The Associated Press October 28, 2011, 8:59AM ET

Different takes on NC Medicaid shortfall argued

Republican budget-writers and Democratic Gov. Beverly Perdue's administration quarreled Thursday over why North Carolina's Medicaid program could face a $139 million shortfall this coming year.

State health regulators told the Legislature's chief oversight committee they're falling short of meeting $356 million in net reductions for the division that oversees Medicaid, the government-run health care plan for poor children, older adults and the disabled.

They said the savings are difficult, if not impossible to come by this year in part due to slow enrollment of the chronically ill in the state's managed-care arm. The state Medicaid agency also must make repayments for accounting errors and improper billings that occurred years ago. Less than half of the more than 40 proposed changes to the state Medicaid program to find savings have yet to be approved by the Centers for Medicare & Medicaid Services, according to a presentation to legislators.

Perdue administration officials pointed to letters the governor wrote to legislative leaders during budget negotiations in May and June in which she said the Medicaid cuts were too aggressive. She vetoed the final $19.7 billion state government spending plan, but Republicans and a handful of Democrats overrode her veto.

The budget gave state Health and Human Services Secretary Lanier Cansler the authority to initiate additional reimbursements rate cuts to medical providers who take Medicaid patients or limit or end services that the federal government doesn't require the state to offer, such as podiatry, dental and hospice care.

The presentation showed "why aggressive budget cuts mandated by the General Assembly's budget are unreasonable and unobtainable," Cansler wrote to GOP legislative leaders after the presentation to the Joint Legislative Commission on Governmental Operations. "I had hoped to be able to reach these savings, and the department has reached the point that it has done what it can do."

Republican budget-writers said the budget shortfall for Medicaid, which has 1.5 million recipients in North Carolina, isn't as dire as Perdue's office made it out to be, especially compared to a program that receives $12 billion in federal and state funds. Additional reimbursement cuts beyond the 2 percent required in the budget for many providers and eliminating optional services won't be necessary, said Rep. Nelson Dollar, R-Wake, a new co-chairman of the House Appropriations Committee.

Dollar said much of the shortfall can be attributed to liabilities that weren't included in Perdue's budget proposal this year.

Dollar said the liabilities, which include $41 million to help pay for a previously disclosed $300 million accounting error in 2008 that resulted in overpayments, has been handled "off budget" in the past, meaning Cansler's department shifted cash around within his agency.

"Those were not presented to the General Assembly as items needed to be covered by the governor" or the costs are still being negotiated, Dollar said. "We will certainly be working to find other areas within the budget to save and ways in which we can help the department manage their cash to be able to meet our budget targets for the year, which I am very confident we'll be able to do."

Perdue administration officials contend GOP lawmakers were well aware of the expected payments that now total $126 million but didn't provide money for them.

"The Legislature's budget cuts were extreme and wrongheaded and are doing lasting damage to North Carolina," Perdue spokesman Chris Mackey said, adding that the state will have to eliminate services that benefit the most vulnerable citizens unless legislative leaders address the problem.

If the cost savings don't reach the threshold Republicans demanded in the budget, there are other options to fill the hole. There's almost $300 million in the state's rainy-day reserve fund and tax collections are running $150 million above forecasts through the first three months of the fiscal year, according to a separate presentation.

The surplus "could be appropriated for those areas where we come up short without having to go back and necessarily cut any reimbursement rates or programs," said House Speaker Thom Tillis, R-Mecklenburg.

Michael Watson, deputy secretary for health services, told lawmakers that Community Care of North Carolina, a highly successful managed care program for Medicaid patients, would find a minimum of $51 million in savings, not the $90 million directed for the program to find. The department hasn't reached its goals to enroll more adults and people with disabilities whose medical expenses would fall in a managed-care setting.

But Watson said Community Care is on track to realize at least $204 million in cost savings by mid-2013, more than what the Legislature's two-year budget sought.


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