2006-07 NEW YORK STATE EXECUTIVE BUDGET
HEALTH AND MENTAL HYGIENE
ARTICLE VII LEGISLATION
MEMORANDUM IN SUPPORT

CONTENTS

Article VII Memo Content
PART DESCRIPTION STARTING PAGE NUMBER FOR:
SUMMARY, HISTORY & STATEMENT IN SUPPORT BUDGET IMPLICATION EFFECTIVE DATE
A Ensure a seamless transition to the new Federal Medicare prescription drug program (Part D); restructure the nursing home reimbursement methodology; implement saving measures to reduce Medicaid costs and establish the Office of Medicaid Inspector General to combat fraud, waste and abuse. 3 (Part A) 16 (Part A) 18 (Part A)
B Improve public health services by eliminating low-priority programs, implementing cost saving measures, strengthen fiscal and programmatic oversight and make new investments in local public health programs. 9 (Part B) 17 (Part B) 19 (Part B)
C Provide a three year Cost of Living Adjustment (COLA) for designated human services programs. 11 (Part C) 17 (Part C) 19 (Part C)
D Modify the Health Care Reform Act (HCRA) and enact proposals to preserve its fiscal stability, and authorize additional non-profit insurance company conversions. 12 (Part D) 17 (Part D) 19 (Part D)
E Authorize regulatory enforcement action fines to be deposited in the Chemical Dependence Service Fund. 14 (Part E) 17 (Part E) 19 (Part E)
F Authorize OASAS to make State aid payments to entities which assume either temporary or permanent responsibility for certain chemical dependency programs. 14 (Part F) 18 (Part F) 19 (Part F)
G Eliminate mental health outpatient services as services that can be considered specialized under section 2807 of the Public Health Law. 15 (Part G) 18 (Part G) 19 (Part G)
H Authorize OMH/OASAS voluntary hospitals to receive Federal disproportionate share payments. 15 (Part H) 18 (Part H) 19 (Part H)

MEMORANDUM IN SUPPORT

A BUDGET BILL submitted by the Governor in

Accordance with Article VII of the Constitution

AN ACT to amend the social services law, the public health law, the penal law, the criminal procedure law, the labor law, the civil practice law and rules, the public health law, chapter 58 of the laws of 2005, amending the public health law and other laws relating to implementing the state fiscal plan for the 2005-2006 state fiscal year, chapter 66 of the laws of 1994, amending the public health law, the general municipal law and the insurance law relating to the financing of life care communities, chapter 81 of the laws of 1995, amending the public health law and other laws relating to medical reimbursement and welfare reform, chapter 639 of the laws of 1996 amending the public health law and other laws relating to welfare reform, chapter 474 of the laws of 1996, amending the education law and other laws relating to rates for residential health care facilities, chapter 483 of the laws of 1978, amending the public health law relating to rate of payments for each residential health care facility to real property costs, chapter 649 of the laws of 1996, amending the public health law, the mental hygiene law and the social services law relating to authorizing the establishment of special needs plans, chapter 710 of the laws of 1988, amending the social services law and the education law relating to medical assistance eligibility of certain persons and providing for managed medical care demonstration programs, chapter 165 of the laws of 1991, amending the public health law and other laws relating to establishing payments for medical assistance, chapter 19 of the laws of 1998, amending the social services law relating to limiting the method of payment for prescription drugs under the medical assistance program, chapter 659 of the laws of 1997, amending the public health law and other laws relating to creation of continuing care retirement communities, chapter 904 of the laws of 1984, amending the public health law and the social services law relating to encouraging comprehensive health services, in relation to health reform; and to repeal section 366-f of the social services law, subdivision 11 of section 364-j of the social services law, paragraph (c) of subdivision 3 of section 369-ee of the social services law, paragraph (j) of subdivision 2 of section 365-a of the social services law and subdivision (x) of section 165 of chapter 41 of the laws of 1992 amending the public health law and other laws relating to assessing certain healthcare providers relating thereto (Part A); to amend the insurance law and the public health law, in relation to early intervention services; to amend the public health law, in relation to state aid for municipalities; to amend the elder law, in relation to the elderly pharmaceutical insurance coverage program; to amend chapter 62 of the laws of 2003 amending the public health law relating to allowing for the use of funds of the office of professional medical conduct for activities of the patient health information and quality improvement act of 2000, in relation to the effectiveness of such provisions of the public health law relating thereto; and repealing certain provisions of the public health law relating thereto (Part B); to establish a cost of living adjustment for designated human services programs and providing for the repeal of such provisions upon expiration thereof (Part C); to amend the public health law, in relation to allocations for worker retraining, Roswell Park, anti-tobacco program, public health programs, elderly pharmaceutical insurance coverage, excess medical malpractice, nursing home financially distressed, pharmacy, family health plus, healthcare efficiency and affordability law for New Yorkers, to amend the public health law, in relation to HCRA surcharges, assessments and covered lives assessment; bad debt and charity care; high need indigent care; state planning and research cooperative systems and the health care reform act pool reporting requirements; to amend the state finance law, in relation to the area health education centers; to amend the insurance law, the tax law and chapter 235 of the laws of 1952 relating to enabling any city of the state having a population of one million or more to adopt and amend local laws, imposing certain specified types of taxes on cigarettes, cigars and smoking tobacco which the legislature has or would have power and authority to impose, to provide for the review of such taxes, and to limit the application of such local laws, in relation to the tax on cigarettes; to amend the public authorities law in relation to the HCRA resources fund; and to repeal certain provisions of the public health law relating thereto (Part D); to amend the state finance law, in relation to the chemical dependence service fund (Part E); to amend the mental hygiene law, in relation to funding of chemical dependence and compulsive gambling services (Part F); to amend the public health law, in relation to eliminating mental health outpatient services as services that can be considered specialized services under section 2807 of the public health law (Part G); and to amend chapter 119 of the laws of 1997 relating to authorizing the department of health to establish certain payments to general hospitals, in relation to extending the authorization for the department of health to continue certain payments to general hospitals (Part H )

