November 7, 2002

It’s an honor and a pleasure to have the opportunity to speak to a group of individuals who play a significant role in providing the citizens of Kentucky with a critical component in the quality of life equation - health care.  Kentucky is very fortunate to have fine hospitals in both our urban and rural areas that provide a high level of quality and consistent care to their local communities.  I commend the members of this organization for the efforts they have made in improving the quality of life of our citizens.

For seven years the mission of my administration has been to raise the quality of life and standard of living in Kentucky above the national average in 20 years.  There are many components in the quality of life equation…components such as per capita income, quality of jobs, good schools, accessible postsecondary education institutions, and thriving communities that reflect the unique qualities of the local area.  However, there is one component that overrides them all and that component is health.  We’ve all heard the saying, “If you lose your health, then you have lost everything.”  Good health is a basic need that has to be met before other goals can be pursued.  We know that children cannot learn if they come to school sick, tired and malnourished.  We know that babies will come into this world with a myriad of life threatening health problems if their mothers did not receive good pre-natal care and we know that citizens cannot live full, productive lives if they do not have access to adequate health care.

Very early on, our administration decided to focus on health related efforts that would help build self-sustaining families. Efforts such as the Governor’s Office for Early Childhood Development and it’s KIDS NOW program, health insurance for Kentucky’s uninsured children, child abuse and domestic violence and women’s physical and mental health.  We’ve made great strides in each of these areas.  Through our children’s health insurance program 50,000 children previously uninsured now have health care.  And through our KIDS NOW program, over 43,000 women have received folic acid supplements to prevent neural tube defects in infants, 41,000 infants have had hearing screening, and approximately 17,000 underinsured children have been immunized.  Kentucky’s infant mortality rate is at an all time low, thanks in part to these efforts.  

In 2000 we also established the first office of Women’s Physical and Mental Health.  This office has launched a number of important initiatives such as the Kentucky Women’s Cancer Screening Project which provides free or low-cost breast and cervical cancer screening services for women who are uninsured or underinsured.  During 2000 over 13,000 women received screening or diagnostic mammograms through this program.

The administration has also elevated the issue of child abuse and domestic violence by establishing an office within the Governor’s Office to address this very serious issue affecting families.  Since it’s creation, the Governor’s Office of Child Abuse and Domestic Violence has overseen the passage of 20 pieces of legislation that has made Kentucky safer for women and children.  

While this administration has focused the majority of it’s health related efforts on building self-sustaining families, we have also made a significant investment in the future.  As part of the landmark 1997 Postsecondary Education Improvement Act we initiated a matching endowment program to attract research and strengthen programs at Kentucky universities.  The Bucks for Brains Endowment Match Program matches public dollars and private donations to encourage research at Kentucky’s two research universities and to strengthen key programs at Kentucky’s six comprehensive universities.  Since 1998, the University of Kentucky and the University of Louisville have received over $68 million dollars from the state to endow chairs and professorships in health related fields like medicine and pharmacy.  Matched by private donations, this investment has increased the total dollars invested in health related fields at UK and U of L to $136 million dollars.  These dollars have helped to create 48 chairs and 60 professorships.  Many of you in this room are playing a vital role in this effort and are helping to establish Kentucky as a leader in many areas of medical research.

Yes, Kentucky has made significant strides during the past seven years in improving the health of its citizens.  But significant challenges still facing both the state and every organization represented in this room today.  I know that I’m preaching to the choir when I say that health care in this country is in a state of crisis.  In fact health care has been at the center of national debate for at least a decade.  Spiraling costs, an aging population, unhealthy lifestyles, expensive advances in medical procedures and medicines, along with the changing nature of Medicaid, have pushed this system to the brink.  I would like to spend the next few minutes addressing the two issues that I believe are most pressing to everyone in this room - medical malpractice insurance and Medicaid.

The rising cost of medical malpractice insurance is an extremely complicated issue.  We’re carefully studying every facet of the problem in order to develop an equitable strategy.  This is a particularly critical issue for Kentucky because 86% of the state is already designated as being medically underserved.  We can’t afford to have our current medical practitioners either leave the state to practice in a more favorable location or decide to stop practicing their specialty all because it’s too expensive for them to practice in Kentucky. Our rural areas are particularly at risk because many counties currently only have one individual practicing a specialty like OBGYN.  If this individual decides to leave, residents either travel great distances to receive care or decide to forgo any care at all.  

