For the week ending Friday, June 1, 2001

After a long day of budget and tax negotiations, the General Assembly finished their work at 2:53 a.m. Sunday, June 3, 2001. Below is a summary of VAHHS initiatives and their final status. Complete details on key provisions are attached or available upon request.

Medicaid Reimbursement
Whether or not the hospitals were included in the monies appropriated to increase Medicaid reimbursements depends largely on interpretation. The Governor’s position had always been no increase in reimbursements unless the cigarette tax is passed. The House’s position was to address this issue immediately and they put $4.1 million in their budget (without any new revenue). The Senate supported the Governor’s position throughout most of the process until the last two days when the Senate budget conferees changed slightly stating they could allow increased Medicaid reimbursement rates for all providers except hospitals. This slight change came soon after the Administration circulated a one-page information sheet with statistics about hospital profitability (attached). This became the sticking point and the subject of a four-hour delay in signing the budget on Saturday afternoon.

In the end, the House who had lobbied hard for increased reimbursements for all providers was able to keep $1.3 million gross for increased reimbursement rates. The problem was the additional language they had to accept in essence recognizes that the payments will go toward a new program, not the existing Medicaid cost shift. The language is as follows: "During fiscal year 2002, increased Medicaid payments made to hospitals under this section shall be used to promoting utilization of services, increased efficiencies, and other quality improvements provided to Medicaid beneficiaries. The department of PATH shall collaborate with the Vermont Association of Hospitals and Health Systems and the Vermont Program for Quality in Health Care in determining the programs and facilities that best qualify for such payments."

Additionally, the offensive Section 123a (h) was deleted and the cost shift reporting that was passed in the 2001 legislative session was repealed.

Professional Regulation
H.501, the annual professional regulation bill, was given final approval by the legislature this year without any changes to the gross negligence standard. The Secretary of State had requested that the current law gross negligence standard should be changed to simple negligence for a single incident. VAHHS worked with House Committee on Government Operations to strike out this language and successfully kept it out through the remainder of the process. The committee is expected to study this issue throughout the summer and fall to be prepared to find compromise language to address the concerns raised this year.

H.158 – Open Meeting Law
Although H.158 received a hearing in the House Committee on General, Housing and Military Affairs this year, the proposal to require that meetings of boards of directors of non-profit hospitals be subject to the open meeting laws did not receive any formal action or further discussion. VAHHS testified on this issue stating that this type of regulation is unnecessary since most of the conversations at a hospital board meeting are items that are exempt from open meetings and can be conducted in executive session. Additionally, hospitals have enhanced relations with their communities in many ways plus their trustees are members of the local community.

Cigarette Tax
During the session, the Legislature’s Joint Fiscal Office (JFO) painted a bleak picture for the health of Vermont’s Medicaid program. They reported that about 20 percent of Vermont residents receive some form of health care from the State, a percentage of the population significantly greater than in surrounding states. The annual tab for these benefits is in the $180 million range. Recent figures from JFO project an estimated $1.5 million deficit in the Medicaid programs in the next fiscal year, a number that could grow to as much as $75 million in six years.

The Governor has insisted that raising the cigarette tax by 67 cents is necessary to solve this growing problem. The House leaders disagreed saying that they didn’t believe such an increase could be approved in the House. Several key Senate leaders supported the Governor’s position but the issue was never pushed to a vote in a committee or on the floor. All parties recognize that this issue will be revisited again next year.

Nursing Homes
The FY02 budget includes language regarding nursing homes that was a compromise between the industry and the Administration. The language changes the re-basing formula which was scheduled to be done no earlier than 2000 and under this scenario would be delayed by two years to allow the additional $5.2 million in wage supplements to be absorbed. Because this language was approved, the Boren amendment was deleted and seen as not necessary.

Since the budget includes a bed tax at the maximum level to pay for the inflation factor instead of the usual practice of using General Funds, the nursing home industry was concerned that this funding source would be tapped out for future years and the inflationary increases they received would be jeopardized in future years. The compromise language gives the industry some assurance that the inflationary increases would be protected in the future.

Nurse Loan Forgiveness
The FY02 budget includes $200,000 for the nurse loan forgiveness program established to help both RNs and LPNs who have graduated on or after April 1, 2001. To be eligible, candidates must be a Vermont resident enrolled full time in an accredited registered nursing or licensed practical nursing program in Vermont. Candidates are eligible for a loan of up to $6,000.00 per year.

