Analysis Item 12: Oregon Health Authority Rebalance

Transcription

1 Analysis Item 12: Oregon Health Authority Rebalance Analyst: Linda Ames Request: Allocate $38,597,132 General Fund; increase the Other Funds expenditure limitation by $339,683,891; decrease the Federal Funds expenditure limitation by $749,815,176; authorize the establishment of 19 positions (19.33 FTE); and approve transfers between appropriations and expenditure limitations to rebalance the Oregon Health Authority s budget. Recommendation: Allocate $29,375,097 from the special purpose appropriation made to the Emergency Board for the Oregon Health Authority or the Department of Human Services for caseload costs or other budget challenges, increase the Other Fund expenditure limitation by $338,848,484, and approve transfers between appropriations and expenditure limitations to rebalance the Oregon Health Authority s budget. Analysis: During the 2016 legislative session, the Legislature adjusted the Oregon Health Authority s (OHA) budget based on its first rebalance plan for the biennium. That rebalance incorporated increased caseload costs, increased costs for Medicare Part D clawback payments and Medicare Part B premiums, and an increase in certain revenues. Distributions were also made during the 2016 session to all agencies to help cover the increased costs resulting from contract negotiations. The final appropriation to OHA during the 2016 session anticipated management actions by the agency to decrease costs by $25 million General Fund through an acceleration of the redetermination process, a delay in fee-for-service rate adjustments, and enhanced savings from program integrity efforts. These efforts continue. Although not specifically anticipated at that time, in June 2016 OHA also settled the lawsuit with FamilyCare in regards to the dispute over the 2015 and 2016 capitation rates, at a cost of $24.8 million in state funds. That has been paid out of the agency s existing budget. OHA is presenting its second financial report for the biennium to the Emergency Board. A typical agency rebalance plan reflects program cost increases and savings, revenue changes, and proposed management actions, if any, needed to balance the OHA budget. Rebalancing allows OHA, with legislative approval, to move General Fund between appropriations and adjust Other Funds and Federal Funds expenditure limitation as needed. In this rebalance, the agency has not been able to completely rebalance General Fund internally, and is requesting an allocation of $38.6 million General Fund. This could come from the $40 million special purpose appropriation made to the Emergency Board during the 2015 session to address potential human services caseload increases or other budget challenges in either the Department of Human Services (DHS) or OHA. However, the budget needs of DHS must also be considered. Legislative Fiscal Office 1 Emergency Board December 2016

2 The agency plan includes budget problems of $95.1 million General Fund related to the following major issues: Caseload increases in categories with higher General Fund costs. Staffing costs related to redeterminations and enrollment during the transition to the new ONE eligibility system, as well as maintenance and operations costs of the system. Costs related to opening a ward at the Oregon State Hospital. Cost allocation increases in General Fund related to including the Oregon State Hospital. Interest costs for a Treasury cash flow loan. Savings of $56.5 million General Fund result from changes in cost per case and a true-up of the Medicaid budget, caseload decreases in the non-medicaid budget, and an increase in the tobacco tax revenue forecast. After considering both costs and savings, the plan results in a net General Fund need of $38.6 million. The agency reports a need for additional Other Funds expenditure limitation of $339.7 million, related to repayment of the Treasury loan for cash flow purposes at the end of the biennium, as well as increases in both the Public Employees Benefit Board and the Oregon Educators Benefit Board expenditure limitations. A decrease in the need for Federal Funds expenditure limitation of almost $750 million is a result of the decrease in both caseload and costs for the Affordable Care Act (ACA) population. There are also a number of technical adjustments/transfers included in this plan. These adjustments net to zero for the agency as a whole. The agency lists a number of budget risks, including changes to caseloads, on-going costs of Aid and Assist patients at the Oregon State Hospital, costs of new drug treatments for hepatitis C, and Medicare Part B premium increases for The Centers for Medicare and Medicaid Services (CMS) has also recently announced an increase in the Medicare Part D clawback payment that is expected to cost an additional $3.7 million General Fund during the current biennium. The General Fund budget impact of the identified problems, savings, and technical adjustments in the agency rebalance plan are summarized in the table below: Health Public HSD OSH Central/ Cap Total General Fund $$ in millions Policy Health Shared Impr Leg. Approved Budget 1, ,140.5 Rebalance Issues Costs Savings (54.8) (1.0) - - (0.7) - (56.5) Technical Adjustments (1.3) 1.2 (0.2) (0.9) (0.0) Net Change (0.2) This analysis will focus on the significant changes in each program area, with further explanation or discussion as warranted. Legislative Fiscal Office 2 Emergency Board December 2016