This is a complex issue and must be examined from many different viewpoints.  Like many other issues it would be easy to single out one or two groups as villains.  However, this issue, like so many others in today’s complex world, doesn’t have many clear-cut solutions.  We will have to explore several approaches including insurance regulatory measures, medical provider education and prevention, tort reform, and changes in our current legal award system.    

The second and most critical common issue facing each of us in this room is Medicaid.  As you all may recall, in early 2001, our Medicaid program was on the verge of a melt down.  The program had lost the confidence of our legislators.  It seemed to be at odds with our provider group.  We were spending in excess of $600 million over budget and I didn’t see any light at the end of the tunnel.  In the spring of 2001, I decided that it was time to make this issue a top priority.  

In March 2001 we did two very smart things.  First, I named Marcia Morgan as the then Interim Secretary of Health and Human Services.  And second, I created the Medicaid Steering Committee to provide the leadership and guidance that is needed as we wade through the murky waters of Medicaid reform.  The Steering Committee consists of my top advisors:  Secretary of the Cabinet Crit Luallen, State Budget Director Jim Ramsey; Secretary of the Cabinet for Health and Human Services Marcia Morgan; and Secretary of the Cabinet for Families and Children Vi Miller.  

I then went on to name Kathy Kustra, my special advisor on Medicaid, to chair the committee.  She and Marcia have provided very capable leadership and outstanding results during very difficult times.  

My directions to the Steering Committee were very clear:  Balance through management.  Make sure only those who are eligible are receiving services.  Manage utilization.  Manage the pharmacy program.  And build a stronger, smarter organization.  

As Chair of the National Governors Association, I can tell you without exaggeration that 50 of the 50 states are experiencing a Medicaid budget crisis.   During the past year, nearly 40 of the states have had to cut their caseload, or cut rates, or cut services.  40 states are implementing prescription drug cost controls.  15 states are reducing benefits.  18 states are reducing eligibles.  So far we’ve been fortunate because we were able to balance in ’01 and ’02 without any of those cuts.  

I know that our management efforts have not been without pain for the hospitals.  But we’ve attempted to contain spending through rational changes and utilization control.  And we appreciate the spirit of partnership of Kentucky hospitals and the KHA in recognizing the tough budget climate.  

That is why I am proud of several initiatives we’ve been able to do since we began to attack the problem head on.  

One, the Intergovernmental Transfers in partnership with hospitals has meant over $30 million dollars for Kentucky’s hospitals.  

Two, payment for Medicaid stays beyond 14 days has meant $132.4 million dollars to hospitals.  

Three, regular DSH payments at the restored amounts through FY ’02 have equaled $31.5 million dollars in payments which we had not provided for in our budget.  

During the early 90’s, Medicaid grew at an alarming rate of 27% per year but by the mid-90’s it had slowed to a 4-8% growth range.  Now it has returned with a vengeance.  We anticipate a 12% annual growth in future Medicaid costs.  

Let’s put this into context:  In fiscal year 2000, Kentucky ranked #1 among the southeastern region and our neighboring states in the percentage of state budget dollars spent on Medicaid. Medicaid spending currently accounts for a whopping 24.3% of our state spending.  This has been reduced somewhat due to the efforts of the Steering Committee but it’s still easy to see that the Medicaid piece of the pie cannot grow any larger.   Kentucky’s Medicaid expenditures have risen by 61% since 1996.  And, as you will hear shortly from Deputy State Budget Director Beth Jurek, the pie itself has also shrunk.   Last year for the first time in modern times, general fund revenues were actually less than the prior year.  

I believe we’re managing the program better than ever before.  One of the prominent CEOs in your industry recently told me that he thought Medicaid was being managed better today than he had seen at any time in the past.  

But at some point we will run out of rabbits in the management hat.  The low hanging fruit is gone and we are now working well up the tree.  We know that we can’t find the savings out of provider rates.  I don’t expect any provider to provide service below cost.  I’m fully aware of the fact that our rates don’t have any cushion.  It’s going to be impossible to continue balancing by managing.  

