LWV FORUM with DHS Director Jerry Foxhoven, State Senator Tim Kapucian, State

Representative Dave Maxwell

April 7, 2018

State Senator Tim Kapucian (TK): We get a lot of questions on DHS, so we brought DHS right to
you. Jerry Foxhoven has been on job as DHS Director for 9 months, and I think he’s doing a
great job. He wants to hear your concerns.

Jerry Foxhoven (JF): Let me start with a DHS overview. We have by far the largest state
agency—the next-largest agency is 1/5 our size. 34% percent of all Iowans receive some service
from DHS; they are the most vulnerable people which is why we serve them.

We have a $6.5 billion budget. There are countries with economies that are not that big. Most
of that money goes to Medicaid—$5.7 billion goes to Medicaid.

When we think about size of DHS, you might think it’s a big bureaucracy. But it’s not such a big
bureaucracy, really. Our personnel costs—salary and all that—is only 5.4% of our budget. Most
of our budget goes to care & services –medical services to Iowans.

We have 4,000 employees. In 2011, we had 5,200 employees (over 1,000 more people) – and
we’re not doing less now. Our people are working really hard. If you know a DHS employee, tell
them thanks.

We operate 2 mental health facilities (Independence & Cherokee); 2 resource centers

(Glenwood & Woodward), we operate a sex offender unit, and the Boys Training Center in
Eldora.

We do foster care, adoption from foster care, Medicaid. I was director of children’s rights
center at Drake Law School, I was already working in the field and when I came to DHS, I
learned a lot about what we do at DHS that I didn’t know. We license child care centers, we
deal with child abuse & dependent adult abuse

Now I want to talk a little about Medicaid – I will leave plenty of time for questions & answers.

You hear that Medicaid has failed – that’s not true. Has it had problems? Yes, we have had a lot
of problems.We are moving away from the problems we have had – we are moving in the right
direction. Let me put it in perspective for you.

Why have there been struggles? We went into managed care two years ago – it is a $5.7B
program. We give Medicaid benefits to 640,000 Iowans, more than 1/5 of the population. If you
operate a business or nonprofit, if you started a new business 20 months ago, and were serving
640k people, how smooth would it be? It would be a little rough. We’ve been through some
real bumps, and we have things to fix.
You’ve probably heard about Iowan Ombudsman Report & complaints. But if you took all the
complaints we got, it’s 0.0003% of all the people we serve. That’s incredible – if you were
running business or a politician, you’d be thrilled with that rate. But that doesn’t mean that we
don’t need to address it. Because it can be life-changing for the people who are affected.

We are actually doing better than most places. When you rank JD Power & Associates – and
they rank lots of different things like cars – they ranked Medicaid systems. Iowa was #6 in
nation for Medicaid. We have independent audits for all our managed care operations (MCOs).
All three of our MCOS -- now we are down to two -- on every measure – they exceeded the
national average. It’s a struggle all over the country, and we are doing pretty well.

The governor went to managed care 22 months ago. Forty-two states do some managed care
and 64% of all Medicaid recipients across the country are under managed care – that’s the
movement, a movement toward managed care, because of the need to bend the cost curve.
At some point, you have to do it or you will either bankrupt the state, raise taxes beyond the
level people can bear, or you tell people no, they can’t get care

What we need to do? We need to make sure people go to primary care doctor. We need to
make sure we are doing preventive medicine. When state government was doing Medicaid, we
had thousands of exceptions to policy. We were using Medicaid dollars to have someone walk a
person’s dog. Can taxpayers keep doing that? No, I don’t think we can.

I have a story where someone came to me with a daughter with Down’s syndrome. Doctors
thought she would live to 3, but she’s 32 now. The medical community, God bless them, they
have figured out how to extend her life. We need to know that we will be there for her – and if
we are paying people to walk someone’s dog, we won’t be there for her.

There are four populations that we serve through Medicaid – this is a partnership with federal
government. If we look on balance – the fed government pays 60% of Medicaid programing in
Iowa.

The four populations:

1) Children – If we talk # of “bodies”, children are the largest number of bodies. On an

