While Gov. Dannel P. Malloy has touted a proposal to increase spending on mental health services, agencies that run mental health and substance abuse clinics are bracing for more than $10 million in cuts to state grants starting July 1. And they say the cuts could mean treating fewer people at a time when demand for care is growing.

The Malloy administration proposed cutting the money last year as part of its two-year budget, arguing that the state funding would no longer be necessary because most uninsured Connecticut residents would gain new coverage options Jan. 1 as part of the federal health law. That means the agencies that provide services would be able to bill their newly insured clients’ coverage, the thinking goes.

But leaders of mental health agencies say that logic is flawed. Many clients still don’t have insurance, and all of them aren’t likely to get it by the start of the next fiscal year, they say.

And even if all their clients had insurance, providers say, it wouldn’t make up for the grant cuts. That’s because clinics rely on the grants not just to cover the cost of treating uninsured patients, but to help make up for what they say are inadequate payments by Medicaid, which doesn’t always cover the full cost of services and doesn’t pay for things like care coordination. And Medicaid is the program that’s expected to cover most of their newly insured clients.

“The mental health system is under tremendous stress,” said Raymond J. Gorman, president and CEO of Community Mental Health Affiliates in New Britain. “The governor has put forward a couple of initiatives for some program expansions, but program expansions never take care of the underlying fundamentals of the system being dramatically under-resourced.”

If the grant cuts occur, Gorman said his agency’s options would include cutting staff, reducing outpatient programs by half and eliminating individual therapy.

“We’re going to have to dramatically reduce the size and scope of what we do, the number of people that we serve and provide less intensive care to them,” he said.

More than $25 million cut

The two-year budget adopted last year actually called for more than $25 million in cuts to grants paid to mental health and substance abuse service providers. Nearly $15 million in cuts were scheduled to take effect Jan. 1, the day the new coverage options under Obamacare became available, to be followed by more than $10 million in additional cuts in the fiscal year that starts July 1.

But agencies haven’t felt the first cut yet because the state Department of Mental Health and Addiction Services moved money around in its budget to shield providers, at least for the first quarter of this year. Commissioner Patricia Rehmer said the move was intended “to ensure that things didn’t sort of fall apart immediately.”

Providers expect the upcoming cuts are too large for the department to absorb.

Morna Murray, president and CEO of the Connecticut Community Providers Association, which represents nonprofit human service agencies that contract with the state, said members have told her that if the cuts take effect, they’ll stop providing outpatient services to uninsured people after July 1.

Diane Manning, president and CEO of United Services, which provides mental health and substance abuse treatment in northeastern Connecticut, said her agency would likely have to stop writing reports for probation and parole agencies or to help people qualify for disability, and probably stop rescheduling clients who miss an appointment, something that’s common among people with serious mental illness.

“We’ll have to do the minimum that we can possibly do, and my position is that most individuals will end up in higher levels of care,” Manning said. “They’ll have to get their care at hospitals, emergency departments, or they’ll be in jail.”

Budget director: Funding methods need to change

But Benjamin Barnes, Malloy’s budget director, said there must be a shift in the way mental health services are paid for, away from relying on state-funded grants toward, as much as possible, billing insurance or Medicaid, which is partially funded by the federal government. The expansion of coverage under the Affordable Care Act means more care could be funded by insurers or Medicaid.

Barnes acknowledged that providers have reasonable concerns about how long it will take for most clients to gain insurance. He noted, though, that it’s hard to believe that with nearly 73,000 state residents newly signed up for Medicaid since the Obamacare enrollment period began, the agencies wouldn’t have seen an appreciable increase in the number of patients with coverage.

Of the mental health agencies, Barnes said, “Obviously they would prefer to get money in unrestricted grants than to have to bill for the money and to have to provide services for what they receive.”

But Barnes added that he’s aware of the issues and is trying to work with the Department of Mental Health and Addiction Services “to ensure that agencies have what they need to continue to provide these important services.”

Checking the Obamacare assumptions

Rehmer, the mental health and addiction services commissioner, said officials are “freshening” the assumption that everyone would have insurance on Jan. 1.

At the request of the governor’s budget office, her department is analyzing data, including enrollment through the state’s health insurance exchange and Medicaid claims from January, to try to get a sense of the effect of the health law’s implementation.

Medicaid rates vary depending on the type of service, and Rehmer said providers of some services might be better able to withstand a loss of grant funding than others.

But parts of the system would have problems if the grants are cut, Rehmer said, including those that provide outpatient care, one of the highest-demand services.

“The providers don’t feel the [Medicaid] rates are adequate to cover the cost of care,” she said, noting that many are particularly concerned about being able to pay psychiatrists to prescribe medication and manage clients’ prescriptions.

The grants scheduled to be cut are for services that can be billed to Medicaid. Grants to fund services like housing, which Medicaid doesn’t cover, aren’t slated to be reduced.

“I completely understand, having worked in private nonprofits, the anxiety out there around it,” Rehmer said. “What we’re trying to say to providers is that the ability that we now have, now that the year has started, to look at data and try to do some analysis and then have further discussions, is really the important piece.”

“Very easy for me to say sitting here,” she added. “Not so easy when you’re trying to plan for your budget going forward.”

A vulnerable system

At Community Health Resources, which serves about 7,000 people in outpatient clinics in central and eastern Connecticut, planning for the next fiscal year includes the possibility of no longer taking new uninsured clients. That would likely mean referring people to emergency rooms or community health centers, said Alyssa Goduti, the agency’s vice president of business development and communications.

About 15 percent of Community Health Resources’ patients are uninsured, but Goduti said the agency also uses some of its state grant money to help cover the administrative costs of running a clinic. If the cuts go through as scheduled, her agency would lose about $2 million, 76 percent of its outpatient clinic grant funding.

Staffers at the agency are working to enroll people in coverage under Obamacare. Some are trained “assisters,” and have signed up more than 300 people through the state’s exchange. But Goduti said so far there’s only been a slight increase in patients with insurance. And the agency has seen a 20 percent increase in demand for outpatient clinics and other services slated to lose grant funding.

Other mental health and substance abuse service providers say their staff have historically worked to make sure patients who qualify for health care programs get coverage, so a relatively small share of their clients are uninsured.

“The reality is that the new insurance coverage hasn’t made an appreciable difference for our clients,” Manning said. Some have gained private insurance, but the plans have high deductibles that clients can’t pay, she said.

The cuts are particularly problematic because they come after two decades of underfunding the mental health system, said Barry Kasdan, president and CEO of the Milford behavioral health agency Bridges.

Providers now rely on a combination of funding sources for their programs, including fees from Medicaid and insurance, grants, municipal funding, United Way funds, donations and foundations, he said.

Kasdan said it would be reasonable for the state to move toward paying providers through Medicaid fees if it raises the rates. But that requires planning, and recognition that it will take a few years. “You can’t just pull the rug out from under the providers for a system they’ve been funding in a certain manner,” he said.

Barnes said the state’s health reform efforts include moving toward changing how care is paid for and increasing the use of care coordination. But that will take time.

“I don’t think that we can sustain just paying them big supplemental grants on top of fee-for-service arrangements in the meantime. I don’t think that’s the most cost-effective approach for us,” he said.

“I’m willing to look at how to ease this transition and how to involve them in more long-lasting efforts at payment reform, but…I remain convinced that the Affordable Care Act will make more fee-for-service funding available for mental health coverage, both on the commercial side and in Medicaid.”

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