Community Mental Health Association of Michigan Systemic underfunding of Michigan s public mental health system 1

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1 Cmmunity Mental Health Assciatin f Michigan Systemic underfunding f Michigan s public mental health system 1 December 2018 Executive Summary Michigan s public mental health system is ne f the mst cmprehensive and advanced in the cuntry. Hwever, ver the past several years, a number f financing decisins, by the State f Michigan, have systematically erded the ability f Michigan s public mental health system t meet the needs f Michiganders wh have cme t rely upn the system while similarly erding the fiscal stability f this public system. These practices result in death by a thusand cuts and include the fllwing: 1. Grwing demand fr mental health services nt reflected in funding t the public system: While the demand fr wide range f mental health services, in cmmunities acrss Michigan, has grwn dramatically ver the past several years, the funding fr the public mental health system respnsible fr meeting thse needs has nt. Thse needs range frm addressing the piid crisis t preventing suicide; frm keeping kids in schl safe and successful t supprting persns with disabilities t live in the cmmunity. 2. Insufficient Medicaid funding t meet cmmunity demand and real csts f care: The factrs behind this underfunding include: the funding apprach being based n tw year ld data, thus nt reflecting current and emerging needs and csts. 3. Insufficient Medicaid funding t meet cmmunity demand and real csts f care: The state s public Medicaid mental health system was underfunded by $133 millin in Fiscal Year During that perid, the public system spent ver 99% f the funds that it received n mental health services with 6.1% spent n administratin. During that same year, the private Medicaid managed care plans tk in prfits f ver $136 millin, while spending nly 89.8% n medical services with administrative csts 40% higher than the public system. 4. Failure f the state t fund federally required cntributins t public mental health system s risk reserves: Fr the past twenty years, the Medicaid funding prvided t the state s public mental health system did nt include the federally required risk-reserve cntributin cmpnent that wuld have allwed Michigan s public mental health system t build and retain the necessary risk reserves reserves necessary fr any risk-bearing managed care entity. If the Medicaid rates paid t the public mental health system had included even a mdest cmpnent (2%) t prvide fr cntributins t reserves and risk margins, the public mental 1 In this dcument the term public mental health system refers t the system that serves persns with mental illness, children with emtinal disturbance, persns with intellectual/develpmental disabilities and persns with substance use disrders. 1 P a g e

2 health system wuld have received $50 millin mre in Medicaid payments in the current fiscal year, FY 2018 and nearly $700 millin ver its twenty-year histry, prviding reserves sufficient t weather a range f fiscal strms. 5. Inability f the public system t retain savings f sufficient size t ensure fiscal stability: The PIHPs (the public health plans that receive the Medicaid payments frm the state) are prhibited frm hlding sufficient risk reserves. Similarly, the CMHs are prhibited frm retaining any Medicaid savings that they generate thrugh efficiencies and effective clinical practices. These savings, permitted fr any ther healthcare prvider, wuld allw the CMHs t invest in meeting cmmunity needs and ensuring their clinical and fiscal stability. 6. Inapprpriate state demand that cunty funds be used t clse Medicaid gap: Cunty funds are inapprpriately drained frm the system t cver state Medicaid bligatins: A. Over the past several years, in lieu f hlding up its end f the risk-sharing arrangement that MDHHS has with the state s public mental health system, MDHHS has demanded that cunty funds be used t cver the Medicaid csts nt cvered by state Medicaid dllars B. Fr the past decade, the State f Michigan has required that the public mental health system use f lcal dllars the bulk f them cming frm Michigan cunties t underwrite part f the state s share f the Medicaid mental health budget. Over $25 millin is annually used t cver this bligatin. 7. General Fund shrt fall: While lng insufficient, the State General Fund (nn-medicaid) supprt fr the public mental health system and its ability t meet increasing cmmunity demand has fallen ff dramatically. The 60% cut t the GF revenues f the state s CMHs, in 2014 and 2015, led t 10,000 fewer persns receiving services. 2 As a result f this cut, $7.50 per persn per year is available, t the public mental health system, t prvide mental care t the 8 millin Michiganders withut Medicaid cverage. Call fr Actin: Actin must be taken t clse these funding and financial practices gaps t ensure ready access t mental health care, fr Michiganders, and t ensure the fiscal stability f the public system upn which these Michiganders have cme t rely. 2 CMH Assciatin s Center fr Healthcare Integratin and Innvatin study 9March 2017) Impact f FY 2014 State General Fund budget cut t the state s CMH system 2 P a g e

