Medicaid fee for service reimbursement and the delivery of human services for individuals with developmental disabilities or severe mental illness: negotiating cost.
|Abstract:||Fees paid by Medicaid are a primary resource for nonprofit organizations serving individuals with developmental disabilities and severe mental illness. While Medicaid reimbursement has facilitated the transition from institutional to community care, cost is not well understood. This article examines how government and nonprofit organizations negotiate the cost of service delivery. Analysis based on this case study shows cost is a central concern for both government and nonprofit service providers.|
Medical fees (Management)
Prospective payment systems (Medical care) (Management)
Child development deviations (Care and treatment)
Developmental disabilities (Care and treatment)
Walker, Melissa A.
Osterhaus, Jason E.
|Publication:||Name: Journal of Health and Human Services Administration Publisher: Southern Public Administration Education Foundation, Inc. Audience: Academic Format: Magazine/Journal Subject: Government; Health Copyright: COPYRIGHT 2010 Southern Public Administration Education Foundation, Inc. ISSN: 1079-3739|
|Issue:||Date: Spring, 2010 Source Volume: 32 Source Issue: 4|
|Topic:||Event Code: 200 Management dynamics Computer Subject: Company business management|
|Product:||Product Code: 9105213 Medicaid NAICS Code: 92312 Administration of Public Health Programs|
|Geographic:||Geographic Scope: United States Geographic Code: 1USA United States|
In the delivery of human services, fee for service reimbursement
from Medicaid is common. This is the case with respect to services for
individuals with a: 1.) developmental disability such as autism,
Down's syndrome or cerebral palsy; or a 2.) severe mental illness
such as bipolar disorder, schizophrenia or severe depression. These
services are delivered in the community, primarily by nonprofit
organizations. Previous research has examined the role of government as
a broker of human services. This case study considers another important
dimension of the partnership between government and nonprofit
Medicaid fee for service reimbursement has facilitated a movement away from institutional to community-based care (Auger, 1999; Thompson & Dilulio, 1998; Romzek & Johnston, 2002; Johnston & Romzek, 1999). This is particularly true for individuals with developmental disabilities (Vladeck, 2003; Miller, Kitchener, Elder, Kang, Rubin, & Harrington, 2005). Community-based services is a central tenet of Medicaid (Tallon & Brown, 1998).
The state practice of maximizing Medicaid has contributed to an increase in community-based care. Medicaid spending and enrollment in Kansas are typical compared to the nation as a whole (Boyd, 1998; Tallon & Brown, 1998). Medicaid accounts for 25 percent of all Kansas state expenditure. After public education (grades kindergarten through 12), Medicaid is the second largest expenditure.
Sedgwick County, which includes the largest city in Kansas, Wichita, has engaged local nonprofits to serve individuals with developmental disabilities or severe mental illness. In Kansas, a community developmental disability organization (CDDO) and community mental health center (CMHC) are designated as the local authority. At the time of the study there were 28 CDDOs and 28 CMHCs. Nonprofit organizations in Sedgwick County "affililate" or have a formal written agreement with the CDDO and/or CMHC. This allows organizations to bill through the CMHC or CDDO and be reimbursed by Medicaid. Service providers are paid at a set rate for each service covered by the state's Medicaid plan or one of the HCBS (Home and Community Based Services) waivers.
The CDDO does not deliver services. It has agreements with 60 private, primarily nonprofit organizations to provide services. Six of the largest developmental disability service providers in Sedgwick County were included in this case study. One nonprofit agency also provides mental health services. At the time of the study, this organization and three other nonprofits were affiliated with the CMHC. All four mental health affiliates were included in the study. The analysis shows cost is a central concern for the nonprofit service providers as well as for the Sedgwick County and the State of Kansas.
Government depends on nonprofit organizations to deliver human services (Salamon, 1999 & 1995; Ferris & Graddy, 1986). A 1997 ICMA (International City/County Management Association) survey of local governments found 28 percent of all respondents relied on nonprofit organizations to provide mental health and mental retardation services (Martin, 1999). Government depends on nonprofits to deliver services and, as Smith and Lipsky (1993) point out, nonprofit organizations depend on government for support.
