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Critical Condition: Idaho Health and Welfare's Annus Horribilis

One state agency's battle against an avalanche of problems


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You can't get any higher than Dick Armstrong at Idaho's Department of Health and Welfare, literally or figuratively. The elevator on his floor has no up button. His 10th-floor State Street office looks out on downtown Boise and the nearby Foothills. But when BW sat down with Armstrong for a wide-ranging interview on Dec. 7, a thick fog had settled over the Treasure Valley. The backdrop was surreal for an examination of, by many accounts, the most difficult year in the agency's history, from severe budget cuts to layoffs to shuttering offices to a Medicaid crisis. We asked Armstrong to cut through the misunderstanding and misinformation.

When 2010 was just days old, Armstrong warned lawmakers that his agency had drained operating costs and could "no longer guarantee changes would result in good public policy." Over the course of the next 12 months not only did his prediction of dire cuts come true, but a series of high-impact challenges arose, each more complicated than the one before.

Idaho's Department of Health and Welfare is getting smaller. In the wake of furloughs and layoffs and a shrinking budget, workers in every division across the agency worked fewer hours in 2010 yet continued to serve more clients than ever before. From Medicaid to child protection, from adult mental health to childhood immunizations, the numbers continued to rise. Idaho's food assistance, for example, now leads the nation in growth of participation--a 41 percent increase in the last 10 years. Participation has doubled since 2007.

Though 2010 is coming to a close, Armstrong and his colleagues keep their eye on at least three calendars. The traditional calendar most of us live by begins in January, which is when Armstrong's boss, Gov. C.L. "Butch" Otter gives his State of the State Address. Then there's Idaho's fiscal year calendar, on which 2012 will begin on July 1, 2011. And finally, the federal fiscal year calendar, on which 2012 will start Oct. 1, 2011. Each date triggers its own budget, deadlines and challenges.

In our review of calendar year 2010, which at times Armstrong described as "awful," we began with the early days of January when he walked up State Street to the Capitol with some sobering news.

BW: In January you announced limited office hours and furloughs. You proposed a $2.1 billion budget, but you had to know you weren't going to get that. Did you have a sense for how much worse things could be?

Armstrong: Furloughs may be an effective short-term tool, but they're very disruptive when you try to figure out how you're going to manage your work. And the work was going way up because the recession was continuing to deepen and we hadn't hit bottom yet. So we knew that free fall would continue for a while.

But you weren't saying that publicly.

Well, I can tell you as a management team we were talking about it privately. We didn't know what the legislature would do, but we did know that it would be substantive reductions.

On March 4, 2010, the legislature's budget writers--the Joint Finance Appropriations Committee--approved a Medicaid budget of $1.55 billion, trimming about $47 million. Providers like the Cystic Fibrosis Center of Idaho were victims of major cuts. "This will probably end up costing the county, the state and Medicaid a lot more in the long run," said Dr. Perry Brown at the time. "Quite simply, patients will end up having more difficulty accessing preventative care."

BW: How dramatic of an impact did cutting state funds have on federal matching funds for Medicaid?

Armstrong: In order for us to pull that money down from the federal government, we have to put up our portion. The good news is that we had gone from a 69 percent federal match all the way up to about 79 percent because of extra stimulus funds. So that helped us for fiscal year 2011.

But that's going away.

It's going away pretty rapidly. We're dropping down from 79 percent to about 68 percent in July of 2011. It's a real dilemma, 10 percent is a lot of money.

Are we talking about millions?

Actually, it's about $140-$150 million.

So what are your options?

Under current state statute, we can pull down some extra funds from Idaho hospitals and nursing homes in the form of an irrevocable fee.

But isn't that a tax?

In effect, yes. It can't be voluntary. It has to be a legal, irrevocable assessment. You see, if we can get some extra monies from hospitals and nursing homes, we can leverage the funds to pull down more federal matching monies. The only other alternative would be to reduce the reimbursement rates to providers. But that's a lose-lose proposition because everybody would lose money. We're pretty happy that the hospital and nursing home industries stepped forward. Between the two of them we were able to raise $35 million, which we could use to pull down more federal money.

Is this a formula you're inclined to revisit?

