The Issue: Medicaid Funding

Governor Robert Bentley has called back the Alabama Legislature for a special session beginning today, Monday, August 15, at 4:00 pm. The focus of the session is an effort to increase the amount previously budgeted for the Alabama Medicaid program for FY2016–17. Under the Alabama Constitution, a special session can last only 30 calendar days, during which time the Legislature can meet for ten days. As discussed further below, the major legislation to be addressed in the session is a possible constitutional amendment to allow for a lottery in Alabama, which would have to be ratified by a vote of the people. To have such a measure placed on the November 8th General Election ballot, a bill would have to pass the Legislature no later than August 24th. Thus, it is widely expected that this special session will not last more than nine days.

During the 2016 regular legislative session, the Legislature’s General Fund budget, which passed over Governor Bentley’s veto, funded Alabama’s Medicaid Agency at $700 million, which was $85 million less than the agency and the Governor have said is needed to maintain the current level of service. Without an appropriation of $785 million, the Governor has stated that the state could not move forward with its ambitious plan to move from a pure fee-for-service model to a managed care model overseen by provider-dominated Regional Care Organizations (“RCOs”). The transition to the RCO program, originally scheduled to take place on October 1st, has been placed on indefinite hold pending the Agency’s ability to raise sufficient revenue. Should the state be forced to abandon the RCO transition, it would also have to forgo approximately $747 million in additional federal funds that would be due over the next five years as part of the recently approved Section 1115 waiver proposal. The waiver is a key part of the state’s transition to RCOs, and is intended support the transformation and to establish programs designed to improve healthcare efficiency and outcomes.

On August 1, 2016, Medicaid implemented the first of its available spending cuts to the program by eliminating the primary care physician pay bump. The elimination of the bump—which was originally put in place with federal dollars under the Affordable Care Act and then taken up by the state—resulted in a decrease in physician pay of approximately 30%. The annual savings for eliminating the bump is just under $15 million. Critics argue that without the enhanced pay the state risks losing doctors to neighboring states, creating a physician shortage here in Alabama and access to healthcare difficulties for the entire population, not just Medicaid recipients.

In addition to the elimination of the primary care physician bump, the Governor and Medicaid Commissioner Stephanie Azar have indicated that the following additional cuts (and potential savings) are being examined:

• Prescription drug coverage: $50-60 million
• Health Home and Physician case management fee: $16.6 million
• Outpatient dialysis care: $3.7 to $4 million
• Program of All Inclusive-Care for the Elderly (“PACE”): $2 million
• Prosthetics and orthotics: $500,000
• Eyeglasses for adults: $300,000
• Reduced reimbursement rates for ambulatory surgical centers, doctors, dentists, optometry, hearing and other programs: $0-$50 million.

The Medicaid Agency supports the healthcare needs of more than 1 million Alabamians—approximately 70% of whom are children. Overall, Medicaid—through matching funds and contributions from providers such as hospitals, nursing homes, and pharmacies—is a $6 billion program, only 11% of which is funded though the General Fund.

The Proposed Solutions

The primary purpose of the special session, based on the Governor’s public statements and his proclamation summoning the Legislature to Montgomery (“the call”), is to see if a constitutional amendment authorizing a lottery will be put to a vote of the people on the November 8th ballot. While the subject of a lottery unquestionably will be the main focus of the session, there are already numerous different substantive proposals circulating. Although at least one of the proposals is being promoted by a member of the House of Representatives, thus far most of the attention in advance of the special session has been focused on the Senate. By rule, bills that would authorize a lottery are to be sent to the Senate Committee on Tourism and Marketing, chaired by Senate President Pro Tem Del Marsh (R–Anniston). Senator Bobby Singleton (D–Greensboro) is the ranking minority member, and the remaining members are: Senator Greg Albritton (R–Bay Minette), Senator Billy Beasley (D–Clayton), Senator Trip Pittman (R–Montrose), Senator Rodger Smitherman (D–Birmingham), Senator Paul Sanford (R–Huntsville), Senator Tim Melson (R–Florence).

1. Lottery Only—Governor Robert Bentley’s Bill

Governor Bentley released his proposed lottery bill approximately 10 days ago. The bill will be introduced by Senator Jim McClendon (R–Springville) in the Senate. The Governor’s bill would establish a state lottery commission, and would authorize the institution of a lottery in Alabama. Proceeds from a lottery, estimated by the Governor to be approximately $225 million annually, would be dedicated to the state’s perennially cash-strapped General Fund, which funds Medicaid. Further details about games that would be allowed and how the lottery would be implemented would be left to future legislation or to the lottery commission.