Medical Privacy
Rep. Tom Koch (R-Barre Town), chair of the House Committee on Health and Welfare, never gave up his hope to pass H.416, the medical privacy bill. In the end, the committee received lots of testimony and Rep. Koch led an effort to begin mark-up in the last few weeks of the session. Since Rep. Koch has stated that the federal protections were illusory and his interest is to pass a state law that regulates not only providers and insurers but also state agencies, it is anticipated that this issue will be scheduled for more discussions early in the 2002 session.

Sec. 123. Prevention, assistance, transition, and health access - Medicaid
(f) At least $850,730 of the above appropriation shall be used to target payments to procedure codes to increase rates up to 85% of Medicare level. This shall be done in consultation with the Vermont medical society physician bargaining group and shall take into consideration: (1)codes with the greatest differential between Medicare and Medicaid; and (2) the volume of services provided.

(g) The Medicaid inpatient per diem rate shall be increased to the peer group median for any Vermont hospital that is at a competitive disadvantage, as determined by the commissioner, with a hospital in the same peer group and with a similar service mix that is situated within ten miles from the Vermont border and less than eighteen miles from the Vermont hospital.

(h) (1) In addition to any other inflationary increases, $1,345,000.00 of the above appropriation shall be used to increase reimbursement for hospitals and other health care providers as defined in subdivision 9402(6) of Title 18. These funds shall be allocated as follows: 44% to hospitals, of which the initial portion shall be to fulfill the requirements of subsection (g) above; 34% for physicians; 5% for dentists; and 17% for other providers.

(2)During fiscal year 2002, increased Medicaid payments made to hospitals under this section shall be used to promote utilization of services, increased efficiencies, and other quality improvements provided to Medicaid beneficiaries. The department of PATH shall collaborate with the Vermont Association of Hospitals and Health Systems and the Vermont Program for Quality in Health Care in determining the programs and facilities that best qualify for such payments

(i) PATH is instructed to file for an amendment to its Medicaid waiver to allow for additional payments to providers to eliminate cost shifting.

(j) The rules for Medicaid payments for nursing homes shall be amended, effective July 1, 2001, to raise the limit on recognition of base year indirect per diem costs to 137 percent of the median of base year indirect per diem costs of all private nursing homes participating in the Vermont Medicaid program, for hospital-based nursing homes that meet all the following criteria on the date of passage of this act: (1) are physically integrated as part of a hospital building with at least one common wall and direct internal access between the hospital and the nursing home; (2) are part of a single corporation that governs both the hospital and the nursing home; and (3) file one Medicare cost report for both the hospital and the nursing home.

Sec. 123a. EQUITABLE MEDICAID REIMBURSEMENT AND THE MEDICAID FISCAL DEFICIT
The General Assembly finds that:
(1) While Vermont has been a leader in expanding access to health care coverage through its Medicaid programs (including traditional Medicaid, the Dr. Dynasaur program, the Vermont Health Access Plan, VHAP-Pharmacy and VScript), and has a high quality and low cost health care system as recognized by federal measurement, Vermont has not adopted fiscal policies adequate to sustain program costs.

(2) The Vermont Medicaid program is part of the larger health care cost escalation landscape, where Vermont and the nation are experiencing a crisis in health care affordability affecting businesses large and small, state employee and teacher benefit plan costs, as well as the cost of the Medicaid program.

(3) Expenditure growth in Vermont's Medicaid program is particularly acute because of increased enrollments following program expansions, and because of rising prescription drug costs that affect the traditional Medicaid program and program expansions such as VHAP-Pharmacy and VScript.

(4) Medicaid costs paid by the state are substantially higher than they otherwise would be if enhanced federal financial participation (e.g. SCHIP) were available for more of Vermont's programs.

(5) Vermont's fiscal options for Medicaid programs are further limited, absent a federal waiver, by federal Medicaid rules that do not permit significant cost sharing by most program beneficiaries, and by federal Medicaid rules that mandate a specific, comprehensive health benefit coverage.

(6) The federal Medicaid financial participation rate does not reward Vermont's achievement as a relatively low cost, high quality health care system, since federal financial participation is based solely on per capita income, rather than on the performance of our health care system.