3 HEALTH SYSTEMS DIVISION (HSD) Rebalance issues in this program result in an overall shortfall of $13 million General Fund. In addition, the budget is reduced by $1.3 million as a result of transfers and technical adjustments. The agency s rebalance plan includes a net increase of $208.5 million Other Funds, a net decrease of $748.2 million Federal Funds, and an increase of 11 positions (6.54 FTE) transferred from elsewhere in the agency. A number of issues increase General Fund costs. The largest is related to the new Fall 2016 Medicaid caseload forecast as compared to the Fall 2015 caseload forecast on which the current budget is based. Overall the forecast is down 1.3%. However, several categories that are higher cost in terms of General Fund are up, including Parent/Caretaker Relative (formerly TANF) and Pregnant Women. This results in a General Fund need of $56.1 million. At the same time the ACA population is down 3.4% resulting in a decrease of $96 million Federal Funds expenditure limitation. Caseload forecasts continue to be somewhat volatile as the state catches up on redeterminations and gets updated information into the new ONE eligibility system as each family goes through the redetermination process to see if they are still eligible, and for which category. Currently, this process has resulted in some individuals moving from the ACA category into other categories that require a larger proportion of General Fund, including Parent/Caretaker Relative. Forecast risks will remain higher than usual until the data has settled down over an extended period of time and there is good historical information on which to base the forecasts. Changes to the forecast are shown in more detail in the following table Biennium Approved December $MM Budget 2016 Difference % Change Difference Medicaid Caseload Eligibility Category Affordable Care Act (ACA) Adults 423, ,098 (14,580) -3.4% (212.4) Parent/Caretaker Relative 57,850 68,770 10, % Pregnant Women 15,612 16,639 1, % 32.9 Children's Medicaid Program 348, ,965 (3,870) -1.1% (27.8) Aid to Blind and Disabled 81,558 82, % 35.5 Old Age Assistance 42,009 42, % 6.0 Foster/Adoption/BCCP 19,964 20, % 1.9 Children's Health Insurance Program 62,631 61,706 (925) -1.5% (4.3) Medicare Buy-in, CAWEM 79,774 71,255 (8,519) -10.7% (14.8) TOTAL 1,131,911 1,116,825 (15,086) -1.3% ($32.1) Total General Fund Impact $56.1 While the Medicaid forecast results in higher General Fund costs, OHA reports a savings of $42 million General Fund based on a true-up of the Medicaid budget including the most recent coordinated care organization (CCO) rates and adjustments to cost per case. In addition, forecasts have gone down for the non-medicaid caseload (community mental health) resulting in savings of $7.5 million General Fund. Taking all these caseload and cost per case items into account, the overall budget adjustment included in the plan is an increase in General Fund of $6.6 million. The Medicaid true-up of costs results in a reduction of Federal Funds expenditure limitation of $630.1 million. Legislative Fiscal Office 3 Emergency Board December 2016

4 The rebalance plan includes a General Fund need of $9.9 million for costs related to the processing center and the ONE eligibility system. Large numbers of temporary staff have been necessary over the past two years to support a hybrid process for eligibility determination during the transition to the ONE system. Those staff will continue to be necessary as the backlog of redeterminations is addressed through the next four months. With the end of the backlog, as well as the on-going enhancement of the functionality of the ONE system, the processing system staffing needs will gradually go down. In addition, as the ONE system transitioned from its project phase to on-going maintenance and operations, the federal match for these costs dropped from 90% to 75%, increasing the General Fund need. Other costs include $1 million for on-going maintenance and operations costs related to several Oregon Medicaid Management Information System (MMIS) enhancement projects required by CMS, including Disaster Recovery. CMS is also requiring all states to plan and implement modular IT solutions to support Medicaid, through our MMIS system. The agency is requesting $0.1 million General Fund to begin this planning process. Finally, the plan includes $0.8 million General Fund to help fund the contract with Optumas, the contractor that provides actuarial services and consulting for the agency. A number of issues has led to increased workload including increased federal requirements for CCO capitation rate development, the re-setting of the 2015 rates, the FamilyCare lawsuit, and work related to Oregon s new five-year waiver request. The report includes additional tobacco tax revenues of $5.3 million that will be used to offset General Fund need. The HSD rebalance also includes an additional $200 million Other Funds expenditure limitation to repay a line of credit to deal with cash flow issues through the biennium close-out period. For several biennia, the agency has borrowed funds from the Treasury to account for a lag in receipt of certain revenues, including tobacco tax and provider assessments. The $1 million General Fund for interest costs is included in Central Services. The Legislative Fiscal Office recommends an adjustment to the rebalance plan presented by the agency. The special purpose appropriation of $40 million, that has been set aside for budget issues in both DHS and OHA, is not large enough to address all rebalance issues in both agencies. Therefore, LFO recommends that $6 million of the General Fund increase in caseload/cost per case in HSD not be addressed in this rebalance. There will be a final rebalance, including a new caseload forecast, during the 2017 legislative session, where all remaining issues will be addressed. A number of risks to this budget remain. Caseloads are especially uncertain as OHA finishes its delayed redetermination process. Costs for the new hepatitis C drug treatments continue to put pressure on the budget. The agency has budgeted for an expected increase in Medicare Part B costs (for dually-eligible Oregon Health Plan members). But recent information from CMS indicates that Medicare Part D clawback payments are expected to increase $3.7 million for the current biennium. This will be addressed in the final rebalance during the 2017 legislative session. OREGON STATE HOSPITAL The rebalance includes an additional $5.3 million General Fund in costs related to the opening of an additional ward at the Salem campus in April The Aid and Assist population at the hospital continues to be much higher than anticipated when the budget was approved. These are patients that are sent by courts to be stabilized at the hospital so they can aid in their own defense. This population has doubled over the last four years. The hospital has taken a number of actions to Legislative Fiscal Office 4 Emergency Board December 2016