3 Full Analysis Michigan s public mental health system is ne f the mst cmprehensive and advanced in the cuntry. Hwever, ver the past several years, a number f financing decisins, by the State f Michigan, have systematically erded the ability f Michigan s public mental health system t meet the needs f Michiganders wh have cme t rely upn the system while similarly erding the fiscal stability f this public system. The Medicaid and General Fund supprt fr Michigan s public mental health system the state s Cmmunity Mental Health (CMH) centers, the Medicaid Prepaid Inpatient Health Plans ([PIHP], the public at-risk health plans frmed and gverned by the CMHs in their regin), and the prviders in the CMH and PIHP netwrks) has been insufficient, fr a large part f the last decade, t meet grwing cmmunity needs and cver the csts f meeting thse needs. This gap in funding dramatically impacts the state s frty-six Cmmunity Mental Health centers, the ten Prepaid Inpatient Health Plans, hundreds f cmmunity-based private prviders in the CMH and PIHP netwrks, the 300,000 Michiganders wh rely n this system and the tens f thusands f Michiganders unable t access this system. The causes f this insufficient funding - practices resulting in death by a thusand cuts - are utlined belw. The lin s share f these csts are Medicaid-related a prgram in which the State f Michigan pays less than 40% f the cst. 1. Grwing demand fr mental health services nt reflected in funding t the public system: While the demand fr wide range f mental health services, in cmmunities acrss Michigan, has grwn dramatically ver the past several years, the funding fr the public mental health system respnsible fr meeting thse needs has nt. Sme f these needs include: Address the piid crisis: The need t address the state s piid crisis thrugh preventin and treatment accessible t persns in cmmunities thrughut the state. While the Healthy Michigan Plan (HMP) prvided cverage, fr the first time, fr many Michigan residents in need f piid treatment, in many cmmunities, HMP funds are insufficient t meet these needs and the grwing demand frm thse with HMP cverage. Prevent suicide and respnd t mental health crises: As the attentin f Michiganders has grwn, ver the past several years, relative t the risk f suicide, piid abuse, and cmmunity safety needs, s has the demand fr access t the public mental health systems crisis respnse system a system that is ready, 24 hurs per day, 7 days per week, t assist cmmunity members in dealing with mental health crisis, fr the preventin f suicide, recvery frm substance use disrders and mental illness. Serve children and adlescents with autism: In many cmmunities, the cst f prviding evidence-based services t meet the grwing demand fr autism services is far abve the revenues prvided t cver these services 3 P a g e

4 Prevent arrest and incarceratin: Cmmunities, judges, law enfrcement fficials, plicy makers, and families acrss the state have cme t see the wisdm in prviding mental health and supprt services t prevent persns, with mental health needs, frm arrest and incarceratin and supprting the return f persns t the cmmunity frm the crrectins/justice system. Prevent hmelessness: Assisting persns with mental health needs has lng been the respnsibility f the state s public mental health system. The demand fr these services has grwn with the scarcity f affrdable lw-incme husing and the desire by Michigan cmmunities and plicy makers t eradicate hmelessness and stabilize husing fr persns with mental health needs. Keep kids in schl safe and successful: Over the past several years, educatrs, state fficials, and parents have called n the public mental system t increase the number f children and adlescents with serius mental health needs and t increase the intensity f thse services with the aim f imprving academic success, reduce absenteeism, and ensure safe schls. Supprt persns with disabilities t live in the cmmunity: Federal plicies and public expectatins have increasingly shifted t effrts designed t ensure that persns with intellectual/develpmental disabilities and/r mental illness can live in their wn hmes and apartments within their hme cmmunities and participate in cmmunity activities f their chsing. The public mental health system is rapidly mving t embrace this plicy change, lng fstered by advcates, parents, and the persns served, but des nt have the funding necessary t make this dream a reality. 2. Insufficient Medicaid funding t meet cmmunity demand and real csts f care: While the cmmunities needs and expectatins have grwn, the Medicaid funding fr Michigan s public mental health has remained insufficient t meet these needs The factrs behind this underfunding include: Insufficient Medicaid funding the result f nt being frward-lking and nt reflecting current and emerging needs: The actuarial analysis, upn which the Medicaid rates is based, lks at past demand and csts (tw years back) and des nt reflect prjectins fr the grwing demand fr the services listed abve prjectins that are key t an accurate determinatin f the revenues needed by the state s public mental health system Insufficient funding fr Healthy Michigan Plan: The Healthy Michigan Plan (HMP) funding prvided t the state s public mental health system has been dramatically reduced, per enrllee, since the first year f the prgram. These cuts in rates have left the public mental health system unable t fully meet the mental health needs f Health Michigan Plan enrllees while ensuring fiscal stability. Rates d nt reflect minimum wage requirements: the actuarial analysis has nt reflected the impact f the last increase in the federal nr the recently adpted state minimum wage n the cst f Medicaid mental health services a sizeable cst given 4 P a g e