(7) Vermont Medicaid program reimbursement generally is lower than reimbursement paid by commercial insurers, by self insured plans, and by the Medicare program. The Vermont Medicaid program generally does not provide revenue adequate to recover the estimated cost of service.

(8) Cost shifting occurs in the health care financing system when different purchasers pay different amounts for the same service. Medicaid cost shifting occurs when hospitals and some large physician groups are paid by non-Medicaid payers for part of the costs incurred in providing services to Medicaid beneficiaries. Many physicians and other health care providers are unable to shift the cost of providing Medicaid services to other payers.

(9) Medicaid is not the only health benefit plan whose reimbursement policies result in cost shifting: for example, hospitals shift costs incurred in providing Medicare services to other health benefit plans; many health benefit plans secure steep discounts from retail pharmacies that result in higher costs for uninsured individuals; and the cost of hospital free care is recovered from public and private health benefit plans.

(10) Inadequate Medicaid reimbursement is a public policy problem in connection with hospital reimbursement (and perhaps with large provider group reimbursement) because hospitals respond with a cost shift that results in health insurance premiums that are higher than they otherwise would be.

(11) Inadequate Medicaid reimbursement is a public policy problem in connection with physician and other health care provider reimbursement because providers who are inadequately compensated either may face financial difficulties operating a health care practice in Vermont, or may deny health care access to Medicaid beneficiaries. For example, many dentists restrict access to Medicaid beneficiaries. Furthermore, recruitment and retention of certain providers has become a serious problem in geographic areas or specialties with high Medicaid enrollment.

(12) Medicare reimbursement principles have been accepted by many as an appropriate standard that should be adopted for Medicaid reimbursement. Medicare reimbursement is reasonable because Vermont’s federal allocation per patient is well below the national average, reflecting our relatively low-cost system, and the Congress has adopted mechanisms to insure that Medicare reimbursement is appropriate and fair. Establishing a Vermont-specific "reasonable cost" standard would require the development of a significant, new regulatory system to identify reasonable and appropriate costs, and to establish the level of payment needed to ensure access to services by Medicaid beneficiaries.

(13) Federal budget neutrality requirements imposed on the VHAP program constrain Vermont's ability to quickly eliminate the Medicaid cost shift, since VHAP program costs in excess of the budget neutrality standard will be ineligible for federal financial participation.

(14) Eliminating the Medicaid cost shift by reaching parity with the Medicare reimbursement standard would require substantial new Medicaid revenue: $12 to 19 million for Vermont hospitals; $4 to 6 million for Dartmouth Hitchcock; and $11 to 13 million for physicians.

(15) Most health care issues are inter-related; they cannot be solved in isolation. Eliminating the Medicaid cost shift is a goal that should be considered together with an integrated approach to other Medicaid issues such as establishing equitable Medicaid reimbursement policies, implementing effective cost containment strategies, and creating an adequate, equitable and economically efficient Medicaid financing system.

(16)(A) The state of Vermont shall adopt a fiscal strategy and appropriations to achieve the following goals:

(i) eliminate, within a period of time no longer than four years, cost shifting and under-reimbursement in the Medicaid program, with data developed by the joint fiscal office with the cooperation and assistance of the agency of human services;

(ii) reimburse health care providers in the Medicaid program at least at the federal Medicare level, or some other agreed-to payment structure to attempt to insure access and a stable delivery system; and

(iii) assure that Medicaid costs should continue to be consistent with Vermont’s relatively low cost and efficient delivery system.

(B) To achieve the goals established in subdivision (A) the state of Vermont should consider the following:

(i) A comprehensive strategy to align Medicaid program expenditures and revenues.

(ii) Progressively higher reimbursement levels until parity with the Medicare standard, where applicable, or some other equitable reimbursement standard is attained.

(iii) Monitoring the fiscal soundness and cost effectiveness of the program in consideration of effective utilization and quality programs, and greater federal flexibility in cost sharing and benefit plan design.

(iv) More equitable federal financial participation, by capitalizing on higher federal financial participation rates in other federal programs for existing VHAP beneficiaries, recognizing Vermont’s high quality, low cost system as we approach universal access.

(v) A federal partnership to support pharmaceutical assistance programs, through greater cost sharing or a federal demonstration project.