5 attempt to cover the increased costs, including the closing of two of the cottages in Salem last spring. The remaining two cottages are expected to close later in December They had also been operating one of the budgeted wards at Junction City at only half capacity, but will now have to open the other 13 beds there as well. LFO recommends $4.7 million General Fund, rather than the $5.3 million originally requested, to cover the net increase in costs after all these actions are accounted for, and in addition does not recommend the 14 new positions that the original request included. These adjustments incorporate the impact of final decisions regarding the closure of the remaining two cottages. PUBLIC EMPLOYEES BENEFIT BOARD (PEBB) PEBB s legislatively adopted budget was limited to a 3.4% increase in costs per member per year, resulting in a total budget of $1.78 billion Other Funds expenditure limitation. The agency estimates that they will end the biennium short of limitation by about $12 million. Most of this is explained by the number of members enrolled being about 500 more per year than budgeted. However, costs have also been running slightly over the 3.4% cap, at 3.6% for 2015 and 3.7% in recent analysis for Based on recent contract changes for 2017, it is likely that 2017 will be over the 3.4% as well. Based on these data, the shortfall in limitation is likely to be larger than $12 million. To be financially prudent, the agency is requesting additional limitation of $89.3 million in order to have a cushion of one-month of limitation. OREGON EDUCATOR BENEFIT BOARD (OEBB) OEBB s legislatively adopted budget was limited to a 3.4% increase in costs per employee per year, resulting in a total budget of $1.56 billion Other Funds expenditure limitation. Even with slightly more employees than were originally budgeted, the agency estimates that they will end the biennium with $25 million of unused limitation. However, to be financially prudent, the agency is requesting additional limitation of $40.2 million in order to have a cushion of one-month of limitation in case changes from this fall s enrollment period result in larger expenditures. CENTRAL AND SHARED SERVICES/STATEWIDE ASSESSMENTS & ENTERPRISE-WIDE COSTS (SAEC) Rebalance issues in these programs result in an overall shortfall of $21.3 million General Fund. In addition, the budget is increased by $1.1 million as a result of transfers and technical adjustments. The agency s rebalance plan also includes a decrease of 12 positions that are transferred to other parts of the agency. The rebalance plan includes $15 million General Fund related to cost allocation issues. The agency pays for its central administrative costs through a cost allocation process to distribute those costs appropriately to the various divisions and fund types. When OHA was formed, the Oregon State Hospital was not included in the cost allocation process. When that was discovered last spring, $10 million was included in the legislatively adopted budget to help address the issue, knowing that more would be needed but waiting for more refined estimates to be made. Since the hospital is heavily General Fund, bringing it into the allocation means more General Fund will be needed for central costs, and less Other and Federal Funds. Current estimates indicate an additional $15 million General Fund will be needed through the rest of this biennium. The agency continues to examine the current methodology, as well as ways to reduce the costs related to the hospital in those areas Legislative Fiscal Office 5 Emergency Board December 2016