Fee for service arrangements involve negotiating with a small number of providers (DeHoog & Salamon, 2002; DeHoog, 1990). Cooper (2003) characterizes this as "governance by agreement." One benefit is government has more flexibility in meeting changing service needs (Goldsmith & Eggers, 2004). This is the role of government as a broker of service (Zanetich, 2000). There is another important consideration with respect to fee for service arrangements in the delivery of human services and that is cost.
Fee for service arrangements spread the cost of human service delivery across federal, state and local government. Nonprofits also share the cost. This article presents a case study of the ways in which state and local government as well as nonprofit service providers negotiate cost in the context of services for individuals with a developmental disability or a severe mental illness.
When fee for service reimbursement from Medicaid is the basis of payment, how do actors engaged in human service delivery--i.e. federal, state and local government as well as nonprofit organizations--manage cost? That is the question this case study will address in the context of two human services: 1.) services for individuals with developmental disabilities; and 2.) services for individuals with severe mental illness.
Sedgwick County, Kansas and the nonprofit organizations serving these two target groups in Sedgwick County have many things in common with other urban areas. Sedgwick County includes the City of Wichita. The demographic characteristics of Wichita and Sedgwick County are similar to the nation as a whole. For example, Medicaid spending in Kansas is typical. Five of the nine nonprofit organizations included in this case study can be found in other communities: an association for retarded citizens; an organization that serves individuals with cerebral palsy; a mental health association; a consumer-run mental health organization; and a faith-based multiservice agency.
Six nonprofit organizations affiliated with the county CDDO were profiled. Four of these agencies specialize in developmental disability. One is a multiservice agency affiliated with both the CDDO and the CMHC. All four agencies affiliated with the county CMHC at the time of the study were included in this study. Three of these nonprofit agencies specialize in mental health.
There were 30 interviews with the executive directors of the nine nonprofit organizations, directors and key staff of the county CDDO and county CMHC as well as with state human services officials. Researchers collected agencies' annual reports, financial statements and service statistics. The current secretary of the state department of human services and three former secretaries were interviewed. State directors and assistants involved in mental health and developmental disability were interviewed.
State and county government supplied historic development disability and mental health revenue and expenditure data. All expenditure and revenue will be reported in current dollars as of the fiscal year ending in 2006. The state Medicaid plan, HCBS waivers, provider manuals (which include service descriptions and reimbursement rates), rate studies, legislative reports and public testimony were carefully reviewed. State and local government furnished service statistics, staffing information, sample affiliation agreements and reimbursement rates.
This approach produced a detailed description of the ways in which nonprofit organizations along with state and local government negotiate the cost of delivering services. Analysis is based on observation of real world events (Glaser & Strauss, 1967). Findings were corroborated using multiple sources (Yin, 1989).
State and local Medicaid spending data for developmental disability and mental health were longitudinal. Legislative reports and rate studies were retrospective. Interviews with state and county officials as well as nonprofit executives provided an historical view. These steps were taken to inform researchers' understanding of Medicaid fee for service arrangements in place at the time of the study in 2006 and 2007.
The case study is cross-sectional. Researchers cannot be certain why nonprofit organizations or the state and county operated as they did with respect to Medicaid. There was a coordinated effort to collect historical details; however, the description of Medicaid fee for service that follows reflects arrangements in place at the time of the study.
This is a case study of one geographic area. It is possible Sedgwick County and the City of Wichita are not representative. While all of the nonprofits affiliated with the CMHC are represented, only the largest nonprofits affiliated with the CDDO were included. These developmental disability organizations may or may not be representative. Since the focus here is on developmental disabilities and mental health, the results may not generalize to other human services; including those that do not rely on fees or Medicaid.
RESULTS and ANALYSIS
With Medicaid, there is a protean quality to the relationship between government and human service organizations (Thompson, 1998). For this reason, the discussion that follows examines this multi-layered partnership from the perspective of state and local government as well as nonprofit organizations.
In Kansas, since 1992, there has been a substantial increase in the proportion of total developmental disability and mental health expenditure paid by Medicaid. By 2006, the federal and state portions of Medicaid accounted for 90 percent of all state developmental disability expenditure. In 2005, the combined federal and state portions of Medicaid covered 70 percent of total mental health expenditure. Over the same period, there has been an increase in Medicaid revenue that flows through the Sedgwick County CDDO and CMHC.