PURPOSE:

This bill contains provisions needed to implement the Health and Mental Hygiene portions of the 2006-07 Executive Budget.

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

Part A – Ensure a seamless transition to the new Federal Medicare prescription drug program (Part D); restructure the nursing home reimbursement methodology; implement saving measures to reduce Medicaid costs and establish the Office of Medicaid Inspector General to combat fraud, waste and abuse.

This bill continues the State’s efforts to restructure the Medicaid program and implement reforms to improve quality of care and make it more affordable by:

Existing laws related to the proposed provisions are contained in the following sections of State statute. Specifically,

Prior year Medicaid cost containment actions were enacted in 1996 (Chapter 85 of the Laws of 1996) and extended subsequently several times since then, most recently in 2005 (Chapter 58 of the Laws of 2005).

Currently, New York State taxpayers support the most expensive Medicaid program in the nation, one that provides a generous array of services to approximately 4 million recipients. Many steps have been taken over the last decade to control Medicaid costs through innovative reforms, including the mandatory managed care program, targeted cost containment measures and efforts to maximize non-General Fund resources.

However, the need to control Medicaid costs and implement systemic reforms continues. Accordingly, the Executive Budget advances a series of measures aimed at:

These cost savings measures will make New York’s Medicaid program more affordable while maintaining the State’s position as a national leader in providing high quality health care services. Absent these measures, total Medicaid program spending — Federal, State and local government combined — would reach $47.6 billion in 2006-07.

In addition, the 2006-07 Executive Budget advances a comprehensive, multi-year proposal to restructure nursing home reimbursement using a 2003 base year which would be contingent on the elimination of out-dated rate add-ons (e.g., for 300 plus beds and hospital-based facilities) and require the use of Medicaid only case-mix in calculating the rates for patient acuity.

The Executive Budget also ensures that all dual eligible individuals have a safe and seamless transition to the new Federal Medicare prescription drug program (Part D) by: 1) supporting a six month transition period (through July 1, 2006) during which the Medicaid program will continue to fund all medically necessary drugs not provided through Part D (i.e., “wrap around”); and 2) continuing the “wrap around” benefit under Medicaid for certain critical drugs used in the treatment of mental illness, HIV/AIDS and organ transplants.

