Governor Paterson Announced Health Care Budget, Reforms

From the Governor’s Office….

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Governor David A. Paterson today announced that the Enacted Budget will include major, permanent reforms to the way health care is delivered in New York to rationalize the State’s Medicaid reimbursement system and provide increased investment in primary and preventative care. The budget also includes a record $2.3 billion health care savings plan to help address an unprecedented $17.7 billion budget deficit.

“These historic reforms represent the most dramatic overhaul to our health care system in decades,” said Governor Paterson. “The changes we are making will provide increased investment in primary and preventative care, which will help save money and save lives. Our new reimbursement reforms give us vastly improved tools to contain costs and improve quality of care. This plan makes government more accountable to taxpayers while delivering positive results for New Yorkers.”

Reimbursement Reform

Hospitals/Clinics
Historically, New York has overpaid for inpatient care and provided insufficient resources for primary care. By reducing inflated inpatient rates by $225 million, this budget brings inpatient reimbursement closer to actual costs – making Medicaid a smarter purchaser. Additionally, for the first time in more than two decades, Medicaid will pay a fair price for primary and other outpatient services in hospital clinics. This and other savings actions allow New York to invest $290 million in primary and preventive care and avoid unnecessary and expensive hospitalizations, creating a higher quality and more sustainable system. New outpatient investments include:

    • $92 million on a full annual basis in hospital clinics; combined with the reforms in the 2008-09 Enacted Budget, overall investment in hospital clinics will total $180 million.
    • $37.5 million in community health centers; combined with the reforms in the 2008-09 Enacted Budget, overall investment in community health centers will total $50 million.
    • $68 million in fees to doctors and nurse practitioners; combined with the reforms in the 2008-09 Enacted Budget, overall investment in fees to doctors and nurse practitioners will total $188 million; and other investments.

The Enacted Budget recognizes the fact that hospitals will face challenges when adapting to a more rational reimbursement system, creating efficiencies in their operations, and re-aligning their business models towards primary care. To assist them, this budget includes a $75 million Transitional Reform Fund. This “bridge to reform” provides affected institutions with a greater opportunity to adjust their operations through enhanced resources as they realign their delivery model away from expensive inpatient care and towards primary and preventive care and maintain services for uninsured patients. Other initiatives include:

    • Making an additional $283 million available to hospitals to cover the costs of uninsured patients.
    • Maintaining New York’s commitment to its academic medical centers by creating a $24.5 million pool of funds to allow them to drive positive change through research and best practice development
    • Making an additional $55 million available to community health centers to cover the costs of uninsured patients, subject to federal approval.
    • Making $50 million available to hospitals serving the largest numbers of Medicaid patients to buffer the impact of the budget reductions and reflect the additional costs associated with serving disproportionately large numbers of low-income patients.
    • Making $16 million available to community hospitals to buffer the impact of the budget reductions.

Further, the budget includes a designated pool of $25 million in discretionary HEAL funding (which becomes a total of $50 million when matched with federal funding through the Federal-State Health Reform Partnership (FSHRP)) to assist struggling safety net and other hospitals with the capital for restructuring necessary to transition to a new reimbursement system. Finally, the budget authorizes the Department of Health to pursue a waiver from the federal government, as part of the State’s renewal on its current 1115 waiver this year, to seek enhanced federal matching dollars to support hospital and primary care reform.

Long-term Care
The budget makes critical reforms to rebalance the long-term care system, which is essential as New York prepares for the aging of the baby boom generation. As with hospitals, the long-term care reforms rationalize the nursing home reimbursement system to enhance value and incentivize quality, create a process to examine and make recommendations on modernizing the home health care system and put in place measures to expand access to alternatives to nursing home care to ensure that seniors and the disabled receive the high quality care they need in the least restrictive, most appropriate setting.

This budget adopts a new nursing home reimbursement methodology to take effect on April 1, 2010, that, for the first time, will drive efficiency while providing for quality and workforce development. A workgroup of industry representatives, consumers, workers and experts will be convened to inform the development of this new payment methodology.

The Enacted Budget will initiate a workgroup of industry representatives, consumers, workers and experts to inform the development of a new home health care reimbursement methodology. The Enacted Budget also creates a pilot Long Term Care Assessment Center to consolidate and standardize the assessment and Medicaid authorization process, allowing the State to plan and manage limited resources while ensuring individuals receive the services and supports they need to remain in their communities. Beginning in January 2010, the first centers in one borough of New York City and one Upstate county will be implemented for new cases.