In 2006, Medicaid fee for service reimbursement accounted for 43 to 80 percent of total revenue at the nine nonprofit developmental disability and mental health agencies examined in this study. Agencies reported managing cost by adjusting services and staffing. One reason may be the developmental disability reimbursement rates for residential and day services have remained flat or are lower. With respect to mental health, researchers found the four affiliates that bill Medicaid through the CMHC are reimbursed for some services at rate that is lower than the Medicaid rate.
State and Federal Government
The bulk of community care for individuals living in Kansas with a developmental disability or a severe mental illness is paid using Medicaid fee for service reimbursement. Table 1 shows state spending for community-based services has increased.
One reason for the increase in state spending for developmental disability and mental health is the HCBS developmental waiver which began in 1991 and the SED waiver that started in 1995. In 2006, the HCBS developmental disability waiver accounted for 90 percent of all state expenditure. This includes both the federal portion and the state match. Similarly, in 2005, 69 percent of all mental health expenditure was covered by the federal and state portions of Medicaid.
The state Medicaid plan target groups include individuals with developmental disability or severe mental illness. States submit a Medicaid plan and HCBS waivers to the federal Centers for Medicare and Medicaid Services (CMS). CMS reviews and approves Medicaid plans and HCBS waivers. The federal share of Medicaid reimbursement in Kansas is 60 percent. The state portion is 40 percent.
Once a Medicaid plan and HCBS waivers are in place, the state department of human services prepares providers' manuals detailing services and rates. The state executes written agreements with the local authorities, CDDOs and CMHCs. The Sedgwick County CDDO and CMHC also put in place formal, written agreements with affiliates or organizations that will deliver services. Mental health affiliates bill Medicaid through the CMHC. For some Medicaid services, developmental disability affiliates bill through the Sedgwick County CDDO and for other services organizations bill the state.
Developmental disability expenditure
Services for individuals with disabilities are often paid using HCBS (Kitchener, Ng, Miller, & Harrington, 2005). In 2006, 90 percent of the developmental disability services in Kansas were covered by the HCBS waiver. By comparison, Figure 1 shows in 1991, 21 percent of all developmental disability expenditure was covered by the HCBS waiver. HCBS is the bottom portion of each column (years) in Figure 1. This part of the graph includes both the federal and state portion of Medicaid.
[FIGURE 1 OMITTED]
State expenditure for community-based developmental disability service increased in current dollars from $55 million in 1991 to $253 million in 2006. As a proportion of total developmental disability expenditure, state support (excluding the state portion of the Medicaid match) decreased from 62 percent of total community expenditure in 1991 to eight percent in 2006.
State department of human services figures show in 1996, 5,872 people living in Kansas received developmental disability services. In 2006, 9,407 were served. During this period, the number of people waiting for developmental disability services increased from 70 to 1,429. Waiting lists are permitted with HCBS waivers but not for entitlement services that are part of the state Medicaid plan.
Mental health expenditure
In 2005, 69 percent of mental health expenditure in Kansas was covered by Medicaid. This includes the federal and state portions. Twenty-eight CMHCs and private organizations, in 2005, delivered $185 million in mental health services to 35,775 individuals. By comparison, in 1992, Figure 2 shows the federal and state portions of Medicaid comprised 38 percent of total mental health expenditure.
[FIGURE 2 OMITTED]
The state Medicaid match for mental health increased, in current dollars, from $6.9 million in 1992 to $19.6 million in 2005. As a proportion of total community mental health expenditure the state portion of Medicaid has decreased from 15 percent in 1992 to 11 percent in 2005. In current dollars, there has been an increase in state support for mental health (excluding the Medicaid match) from $24 million in 1992 to $44 million in 2005.
Increases in state expenditure for developmental disability and mental health have translated to the community. Between 2002 and 2006 Medicaid developmental disability expenditure in Sedgwick County tripled and mental health expenditure increased 45 percent. Medicaid, in 2006, comprised 43 percent of the Sedgwick County CDDO expenditure and 63 percent of the Sedgwick County CMHC expenditure.
In the fiscal year that ended in 2006, the CDDO generated $4.355 million in Medicaid reimbursement. These dollars passed through the CDDO and on to 60 agencies serving 2,000 individuals with developmental disabilities. Between 2002 and 2006, Medicaid revenue that passed through the CDDO increased, in current dollars, from $1 million to $4 million. During the same period, in current dollars, local support decreased 14 percent.