Part B – Improve public health services by eliminating low-priority programs, implementing cost saving measures, strengthen fiscal and programmatic oversight and make new investments in local public health programs.

This bill enacts the various provisions necessary to implement the 2006-07 Executive Budget recommendations for the State’s public health programs, including initiatives to strengthen the fiscal and program management of the Early Intervention (EI) Program; restructure the General Public Health Work (GPHW) Program; modify the Elderly Pharmaceutical Insurance Coverage (EPIC) Program to maximize Federal reimbursement for eligible low-income seniors under the Medicare Prescription Drug Program, reduce pharmacy reimbursement levels and limit the availability of erectile dysfunction drugs; and continue certain financing authorization for the Professional Medical Conduct Account.

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 State. Efforts have been made in previous Executive Budgets to control costs by proposing legislation that mandated insurance coverage of EI services. Such proposals have not been enacted. 

Part C – Provide a three year Cost of Living Adjustment (COLA) for designated human services programs.

This bill provides a three-year, annual Cost of Living Adjustment (COLA) for designated human services programs indexed to the Federal Consumer Price Index.

This bill establishes in Unconsolidated Law a three-year, annual COLA for designated human services programs under the auspices of the Office of Mental Health, Office of Mental Retardation and Developmental Disabilities, the Office of Alcoholism and Substance Abuse Services, the Department of Health, the State Office for Aging and the Office of Children and Family Services. The COLA will be based on an estimate of the Consumer Price Index (CPI) for all urban consumers published in the U.S. Congressional Budget Office Economic and Budget Outlook and will be reconciled to the actual CPI. The first COLA will be effective October 1, 2006, the second COLA on April 1, 2007, and the third COLA on April 1, 2008.

The COLA is expected to improve recruitment and retention of workers employed by voluntary providers as well as provide for inflationary cost increases. Such providers have only received limited COLAs over the past 11 years — in fact a cumulative 7.5 percent increase contrasted to the comparable cumulative 29.4 percent trend factor afforded hospitals and nursing homes — which has created serious workforce and other operating pressures, regulatory compliance and quality of care issues, and concerns about addressing community expansion needs. The three-year COLA is intended to help alleviate these issues.

Currently, there is no COLA in existing law, and this language has not previously been proposed. However, a COLA has been proposed on an ad hoc basis over the years for certain programs.

Part D – Modify the Health Care Reform Act (HCRA) and enact proposals to preserve its fiscal stability, and authorize additional non-profit insurance company conversions.

This bill amends the Health Care Reform Act (HCRA) in concert with the 2006-07 Executive Budget. This bill also amends the Insurance Law to authorize additional non-profit insurance company conversions to for-profit entities and invests a portion of proceeds from such conversions in HCRA. In addition, Tax Law is amended to increase the per pack tax on cigarettes.

In 1996, New York enacted landmark health care reform legislation – the Health Care Reform Act (HCRA) of 1996 – that replaced the hospital reimbursement system established in 1983 with a deregulated system. This Act was designed to improve the fiscal health of hospitals and support critical public health programs. The Act was subsequently extended and modified in 2000, 2002, 2003 and 2005. In 2005, HCRA was reauthorized through June 30, 2007.

This bill makes further amendments to HCRA programs and allocations to maximize the use of available revenue sources, modify programs and secure the fiscal viability of HCRA through the current extension period. In addition, this bill makes several modifications to the public health law to make technical corrections to HCRA. Specifically:

Part E – Authorize regulatory enforcement action fines to be deposited in the Chemical Dependence Service Fund.

This bill amends section 97-w of the State Finance Law to add penalties and fines as revenues eligible for deposit in the Chemical Dependence Service Fund and allow moneys of the fund to be used in support of receivership and enforcement and compliance activities.

This bill enables Office of Alcoholism and Substance Abuse Services (OASAS) to reinvest revenues derived from penalties and fines levied against under-performing and/or fraudulent providers to support staff added to enhance the agency’s ability to combat Medicaid fraud and abuse. However, OASAS does not presently have the authority to make expenditures out of the Chemical Dependence Service Fund in support of State operations activities.

