The Survival of Community Mental Retardation

Providers:

The Need for Continued Cash Advances

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Background on Cash Advances

Section 509 of the 1966 MH/MR Act provides for quarterly cash advances of community mental health and mental retardation funds provided by the Legislature to county MH/MR agencies.

This system of quarterly cash advances was established in order to support the development and maintenance of community-based provider organizations to serve people with mental illness and mental retardation.

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Fragile Cash Position of MR Providers

The Department of Public Welfare’s (DPW) long-standing fiscal regulations have required county MH/MR agencies to recoup most, if not all, excess cash paid to community providers each year, leaving the 450 community-based mental retardation providers continuously starved for cash.

Most providers, most of the time, are completely dependent upon bank lines of credit or other short-term borrowing mechanisms to enable them to meet payroll and pay necessary operational expenses.

The system of quarterly cash advances authorized in the 1966 Act has worked reasonably well, and has saved millions of dollars of taxpayer monies because the state’s short-term borrowing costs are significantly lower than what banks charge providers.

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DPW Proposal

With no prior discussion with the affected providers, DPW’s Office of Developmental Programs (ODP) announced through a “Dear Colleague” letter dated April 3, 2008 that the legislatively authorized system of cash advances would end after the first quarterly advance in Fiscal Year 2008-2009 (July 2008).

DPW officials argue that their agreement with the federal government (CMS) to pay providers directly through the Department’s PROMISe system beginning July 1, 2009 precludes the continuation of cash advances to providers.

DPW officials further argue that providers must be “weaned off” cash advances as soon as possible, in order to provide an incentive to providers to learn how to bill the PROMISe system accurately and efficiently in time to meet the July 1, 2009 deadline.

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CMS Role in State Cash Advances

Since the cash advances authorized and required by the MH/MR Act of 1966 are paid with state funds, the federal government (CMS) has no involvement in this issue of cash advances.

Other states, including our neighboring state of Maryland, operate systems of regular cash advances for their providers in conjunction with their federal waiver programs of community-based services for people with mental retardation.

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Impact of Potential DPW Proposal on Community MR System

DPW’s implication that providers’ need for cash advances can be resolved through more effective cash management procedures is not an accurate analysis of the fiscal realities facing community-based providers.

Community mental retardation providers’ only option, in the absence of cash advances, is to increase their use of bank lines of credit or other short-term borrowing mechanisms, thereby incurring higher working capital costs which will not be reimbursed by DPW, leading to reductions in the quality of their services to consumers.

The elimination of cash advances will put many smaller providers at serious financial risk, especially those providers who do not provide other human services where DPW is much more generous with reimbursement and therefore cash flow.

Families and consumers across the Commonwealth strongly support the range of smaller providers that has developed in Pennsylvania over the past four decades.

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MH/MR Coalition Proposal

The Department of Public Welfare should continue to follow the requirements of Section 509 of the MH/MR Act of 1966 and continue to provide cash advances to providers through counties during the second, third, and fourth quarters of Fiscal Year 2008-2009.

The Legislature should amend the MH/MR Act of 1966 to provide for the continuation of this long-standing policy by authorizing quarterly cash advances paid directly to providers, offset by regular billings to the PROMISe system beginning in July 2009.

The continuity of this cash advance policy will be budget neutral for the Commonwealth, but is essential to the survival of the cost-effective community mental retardation system that is so strongly supported by families and consumers across the Commonwealth.