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Lawmakers compromise with Brewer on health care spending

A five-month battle over health care spending between Gov. Jan Brewer and Republican leadership reached a breaking point early this week after Brewer asked lawmakers to set aside hundreds of millions of dollars of additional spending for state-run health care programs.

And, in a surprising turn of events, lawmakers in the Senate have agreed.

Brewer began challenging health care decisions made in the Legislature almost immediately after moving to the Ninth Floor in January. Republican lawmakers have been asked on more than one occasion to return funding to state programs designed to provide health care services for the state’s low-income and disabled population.

Through her June 1 budget proposal, Brewer called on lawmakers to approve an additional $300 million to cover thousands of new Medicaid enrollees, increase spending to better align with medical inflation and preserve several health care programs leadership has been struggling to eliminate for years.

Until recently, Brewer’s suggestions were cast off by lawmakers, who called the measures fiscally irresponsible.

“We have a $3 billion structural deficit, and if we do not cut that down by reducing spending, then in 2011 when we have little or no stimulus dollars we are going to have a real crisis,” said Rep. John Kavanagh, a Republican from Fountain Hills.

But as information trickled out following an all-nighter in the Senate, it appears leadership has agreed to swing toward Brewer’s proposals after all.

“We have tried to recognize her priorities and reflect that in the budget to a reasonable degree,” said Sen. Russell Pearce, a Republican from Mesa. “She is going to have to compromise, too.”

The Governor’s Office did not respond to requests for information.

The majority of Senate Republicans voted in favor of a budget revision just after dawn on June 4 that eliminates a $25-million cut that has been a part of Republican budget proposals from the start. The amended budget also sets aside an additional $300 million in case the flood of Medicaid enrollment continues into fiscal 2010.

The Senate’s budget, though, was not an across-the-board approval of Brewer’s requests. The final proposal still includes cuts to health care programs for children and would require hospitals and physicians to shoulder the burden of rising medical costs.

The House approved a similar proposal about 15 hours later.

For now, it is unclear what effect these holdouts will have on Brewer’s final approval of the new budget.

Republican leaders signaled their willingness to compromise when they approved a significant increase to the fund that provides coverage for residents expected to enroll in the Arizona Health Care Cost Containment System.

In her proposal, Brewer allocates $494 million for AHCCCS to care for a 12.4-percent increase in enrollees.

Until the early morning hours of June 4, House and Senate leadership had held firm to a plan that assumed only an 8.8 percent caseload growth and set aside $183 million to care for the new beneficiaries.

“We consider these figures reasonable,” Kavanagh said just hours before the Senate revised the budget’s numbers.

The decision brings the budget hundreds of millions of dollars closer to providing for the 13-percent growth AHCCCS anticipates.

“It is a big hit to the budget,” Pearce said. “The taxpayers cannot afford the program. It is concerning. We had to compromise.”

The sharp increase in spending is somewhat offset by an additional $71 million in federal stimulus dollars that lawmakers now expect to collect.

Regardless of which budget is ultimately approved, AHCCCS will be able to collect the money needed to provide coverage for any new enrollees because of state and federal laws requiring as much. The state would need to come up with additional funding midway through the year if more residents enroll in the system than expected.

Health care advocates, though, said the choice to fund the system up-front reveals a better understanding of the health care system and the needs of physicians, hospitals and patients.

“The approach results in a more responsible, balanced budget,” said Laurie Lyles, senior vice president of public affairs for the Arizona Hospital and Healthcare Association.

Senators also made key ideological concessions last week. Lawmakers in both the House and Senate expressed discontent with the state’s health care programs earlier this year when they lined up in support of a series of anti-fraud and cost-recovery measures.

But those measures were dropped from the budget during negotiations in the Senate, and lawmakers the House who previously pledged to reject a budget without health care reform were asked to go along with the change.

Rep. Carl Seel, a Republican from Phoenix, is one of the sponsors of the proposed State False Claims Act, and he supported budget language that would have set penalties for people who use false records to enroll in Medicaid. It also would have required AHCCCS to ratchet up efforts to weed out false claims.

