Almost Half A Billion Off: Health Care Authority Budgeting Goofs Rankle

Red Ink Grew By $502 Million In Six Months

Almost Half A Billion Off: Health Care Authority Budgeting Goofs Rankle
State Health Care Authority officials partly blame rising prescription drug costs for a big healthcare budget shortfall, but critics aren't buying it, and want better forecasting. Photo: TaxRebate.org.uk

State lawmakers will have to fit a total of $463 million in miscalculations by the state Health Care Authority (HCA) into this year’s supplemental budget and the next state two-year budget that will be the centerpiece of the 2017 session. But they are hoping to make changes now to prevent the agency from making big goofs like that again.

The supplemental budget was supposed to be a stroll in the park compared to last year’s biennial budget, which resulted in the longest legislative session in state history. Instead, Senate Ways and Means Committee members exchanged tense words with HCA officials after they returned to Olympia in January.

The stage was set when a Ways and Means Committee staffer started out by noting that the HCA’s low-income health assistance fund balance went from $23 million in the red last July to to $525 million in arrears by the time the legislature’s supplemental budget session opened.

Health Care Budgeting Was Off; Really Off

One big chunk of that $502 million negative balance growth, according to a Ways and Means report, is $463 million in “maintenance level resource and spending changes from the enacted budget” over the current 2015-17 state budget and the 2017-19 spending plan.

HCA provides health care for more than two million people in Washington, in low-income households. The state’s Medicaid program Apple Health has around 1.8 million covered beneficiaries enrolled. The program expanded in 2014 to allow coverage for low-income adults with no children.

The HCA spending changes include a variety of components.

At the January committee hearing, HCA Chief Policy Officer Nathan Johnson said although they accurately predicted caseloads, they were caught off-guard by the increase in expenses. He said the rise of pharmacy costs for Medicaid patients is mostly responsible and occurred after the managed care rates had been set, as part of a nation-wide trend.

For that alone, HCA saw $191 million in increased spending and maintenance for this year’s supplemental budget – versus originally projected savings in this area of $62 million.

Additionally, the state failed to get a Medicaid waiver it had requested from the federal government in the amount of $16.7 million.

Health Care Budgeting Questioned

HCA’s other unanticipated costs over the four-year period include savings that were expected but now are clearly not going to occur.

A five-year plan known as Healthier Washington relied on a $65 million federal grant and was supposed to save the agency $4 million last year and $111 million in 2016-2017.

However, because adoption by participants was voluntary there were no savings last year and only $1.4 million estimated in savings over 2016-2017.

Now, HCA is requesting $85.4 million in the supplemental budget to make up that difference. Ways and Means Chair Sen. Andy Hill (R-45) said at the January committee hearing that the unexpected costs threw the entire state budget out of whack.

The increased pharmacy costs aren’t just being felt by HCA, said Sydney Smith Zvara, executive director at the Association of Washington Healthcare Plans. The association is an alliance of health care service contractors and health maintenance organizations in the state.

Drug Costs Seen As A Driver

Zvara said drug costs are “the most rapidly and dramatically rising piece of the premium dollar.” The big drivers are effective, but expensive break-through drugs for Hepatitis C patients, she said.

The trend is affecting private insurers like Premera, which anticipate a rate increase as a result. One percent of their members now represent 30 percent of all pharmacy costs. “This is really an unprecedented situation,” Media Relations Manager Melanie Coon said. “I don’t think this is something we’ve ever seen in terms of rising costs.”

Zara added we’re just seeing the beginning of this trend. “Pretty soon we’ll be forgetting about the impacts of the ones (drugs) we’re talking about now,” she said. She added the challenge will be how to keep costs down as new drugs are brought to market without breaking the state budget.

But HCA blaming their budget woes on rising pharmacy costs is a “red herring,” said Sen. John Braun (R-20). “That’s a simple claim to shift the responsibly for inaccurately forecasting the costs,” he said.

It’s a view shared by Emily Makings at the Washington Research Council. She wrote in a March 7 policy brief that the changes in HCA maintenance level spending “suggests the agency has more trouble than other agencies in adequately forecasting over a two year period.”

Budgeting Not An ‘Exact Science,’ But Still…

“Forecasting isn’t an exact science—even the best forecasters won’t be completely accurate all the time,” she wrote. “Still, the HCA’s recent errors seem out of proportion.”

“No great Washington company would tolerate this pathetic management,” Senate Majority Leader Mark Schoesler (R-9) said. “If that (Medicaid costs) was the only mistake they made, only product they failed to deliver on, you might cut them some slack.”

However, not all lawmakers are blaming HCA for some of the unrealized savings.

State Rep. Karen Keiser (D-33), assistant ranking member on the capital budget on the Ways and Means Committee, said at the January hearing that the Healthier Washington savings were calculated under the impression that the effort would be implemented statewide. But so far only southwestern Washington counties had adopted it.

As a result, HCA expects to see just $1.4 million in savings from Healthier Washington by 2017 compared to the $111 million they had expected.

How To Fill The Gaping Hole

The legislature now has to figure out how to fill the gaping hole in the budget. To pay for the increased Medicaid managed care costs, both the House and Senate supplemental budget proposals are on the same page, providing the $200 million through the Near General Fund-State (NGF-S) and the WA Opportunity Pathways Account-State (OPA).

But the House proposal would add another $58 million in state funds to HCA’s total budget compared to the Senate’s.

Senate Adds HCA Reforms To Its Budget

At the same time, the Senate budget calls for several HCA reforms. One is to have Office of Financial Management handle the forecasts. Another is legislative review of managed care rates. A third concerns a federal Medicaid waiver HCA is currently applying for that would help expand the agency’s delivery system. The reform proposal would require legislative review of any impact the waiver might have on state funds.

During the January committee hearing, Hill complained to HCA officials that this is not the first time they’ve made miscalculations. Last year, he claimed, it was $100 million.

Schoesler said that it’s time for change in agency leadership.

“I think based on the horrible losses” HCA Director Dorothy Frost Teeter “created, the honorable thing would be for the governor to withdraw her application immediately,” he said. “We’re trying to balance a budget in times of slower growth and revenue, and she seems to think she’s in the other Washington where you don’t have to. She brought a D.C. mentality to Washington.”

Through a spokesperson, State Sen. Jim Hargrove (D-24) declined to comment on the agency’s performance. Kesier was unavailable for further comment. State Sen. Pramila Jayapal (D-27) did not respond to several requests for comment. Calls to the office of House Health Care & Wellness Committee Chair State Rep. Eileen Cody (D-34),Steve Conway (D-29) and Sen. David Frockt (D-46) seeking comment were also not returned.

HCA has had other problems. In February, it admitted to a data breach in which the personal identifiers and health data of 91,000 state Medicaid clients was improperly shared between two state government workers in violation of federal law.

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