(17)(A) On or before January 1 of each year until January 1, 2005, the secretary of human services, in consultation with, and with the cooperation of, the joint fiscal committee, shall recommend to the general assembly what steps need to be taken to achieve the commitment stated in subdivision (16) of this section to eliminate the Medicaid cost shift by January 1, 2005.

(B) The commissioner of banking, insurance, securities, and health care administration, the commissioner of personnel, each acute care hospital providing services to Vermont Medicaid beneficiaries, and health insurers, as defined in subdivision 9402(7) of Title 18 and as requested by the secretary, shall provide to the secretary such available information and reasonable assistance as is necessary for the secretary to make its recommendations as required by this subdivision.

(C) Sec. 117b of Act No. 152 of the 2000 Session of the General Assembly (Medicaid Cost Shift Reporting) is repealed.

Sec. 123b. 18 V.S.A. § 9456(b), (c) and (h) are amended to read:
(b) In conjunction with budget reviews, the commissioner shall:
(1) review utilization information;
(2) consider the goals and recommendations of the health resource management plan or state health plan, whichever applies;
(3) consider the expenditure analysis for the previous year and the proposed expenditure analysis for the year under review;
(4) consider any reports from professional review organizations;
(5) solicit public comment on all aspects of hospital costs and use and on the budgets proposed by individual hospitals;
(6) meet with hospitals to review and discuss hospital budgets for the forthcoming fiscal year;
(7) give public notice of the meetings with hospitals, and invite the public to attend and to comment on the proposed budgets; *[and]*
(8) consider the extent to which costs incurred by the hospital in connection with services provided to Medicaid beneficiaries are being charged to non-Medicaid health benefit plans and other non-Medicaid payers;
(9) require each hospital to file an analysis that reflects a reduction in net revenue needs from non-Medicaid payers equal to any anticipated increase in Medicaid reimbursements resulting from appropriations designed to reduce the Medicaid cost shift; and

*[(8)]*(10) seek the advice and recommendations of the public oversight commission.
(c) Individual hospital budgets established under this section shall:
(1) be consistent with the health resource management plan or state health plan, whichever applies;
(2) take into consideration national, regional or instate peer group norms, according to indicators, ratios and statistics established by the commissioner;
(3) promote efficient and economic operation of the hospital; *[and]*
(4) reflect budget performances for prior years; and
(5) include a finding that the analysis provided in subdivision (b)(9) of this section is a reasonable methodology for reflecting a reduction in net revenues for non-Medicaid payers.

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Sec. 113a. 18 V.S.A. § 10 is added to read:

§ 10. EDUCATIONAL ASSISTANCE; INCENTIVES; NURSES
(a) A Vermont resident enrolled in an accredited registered nursing or licensed practical nursing program in Vermont, is eligible for a loan of up to $6,000.00 per year, provided:
(1) graduation from the program will result in eligibility to sit for the NCLEX-RN nursing examination in the case of a registered nurse or the NCLEX-PN in the case of a licensed practical nurse; and
(2) the student is enrolled as a full-time student in the program.
(b) The amount of up to $6,000.00 of a loan awarded under this section shall be cancelled and forgiven for each year the student is employed as a registered nurse or licensed practical nurse. Eligibility for this program shall be determined by the Area Health Education Center (AHEC). The commissioner may require certification of compliance with this subsection prior to forgiving all or a portion of the loan.
(c) The commissioner shall award up to $6,000.00 per year for up to four years, to any licensed registered nurse or practical nurse who has not received or is not eligible to receive loan forgiveness under subsection (b) of this section, for each year the nurse is employed as a registered or practical nurse. Eligibility for this program shall be determined by AHEC. The commissioner may require certification of compliance with this subsection prior to making an award.
(d) In any year in which the commissioner does not have sufficient funds to carry out the provisions of this section, the commissioner shall use funds appropriated first to provide loans and loan forgiveness pursuant to subsections (a) and (b) of this section. Remaining funds shall be used to provide awards pursuant to subsection (c) of this section, giving priority to those nurses serving in an undersupplied nursing specialty or in a geographic area of Vermont which is underserved.
(e) This program shall apply to registered nurses or licensed practical nurses who have graduated on or after April 1, 2001.
(f) This section shall be repealed effective June 30, 2005.

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