Between 1996 and 2006, in current dollars, Medicaid revenue received by the CMHC increased from $2 million to $23 million. During the same period, local support of the CMHC increased 30 percent. Of the $23 million in Medicaid reimbursement, $15 million (nearly two-thirds) went to four nonprofit organizations that billed Medicaid through the CMHC. Approximately $8 million (roughly one-third) was for services delivered by the CMHC. In 2006, the CMHC and four nonprofit organizations affiliated with it served nearly 4,000 adults and children.
Each year the Sedgwick County human services department negotiates service delivery agreements with area human service organizations. This is a formal, written agreement between the county and each service provider (most are nonprofit). The agreement specifies services to be delivered and the reimbursement rate. Without this formal agreement, developmental disability and mental health organizations cannot bill for or be reimbursed by Medicaid.
Community Developmental Disability Organization (CDDO)
The CDDO certifies eligibility and affiliates deliver services. BASIS (Basic Assessment and Services Information) is used to assess the severity of a developmental disability. Individuals assigned to Tier 1 have the highest need. There are five tiers. Table 3 shows state Medicaid reimbursement rates for residential and day services for each tier have stayed nearly the same or decreased since the HCBS developmental disability waiver began in 1991. These are the rates affiliates were reimbursed at the time of the study.
Just as adults, children are assessed and placed in tiers; however, the reimbursement rate is lower. Children under the age of five are not covered by the HCBS waiver. Room and board are not part of the HCBS. Typically, agencies collect a portion of clients' SSI (Supplemental Security Income) or SSDI (Social Security Disability Insurance) to cover housing cost. Transporting clients to and from day and residential care is another expense not covered by the HCBS waiver.
At the time of the study, the four mental health organizations affiliated with the CMHC provided case management, attendant care, community psychiatric support and treatment and psychosocial rehabilitation. Case management involves assessment and service coordination. An attendant care worker may assist adults with a severe mental illness or children who have a severe emotional disturbance with activities of daily living. This can take place in school, at work and/or at home.
Rehabilitative services include community psychiatric support and treatment (CPST), psychosocial rehabilitation and peer support. Community psychiatric support and treatment is supportive counseling. Psychosocial rehabilitation builds interpersonal skills (e.g. anger management, conflict resolution). Peer support develops natural supports; e.g. community resources, friends, family.
In addition to these services covered by Medicaid and billed for through the CMHC, the CMHC and mental health organizations can bill the state directly for Medicaid reimbursement associated with outpatient therapy and medication management. The Medicaid reimbursement rates for some services appear in Table 3. The second column shows the state rate. The third column is the rate the local CMHC paid affiliates. For several services this rate was lower.
Before July 1, 2007, the reimbursement rate for each service varied across the four affiliates. After July 1, 2007, the same rate was paid to all four affiliates for each service.
In 2007, the CMHC ended its affiliation with one mental health organization. This nonprofit was struggling financially. It was the only affiliate that, in addition to Medicaid reimbursement, the CMHC made two lump sum payments to each year. These payments and Medicaid reimbursement for mental health services were not enough to cover the organization's cost. After several years of financial loss, the CMHC ended this relationship. The service burden was absorbed by the CMHC and other providers. Eventually the organization became part of a larger child welfare agency.
Nonprofit Service Providers
In many respects the nine nonprofit organizations represented in this study navigate a complex set of arrangements. Each has a mission that specifies a target group and an approach. Each has a unique history. Each offers a range of services and multiple sources of revenue. For some services agencies bill Medicaid through the CDDO or CMHC and for other services organizations bill the state directly. In addition to Medicaid, the nine affiliates receive public support from the county and other sources. It is not uncommon for a single client to receive multiple services, each funded by a different source.
With one exception, each organization is a specialist in developmental disabilities or mental health. One is a multipurpose organization that is affiliated with both the CDDO and the CMHC. Five developmental disability specialists and one multiservice organization deliver about half of all Medicaid reimbursable services for the county. All four organizations affiliated with the CMHC were part of the study.
Tables 4 and 5 show government support is a central resource. Medicaid accounts for about three-quarters of total revenue for five affiliates; three developmental disability organizations and two mental health organizations.
