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Pay Delay: Despite Receiving Extra Federal Funds, Illinois' Budget Banks on Delaying Payments

Pharmacist David Mikus of the Medicine Shoppe in Springfield
WUIS/Illinois Issues

Todd Evers is in constant conversation with his bank, most recently in August, to prepare for the “inevitable what if.” What if the state stops paying?

He has had to borrow money twice a year for the past decade to keep open his group of pharmacies in Collinsville and the St. Louis area as he waits for a check from the Illinois comptroller that will pay him for services he provided to public aid customers months ago. 

Illinois has fallen as far as $1.3 billion behind in paying providers of Medicaid, the state-federal program for the poor, disabled, elderly and youth. But the program also has become a lending source. Illinois lawmakers repeatedly have delayed payments to Medicaid providers to free up cash for other expenses. They did it again this year.

In July, the General Assembly cobbled together a budget that not only borrowed from lending institutions to pay public employee pension obligations, but it also approved borrowing from state agencies and state contractors by sweeping money from dedicated funds and freezing payments to state vendors. 

The delay will particularly affect Medicaid providers that don’t leverage extra federal reimbursements through the American Recovery and Reinvestment Act, better known as the federal stimulus package. 

Pharmacists are among the largest group expected to experience delays as long as 150 days by the end of the fiscal year, June 30, 2010. Others include home health aides for seniors, emergency and nonemergency transportation services and medical equipment providers. 

Evers likens the wait for state reimbursement to riding a roller coaster.

“You climb, climb, climb, climb, and then you go down the hill real fast. As soon as that happens, though, you don’t know where the next hill is. And you don’t know when you go up the next hill, is the next hill bigger than the last hill, or is it smaller than the last hill?”

The wait is expected to climb again this fall and winter as the state’s cash flow slows from declined tax revenues, as well as increased demand for public aid during the aftermath of the national recession.

This year’s delay doesn’t affect every medical provider, however.

Hospitals, nursing homes and physicians are receiving Medicaid payments within 30 days, thanks to the federal stimulus package. The feds are picking up about 61 percent of Illinois’ Medicaid costs. That’s about 11.5 percentage points more than normal.

If the state fails to pay those three provider types within 30 days, it would lose out on about $2 million a day in enhanced matching funds, according to Theresa Eagleson, administrator of the Division of Medical Programs at the Illinois Department of Healthcare and Family Services.

One-third of that department’s budget includes pharmacists and other medical providers, who will receive slower and slower payments throughout the year.

“I’m not proud of it. It’s not something we want to do,”?Eagleson says. “But absent the money to do it and absent the revenue to pay for it, it ends up that we pay them in five months as opposed to one month.”

Rather than pay all providers within 45 days and risk running out of money by January, she says the department will phase in delays throughout the year.

But, she adds, pharmacists and other medical providers will still benefit from the stimulus package. The enhanced federal match has allowed the state to avoid reducing its reimbursement rates or cutting the list of services that qualify for reimbursements.

“States across the country were looking at cutting rates or cutting eligibility for services, which means providers either get paid less or get paid for fewer [services]. It is an indirect sort of way, but I think everybody’s benefiting from the stimulus money, even if it’s not getting directly passed through.”

State Rep. Beth Coulson, a Glenview Republican with a background in health policy, says the delays unfairly will affect smaller Medicaid providers that already operate on tight budgets. She’s also a 10th Congressional District candidate.

“What the state is doing is they’re borrowing from those very vulnerable providers,” she says. “They are having to go out to get a bank loan, which is right now difficult, paying relatively high interest rates, to subsidize what the state should be paying them in order for them to make their payroll.”

Providers call her office to say they will have to lay off employees, which means they won’t be able to deliver as many services.

“It’s a chicken-and-the­-egg thing, and it’s a terrible time at this point in a recession to be doing that,”?Coulson says. “Nobody should have to wait that long for payment, but obviously with cash flow issues, it shouldn’t be the smallest providers that are waiting.”

Illinois, at least this year, joins 16 other states in freezing payments to providers to pay for the increased Medicaid caseload, maintain current benefits and eligibility levels and help finance the state budget. That’s according to a July 2009 report by the U.S. Government Accountability Office. 

Slower reimbursements for pharmacists and other medical providers could have the effect of reducing services if, say, they stop accepting as many Medicaid patients, says J. Michael Patton, executive director of the Springfield-based Illinois Pharmacists Association. Other pharmacists think about not accepting Medicaid at all. Some simply close their doors.

“It runs the gamut, and this isn’t just independent pharmacies that I represent,” he says. Members range from owning their own pharmacies to working for corporate stores, hospitals or assisted living facilities. “It’s not indigenous necessarily to just one particular segment of the pharmacy practice. It’s pretty universal.” 

Some pharmacies and community-based agencies do qualify for what’s called expedited payments from the state if at least 50 percent of their customers are Medicaid clients.

Evers in Collinsville says his pharmacies serve anywhere from 4 percent to 25 percent Medicaid clients. The ongoing question, he says, is whether to try to serve the expanding Medicaid population or to count on more consistent revenue sources.

“Those are the trade-offs, and we are faced with those real decisions every day.”

Substance abuse treatment providers have an even more complicated dilemma, particularly this year as slower state payments compound with ongoing budget shortfalls.

Addiction treatment services are funded through the Department of Human Services’ Division of Alcohol and Substance Abuse. That budget was reduced by about 30 percent this year. Local agencies are laying off staff, while demand for help has increased along with Medicaid enrollments. 