annual basis – 420,000 Iowa children were on Medicaid – 55% of children were on
Medicaid at least sometime last year. It doesn’t cost much compared to other Medicaid
groups – it’s expensive because of volume, but we’re not doing a lot of heart surgeries
for them, we are doing regular checkups and inoculations. They are only 20% of cost of
Medicaid in Iowa. And federal reimbursement is high for the kid population.
2) Low-income adults (pretty large in terms of numbers). The state expanded Medicaid
with Affordable Care Act; if you were at 138% of poverty level, you would get Medicaid
expansion; Federal government gave us a lot of money for that, and they started paying
all of it, and told us they would pay less until it gets to 90%. Now the fed government
pays 90%, Iowa pays 10%. It is kind of a no-brainer in some ways. But it adds 150,000 to
 Medicaid rolls – even at 10%, that’s like paying full insurance for 15,000 people; they are
34.1% of entire Medicaid population, but only 13.8% of spending. So 90% of all Medicaid
population I Iowa is either children & low-income adults.
3) Disabled adults. This population includes the blind, the physically disabled,
quadriplegics, people on ventilators – these are people who need help, whose families
can’t take care of them. They are 12.6% of the “bodies” we cover, but 40% of the cost.
It’s very expensive to cover. You can try to bend cost curve there; a lot of what we do to
try to bend cost curve.
Here’s a story. Our MCOs were paying a person to take care of her disabled son. That’s
what we want, people living at home. The MCO is paying the mom $25/h, 40 h/wk. --
$50k a year--because she can’t work when she cares for her son. Now she says she is
concern is that she doesn’t get paid overtime – she is there nights and weekends, she
says. But at some point, the taxpayers can’t do this.
4) The elderly: Medicare pays for medical care for the elderly, but it does not pay for
nursing homes. Medicaid does. People are living longer, people run out of assets, and
the state picks up the tab. The elderly are less than 5% of Medicaid but absorb 15.5% of
costs. 48% of people in nursing homes are paid for by Medicaid. When people who are
in nursing homes are running out of assets, Medicaid becomes very expensive
proposition.

Ultimately, For DHS, what is our goal? “Saving money” is the wrong discussion, it’s about
sustainability. We want to make sure that for girl who is 32 with Down’s syndrome, we can still
pay for the program down the road. We are trying to bend the cost cuve, we are pushing MCOs
to pay claims faster. MCOs have to be better or it’s going to have to change.

There have been some problems with pre-authorization of procedures. But we are trying to
make sure we pay for medically necessary services in a sustainable way. We are also trying to
align our costs with Medicare rates.

People think “People at DHS, they don’t have a heart at all.” That just is not true.

When we first went to managed care, these organizations are looking at the bottom line. It’s
our job at DHS to determine what sort of exceptions to give exceptions to policy – and we do
that. We do carve out exemptions. For example, we have 3 hemophiliac patients in Iowa with
medication costs alone that are $1m a year. Medicaid pays $1m year for their medications.
We need to make exceptions for certain patients like these. There are significant needs that
MCOs cannot pay, so we make exceptions.

Last example: There is one area is Iowa with only one provider that provides prenatal services.
Other MCOs don’t cover it, so we pay for it with Medidaid. In that community, 16% of people
are without insurance. So Medicaid has to pay for it. We can’t have those kids go without
prenatal care—there’s a financial argument to be made, that they will end up with worse health
outcomes as adults, but in this case, I want to argue that this is the right thing to do.
So we can’t just throw the money at every problem, we have to conserve our resources so we
can make these exceptions in important cases.

When you hear about number of complaints with DHS, you have to put it in perspective. If you
are an airline, you only get complaints about bags that are lost. You don’t get complaints about
bags that get there in time.

Q&A

Question from Laura Ferguson: I am a family physician who was born and raised here. You are
looking at things from the macro perspective, and I know you need to do that. But in my
business, we go patient by patient. I realize that you (Director Foxhoven) weren’t here when we
privatized Medicaid, but if you asked people about full privatization in 2014, you would have
had the answer “No, we are not ready to change the whole system.”

You compare us to business. But no business does a full transfer of services at the same time.
We used to have a good privatized mental health system and that’s gone now. I am so glad that
my patients have more access to Medicaid. But when you say, “The road has been rough…”—
that minimizes lived experience of my patients. My office staff deals with Medicaid every day –
it’s a murky abyss. I can’t imagine how hard it is for PATIENTS to register complaints with
Medicaid. I understand you are working on it, but it’s never fast enough.

JF: Your first question—“Did they roll it out too fast?” It’s a little late for me to worry about that
now. It’s like asking me if I should have exercised more when I was 20.

Twenty-two months ago, we moved to managed care, then 9 month ago we had MCOs leave
the state. We all know that at some point, the fed government will probably change the way
they will pay for Medicaid. We are expecting a capitated rate – because cost of Medicaid is
outrageously high.

So let’s think of our members first and not put them through all these changes. There will be a
change from the federal government – that’s coming before long – that will be the time to
make the changes. That’s what we should be doing.

Question: I am concerned about the recommendation of moving the Eldora Training School for
Boys out of DHS.