5 the large number f cmmunity-based paraprfessinals wh are cre t the mental health service delivery system High cst persns enrlled in Healthy Michigan withut crrespnding revenue: Over the last several years, a number f persns n Medicaid, with high cst mental health services needs, mved t the Healthy Michigan Plan. This change resulted in a 85% reductin in the rates paid, t Michigan s public mental health system. While sme f that gap was made up as a result f prlnged advcacy by the state s advcacy cmmunity, that gap remains and cntinues t grw as these high cst Medicaid enrllees cntinue t mve the lw revenue Healthy Michigan Plan. 3. Result f mismatch f needs and revenues: The fact that the funding prvided t the state s public mental health system is far belw that needed t meet the grwing mental health demands f Michiganders, as utlined abve, threatens access t care the fiscal stability f the state s public mental health system. This gap can be clearly seen in examining the public mental health system s Fiscal Year 2017 Medicaid financial reprts. The cntrast is stark when cmpared with that f the private Medicaid health plans, in Table 1, belw. CMH Table 1: Cmparisn f Medicaid spending, in Michigan, by public mental health system and private managed care plans, Fiscal Year Fiscal Year 2017 (in millins f dllars) Michigan's public Medicaid mental health system Private Medicaid managed care plans Spent n services t persns in need f care * Spent n administratin * Excess revenue (prfit if a frprfit cmpany) * $2, $7, % 89.8% $148.2 $ % 8.6% -$ $ % 1.6% 3 Data surces: Public mental health system data are drawn frm "Fiscal 2017 Financial Status Reprt Summary; Milliman; Summer Private Medicaid managed care plans data are drawn frm the FY 2018 Medicaid apprpriatins presentatin and the "Medicaid managed care financial results fr 2017:" reprt' Milliman; May P a g e

6 As these data indicate, the state s public Medicaid mental health system was underfunded by $133 millin in Fiscal Year 2017, with the ttal cst f meeting the demand, by Michiganders, fr mental health services prvided thrugh the state s public mental health system exceeding the Medicaid funding prvided that system by that amunt. As Table 1 indicates, the public system spent ver 99% f the funds that it received n mental health services with 6.1% spent n administratin. During that same year, the private Medicaid managed care plans tk in prfits f ver $136 millin, while spending nly 89.8% n medical services with administrative csts f 8.6% - 40% higher than the public system. 4. Failure f the state t fund federally required cntributins t public mental health system s risk reserves: The fiscal stability f the state s public mental health system is weakened by the lack f a standard risk-based financing practice a practice cntained in riskbased cntracts acrss the cuntry and used with the state s private Medicaid managed care plans. Fr the past twenty years, during the entire perid during which Medicaid managed care has existed in Michigan, the Medicaid capitated rates prvided t the state s public mental health system did nt include the federally required cmpnent that wuld have allwed Michigan s public mental health system t build and retain the necessary risk reserves reserves necessary fr any risk-bearing managed care entity. The federal requirement fr such a payment t the state s public mental health system is clear: 42 C.F.R (e) Nn-benefit cmpnent f the rate. The develpment f the nn-benefit cmpnent f the rate must include reasnable, apprpriate, and attainable expenses related t MCO, PIHP, r PAHP administratin, taxes, licensing and regulatry fees, cntributin t reserves, risk margin, cst f capital, and ther peratinal csts assciated with the prvisin f services identified in 438.3(c)(1)(ii) t the ppulatins cvered under the cntract. This lack f apprpriate financing has harmed the ability f the state s public mental health system t build and hld reserves sufficient t ensure that they culd withstand the fiscal risk inherent in a managed care system fiscal risk exacerbated by the insufficient benefit cmpnent f the rates. As a result, the state s PIHPs nw have half f the funds necessary t cver the risk crridr fr which they are respnsible. If the Medicaid rates paid t the PIHP/CMH system had included even a mdest cmpnent (2%) t prvide fr cntributins t reserves and risk margins, the PIHP/CMH system wuld have received $50 millin mre in Medicaid payments in the current fiscal year, FY P a g e