But community-based agencies are limited in the amount of Medicaid costs they can bill to the state each year. According to Sara Moscato Howe, chief executive officer of the Illinois Alcoholism and Drug Dependence Association based in Springfield, when agencies’ Medicaid allocations run out, they can either send clients to other agencies that haven’t maxed out their allocations, or they can essentially borrow against their future Medicaid allocations.

“So every year, you’re getting less and less time into the fiscal year before they’re maxing out their Medicaid,” she says. “It’s similar to what we see with the General Assembly. We keep borrowing more and more into the future, and eventually, we’re going to run out of Medicaid dollars in the first month.”

Alan Sender, for instance, is chief operating officer of Chestnut Health Systems based in Bloomington. He says his agency, which also provides mental health services to many adolescents throughout central and southern Illinois, provides about $7.5 million worth of services to Medicaid clients each year. But his Medicaid allocation is capped at about $5 million a year.

He anticipates maxing out his allocation by November, meaning he would have to submit the rest of this year’s bills toward next year’s allocation. On top of that, he was waiting in September for payment of services rendered in March. 

“It works to the significant detriment of not-for-profit organizations, who are winding up floating the state these loans and going through the extra paperwork, just enormous extra hassles just to submit bills, which now we have to do over and over again in order to get paid,” Sender says.

The state has a law known as the Prompt Payment Act. It requires that if Medicaid bills are not paid within 60 days, the state must pay a 1 percent interest fee to providers every month after that. Interest charges climbed to $11.3 million in 2008, according to the Department of Healthcare and Family Services.

Yet, a bipartisan group of legislators sponsored another bill last spring that would have upped the interest charge to 2 percent.

Coulson says the intent was to force the state to compensate providers for taking out their own loans and incurring their own interest charges while waiting for the state’s money. It also was intended to act as an incentive for the state to pay bills sooner. 

It didn’t exactly work.

“The 1 percent that they were paying, which they didn’t always pay, by the way, really was such a low interest rate it really wasn’t encouraging those payments,” Coulson says.

Gov. Pat Quinn used his amendatory veto powers in August to strike the higher interest rate out of the bill, sending the legislation back to the legislature for consideration during this month’s veto session.

In his veto message, Quinn writes that the bill was “noble in intent” but “unworkable in practice.” Raising the interest rate on delinquent bills would “exacerbate an already serious problem,” he adds. 

“Though I am sympathetic to the hardship those to whom the state is delinquent in paying face, promising them additional dollars the state does not have is not a solution.”

Paying providers on time is expected to become more difficult in 2010, even with federal stimulus funds still flowing. 

Illinois gets a larger share of the enhanced federal Medicaid match than some other states because the higher reimbursement rate is tied to the level of unemployment, but the stimulus dollars aren’t enough to keep up with Illinois’ spending plans, declining tax revenues and constricting cash flow. 

Illinois recorded its highest unemployment rate since 1983 this summer with 10.4 percent, further increasing demand for public aid. According to the federal Government Accountability Office, Illinois’ Medicaid enrollment increased by about 6 percentage points between October 2007 and May 2009.

Rick Cornell, Illinois’ assistant comptroller for fiscal policy, says the current state budget not only spends without anticipating new revenues to pay for it, but it does nothing to address the total pile of unpaid bills that peaked at about $3.9 billion earlier this year. While the backlog has ebbed and flowed for years, fiscal year 2010 is unique. 

“What’s different about this year is we’re starting off with the largest backlog in the state’s history, and the status of revenues is unknown,” he says. 

Paying all vendors, let alone Medicaid providers, on time also will be more difficult next year because state law mandates the comptroller to repay short-term debt within a year.

The governor, treasurer and the comptroller instituted short-term borrowing in August that brought in $1.25 billion, which the comptroller’s office used to pay down last year’s bills. But the state has to repay that amount plus interest by June 30, 2010.

Also constituted by law, the state must prioritize payments for public education, income-based aid and such other social services as child care.

“It’s going to be very challenging in the latter half of fiscal year ’10,” Cornell says. “We’re just going to have to struggle through this in the short term until there are new developments.”

State Sen. Jeff Schoenberg, an Evanston Democrat, says he anticipates problems for Medicaid providers after the stimulus money runs out, as well.

In turn, he’s working on proposals to create a revolving loan fund to help give them easier access to lines of credit. He also proposes extending a voluntary “hospital assessment” program to other Medicaid providers such as nursing homes and pharmacies. The current program pools hospital money to leverage a larger federal Medicaid match. It has captured about $8 billion throughout the past five years.

Considering that Illinois’ diverse economy hasn’t recovered as quickly as other states in past economic downturns, Schoenberg says, Medicaid providers should expect to ride the roller coaster for another few years.


Paying all vendors, let alone Medicaid providers, on time also will be more difficult next year because state law mandates the comptroller to repay short-term debt within a year.

Statehouse Bureau Chief 
Bethany Jaeger

Bethany Jaeger
Credit WUIS/Illinois Issues
WUIS/Illinois Issues
Bethany Jaeger

Bethany Jaeger is Statehouse bureau chief of Illinois Issues magazine. She is responsible for reporting and writing news and analysis on state government and politics. She edits the People section of the magazine. She's news editor of the Web Site and writes the magazine's Statehouse Blog. She has been a health reporter for The Herald & Review in Decatur and was managing editor of The Chronicle of Hoopeston. She has a bachelor's degree in journalism from the University of Illinois at Urbana-Champaign and a master's degree in public affairs reporting at the University of Illinois at Springfield. She joined the staff January 2006.

Illinois Issues, October 2009


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