We only have the legal authority to assess hospitals and nursing homes.

T.S. Eliot called April the cruelest month, quite appropriate for April 2010. Armstrong announced the department would cut 4 percent of its work force (126 employees) and close nine of its 29 offices.

BW: Were the layoffs inevitable?

Armstrong: We weren't talking about letting people go who were not good performers. It became an issue of how we could consolidate services so that citizens of Idaho would have access to the services they need.

How did you decide which offices to close?

We had to consider things like travel time to the nearest office and which services each office provided. In some instances, we decided to station an employee in the community but not have an office there. That's what we did in McCall, for example.

Are there other offices that could be closed?

Well, our list was more than nine when we went through it initially. We're not expecting to close any other offices.

How many offices were evaluated?


At the same time, you were experiencing record-high applications for food stamps.

We knew there was a pent-up demand out there. We have a very proud and independent culture in Idaho. We always knew that there were more people who qualified for food assistance yet weren't accessing services. But the recession deepened, and dual-wage earners became single-wage earners. More people said, "I can't do this anymore," and now they've been asking for help at a record pace. Our food stamp participation growth-rate is now at 41 percent. We're the highest in the nation. Currently, we have more than 200,000 Idahoans accessing food assistance. And let me tell you, this food stamp growth rate is the early warning system. This is the canary in the coal mine. Because it reacts quickly to economic changes.

So what might be correlated to this growth?

Child protection for one. In the last quarter, our number of child-protection cases have started going up again. And that's a function of poverty. As households lose resources, adults don't always cope with that stress effectively and the children become an unintended victim.

Are your social workers stressed out?

Absolutely. Our turnover rate is unsustainable. We're losing our front-line social workers. Today, in fact, I just got a report that shows that social work is the No. 1 category in the state for turnover. It's a 31 percent turnover rate right now.

In May 2010 Idaho hospitals and nursing homes were told that any Medicaid reimbursements wouldn't be coming for up to three months. The state's Medicaid fund had simply run out of money. Smaller providers such as physicians, nurse practitioners, therapists and counselors were told in June that they wouldn't be paid for three months, but they would receive their funding in early July. Concurrently Molina Health Systems had acquired an information management system from Unisys, taking over management of Idaho's Medicaid reimbursement program.

BW: When did you first have an inkling that something wasn't right with the Medicaid reimbursement system?Armstrong: Actually in June we started seeing a major decline in reimbursement claims. But we had already told hospitals and other providers: "We can't even pay your claims, so don't even send them to us right now." Needless to say, we were a bit anxious. But that smaller issue actually masked the reality that there was something larger wrong with the transition of the system management.

Is it fair to say that Molina wasn't ready?

That's absolutely fair to say. There was a combination of factors. Unisys was coming out, Molina was coming in, and then we had the delay in funding on top of that. It was a collision of forces. As I now look back, Unisys was inadequately staffed to begin with, so Molina actually inherited an understaffed and undertrained workforce.

Did you do as much due diligence on this change as you should have?

In hindsight, I would have kept the old claims on the old system, and the claims that we held up could have been paid out of the old system. That wouldn't have burdened the new system with the old claims.

Was that even possible to do?

I don't know. It's all hindsight. But I can tell you looking back, that's exactly what I would have done because that way we would have had purity between the two systems, and we could have paid those claims in early July.

In spite of an official statement from Health and Welfare that all payments should be sent by July 9, providers across the state were reporting empty bank accounts. Many caregivers told BW that they tried calling Molina, spending hours on the phone only to get recorded messages. When BW asked Health and Welfare for a statement, we were told the "system is working." But according to clients, it wasn't.

"If we hadn't dipped into our own personal reserves, we would have had to close our doors," said Kathy Tidwell owner of Tidwell Social Work in Boise.

On Aug. 3, the Idaho Medical Association called the Medicaid problem "massive, pervasive and fundamental." IMA CEO Susie Pouliot told BW thousands of her organization's members "experienced a major cash flow issue." Dr. J. Mario Molina, president of Molina, flew to Idaho to offer a public mea-culpa while standing next to Otter and Armstrong.

"I'm not here to make excuses," said Molina. "I want to apologize to providers and to the State of Idaho."