6 where the hospital is responsible for some of its own administrative processes. The agency will report back on the results of these efforts at the next rebalance. The plan also includes $1 million General Fund in Central Services to cover interest costs related to a line of credit from Treasury to deal with cash flow issues through the biennium close-out period. The limitation to repay the loan is included in Health Systems Division. Other costs include $4.3 million General Fund primarily related to higher utilization of services from Department of Administrative Services (DAS) and other agencies that are built into the budget at a specified level. This includes costs that are higher than originally projected for the new telephone system that is being implemented across state agencies by DAS. Finally, $1.6 million General Fund is included in the plan as a result of changes at the federal level restricting the use of federal funds to pay for Secretary of State (SOS) performance audits. SOS indicates that almost half of their work is related to performance audits. For the Legislature may choose to limit the number of performance audits in order to reduce the additional General Fund costs. However, for the current biennium most of these costs have already been incurred. General Fund debt service savings of $0.7 million are included in the plan, resulting from refinancing of bonds for building the Oregon State Hospital. LFO recommends a total of $18.7 million General Fund to address these issues. The agency has taken management actions to address some of the service utilization costs, and will not need all the additional funding. This is a reduction of $2.6 million General Fund from the original plan. SUMMARY In summary, LFO is recommending an increase of General Fund of $29.4 million, as compared to the $38.6 million in the original rebalance plan. The difference includes $2.6 million of funding that will not be needed in Statewide Assessments and Enterprise-wide Costs, a decrease of $0.7 million in the calculated need for the Oregon State Hospital, and $6 million for costs related to increased Medicaid caseload that will not be funded at this time. This caseload issue will be addressed in the agency s final rebalance during the 2017 legislative session. With approval of the LFO recommendation for OHA and the companion rebalance action for DHS, the $40 million special purpose appropriation will be fully allocated. LEGISLATIVE FISCAL OFFICE RECOMMENDATIONS To implement OHA s requested rebalance LFO recommends the Emergency Board approve the following adjustments to the agency s budget: 1) Allocate $29,375,097 from the special purpose appropriation made to the Emergency Board for the Oregon Health Authority or the Department of Human Services for caseload costs or other budget challenges. 2) Approve the transfers between appropriations and expenditure limitations, net increases to Other Funds expenditure limitation, and authorize adjustments to positions and FTE authority, as shown in the table below. 3) Request the Department of Administrative Services to unschedule a total of $751,500,655 Federal Funds expenditure limitation, $739,123,601 of which is in the Health Services appropriation and $12,377,054 in the Central Services/SAEC appropriation. Legislative Fiscal Office 6 Emergency Board December 2016

7 General Fund Other Funds Federal Funds Total Funds Positions FTE Health Services Programs 9,591, ,870, ,462, Central/SAEC 20,532,282 (3,471,987) - 17,060,295 (12) 0.88 Debt Service (748,529) - - (748,529) PEBB Program - 89,289,381-89,289,381 OEBB Program - 40,160,259-40,160,259 TOTAL 29,375, ,848, ,223, Legislative Fiscal Office 7 Emergency Board December 2016

8 12 Oregon Health Authority MacDonald Request: Request $38.6 million General Fund appropriation, an increase of Other Funds expenditure limitation by $339.7 million, a decrease of Federal Funds expenditure limitation by $749.8 million and an increase of 19 positions (19.33 FTE) for the biennium rebalance. Recommendation: Approve the request with the following modifications: appropriate $29.2 million General Fund from the special purpose appropriation and emergency fund, increase Other Funds expenditure limitation by $342.6 million, and add 19 positions (19.33 FTE). DAS will unscheduled Federal Funds expenditure limitation of $750.5 million. Discussion: The Oregon Health Authority (OHA) is submitting its second rebalance plan for the biennium based on thirteen months of actual expenditure information. The plan consists of three general components impacting the OHA budget: 1) updated program challenges and expenditure projections; 2) recommended management actions and savings; and 3) risks, additional challenges, and outstanding issues. The agency s first rebalance plan resulted in a General Fund appropriation increase of over $19 million during the 2016 legislative session. The net General Fund appropriation request in OHA s current rebalance is $38.6 million, with a total funds expenditure limitation decrease of nearly $371.5 million. Changes in the state s Medicaid caseload forecast is the predominant factor in the agency s request. $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $0.0 Oregon Health Authority December 2016 Rebalance General Fund Costs The General Fund rebalance challenges total $95.1 million. With General Fund rebalance savings estimated to be $56.5 million, OHA requests a net General Fund increase of $38.6 million. GENERAL FUND CHALLENGES There are several issues resulting in an increase in projected General Fund expenditures totaling $95.1 million above the amount reported at the May 2016 meeting of the Emergency Board. The following are the key issues reported by OHA: Medicaid Caseload ($56.1 million General Fund cost): By far the most significant factor in the agency s projected General Fund shortfall is an increase in state costs based on changes in the Oregon Health Plan (OHP) caseload forecast. Compared to the Fall 2015 forecast, the Fall 2016 forecast for is lower by approximately 15,000, or 1.3 percent. This change in the forecast is primarily due to a lower estimate for the Affordable Care Act (ACA) Department of Administrative Services 12-i December 14, 2016