“I have offered to meet with the governor and her budget staff to talk about the measures,” Seel said. “You can lead a horse to water, but you can’t make it drink. It is disappointing.”

Residents caught filing false claims would have been fined as much as $11,000.

Leadership’s original budget also would have required AHCCCS to use a “comprehensive, electronic” system to verify the agency does not pay for services covered by a beneficiary’s private insurance.

Brewer chose not to include similar reform measures in her proposal. Agency officials spoke out against the measure because, they said, such a system does not exist.

“If there is any such system currently operationally, I would welcome the opportunity to learn more,” Anthony Rodgers, the AHCCCS director, stated in a May 26 letter to the Senate Appropriations Committee.

The Legislature’s budget also includes cuts to two programs designed to care for low-income children and their families.

But the preservation of KidsCare and KidsCare Parents, which cover 56,000 and 9,000 Arizonans, respectively, appears to be a priority for Brewer.

When drafting her proposal, Brewer did not directly eliminate or reduce any of the health care programs managed by AHCCCS. Instead, she relied heavily on reducing programs’ administration costs and restricting the types of services the state will cover.

“(Brewer) understands that during a recession like what we are in now, demand for AHCCCS services will rise,” Lyles said. “Her budget acknowledges that fact by protecting the state’s safety nets.”

Brewer avoids cutting programs wholesale by reducing the budget for AHCCCS staff salaries by more than $3 million. The salaries for employees of the Department of Economic Security who help to enroll residents in Medicaid programs also would be reduced by $2.4 million.

Lawmakers, by comparison, reduced those salaries by $2.5 million in their proposal.

The would-be effects of the cuts to the agency’s administration are still unknown, although budget documents reveal that the Governor’s Office predicts they would “result in the likely layoff of employees.” Last month, AHCCCS officials laid off 70 people in anticipation of salary cuts in fiscal 2010.

Additional reductions made by Brewer work around entire programs by making cuts to the types of services that would be covered by the state. For example, eligible residents would no longer be covered for diabetic insulin pumps, non-emergency transportation or visits to a podiatrist.

Cuts to “optional benefits” make available $3.5 million, money that Brewer appears to want to use to preserve KidsCare and KidsCare Parents.

Republicans in the House and Senate have gone back-and-forth on whether to strike the family health care programs from the budget for over a year. In January, the elimination of KidsCare was put forward as a way to save the state $30 million in service and administrative costs. The measure was ultimately dropped after leadership realized that a majority of the rank-and-file members wanted to continue the program.

The Senate budget, as written, would save the state more than $10 million by eliminating KidsCare Parents and restricting eligibility for KidsCare to children from families earning less than 150 percent of the federal poverty limit, or $33,075 a year for a family of four.

“I understand that the most critical and most vulnerable among us need help,” Pearce said. “But if you are an able-bodied person, you ought to go out and earn your own living.”

Senate Republicans also held firm on their decision to avoid linking health care spending with medical inflation, despite Brewer’s objections.

At first glance, the Senate’s revised budget would save AHCCCS more than $40 million when compared to the governor’s version. Republican lawmakers enumerate approximately $16 million in cuts, while the agency would loose $59 million if Brewer’s proposal were approved.

Not every cut included in the Senate’s budget, however, is listed. The final cut approved by senators is more than triple what appears in print.

Brewer’s proposal provides the health care system with money to cover a 4.6 percent rise in the cost of health care and increased uses of services by patients, which are two of the largest components that govern how much hospitals and physicians are reimbursed for treating patients on Medicaid.

This provides an expected $54 million needed to cover inflation and would allow the state to draw down $200 million in federal matching funds.

Republican lawmakers, though, did not account for medical inflation when drafting their budget.

The Senate proposal would require AHCCCS to shoulder millions of dollars in inflation costs hospitals and physicians will have to pay in the coming fiscal year by making internal cuts to programs.

Officials at AHCCCS said they would likely pass the cut on to hospitals through a 5 percent reduction in payments to hospitals serving Medicaid patients.

The cut is expected to pull $102 million in state and federal dollars from hospital budgets.

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