But that same week, Molina reported premium revenue of $977 million--6 percent more than the previous year--and an overall operating income profit margin of approximately 24 percent.

BW: For a company that talks about millions in profits, why didn't Idaho slap them with a fine?

Armstrong: I can tell you that Idaho has served them notice of cure. In other words, under the contractual structure that we have, we've put them on legal notice that they've failed to meet the contract benchmarks. We're going to go through the legal process of determining damage to the State of Idaho. It's now a matter of demonstrating the injury and how much that's worth.

Where are you with that process?

It's active right now. But there's a more immediate reality. I can tell you that we haven't paid them for their services.

For how long?

We haven't paid them since June. And I'm not going to pay them until we're satisfied.

Is that hundreds of thousands of dollars?

It's millions of dollars. It's probably now approaching $10 million. That's real money.

How close are you to fixing the problems?

We identified 18 defects. They've solved half of them. The others are to be solved by the end of this year. This is an automated claims processing system which, when it's working well, doesn't require a lot of human intervention. But when it's not working well, you have a whole lot of people manually trying to fix transactions.

Back in July and August, how difficult were your days?

It was awful. We were flooded with calls ringing off the hook. Everything got focused into crisis management.

In September, Ada County prosecutors were readying their case against Melissa Jenkins and Daniel Ehrlick, who were charged with the abuse and murder of Jenkins' 8-year-old son Robert Manwill in July 2009. At the same time, Robert Fellmeth, a law professor who directs the Children's Advocacy Institute at the University of San Diego Law School, said Idaho's Department of Health and Welfare could have done a better job to protect Manwill. Soon thereafter, the department announced it would seek an independent outside review.

"Forget about hindsight," said Fellmeth about Health and Welfare. "I'm sorry. They weren't doing their job."

BW: What prompted you to order an outside review?

Armstrong: There is something called a Keeping Children Safe Panel Process that we use. It's a community review of all of the facts. The panel publishes recommendations but nothing about the case.

So an internal review was done?

Yes. It's not just a review of what the department did but also a review of what law enforcement did. It included anything surrounding the case.

Because this is a criminal trial, there will be other facts coming out, so we're going to wait until then for the outside review. Because there's no other way for us to get access to some of those criminal files.

But do you want to wait that long?

We have no choice. For us to convene a panel prior to the trial could jeopardize the legal proceedings.

Have any of the lessons learned resulted in changes of how the department acts?

We've already implemented them.

Can you tell us about any of them?

No, I can't do that yet. Even with internal reviews we have to be careful not to taint a possible witness.

On Jan. 10, 2011, Otter will deliver his State of the State address. That will launch a 2011 legislative session expected to be more fiscally conservative than 2010. On Jan. 17, 2011, Armstrong is scheduled to once more make the trek to the Capitol and ask lawmakers to fund his already-lean agency.

BW: So how bleak will your message be?

Armstrong: It's going to be extremely difficult. While the State of Idaho has been careful about how we use our rainy day funds and other one-time revenues, this will be the third year of us trying to stretch that money. What we don't know are the revenue forecasts.

Will the list of revenues be shorter for 2012?

Absolutely. What we'll have to do then is prepare for any further reductions that will have to take place. Once cuts are announced, we'll have to put a plan together to achieve those savings. But getting there will be a whole new ball game.

Isn't Medicaid in the red right now?

We're forecasting to be short about $42 million.

Can you put a face to Medicaid?

It's a child: 74 percent of all Medicaid clients are children. It's almost always a child. And quite often, there's a disability. So we have children's mental health benefits available.

At the end of the interview, BW took note of a framed cartoon on Armstrong's desk. In it, two deer stand upright. On the belly of one deer is a big, red bulls-eye.

"Bummer of a birthmark there," says the other deer.

"It kind of depicts the impossible situation that we're in," said Armstrong. "Everything we deal with is highly charged with emotion. I'm having more difficulty with this job than I had years ago. This recession has made it more difficult. On every front we're being challenged to deliver more services and have fewer employees. Our budget is down 19 percent from what it was in 2008. This is a very finite game. There's only so much money. If we're not careful, we'll push people into the Department of Correction. Well, their budget is no better than ours."


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