The third developmental disability organization in Table 4 receives public education funding to serve children. The fourth mental health organization (MH/DD 4) in Table 5 has an affiliation with both the CMHC and the CDDO. It is a multiservice organization. This could explain why the proportion of total government support is smallest for this organization. The third mental health agency in Table 5 receives a lump sum payment from the CMHC.
For these organizations, Medicaid is a stable resource; affiliation agreements have been in place for many years. In addition, organizations affiliated with the CDDO and CMHC are large and well-established. This should help with cash flow problems often associated with fee for service reimbursement.
In sum, the State of Kansas relies on Medicaid to provide community-based developmental disability and mental health services as do Sedgwick County and nonprofit organizations affiliated with the county CDDO and CMHC. Over time there has been a substantial increase in Medicaid funding for community-based services. Formal agreements between the county and nine human service organizations were in force at the time of the study. These agreements are with large, well-established organizations that specialize in developmental disability or mental health. For most nonprofit organizations affiliated with the county, Medicaid is the largest source of funding.
Dependence of the state, county and nonprofit organizations on Medicaid could explain efforts to contain cost. For example, reimbursement rates for developmental disability residential and day services have remained flat or decreased. At the same time, rates for some mental health services were lower for nonprofit organizations affiliated with the CMHC.
IMPLICATIONS FOR HUMAN SERVICES
Over time, federal and state support for community-based services to individuals with developmental disabilities and severe mental illness has increased. Historical expenditure data show the State of Kansas and Sedgwick County maximizing Medicaid. As a result, more people are receiving more services. Services are being delivered in the community, not in an institution.
At the local level, the CDDO and CMHC depend on nonprofit service providers. And nonprofit developmental disability and mental health service organizations depend on Medicaid. There were longstanding fee for service agreements (Smith, 1996). As conditions changed, relationships changed (DeHoog & Salamon, 2002). This is a pragmatic approach born of mutual dependence.
The case study found nonprofit organizations, the county and the state all took steps to contain cost. Nonprofit organizations were concerned about whether reimbursement rates would cover the full cost of delivering a service. While nonprofits were not observed over time, it is likely organizations attempt to control cost by adjusting the mix of services, staffing and funding. Cost is also a concern for the county CDDO and CMHC. The CMHC, for example, ended a longstanding affiliation with a mental health agency that could not cover its cost. And state revenue constraints affect Kansas' ability to match federal reimbursement.
When volume increases, fee for service arrangements can put government at risk (DeHoog & Salamon, 2002). A concern frequently voiced by state officials was the "woodwork effect"; i.e. increased funding attracts beneficiaries who otherwise would have been cared for by families. Fees may offer a financial incentive to deliver more services (Rapp, 2002).
States have discretion with respect to reimbursement rates (Thompson, 1998). Low reimbursement rates should discourage over-production. Reimbursement rates in Kansas seem to follow the competition prescription (Kettl, 1993). Kansas has not increased developmental disability reimbursement rates (Table 2). The county CMHC passed on a lower reimbursement for mental health services (Table 3). Another cost containment tactic is waiting lists; e.g. waiting lists for HCBS waiver services. The waiting list for developmental disability services grew.
The HCBS developmental disability and SED waivers allow Kansas to select target groups. States have flexibility to choose services and may limit the geographic area, the number of persons served and/or total expenditures (LeBlanc, Tonner, & Harrington, 2000). Similarly, the county uses formal agreements to choose service delivery partners, services and reimbursement rates. These approaches affect cost.
Boyd (1998) characterizes Medicaid coverage in Kansas as narrow and shallow. This could explain the cost containment tactics observed. Narrow refers to the breadth of coverage or the number of beneficiaries relative to the number of persons in poverty. Compared to other states, Kansas' coverage is not as broad. Shallow refers to the depth of the coverage or the expenditure per beneficiary. Compared to other states, Kansas' average expenditure per beneficiary is low.
Given the number of services and different reimbursement rates for each, it is not surprising the entities examined--state, local and nonprofit--lack a precise understanding of the relationship between actual cost and reimbursement. The problem of specifying cost also confounds researchers. In a review of studies that examined the degree to which savings associated with community-based care offset the woodwork effect, Grabowski (2006) could not be sure. Yet public managers cite reducing cost as a rationale for contracting health and human services (Dilger, Moffett, & Struyk, 1997).
