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The state has been told it must quit using millions in Medicaid money to fund certain psychiatric hospitals, substance abuse centers, information technology projects and education programs.

The federal government is restricting the use of money on certain initiatives as part of the agreement renewed in October called the global commitment waiver that gives Vermont a big pot of Medicaid money to spend in many different ways.

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The biggest impact will be on psychiatric services. Within five years, the state will be required to start switching to other ways to pay for psychiatric treatment at the Vermont Psychiatric Care Hospital in Berlin and the Brattleboro Retreat.

The federal government is requiring that the state “phase down” the use of federal funding for “facilities that qualify as an institution of mental disease (IMD) under federal law, which is a facility primarily for mental health or substance use disorder treatment” with more than 16 beds, according to Dean Mudgett, the spokesperson for the Agency of Human Services.

The new requirement cuts $34.5 million in gross spending at the Vermont Psychiatric Care Hospital and the Brattleboro Retreat, Mudgett said. Both facilities are above the 16-bed IMD threshold.

The state will be required to begin transitioning to a new funding source in 2021 and continue the transition over six years, Mudgett said.

Rutland Regional Medical Center will not lose funding for its psychiatric beds because they are attached to a full hospital and therefore not an “institution of mental disease.”

“The timeframe allows the state time to plan appropriately for needed capacity, which could include downsizing these existing facilities so they are not over the (16-bed threshold for this use of funding), adding capacity elsewhere or developing new facilities,” Mudgett said.

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Officials at the Agency of Human Services were unavailable for comment Tuesday, according to Mudgett. The Joint Fiscal Office laid out the issue at a meeting of the Joint Fiscal Committee on Monday.

Rep. Anne Donahue, R-Northfield, said in an interview that lawmakers and state officials were aware in 2011 — when they were considering how to replace the Vermont State Hospital, flooded by Tropical Storm Irene — that the federal government would not pay for a free-standing psychiatric hospital with more than 16 beds.

But the state went ahead with a 25-bed free-standing facility in Berlin after officials realized they could fund it through a provision in the global commitment waiver for what are called MCO investments, she said. The provision allows the state to use money it saves on treating Medicaid patients to pay for branches of state government and certain health reform programs.

Donahue called the federal government’s decision to curtail that use of the money “unexpected” because she did not know it would come so soon. However, she said stakeholders knew that using Medicaid money for the psychiatric hospital was not “ironclad.”

Sen. Claire Ayer, D-Addison, the chair of the Senate Health and Welfare Committee, said the regulation prohibiting federal funding going to “institutions for mental disease” goes back to a time when states had large institutions where patients were essentially warehoused instead of treated.

“They decided that’s not health care. That’s housing,” Ayer said.

She said Vermont may be the only state that has been able to fund its psychiatric hospital using Medicaid money and that the federal government is considering whether to change its rule because states are struggling with paying for their psychiatric hospitals.

Jason Gibbs, the spokesperson for Gov.-elect Phil Scott’s transition team, said the incoming administration is not in a position to say how it would solve the reduction in available psychiatric funding. “We’ve had six days under the hood to figure out why the engine isn’t running as well as it should,” Gibbs said.

At a WCAX-TV debate during the campaign, Scott said the state needed to expand mental health treatment facilities, increase the number of mental health providers and use designated mental health agencies to achieve those two goals.

Gibbs said a reduction in funding for psychiatric units would certainly make that goal harder but that the administration doesn’t have an immediate solution because the funding reduction will not happen for several years.

Donahue said five to six years is not a long time to plan changes to Vermont’s mental health system and that the state should do a reassessment anyway of decisions it made after Tropical Storm Irene.

The 25-bed Berlin psychiatric facility opened in 2014 and replaced part of the lost capacity at the Vermont State Hospital in Waterbury.

“I think people need to be very aware of this and working actively on planning sooner rather than later,” Donahue said.

Use of MCO investments

Vermont benefits from funding government programs through the MCO investments provision because the federal government pays for 55 percent of the investment. Without that provision, the state would need to pay 100 percent of those government programs.

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Since 2010 — when federal funding under the American Recovery and Reinvestment Act ran out — the state has used the MCO investments provision in the global commitment waiver to fund additional government programs, according to a VTDigger investigation.

From fiscal year 2010 to 2015, Vermont went from using the MCO investments to fund 59 programs that cost $55.6 million, to funding 83 programs that cost $128.9 million, according to the VTDigger investigation.

Most of that increased spending came in the Department of Vermont Health Access and the Department of Mental Health to fund the Vermont Psychiatric Care Hospital and psychiatric beds at the Brattleboro Retreat and Rutland Regional Medical Center.

The state has also used MCO investment money on substance abuse centers, the health information technology fund and education services, but Medicaid is also pulling in the reins on those uses.

The change will affect four substance abuse centers: Valley Vista in Bradford, Maple Leaf Treatment Center in Underhill, Serenity House in Wallingford, and the Lund Home in Burlington, according to the Joint Fiscal Office.

The change will also affect funding for the Health Information Exchange, run by Vermont Information Technology Leaders; funding for physician training to the University of Vermont College of Medicine; and other unnamed education programs.

Funding at the four substance abuse centers will start to be phased down in 2021, similarly to funding for the Vermont Psychiatric Care Hospital and the Brattleboro Retreat.

The Health Information Technology fund, which was a $2.9 million MCO investment in fiscal year 2015, will be cut in half starting in calendar year 2018 and fully eliminated by 2019.

The $4 million annual MCO investment for the physician training program at the UVM College of Medicine will no longer be able to be applied to training physicians if they are not in underserved areas, according to the Joint Fiscal Office. It is not clear whether that will end the appropriation altogether to the Burlington-based medical school.

Replacing the money

The Agency of Human Services says it will apply for a “substance use disorder demonstration waiver” through the federal government to pull down federal matching dollars for substance abuse services.

Mudgett, from the Agency of Human Services, said that new waiver would enable the state to use several millions in federal money to pay for some substance abuse services that are at stake as part of the updated Medicaid rules.

Sen. Jane Kitchel, D-Caledonia, the chair of the Senate Appropriations Committee, said the loss of the federal match would nonetheless put pressure on the budget. She said the Legislature should take the opportunity to review how the entire mental health system is performing.

She pointed to psychiatric patients who continue to wait in emergency rooms before they are admitted to the Vermont Psychiatric Care Hospital and recent comments from the CEO of the Brattleboro Retreat saying that mental health care is so fragmented that “there is no mental health system.”

“This is an important area for the Legislature to really take time to assess, look at experience to date, and just see if we need to make modifications,” Kitchel said.

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