9 population. However, this decrease has little impact on the General Fund because the federal matching rate for this caseload is, on average, nearly 100 percent in the biennium. 450, , , , , , , ,000 50,000 0 OHP Caseload Forecasts: Fall 2015 vs. Fall 2016 The Fall 2016 Forecast decreases the overall projected caseload by 15,000. However, some caseloads with lower federal match rates are increasing and causing a net increase to the General Fund. Fall 2015 Forecast Fall 2016 Forecast Although the forecasted ACA caseload is driving a net caseload decrease overall, other caseload categories, particularly the Parent/Caretaker Relative and Pregnant Women caseloads, are forecasted to increase. Due to the lower federal matching rate for these populations, the net General Fund amount needed to support OHP in is expected to increase. Overall, the total funds costs are projected to decrease by $32 million. At least a portion of the shift in forecasted caseload from the ACA to other populations is due to OHA s effort to reinstate a normal cycle of eligibility redeterminations. The federal Centers for Medicare and Medicaid (CMS) had approved delaying redeterminations during the implementation of the OregonEligibility (ONE) system, and OHA restarted the activity in March In the prior rebalance, OHA had estimated up to $25 million in General Fund savings by reinstating redeterminations. The Department of Administrative Services Chief Financial Office recommends approval of the agency s request in order to properly fund mandated caseload levels. ONE System ($9.9 million GF cost): The ONE Medicaid eligibility system is nearing full implementation. The portal for eligibility workers became operational in December 2015 and the portal for OHP applicants launched in October As a result of the transition to ONE, three key issues are driving an increase in costs: o The federal Medicaid match rate has decreased from the design stage rate of 90 percent to the maintenance and operations rate of 75 percent ($5.7 million General Fund); Department of Administrative Services 12-ii December 14, 2016

10 o Temporary and limited-duration staff have been needed to help mitigate manual processes and workarounds required during the implementation of the new system ($4.5 million General Fund); and o OHA must pay the Department of Consumer and Business Services for costs associated with maintaining eligibility files during the litigation period of the Cover Oregon lawsuit, as well as web-based hosting and telecommunication system costs not previously budgeted ($3.4 million General Fund). These costs are offset by savings through the reduced need for paper applications and information technology project activities no longer in-process, resulting in a net General Fund cost of $9.9 million. Presumably, some of the temporary and limited-duration staff may not be needed as the full functionality of ONE is recognized. The net total funds impact is a reduction of $12.2 million due to the reduction of Federal Funds from the change in federal matching rates. The Chief Financial Office recommends approval of this request. Medicaid Management Information System ($0.9 million General Fund cost): Several information technology projects primarily related to disaster recovery impacting the Medicaid Management Information System (MMIS) are transitioning from the design and implementation stage to maintenance and operations. This change results in a decrease in the federal Medicaid match rate from 90 percent to 75 percent to support the on-going maintenance and operational activities, resulting in increased state costs of approximately $0.8 million. Additionally, CMS now requires all states to implement modular solutions supporting Medicaid programs. OHA must therefore prepare to modularize MMIS and the rebalance includes $0.1 million General Fund to begin the strategic planning process. The Chief Financial Office recommends approval of this request. Actuarial Services ($0.8 million General Fund cost): The agency s contractor for actuarial services, Optumus, has expanded its role and is now responsible for the actuarial certification for the capitation rates for coordinated care organizations; OHA was previously responsible for this activity. Optumus workload is also higher this biennium due to work on the state s Medicaid waiver renewal process and litigation support. Contractual costs are supported with both state and federal dollars and the increased scope in rate development and waiver work results in a General Fund need of $0.8 million. The Chief Financial Office recommends approval of this request. Oregon State Hospital Cost Allocation ($15 million General Fund cost): OHA uses a cost allocation methodology to account for administrative costs, such as state government service charges, enterprise technology services, and facilities expenses, incurred by each of the agency s programs. Prior to , the Oregon State Hospital (OSH) was excluded from this methodology, which was in contravention of federal rules regarding the use of federal funds to support cost allocation expenses. Incorporating OSH into the cost allocation methodology results in an impact to the General Fund because this is the primary revenue source supporting OSH, and where cost allocation statistics were once charged to federal funds, they will now impact the General Fund. In , the legislature appropriated $10 million General Fund as a preliminary estimate and stop-gap measure to support these costs until the agency incorporated OSH into the methodology and gained a clearer estimate of the true impact. The agency now has 13 months of OSH cost allocation experience and estimates an additional $15 million General Fund in is needed, resulting in a full biennial cost allocation amount of $25 million for OSH. The Chief Financial Office recommends approval of this request. Department of Administrative Services 12-iii December 14, 2016

