-05 and $28.7 million in 2005-06;
• The reduced rate of General Public Health Works reimbursement to counties for optional services is expected to result in savings of $10.8 million in 2004-05 and $22.3 million in 2005-06;
• Reducing EPIC pharmacy reimbursement from AWP less 12 percent to AWP less 15 percent for brand name drugs and a maximum of AWP less 30 percent for generics will save $30 million in EPIC program expenditures in 2004-05 and $39 million in 2005-06;
• Waiving EPIC fees to encourage low income seniors to obtain the Medicare drug card will save the EPIC program $30 million in each of the next two fiscal years; and
• The proposed modifications to the EI Program are projected to generate State savings of $36.4 million in 2005-06 and $57.5 million in 2006-07. Counties, which pay the full cost of EI in the first instance (and are reimbursed by the State for their shares on a lag basis), will save those amounts one year earlier.

Part B – Close the Middletown Psychiatric Center on April 1, 2005 and require that 50 percent of the savings from facility closures be reinvested into State-operated community services.

The 2004-05 Executive Budget projects savings of $6.8 million on a full annual basis from the closure of the Middletown Psychiatric Center and requires that half of the facility closure savings be used to expand State operated community programs located within the catchment area. Closing the Middletown Psychiatric Center will also avoid some $27 million in required capital investment.

Part C – Establish the bipartisan Commission for the Closure of State Psychiatric Centers and extend the Community Mental Health Support and Workforce Reinvestment Act to 2010.

The Commission will provide recommendations to eliminate excess inpatient bed capacity by closing unneeded State psychiatric centers. Accordingly, the consolidation of the institutional system will achieve savings through the elimination of unnecessary administrative, support and overhead costs and the avoidance of capital investments required to renovate and maintain unneeded facilities. This will help ensure that resources in the mental health system are directed towards future investments in the community-based system of care to ensure that quality services are provided efficiently and in appropriate settings.

Part D – Amend the Health Care Reform Act (HCRA) and amend the Insurance Law to authorize additional non-profit insurance company conversions to for-profit entities and invest a portion of the proceeds from such conversions in HCRA.

Enactment of this bill is necessary to implement the 2004-05 Executive Budget, which assumes $243.8 million of related General Fund savings in 2004-05, and $676.7 million in savings in 2005-06.

Part E – Authorize the Commissioner of the Office of Mental Health to review and retroactively certify the rate methodology for dually licensed mental health outpatient programs.

Enactment of this bill is necessary to implement the 2004-05 Executive Budget, which assumes the rates for dually licensed mental health outpatient programs will be reviewed and certified annually. Should the rates be changed, based upon a preliminary review of the methodology, it would result in an estimated $400,000 net decrease in gross Medicaid funding (or $100,000 in State share savings) for these providers. This reflects almost $6.5 million in gross Medicaid increases offset by roughly $6.9 million in gross Medicaid decreases.

Part F – Re-establish reimbursement parity among Methadone Maintenance Treatment Programs certified in accordance with Article 28 of the Public Health Law.

This proposal allows DOH to increase the freestanding MMTP weekly rate to that of the hospital-sponsored rate, concomitantly leveraging additional Federal Medicaid reimbursement to supplant the OASAS net-deficit financing supplement that is given to certain providers. In fact, the increased Federal share is sufficient to offset the increase in the Medicaid State Share and still result in $4.5 million full annual Financial Plan savings.

Part G – Restructure the State’s Medicaid program through initiatives to reduce costs, enhance revenues and maintain access to health care services.

Enactment of this bill is necessary to implement the 2004-05 Executive Budget and the multi-year State Financial Plan which reflect new Medicaid savings totaling $715 million in 2004-05 and $573 million in 2005-06.

EFFECTIVE DATE:

Part A – Enact public health initiatives to eliminate low-priority programs, strengthen pharmacy fraud prevention, achieve cost savings and facilitate access to the new Medicare Discount Card for low-income EPIC enrollees.

This bill takes effect April 1, 2004, except that selected provisions will take effect on other specified dates.

Part B – Close the Middletown Psychiatric Center on April 1, 2005 and require that 50 percent of the savings from facility closures be reinvested into State-operated community services.

This bill takes effect April 1, 2004; however, section 3 of this bill expires on March 31, 2007 and Middletown Psychiatric Center will be closed April 1, 2005.

Part C – Establish the bipartisan Commission for the Closure of State Psychiatric Centers and extend the Community Mental Health Support and Workforce Reinvestment Act to 2010.

This bill takes effect immediately.

Part D – Amend the Health Care Reform Act (HCRA) and amend the Insurance Law to authorize additional non-profit insurance company conversions to for-profit entities and invest a portion of the proceeds from such conversions in HCRA.

This bill takes effect April 1, 2004, except that selected provisions will take effect immediately on other specified dates.

Part E – Authorize the Commissioner of the Office of Mental Health to review and retroactively certify the rate methodology for dually licensed mental health outpatient programs.

This bill takes effect immediately.

Part F – Re-establish reimbursement parity among Methadone Maintenance Treatment Programs certified in accordance with Article 28 of the Public Health Law.

This bill takes effect April 1, 2004.

Part G – Restructure the State’s Medicaid program through initiatives to reduce costs, enhance revenues and maintain access to health care services.

This bill takes effect April 1, 2004 with the following exceptions: section 5 related to pharmacy reimbursement will take effect May 1, 2004 and sections 28 through 31 related to the Long Term Care eligibility loopholes will take effect July 1, 2004.