I am pleased to tell you that I think we will be able to balance in this fiscal year.  But the anticipated carry forward from this year to next is evaporating.  The poor economy and lingering effects of 9/11 have resulted in 41,000 new Medicaid beneficiaries above our budget estimate.  Medicaid estimates that we will expend $100 million annually for those new members, above and beyond our budget.  So we’re getting hit in two ways:  more eligible people and a 12% increase a year in the cost for caring for them.  We now estimate that our $216 million dollar projected Medicaid deficit for ’04 could nearly double.  

As much as I would like to avoid it, we may have to look at reductions in eligibility, especially in fiscal year ’04.  It won’t be easy because most of the people we now cover are at or below poverty levels.  Also, the federal government gives little leeway in letting us reduce or limit the benefit package.  

I’ve spent a good deal of time with the NGA in Washington this year trying to win temporary fiscal relief for the states’ Medicaid programs.  Specifically, we were urging an 18-month 1% increase in our federal match for Medicaid, and a temporary hold-harmless provision so a planned reduction in our match rate would be delayed.  The package would have netted an additional $71.2 million for Kentucky Medicaid.  We’re still working on it but – without wanting to get partisan – the White House opposed the plan and it was the Senate Democrats (along with a few of their Republican colleagues) who supported it.  We told them we needed help post 9-11 and we still do.  

Yes, we have many challenges but we’ll come up with better solutions if we continue to work together.  The Kentucky Hospital Association has partnered with state government on a number of important issues.  Last year KHA supported the KIDS NOW early childhood development initiative by donating 50,000 copies of the I Am Your Child Foundation videos entitled,  The First Years Last Forever.  These videos are currently being distributed along with a new parent guide to every new mother before they leave the hospital with their infant.  In essence, our partnership is providing parents with instructions for their newborn babies, something I wish had been around when my children were born.  

As members of the Governor’s Coalition for Highway Safety you also partnered with us during the 2002 legislative session to get a primary seat belt law pass.  Through a coordinated public awareness campaign and the efforts of each member of the coalition, we were able to move the bill further along than most people predicted.  It passed the House of Representatives but never made it to the floor of the Senate.  We hope you will join with us once again during the 2003 legislative session as we push to pass this piece of legislation that will save 75 lives a year on Kentucky’s highways without costing a dime.  

I also want to commend your efforts to partner with us on improving our hospitals ability to identify and respond to bioterrorist events.  Last summer this partnership received a $1,815,805 grant from the Health Resources and Services Administration to execute a health related bioterrorism program.  This grant will enable us to assess Kentucky’s current capabilities to respond to a bioterrorist event, to develop plans that will enable hospitals to quickly identify life threatening diseases that may be intentionally caused by such events, and to develop plans to refer patients to other nearby regional facilities if the demand exceeds a hospital’s capacity.  

We have also initiated two new partnerships to resolve the critical nursing shortage that currently exists in this state.  Just last year we initiated a pilot program in the Louisville area called the Health Services Council of Greater Louisville Workforce Consortium.  This program is designed to improve and streamline current nursing recruiting efforts by bringing together all entities in the local area who have a vested interest in hiring nurses.  Our Cabinet for Workforce Development has had great success in developing similar programs with other groups in the private sector all over Kentucky.  

The second program that has just been initiated is the Nursing Workforce Foundation.  This foundation was established by the 2002 legislature to develop programs and policies to encourage citizens to enter the field of nursing.  Letters were sent out on October 31 to prospective members.  

Thank you so much for your willingness to work with state government on the difficult and diverse issues that surround health care.  Nowhere is the complexity of today’s society more evident than in your industry.  The solutions are not always readily apparent but if we initiate an inclusive process that involves all stakeholders, adopts new ways of thinking and embraces innovative approaches, we will find them.  As Albert Einstein once said, “The significant problems we face cannot be solved at the same level of thinking we were at when we created them.”  

Thank you for your support.  I look forward to working with you during the next year to ensure that the citizens of the Commonwealth have the health care they need to achieve a quality of life they deserve.