11 Oregon State Hospital Aid and Assist Population ($5.3 million General Fund): The Aid and Assist population in OSH has increased by more than 34 percent since 2015 and has reached a population of over 240. In order to care for the increased population, OSH opened a 26-bed unit staffed by 14 positions in the Salem campus in April OSH partially offset this cost by closing two residential treatment cottages. An additional $5.3 million General Fund and 14 positions (8.40 FTE) are needed to support the new unit through the remainder of the biennium. Since 2015, OSH has added 52 beds to serve patients under Aid and Assist orders, raising the total number of beds to 210 in terms of units dedicated to Aid and Assist patients. The Aid and Assist patients above this level are placed in units designed to meet the treatment needs of other patients. The state hospital continues to work with law enforcement and local community mental health programs to identify alternative policies and treatments to stem the flow of Aid and Assist patients into institutional care. Such alternatives include crisis centers, assertive community treatment teams, and mobile crisis teams. The Chief Financial Office recommends approval of this request. Loan Interest ($1 million General Fund cost): The rebalance requests $1 million for interest related to an anticipated end-of-biennium State Treasury loan to cover expenditures until revenues are received after post-session Legislative approval. Similar loans have occurred in the past to help mitigate the cash flow schedule for Hospital Assessment revenue. The loan request increases other funds revenue by $200 million. The Chief Financial Office recommends approval of this request. The following are requests included in the agency s rebalance plan however not included in the recommendation. DAS Service Utilization, Administrative Hearings, Mass Transit (original request of $3.5 million General Fund cost; updated to $0.5 million need with updated information): OHA s rebalance report identifies an additional $3.1 million General Fund cost from the usage of services on the Department of Administrative Services price list. Subsequent to the report, the agency provided new information decreasing the cost estimate to $0.5 million. The agency further reports the price list for Administrative Hearings was budgeted at the Agency Request Budget price list level and not the LAB price list level, which is a variance of $0.1 million. The agency also reports the volume of hearings being higher than anticipated, for an additional cost of $0.2 million. Finally, OHA requests to shift $0.1 million from Other Funds to General Fund because of the way in which costs for mass transit are applied. The Chief Financial Office does not recommend funding these requests in light of the administrative reductions proposed in the Governor s Recommended Budget. Performance Audits ($1.6 million General Fund cost): Federal guidance precludes the use of Federal Funds to support performance audits not otherwise required by the federal Single Audit Act. OHA has been using federal dollars to support a portion of performance audits conducted by the Secretary of State. As a result, the rebalance proposes a net-zero fund shift from Federal Funds ($1.1 million) and Other Funds ($0.5 million) to the General Fund. The Chief Financial Office does not recommend funding this request, which is consistent with the recommendation made for this issue in the Governor s Recommended Budget. Project MUSIC ($0.5 million General Fund cost): OHA s rebalance indicates savings associated with the Project MUSIC telephonic services project are not as high as originally estimated. OHA projects a General Fund need of $0.5 million to support phone service billings. OHA also requests support for one permanent full-time position to serve as the Department of Administrative Services 12-iv December 14, 2016

12 Project MUSIC billing coordinator between OHA and the Department of Human Services. The Chief Financial Office does not recommend funding this request for consistency with the administrative reductions proposed in the Governor s Recommended Budget. Health Licensing Office ($0.5 million General Fund cost): OHA s rebalance requests $0.5 million for the Health Licensing Office as a result of State Government Service Charges inadvertently not being fully funded as a result of moving the office from its own budget structure to OHA s budget structure in The Chief Financial Office does not recommend funding this request for consistency with the administrative reductions proposed in the Governor s Recommended Budget. MANAGEMENT ACTIONS / REVISED SAVINGS The rebalance includes several management actions and cost savings adjustments to help to offset the projected General Fund cost increases. In total, these adjustments as proposed by the agency result in a savings of $56.5 million. The Chief Financial Officer recommends an additional $3.3 million General Fund reduction related to increased tobacco tax revenues in the economic forecast. Reduced Medicaid Costs ($37.9 million General Fund savings): Although changes in the Fall 2016 caseload forecast have resulted in a projected General Fund need to properly support Medicaid participants based on eligibility category, OHA is able to achieve savings of $37.9 million General Fund from a few different sources. The majority of these savings come from discretionary fee-for-service payments, which the agency has held constant throughout the biennium. Savings have also resulted from projected per member per month costs being higher than actual payments experienced throughout the biennium. Additionally, federal savings of $668.1 million have resulted from lower capitation rates than initially assumed for the Affordable Care Act population. The Chief Financial Office recommends approval of this request. Non-Medicaid Caseload ($7.5 million General Fund savings): OHA s rebalance recognizes $5 million in General Fund savings corresponding to changes in the non-medicaid mental health forecast and management actions resulting in $2.5 million savings from contract adjustment requests not funded since the beginning of the biennium. These savings will not result in a decrease to the current monthly payments to local community mental health programs. The Chief Financial Office recommends approval of this request. Citizen Alien Waived Emergent Medical (CAWEM) program ($4.1 million General Fund savings): The CAWEM program, which provides emergency medical services depending on an individual s immigration status, will achieve savings based on individuals whose services were initially budgeted under the traditional Medicaid caseload matching rate and have now been determined eligible for services receiving a higher federal matching rate. The Chief Financial Office recommends approval of this request. Transformation Grant Overpayments ($1 million General Fund savings): The budget included $27 million in transformation funds to support innovation and help advance Coordinated Care Organization s efforts to transform health care delivery in Oregon. Per the contractual grant agreements, any unexpended funds must be returned to the state. Per final reporting of expenditures, nearly $1 million were returned from three Coordinated Care Organizations. The Chief Financial Office recommends approval of this request. Department of Administrative Services 12-v December 14, 2016