Alternatives to the nursing home care are expanded to allow seniors and the disabled to remain in the community by:

    • Doubling the availability of assisted living by closing 6,000 unnecessary nursing home beds to be replaced by 6,000 new Assisting Living Program beds over the next five years. $100 million in existing HEAL funding has been earmarked to facilitate this transition and to ensure that the nursing home infrastructure remains both safe and sound;
    • The Enacted Budget also creates a workgroup of industry representatives, consumers, workers and experts to inform the development of a new home health care reimbursement methodology.

Savings Plan

The Enacted Budget includes a Health Care savings package totaling $2.3 billion in 2009-10 – the largest amount in State history (previous high was $1.2 billion in 2005-06), including actions taken in the Deficit Reduction Plan. The 2009-10 Executive Budget recommended $3.5 billion of health care savings, which included a $404 million tax on non-diet soft drinks that Governor Paterson and legislative leaders previously agreed to eliminate.

Sector 2009-10 Exec. Budget (Millions) 2009-10 Enacted Budget (Millions)
Hospitals 700 306
Nursing Homes 398 225
Home Care 189 68
Pharmacy 99 28
Insurance 855 744
Medicaid Fraud 125 175
Utilization Management 24 13
Managed Care 84 152
Other Actions 520 514
All Other Public Health 110 80
Non-diet Soft Drink Tax 404 0
Total 3,508 2,305

Hospitals/Clinics
The Enacted Budget includes $306.4 million in 2009-10 hospital/clinic savings – the largest amount in State history (previous high was $172 million in 2007-08). Major savings initiatives include eliminating a planned trend (inflation) factor ($68.6 million), instituting a 0.35 percent assessment on hospital revenues ($124.3 million), reallocating Graduate Medical Education funding ($141.3 million), and others.

Nursing Homes
The Enacted Budget includes $224.6 million in 2009-10 nursing home savings – the second largest amount in State history (highest was $298.8 million in 2002-03). Major savings initiatives include eliminating a planned trend (inflation) factor ($101.2 million) and making alterations to Medicaid reimbursements ($95 million) and others.

Home Care
The Enacted Budget includes $68.1 million in 2009-10 home care savings – the largest amount in State history (previous high was $15.3 million in 2004-05). Major savings initiatives include eliminating a planned trend (inflation) factor ($60.4 million) and establishing an assessment on total home care provider revenues that was previously in effect from 1995 through 1999 ($14.2 million).

Pharmacy
The Enacted Budget includes $27.7 million in 2009-10 pharmacy savings. Major savings initiatives include limiting the quantity, frequency and duration of certain dispensed medications ($7.5 million), requiring step therapy for certain drugs ($0.5 million), discontinuing participation in the National Medicaid Pooling Initiative to allow the State to negotiate supplemental rebates directly with manufacturers ($1.8 million), and others.

The budget agreement authorizes DOH to negotiate directly with drug manufacturers to secure better rebates on prescription drugs. Before the implementation of this program the ability to secure rebates was limited to drugs included in the State’s preferred drug program which limited both the number of drugs and amount of the rebate the state could get. This new authority will use Medicaid’s significant purchasing power to secure deeper discounts on prescription drugs already on the preferred drug list and expand the rebate program to additional drugs. When fully implemented in two years, additional savings from rebates are expected to be over $167 million.

Insurance
The Enacted Budget reflects $738.5 million in assessments placed upon insurers in the 2008-09 Deficit Reduction Plan, as well as the extension of the covered lives assessment to insurers headquartered out-of-state ($5 million).

Other Actions
The Enacted Budget recommends a number of other savings actions, including increasing the Medicaid Fraud audit target ($175 million), reducing anti-tobacco funding ($10 million), taxing for-profit HMOs consistently with insurance companies ($107 million), utilization management ($13.3 million), increasing the retail tobacco fee ($18.5 million), delaying a scheduled Medicaid cycle payment ($400 million), as well as implementing other managed care and public health savings.

Expanding Access to Coverage, Public Health Investments
To help enable eligible children and adults to secure and keep coverage, face-to-face interview, finger imaging, and asset test requirements are eliminated. Also, barriers to enrollment in Family Health Plus by public employees and 19- and 20-year-olds who do not live with their parents will be removed. The Department is also authorized to seek federal support to expand coverage for low-income adults up to 200 percent of the federal poverty level, making more than 400,000 additional adults eligible for coverage.

The Enacted Budget also supports a number of key public health investments, including funding for food pantries at a time of growing need ($4.4 million), lead poisoning prevention ($2.5 million), cancer screening ($3.2 million), anti-obesity programs ($1 million), and other priorities.


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