2. Lottery & Video Gaming—Senator Jim McClendon’s Bill

In addition to carrying the Governor’s legislation, Senator McClendon has announced his intention to introduce his own bill that would authorize both a lottery and video lottery games at each of the state’s four existing dog tracks. The bill would also authorize the negotiation of a compact with the Poarch Band of Creek Indians, which currently operates three casinos in Alabama featuring electronic bingo games. Senator McClendon has stated that his proposals—which would allow video lottery terminals similar to electronic bingo and slot machines in Macon, Greene, Jefferson, and Mobile Counties—would raise an additional $427 million annually for the state. Senator McClendon’s bill is expected to draw some support from Democratic lawmakers, but may also be opposed by the Poarch Band of Creek Indians. Additionally, the inclusion of video lottery machines in a lottery bill may result in the loss of some Republican votes.

3. Lottery & Revenue Allocation Changes—Senator Phil Williams’ Bill

Senator Phil Williams (R–Rainbow City) has recently proposed what he calls a “Two Step Plan.” Senator Williams, who chairs the Senate Committee on Fiscal Responsibility and Economic Development, is proposing to combine the state’s revenue streams, each of which is currently allocated to either the General Fund or the Education Trust Fund (“ETF”), into one fund. Alabama is one of only three states in the country that has more than one budget. Under Senator Williams’ plan, revenue from the single fund would be allocated 76% to Education and 24% to General Fund purposes. The second step of Senator Williams’ plan would allow for a lottery, but would not permit any other additional gaming. Under the current revenue allocation, the ETF receives most of the growth taxes collected in the state, including many income and sales taxes. On the other hand, the General Fun relies on non-growth revenue streams. Senator Williams argues that his plan would benefit both budgets, increasing the revenue available to the General Fund by $200 million annually and increasing education dollars by $100 million per year. Further, he argues that combining the revenue streams should put an end to the annual hunt for General Fund dollars to satisfy the increasing demands of Medicaid and prisons.

4. Lottery for Education—Representative Craig Ford’s Bill

Representative Craig Ford (D–Gadsden), the House Minority Leader, has also announced his plan to introduce a lottery bill, but his plan would send the money to the ETF to be used for college scholarships. Representative Ford argues that a lottery for the General Fund would only be a short term fix for that budget’s problems, and that in just a few years the growth in needed spending on Medicaid will have eclipsed the increased revenue coming in from the lottery. For this reason, he argues that proceeds from any lottery should go to pay the first two years of tuition for any student in Alabama at any public college or university. Representative Ford has introduced his legislation in previous sessions, but thus far it has not been placed on a committee agenda.

BP Settlement Funds

Even if a lottery passes during the special session and is approved by the public on November 8th, it would not raise any money in time to cover the FY2017 shortfall in Medicaid. Thus, we expect to see significant debate regarding the possible allocation of BP settlement funds due to the state.

Under the terms of the state’s settlement with BP for the Deepwater Horizon oil spill, Alabama will receive $1 billion spread out over 20 years. The first $50 million payment should have been received by this summer. The Legislature has already budgeted next year’s anticipated payment for FY2017. That leaves approximately $900 million in future payments still due to the state. Several plans to securitize those future payments to receive a lump sum were introduced and debated during the Regular Session, though in the end an agreement could not be reached on the allocation of the funds. A plan to spend the settlement funds is almost certain to occupy a significant portion of the Legislature’s time during this special session as well. For now, the debate appears to come down to a fight between Legislators from South Alabama, who believe that South Alabama should receive the lion’s share of the settlement proceeds, and those from North Alabama would do not want to be left out. The proposal that seems to have the most support is one crafted by House Ways and Means General Fund Chairman Representative Steve Clouse (R–Ozark) during the Regular Session. Under Representative Clouse’s proposal, $448 million of the lump sum fund would pay back money borrowed from the Alabama Trust Fund several years ago. Representative Clouse’s plan would then allocate close to $200 million for road and infrastructure projects in Mobile and Baldwin Counties. By paying back the money due to the Trust Fund now, Clouse’s plan would free up approximately $70 million for Medicaid.

Medicaid Cost Savings—Defensive Medicine and Utilization Reform

With only a bare bones Medicaid program in place, Alabama has very few areas that it can cut in order to reduce costs. For that reason, one proposal that may gain some traction focuses not on cutting reimbursements, fee schedules, or available services, but on reducing excess utilization. Studies—including a recent survey of Alabama doctors—have shown that doctors’ aversion to being sued for malpractice can result in the costly and unnecessary practice of defensive medicine. The result is additional tests, procedures, and prescriptions that drive up healthcare costs for businesses and government programs such as Medicaid. A proposal by Senator Trip Pittman (R–Montrose) that would convert the existing medical malpractice system into an administrative proceeding could alter this behavior may be reintroduced in the special session. Proponents of the plan note that under the existing system more than 80% of the patients who are injured by medical error never receive any compensation for their injuries, because their legal damages are considered too small for an attorney to take their case.