Therefore, this bill amends section 97-w of the State Finance Law to add penalties and fines received through OASAS enforcement and compliance activities as moneys eligible for deposit into the Chemical Dependence Service Fund. In addition, this section enables OASAS to use such moneys in support of receivership activities as well as State operations enforcement and compliance expenses.

Part F – Authorize OASAS to make State aid payments to entities which assume either temporary or permanent responsibility for certain chemical dependency programs.

This bill amends section 26 of the Mental Hygiene Law (MHL) to permit OASAS to make State aid payments to receiver/management entities.

The Office of Alcoholism and Substance Abuse Services (OASAS) does not currently have the authority to make State Aid payments to entities operating chemical dependence and/or compulsive gambling programs under a receivership agreement. Since many providers of services acting in this capacity may be unable to leverage Medicaid and/or other revenues to defray operating costs, it is imperative that OASAS be allowed to make State Aid payments to these providers to ensure the health and safety of the clients under their care. Further, the expanded OASAS capacity to combat fraud and abuse may result in increased incidences of programs under receivership.

Therefore, this bill adds Paragraph (k) to MHL §26.00 to permit OASAS to make State Aid payments to a receiver/management entity, including for-profit providers of services.

Part G – Eliminate mental health outpatient services as services that can be considered specialized under section 2807 of the Public Health Law.

This bill eliminates services for which the rate of payment is established by the Office of Mental Health (OMH) from the list of services that can be considered “specialized” under Section 2807 of Public Health Law.

Currently, Section 2807 of the Public Health law limits the operating rates of payment by government agencies for general hospital outpatient services to $67.50 per visit. However, it also permits a waiver of this limit for certain specialized services, as determined by the Commissioner of Health.

This bill amends subparagraph (i) of paragraph (g) of subdivision 2 of Section 2807 of the Public Health Law, to exclude any services for which rates are established by OMH pursuant to Section 43.02 of mental hygiene law, from being considered by the Commissioner of Health as being a specialized service.

When OMH assumed rate-setting responsibilities for Article 28 mental health outpatient programs, certain hospitals had been granted a waiver for their mental health outpatient programs and were receiving a specialty rate for those services. However, all Article 28 mental health outpatient providers, including those who receive a specialty rate, are required to meet the same programmatic standards and this bill would resolve the inequity of differing reimbursement levels for providers who essentially deliver the same services.

This language has been proposed by the Executive in the past but has not been enacted.

Part H – Authorize OMH/OASAS voluntary hospitals to receive Federal disproportionate share payments.

This bill extends Chapter 119 of the Laws of 1997, as amended by Chapter 62 of the Laws of 2003, through March 31, 2009 to allow voluntary Article 28 hospitals to continue replacing, through Federal Disproportionate Share (DSH) payments, reductions in State Aid grant funds provided by the Office of Mental Health (OMH) and the Office of Alcoholism and Substance Abuse Services (OASAS).

This bill extends the authorization of annual Federal DSH payments to support the provision of mental health and substance abuse services by Article 28 hospitals, by amending section three of Chapter 119 of the Laws of 1997. The legislation for annual DSH payments has previously been extended at three-year intervals, and this bill would extend the authorization from March 31, 2006 to March 31, 2009.

In the absence of DSH funding, Article 28 hospitals would have to significantly curtail services they provide to persons with mental illness and/or substance abuse. Alternatively, to maintain current service levels, the State would need to replace DSH revenues with additional General Fund support. Therefore, extending the current DSH statute, as provided for in the legislation, is crucial to the maintenance of service delivery, the financial well-being of the hospitals and the State’s current Financial Plan.

BUDGET IMPLICATIONS:

Part A – Ensure a seamless transition to the new Federal Medicare prescription drug program (Part D); restructure the nursing home reimbursement methodology; implement saving measures to reduce Medicaid costs and establish the Office of Medicaid Inspector General to combat fraud, waste and abuse.

Enactment of this bill is necessary to ensure State Financial Plan savings and cost avoidance totaling $775.8 million in 2006-07 and over $1.4 billion in 2007-08 as follows:

In addition, this bill extends prior year cost containment proposals which provide State savings of $504.9 million annually — resulting in a total savings and cost avoidance of $1.28 billion in 2006-07 growing to $1.95 billion in 2007-08 from the enactment of this bill.