7 If a similar cntributin t reserves and risk margins had been included in the rates paid the public mental health system ver the twenty years during which that system has served as the state s at-risk Medicaid managed care entity fr behaviral health, the public mental health system shuld have received apprximately $700 millin in additinal Medicaid revenue ver that perid funds that wuld have imprved the ability f the public mental health system t adequately meet the needs f the Medicaid enrllees in their cmmunities while ensuring fiscal stability f their rganizatins. 5. Inability f system t retain savings f sufficient size t ensure fiscal stability: Linked t the issue abve, the PIHPs (the public health plans that receive the Medicaid payments frm the state) are prhibited frm hlding sufficient risk reserves. These funds, if allwed t be f the size that wuld be held by any risk-bearing rganizatin, wuld prvide the capital needed t buffer the system frm fluctuatins in revenues and demand. Similarly, the CMHs are prhibited frm retaining any Medicaid savings that they generate thrugh efficiencies and effective clinical practices. These savings, permitted fr any ther healthcare prvider, wuld allw the CMHs t invest in meeting cmmunity needs and ensuring their clinical and fiscal stability. 6. Inapprpriate state demand that cunty funds be used t clse Medicaid gap: Cunty funds are inapprpriately drained frm the system t cver state Medicaid bligatins: A. Over the past several years, in lieu f hlding up its end f the risk-sharing arrangement that MDHHS has with the state s public mental health system, MDHHS has demanded that cunty funds be used t cver the Medicaid csts nt cvered by state Medicaid dllars. These cunty funds are intended, by the cunty cmmissiners wh allcate thse funds nr by the taxpayers wh prvide thse funds, t be used t meet mental health needs f persns withut Medicaid cverage. These funds are nt meant t be siphned away t cver a state and federal bligatin. B. Fr the past decade, the State f Michigan has required that the public mental health system use f lcal dllars the bulk f them cming frm Michigan cunties t underwrite part f the state s share f the Medicaid mental health budget. Over $25 millin is annually used t cver this bligatin. These funds, if nt used t meet these Medicaid bligatins, wuld be used t meet the needs f the persn, in cmmunities acrss the state, withut Medicaid cverage. 7 P a g e

8 7. General Fund shrt fall: While lng insufficient t meet cmmunity need, the State General Fund supprt fr the CMH system and its ability t meet increasing cmmunity demand has fallen ff dramatically. The 60% cut t the GF revenues f the state s CMHs, in 2014 and 2015 (as a result f the state legislatin that initiated the Healthy Michigan Plan) led t 10,000 fewer persns receiving services, during that year and since, even in light f the number f additinal Healthy Michigan Plan enrllees served by the state s CMH system. 4 As a result f this cut, $7.50 per persn per year is available, t the public mental health system, t prvide mental care t the 8 millin Michiganders withut Medicaid cverage. 4 CMH Assciatin s Center fr Healthcare Integratin and Innvatin study 9March 2017) Impact f FY 2014 State General Fund budget cut t the state s CMH system 8 P a g e