13 Debt Service ($0.7 million General Fund savings): As a technical adjustment, the rebalance recognizes savings due to the refunding of existing Title XI-Q debt by DAS. The Chief Financial Office recommends approval of this request. Tobacco Tax Revenue Increase (updated to $5.3 million General Fund savings in recommendation): The September 2016 forecast by the Department of Administrative Services (DAS) Office of Economic Analysis projects an increase of $5.3 million in tobacco tax revenue for the biennium compared to the previous September Forecast, which is the forecast currently reflected in OHA s budget. This increase offsets a like amount of General Fund spending in Medicaid and mental health programs. Subsequent to the submission of the rebalance report, the December 2016 revenue forecast was published and reflects tobacco tax revenues to be $3.3 million higher for than included in OHA s rebalance. The Chief Financial Office recommends approval of the request as well as using this additional forecasted amount in the rebalance. Other Rebalance Limitation and Technical Adjustments Public Employees Benefit Board / Oregon Educator s Benefit Board ($129.5 million Other Funds cost): The Public Employee s Benefit Board (PEBB) and Oregon Educator s Benefit Board (OEBB) each propose Other Funds limitation increases in anticipation of higher than expected expenditures. PEBB proposes an increase of $89.3 million to support the estimated level of members claims payments through the remainder of the biennium. The request reflects a slightly higher trend in the number of covered employees and does not represent a per member cost higher than the budgeted 3.4 percent inflationary threshold. OEBB proposes a $40.2 million Other Funds limitation increase. Contrary to the PEBB request, the OEBB request is not predicated on member growth; if current membership trends were to remain the same, OEBB is estimated to finish the biennium with a $25 million Other Funds balance. The board s request relates to the uncertainty resulting from the open enrollment period in terms of not knowing which plans members will select. The full impact of open enrollment will not be known until January However, if members do not move into higher cost plans than those they those in which they currently belong, then a limitation increase is not necessary. The Chief Financial Office recommends approval of these requests as a cautionary measure. Public Health ($0.3 million Federal Funds): The Public Health Division has been awarded supplemental federal grant funding from the Centers for Disease Control and Prevention for Epidemiology and Laboratory Capacity for Infectious Diseases. This award is consistent with the division s request for approval during the May 2016 Emergency Board. The grant will support two microbiologist and two epidemiologist positions to focus on detection of antibiotic-resistant strains of foodborne diseases and sexually transmitted diseases, decrease transmission of antibiotic-resistant infections in health care settings, and decrease the inappropriate use of antibiotics. The Chief Financial Office recommends approval of this request. Technical Adjustments: The rebalance makes a series of technical net-zero fund shifts between accounts and program areas to properly align the agency s budget with its payment and organizational structures. The most noteworthy of these adjustments include the following: Department of Administrative Services 12-vi December 14, 2016