Part B – Improve public health services by eliminating low-priority programs, implementing cost saving measures, strengthen fiscal and programmatic oversight and make new investments in local public health programs.

Enactment of this bill is necessary to implement the 2006-07 Executive Budget which recommends net savings of $104.2 million in 2006-07 as follows: 

Part C – Provide a three year Cost of Living Adjustment (COLA) for designated human services programs.

Enactment of this bill is necessary to implement the 2006-2007 Executive Budget to provide a 2.5 percent COLA to eligible human services programs, for a total cost of $33.8 million. The COLA will grow to $130 million in 2007-08 and $192.5 million by 2008-09.

Part D – Modify the Health Care Reform Act (HCRA) and enact proposals to preserve its fiscal stability, and authorize additional non-profit insurance company conversions.

Enactment of this bill is necessary to implement the 2006-07 Executive Budget, which assumes $118.5 million of related General Fund savings in 2006-07 and $188.4 million in 2007-08 consisting of:

In addition, HCRA will save $44.9 million in 2006-07 ($82 million in 2007-08) and make targeted investments of $271.8 million in 2006-07 ($255.4 million in 2007-08).

Part E – Authorize regulatory enforcement action fines to be deposited in the Chemical Dependence Service Fund.

Enactment of this bill is necessary to achieve Medicaid State share savings of $8.9 million, consistent with the 2006-07 Executive Budget Financial Plan.

Part F – Authorize OASAS to make State aid payments to entities which assume either temporary or permanent responsibility for certain chemical dependency programs.

Given the unpredictability as to when OASAS will be required to engage an organization under a receivership agreement, the Executive Budget recommends $1 million in “dry” appropriation authority to support State Aid payments for programs in receivership. To supplement this Mental Hygiene Law change, Local Assistance General Fund appropriation language will also be modified to permit such payments.

Part G – Eliminate mental health outpatient services as services that can be considered specialized under section 2807 of the Public Health Law.

Enactment of this bill is necessary to implement the 2006-2007 Executive Budget to provide an annual State share savings of approximately $4 million.

Part H – Authorize OMH/OASAS voluntary hospitals to receive Federal disproportionate share payments.

Enactment of this bill is necessary to implement the 2006-2007 Executive Budget as it provides an annual net State savings totaling approximately $28.1 million. The two State agencies impacted are the Office of Mental Health (saving $16.7 million) and the Office of Alcoholism and Substance Abuse Services (saving $11.5 million).

EFFECTIVE DATE:

Part A – Ensure a seamless transition to the new Federal Medicare prescription drug program (Part D); restructure the nursing home reimbursement methodology; implement saving measures to reduce Medicaid costs and establish the Office of Medicaid Inspector General to combat fraud, waste and abuse.

This bill takes effect April 1, 2006 with the following exceptions:

Part B – Improve public health services by eliminating low-priority programs, implementing cost saving measures, strengthen fiscal and programmatic oversight and make new investments in local public health programs.

This bill takes effect April 1, 2006.  However, sections ten through fourteen, regarding Article VI of Public Health Law, will be effective January 1, 2007 and sections 31 through 35 will be effective July 1, 2006.

Part C – Provide a three year Cost of Living Adjustment (COLA) for designated human services programs.

This bill takes effect April 1, 2006 and expires April 1, 2009.

Part D – Modify the Health Care Reform Act (HCRA) and enact proposals to preserve its fiscal stability, and authorize additional non-profit insurance company conversions.

This bill takes effect immediately.

Part E – Authorize regulatory enforcement action fines to be deposited in the Chemical Dependence Service Fund.

This bill takes effect April 1, 2006.

Part F – Authorize OASAS to make State aid payments to entities which assume either temporary or permanent responsibility for certain chemical dependency programs.

This bill takes effect April 1, 2006.

Part G – Eliminate mental health outpatient services as services that can be considered specialized under section 2807 of the Public Health Law.

This bill takes effect April 1, 2006.

Part H – Authorize OMH/OASAS voluntary hospitals to receive Federal disproportionate share payments.

This bill takes effect April 1, 2006.

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