From the perspective of nonprofit organizations there may be a financial incentive to stick to services that can be delivered at or below the reimbursement rate. Any surplus can then be shifted to services that do not generate sufficient revenue. It is likely nonprofit organizations employ this, as one provider described it, "you earn, you spend it" reconciliation.
Finally, Medicaid reimbursement does not necessarily correlate with assessed need. Rather, the political will and financial capacity of a state to match the federal share probably has more to do with the availability of resources at the community level. If a state does not match the federal share of Medicaid, then human service organizations will not be paid. If human service organizations are not paid or are paid too little, this could create gaps in service.
In Kansas and Sedgwick County, Medicaid is an essential resource. The state depends on Medicaid to cover the cost of services for individuals with developmental disabilities and severe mental illness. Community-based nonprofit organizations also depend on Medicaid.
Fee for service arrangements focus attention on cost. This case study found evidence at each level-nonprofit organization, county CDDO and CMHC as well as the state--that each attempts to manage cost.
This may be an example of government by agreement but what is it actors agree on? Cost is being managed at each level but with what effect? How does managing cost effect service? Many relationships nested in multiple layers make it unlikely financial incentives will line up in ways that benefit individuals with developmental disabilities or severe mental illness. With so many moving parts, there are bound to be gaps in service.
This case study is one step toward understanding a complex set of important relationships. What is clear is that in this context, government and human service organizations rely on one another. Medicaid is an important resource in the delivery of services to individuals with developmental disabilities and severe mental illness. Cost is a central concern for nonprofit organizations as well as local and state government. The degree to which these findings apply to other states and locales and to other types of human services awaits future research.
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MELISSA A. WALKER
Wichita State University
JASON E. OSTERHAUS
Kansas Department of Social and Rehabilitative Services
Table 1 Comparison of state expenditures for community-based delivery of human services (in millions and current dollars) Developmental Disabilities Mental Health 1991 2005 1999 2005 HCBS Waiver $12 M $230 M $2.6 M $25 M Other Medicaid -- -- $37.6 M $104 M Other federal -- -- $4 M $11 M Other state $45 M $22 M $49 M $44 M Total $57 M $253 M $93 M $184 M Table 2 Medicaid developmental disability reimbursement rates (in current dollars) Residential 2007 1999 1991 Tier 1 $157 $171 $170 Tier 2 $129 $142 $141 Tier 3 $93 $102 $99 Tier 4 $60 $66 $61 Tier 5 $43 $48 $43 Day 2007 1999 1991 Tier 1 $98 $105 $113 Tier 2 $72 $78 $83 Tier 3 $58 $63 $66 Tier 4 $43 $47 $48 Tier 5 $37 $41 $40 Table 3 FY2008 Medicaid mental health reimbursement rates (per hour) Affiliate State rate rate Comp Case Management $43.32 $43.32 100% Attendant Care $24.00 $24.00 100% Rehabilitation CPST--Child $127.60 $61.88 48% CPST--Adult $127.60 $61.88 48% CPST--evidence based practice $133.60 $65.88 49% Psychosocial Rehabilitation-- Individual $54.52 $25.42 47% Psychosocial Rehabilitation Group-- Adult $17.48 $15.40 88% Psychosocial Rehabilitation Group-- Child $35.00 $24.20 69% Individual Peer Support $54.52 $31.00 57% Group Peer Support $17.48 $10.00 57% Table 4 Developmental disability organizations affiliated with CDDO DD 1 DD 2 DD 3 DD 4 DD 5 Medicaid fees 67% 78% 15% 73% 43% Other public 13% 8% 56% 28% Total public 80% 86% 71% 73% 71% Clients 400 1,000 1,300 2,400 200 Staff (FTE) 200 250 250 22 50 Year began 1930 1962 1972 1953 1972 Table 5 Mental health organizations affiliated with CMHC MH 1 MH 2 MH 3 MH/DD 4 Medicaid fees 74% 80% 43% 4% Other public 19% 20% 42% 41% Total public 93% 100% 85% 45% Clients 600 150 400 1760 Staff (FTE) 300 50 100 100 Year began 1957 1993 1972 1943
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