Health Care and Education & Workforce Development and Government

Local mental health centers caught in funding limbo: Federal effort to shift costs to states on hold, but not-for-profits' budgets for next year must be completed now

June 9, 2008

At Indianapolis-based Adult and Child Mental Health Center Inc., Executive Director Bob Dunbar has developed a contingency plan as he works on the agency's $25 million budget for next year.

He has two versions of a spending plan for the center, which provides mental health services for 4,200 children and adults a year. One includes moderate cuts tied to state funding changes, and the other deals with massive cuts pushed by the federal government.

In the worst-case scenario, as much as $16 million of the center's annual funding would be in jeopardy, and Dunbar would be forced to discontinue services to 765 clients, potentially adding them to a waiting list already hovering at 200.

Adult and Child is one of 30 mental health centers in Indiana grappling with uncertainty tied to proposed changes in funding for Medicaid, a state-run program that provides health care to the poor and those with severe disabilities. The federal government pays the majority of costs, usually 60 percent to 70 percent, and the state picks up the difference.

In 2007, the Bush administration proposed seven new Medicaid rules it says would cut $1.7 billion in federal costs over two years. Others estimate the changes would result in as much as $50 billion in federal savings over five years.

Costs would shift to already cash-strapped states or programs would be cut. Indiana hasn't estimated how much federal funding it will lose if the changes are implemented.

After an outcry from the states, federal lawmakers delayed implementation of the new rules until June 30. Now legislators are considering whether to push that back yet again to April 1, 2009, meaning a new president would be in charge.

Despite the uncertainty, the not-for-profits that contract with the state to provide mental health services need to plan for their next fiscal year that starts July 1, in line with the state's fiscal year.

"[Centers] have to prepare for the worst and hope for the best," said Matt Brooks, executive director of the Indiana Council of Community Mental Health Centers. Service cutbacks and staff layoffs are possible.

Center leaders predict that people struggling with mental health issues might not be helped until their problems drive them to more expensive settings, like emergency rooms and courtrooms.

The Indiana Department of Education fears the rule changes would cut federal funding for school-based mental health programs.

"States are increasingly overburdened by underfunded federal education mandates," DOE Associate Superintendent Robert A. Marra wrote in a letter to the administration. He went on to call the rules "ill-conceived" and said they would impede efforts to make sure challenged children don't fall behind.

Indiana Family and Social Services Administration Secretary Mitch Roob said he was mainly concerned with one of the seven rules that limited which dollars the state could include in its matching funds needed to get federal funding. A federal court threw out that rule at the end of May, saying federal administrators didn't go through the proper process to create it.

Roob said the ruling means the state can continue to use its current Medicaid system to pay for mental health services, but it may have to qualify patients for services under different Medicaid programs in the future.

State officials haven't tried to estimate the fiscal impact of the seven rule changes, he said, because the interpretation is still so up in the air. And the work will be in vain if there is another legislative delay on the rules, as he expects.

"It makes it very awkward for people in jobs like mine and for providers because the bar [for what are acceptable Medicaid expenses] is changing quite a bit," he said. Many in the field said that, while the rules may not go through, some form of federal cost cutting clearly is on the horizon.

"It's not likely that nothing's going to change even if there's a new administration," said Eric Crouse, director of Gallahue Mental Health Services, an Indianapolis-based center that is part of Community Hospitals.

Brooks agreed.

"I don't think we can dismiss the administration's intent," he said. "We have no choice but to prepare for the unknown.
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