What Else Could Come Up?

Gas Tax

A bill that would have provided what supporters argue is desperately needed revenue for infrastructure repair and maintenance never made it to a vote in the Alabama House. HB394, sponsored by Representative Mac McCutcheon (R–Capshaw) would have set an excise tax on gas that is based on the average tax in Florida, Georgia, Mississippi and Tennessee. If implemented today, the bill’s formula would result in an increase to Alabama’s current gas tax of $0.06 per gallon. The bill also called for adjustments to the tax in subsequent years—again based on the average tax in surrounding states. The bill, which would require any revenue generated by a gas tax to be spent exclusively on road and bridge projects, was part of the infrastructure improvement package supported by a wide coalition of business interests under the umbrella group Alliance for Infrastructure. The state’s gas tax has not been increased since 1992. Although support for the measure seemed to be strong, it did not appear that the bill could overcome an anticipated filibuster in the Senate. The Governor’s call does include a reference to “infrastructure investment,” so it is possible that a similar bill will be introduced during the special session.

Impeachment

Last week, the Governor’s lawyers submitted several filings to the House Judiciary Committee, which is examining the possible impeachment of the Governor pursuant to a resolution passed towards the end of the Regular Session. The Governor seeks a dismissal of the impeachment matter, arguing that impeachment should be reserved only for serious crimes committed while in office. There was some discussion in Montgomery that the Governor might shy away from a special session based on a fear that bringing the Legislature back into session would kick-start the impeachment probe. But neither fear on the part of the Governor nor the possibility that the Legislature’s return to Montgomery will result in an accelerated impeachment process appears to be correct. While there certainly is likely to be discussion of impeachment during the session, it is not expected that anything new on this issue will develop in the coming weeks.

Historic Tax Credit

Though generally popular, legislation to reauthorize the state’s Historic Tax Credit program, generally considered a major success, is not likely to be addressed in the special session. During the Regular Session, reauthorization legislation sponsored by Representative Victor Gaston (R–Mobile), was approved by the House, but stalled in the Senate. The bill died despite the fact that Senate Rules Committee Chair Senator Jabo Waggoner (R–Vestavia Hills) was carrying the bill and that it had 32 of the 35 Senators listed as co-sponsors. Since the Regular Session, a study has been commissioned of the real costs and benefits of this tax credit, as well as several other economic development measures. It is not anticipated that the Historic Tax Credit will be brought up until the results of that study, anticipated in late January 2017, have been received.

Prison Construction Legislation

Last year, in his State of the State Address, Governor Bentley proposed an ambitious prison construction plan that would close nearly all existing facilities and consolidate the housing of inmates statewide into four mega-prisons. According to Jeff Dunn, the Commissioner of the Department of Corrections, the state could issue $800 million in bonds in order to pay for the construction, which could be repaid by the savings that result from the projects. The Department estimated that it would save as much as $50 million per year, including $21 million on decreased overtime costs and $10 million on reduced medical costs. On the last day of the Regular Session, a scaled-down version of the Governor’s legislation, calling for bonds in the amount of $550 million and the construction of just three prisons passed the Senate but died in the House. Although the Governor has said that he remains committed to the prison construction plan, he did not include it in his call and therefore the measure is not expected not to come up during the special session.

Blue Lives Matter Legislation

In the wake of several high profile shootings of law enforcement officers around the country—in particular the ambushes in Dallas, Texas and Baton Rouge, Louisiana—several lawmakers have stated that they will introduce legislation to make an assault on a law enforcement officer or a first responder a hate crime. Including assault on an officer in the list of hate crimes will provide for enhanced penalties for those convicted. The hate crimes legislation is not included in the Governor’s call, which means that it would require a two-thirds vote of both chambers to pass. But given what appears to be bipartisan support for a measure to enhance penalties for assault on law enforcement officers, this bill is likely to get significant attention in the special session and could very well pass.

Conclusion

Predicting what will occur during the special session is obviously very difficult. There seems to be increasing desire on the part of the Legislature to increase the amount previously appropriated for Medicaid, but a continued inability to reach a consensus regarding the sources of the funds needed to do so. Reaching that consensus in nine days will no doubt be difficult.

As noted above, the Constitution permits the Legislature to meet for 12 days during a 30 calendar day period. Today is the first legislative day, leaving nine remaining days. More importantly, after today there are only eight calendar days until August 24th, the date by which any measure sought to be placed on the November 8th ballot must be signed by the Governor.

For additional information contact Ted Hosp or Edward O'Neal