14 o Shifts $0.5 million General Fund and $1 million Total Funds from Health Systems Division to SAEC to support telecommunication charges higher than original budgeted. o Shifts $0.3 million General Fund and $0.6 million Total Funds from Oregon State Hospital to SAEC for telecommunication charges. o Shifts $0.3 million and $0.4 million Total Funds from Health Systems Division to SAEC for unemployment claims costs o Shifts $0.6 million General Fund and $0.8 million Total Funds from Oregon State Hospital to SAEC for unemployment claims costs o Shifts $0.2 million General Fund and Total Funds from Public Health to SAEC for unemployment claims costs. o Transfers the Program Integrity Unit from Central Services to the Health Systems Division o Transfers the Office of Consumer Activities from Central Services to Health Policy and Analytics The Chief Financial Office recommends approval of these technical adjustments. LOOKING FORWARD RISKS AND OPPORTUNITIES OHA acknowledges several risks as part of its rebalance, including fluctuations in Tobacco Tax revenue available to support programs; providing high-cost Hepatitis C drug treatments to those with medical necessity; the continued delay of fee-for-service rate increases potentially limiting capacity should those providers decide not to accept OHP patients due to cost; and increasing Medicare Part B premiums that could result in a General Fund need before the biennium closes. Changes in the Medicaid caseload will especially remain a key factor for the agency to remain within its General Fund budget. As the eligibility redetermination process continues, the Medicaid expansion population could further decrease whereas other populations with higher General Fund costs could increase. Medicare Part D payments also represent a significant risk. States are required to make payments, commonly referred to as clawback payments, to the federal government for the states contribution of Medicaid costs related to the dual-eligible Medicare/Medicaid population. CMS projects a nearly seven percent annual percentage increase in Medicare Part D drug benefit expenditures nationwide starting in calendar year After accounting for prior-year revisions, the annual increase is estimated at almost 12 percent. In general, OHA will have to closely monitor and manage escalating prescription drug costs to the extent it can in the coordinated care model. The high Aid and Assist population in the Oregon State Hospital also remains a concern from both treatment and budgetary standpoints. The acuity level of this patient population necessitates specific treatment plans, and to the extent these patients must be placed in units intended for patients with different commitment types, delivering the ideal treatment will be challenging. Additionally, some of these patients may not have committed offenses truly necessitating state hospital-level care and could potentially receive better treatment in community settings. The agency continues to work with local communities and law enforcement to address this issue. If more long-term solutions are not identified, providing expensive treatment for this population at an elevated level long-term will use General Fund dollars that may otherwise be better invested in other behavioral health initiatives. The implementation of ONE remains an important opportunity for the state. The roll-out of the applicant portal in October 2016 was successful; once the applicant utilization of ONE becomes Department of Administrative Services 12-vii December 14, 2016

15 more common statewide, and manual processes phase-out, there should be more integrity in the connection of caseload monitoring/estimating to the budget development process. DEPARTMENT OF ADMINISTRATIVE SERVICES CHIEF FINANCIAL OFFICE RECOMMENDATIONS The Chief Financial Office recommends the Emergency Board support OHA s rebalance as described above, which results in amounts lower than the agency s request by $12.9 million General Fund and $10.7 million total funds. The General Fund recommendations are also summarized by program area in the table below. General Fund ($$ in millions) Healthy Systems Division Central / Shared Services Health Policy and Analytics Oregon State Hospital Total Costs: OHA Request $67.8 $22.0 $0.0 $5.3 $95.1 CFO Recommendation $67.8 $15.9 $0.0 $5.3 $89.0 Savings: OHA Request ($54.8) ($0.7) ($1.0) $0.0 ($56.5) CFO Recommendation ($58.1) ($0.7) ($1.0) $0.0 ($59.8) Net Rebalance Impact: OHA Request $13.0 $21.3 ($1.0) $5.3 $38.6 CFO Recommendation $9.7 $15.2 ($1.0) $5.3 $29.2 Legal Reference: 1. Allocate $27,682,087 from the special purpose appropriation authorized by chapter 837, section 35, Oregon Laws 2015, to the Emergency Board and $1,538,567 from the State Emergency Fund to supplement the appropriations made by chapter 838, section 1, Oregon Laws 2015, for the biennium as follows: (1) Programs $ +14,015,622 (2) Central Services, statewide assessments and enterprisewide costs $ +15,953,561 (4) Debt Service $ -748, Adjust Other Funds expenditure limitation established by chapter 838, section 2, Oregon Laws 2015, for the biennium as follows: (1) Programs $ +216,474,383 (2) Central Services, statewide assessments and enterprisewide costs $ -3,329, Increase Other Funds expenditure limitation established by chapter 838, section 6, Oregon Laws 2015, for the biennium by $89,289,381 for payment of expenses by the Public Employees Benefit Board from the Public Employees Revolving Fund for benefit of plan premiums and self-insurance. 4. Increase Other Funds expenditure limitation established by chapter 838, section 7, Oregon Laws 2015, for the biennium by $40,160,259 for payment of expenses by the Oregon Department of Administrative Services 12-viii December 14, 2016

16 Educators Benefit Board from the Oregon Educators Revolving Fund for benefit of plan premiums and self-insurance. Department of Administrative Services 12-ix December 14, 2016

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