May 25, 2004

The Honorable Thomas V. Mike Miller, Jr.
President of the Senate
State House
Annapolis, MD 21401

Dear Mr. President:

In accordance with Article II, Section 17 of the Maryland Constitution, today I have vetoed Senate Bill 819 - Department of Health and Mental Hygiene - Federal Waivers - Waiver for Older Adults and Medicaid Managed Care Pilot Program.

Senate Bill 819 requires the Department of Health and Mental Hygiene (DHMH) to apply to the Centers for Medicare and Medicaid Services (CMS) for a waiver to establish the Community Choice Program, a managed care system designed to provide long-term care services to eligible Medicaid enrollees. Under this model, recipients are required to enroll in a community care organization (CCO), which promotes the delivery of services in the most appropriate, cost-effective setting, including nursing facilities and community-based services. The bill also requires DHMH to apply for an amendment to expand the medical and financial eligibility standards for the Older Adults Waiver Medicaid program. The Community Choice Program as defined in Senate Bill 819 terminates May 31, 2008.

There are serious issues with regard to long-term care in the State of Maryland as our senior citizen and disabled population continues to increase significantly. Many of these individuals will need the help of the State to pay for long-term health care. The State Medicaid program, however, will not be able to afford it. Today, approximately 30% of Medicaid's budget is used to cover long-term care costs for only 4% of Medicaid's population.

I have decided to veto Senate Bill 819 because the State must build a Medicaid long-term care program focused on consumers, and I believe this approach needs more time for thoughtful consideration, collaboration, and planning prior to action. Clearly, the current program, despite the resources we have dedicated to it, does not meet the needs of Medicaid beneficiaries. It is too inflexible in how services are provided. Accordingly, the State must seek federal regulatory relief in order to construct a program that works. In this regard, please be assured this Administration is interested in submitting a waiver for a long-term managed care program because this program would offer significant benefits for the State and our citizens. In the spirit of Olmstead, this kind of waiver offers more flexibility in delivering services in the least restrictive setting, yielding more access to home and community-based services. Additionally, this approach will provide savings that could be utilized for other important State purposes, including the potential of reopening the Older Adults Waiver.

Unfortunately, the rushed process surrounding the development of Senate Bill 819 did not allow for adequate consideration and development of a consensus approach to this critical issue. While the Department of Health and Mental Hygiene strongly supported an early version of the bill, the Department had significant concerns about some of the amendments, ultimately forcing the Department to oppose the bill as unworkable in its final form. The process necessary to develop an approach to solving Maryland's crisis in long term care requires the time, resources, and full participation of all affected stakeholders and decision-makers before embarking on a major policy change as envisioned in Senate Bill 819.

In its final form, passage of Senate Bill 819 brings about four significant unintended consequences. First, Senate Bill 819 could reduce access to care. The bill unnecessarily regulates provider rates, e.g., it prohibits community care organizations ("CCOs" or managed care organizations) from negotiating rates with nursing homes and day care facilities. Mandating the rate at which CCOs must reimburse providers reduces the flexibility of such CCOs to manage expenses and compete for better rates. If CCOs are unable to save money by competitively negotiating rates, they will have less flexibility in designing a benefits package and approving costly services. This will restrict necessary access to care.

Second, Senate Bill 819 may lower the quality of care provided to enrollees. The bill includes "any willing provider" provisions. These provisions could result in a lower quality of care, because CCOs would have a more difficult time guaranteeing quality standards within their provider networks.

Separately, the bill provides enrollees the option of continuing to receive services from their current provider, whether nursing homes, assisted living facilities, adult day care facilities, psychiatric rehabilitation programs, or residential rehabilitation programs. DHMH agreed to this provision for nursing homes and assisted living facilities in order to prevent enrollees from having to switch residences. Extending this to other providers, however, unacceptably reduces the quality oversight and monitoring capabilities of CCOs. CCOs need the flexibility to limit poor quality providers from entering their provider networks and from providing care to their enrollees.

Third, Senate Bill 819 prevents DHMH from making an impact on the unsustainable increase in long-term care costs. Under the terms of the amended bill, the Department estimates the savings would not be as significant as they could be under a more flexible model. Without real savings, there would be little opportunity to utilize funds for other state purposes, including the potential of reopening the Older Adults Waiver.

Fourth, Senate Bill 819 does not adequately address long term care needs for people with disabilities. This legislation was crafted with the aging population in mind; it does not take into account the unique needs that a much younger population presents in the long-term care arena. A more thorough consideration of individuals with disabilities in long term care settings may ultimately lead to a waiver application that serves the needs of Marylanders better.

As you know, applying for this waiver does not require legislation. Accordingly, today I am directing the Secretary of the Department of Health and Mental Hygiene to apply to the Centers for Medicare and Medicaid Services (CMS) for an amendment to the existing Older Adults Waiver regarding the level of care and financial eligibility requirements, as directed by Senate Bill 819. Moreover, I am directing the Secretary to report on the status of Maryland's amendment application to the General Assembly and me by January 1, 2005.

Furthermore, in order to approach the managed care program and a waiver application, I am directing the Secretary to convene an advisory group or groups, composed of affected stakeholders, as well as the Department of Aging and the newly-created Department of Disabilities, to consult with DHMH in the coming months in order to examine fully the impact of applying for such a waiver. The Secretary also will work closely with legislative leaders to build consensus on the waiver plans. This approach is needed in order to work through the remaining technical and policy questions that Senate Bill 819 raises. The outcome of this process should be a more complete approach to the managed care waiver, prior to the State submitting it to CMS.

While the goals of Senate Bill 819 are laudable, including protecting providers of care, consumers, and the State, the ultimate product is unworkable and risks being unsuccessful on behalf of Marylanders who require long term care. Moreover, Senate Bill 819 would lock DHMH into this model for four years until the State could pursue a more successful approach. Accordingly, DHMH must pursue a waiver application, through collaboration, that puts consumers first, encourages competition, protects high-quality providers, generates savings, and allows for innovative health care reforms. I am confident that the Department can strike such an important balance.

For the above stated reasons, I am vetoing Senate Bill 819.

Very truly yours,
Robert L. Ehrlich, Jr.