JF: I don’t see that happening. I think there should be some correctional language added to the
statute governing that institute, however. This is not a mental health institution. It’s a
correctional facility. We’ve had inmates there that attacked staff. These are not just kids with
emotional struggles, it’s also a correctional facility. You can’t get there without breaking the
law. I believe we should make changes to the system there. For example, our staff do not get
benefits of correctional officers get.
Question from Kirsten Klepfer: I am on the board of Capstone Mental Health Service – it’s a
community mental health service that’s financially viable. I am going to push back on “Mistakes
were made – don’t look back” perspective, because those mistakes had COSTS. I think
institutions like Capstone should have those costs paid for. The costs of those mistakes is
threatening that system of community mental health. We do have to look back in some ways.
And in terms of measuring complaints, you should look at increase of complaints, not just
overall numbers. Including complaints from providers. Some providers are going under.

JF: Appeals are a lot lower now.

KK: From providers?

JF: We are doing more to make sure that providers are processing payments faster. We are now
starting to say no to things that people should never been paid for in the past. You’ve probably
heard a lot about integrated health homes. (Long story integrated health homes getting paid
caring for patients who are not seeing doctor or getting a prescription.) So we should be saying
no to integrated health homes in those cases.

KK: And will you be asking for more money for DHS?

JF: We are going to ask for more money.

Question from John Grennan: You spent a lot of the last hour talking about “bending the cost
curve” and saying “If we were an airline...” or “If we were a business...” But I maintain that
you’re not a business – you’re a public service. And I am glad you started talking about that
perspective a bit at the end of your remarks. Also, why did you accept a $3 million budget cut
this year when it’s clear the system clearly needs more money?

JF: Thanks for these questions. Our #1 motivation is always meeting our members’ needs. We
have to bend cost curve and why we have to be sustainable. I can’t let it get to point that it’s
not sustainable.

Why did I accept the de-approriation of $3 million for DHS? Well, one thing—it didn’t de-
appropriate for Medicaid. Also, the cut was less than it would have been under similar
circumstances. We took these cuts without laying people off. For one thing, we were able to
stop paying for a lot for empty beds in mental health facilities. Providers are not going to be
happy with that, but we are not laying off social workers.

We accepted the budget cut because we are able to do it in a way where we could pay less for
empty beds in mental health facilities and not laying off case workers. The DHS budget is huge
– and for our de-appropriation, the governor worked with us to say “What can you live with?” I
think it was a responsible adjustment that we could live with.
Question from Grinnell College Student: You talk about bending cost curve. Is there a way to
encourage more competition from providers – can you introduce more competition into the
system?

JF: It’s harder to do that with health care services. For one thing, we are a rural service – if we
add competition, some competitors would not survive in smaller markets. We try to focus on
whether or not needs are being met in community. If someone wants to open another hospital,
they have to apply and that’s a costly process. It’s not like restaurants – so we don’t really want
more competition, necessarily.

We want to change the habits of the patient. We have driven ER visits down, we have driven
visits to primary care doctors up. If you go to family doctor more, or clinic, you’re not going to
ER, and that drives down costs.

When you have an MCO, you try to drive down costs. How can you do an MCO for nursing
home? People ask me that. You probably know someone in nursing home who has been
hospitalized for pneumonia – it’s very expensive at the hospital, and your health is worse when
you go back into the nursing home. Could we start paying health care professional to be in
nursing home, to make sure people have better care when they are in nursing home – so they
don’t go into hospital?

Question from Jeff Dickey-Chasins: Thanks for coming and doing what is a thankless job at this
point. You’ve talked about sustainability . But when this move to managed care happened in
2014, there was no discussion about sustainability. Governor Brandstad just did it. But I think
something the state has lost in all this is CONTROL. We already lost an MCO, we may lose
another one. MCOs are ultimately organizations that are not working for Iowa. They don’t care
about the state of Iowa or Iowa residents – that’s different from when the state ran the
program. Let’s say in November, we have Democratic governor & a Democratic house. If they
say, “we will turn this privatization system off and change it” – what will you do?

JF: Well, a new governor may or may not keep me. But my job is to make it work. I can’t be
worried about how it happened. If Gov. Reynolds said “Go back to state control,” I would have
to do it. I have to play the hand I’m dealt.

With managed care, we will have movement among companies. We have had two more MCOs
that have applied to be part of the system in Iowa. We will have to decide if they will come in. If
they do come on, it won’t be until next July.

These are out-of-state companies, but the people who run them here in Iowa are Iowans. It’s
kind of like saying, “John Deere has corporate offices in Iowa.” I know the discussion is “Why do
we let all these private companies take all this money?” But these MCOs lose money for first 4-
5 years. A local restaurant has to make money right away. Applebee’s can lose money for a few
years -- drive out some of the locals – and then they are sustainable. It’s not really true that
MCOs are grabbing the money and leaving. They’ve actually been supplementing the costs of
Medicaid with their losses. We can’t really beat them up on this. They are actually leaving more
money than they are taking. They are expecting to make more money later.

Question by Nancy Guenther: I have been reading articles by Steven Brill, about how the costs
of hospital care is different at different hospitals. One of his concerns was that one of these
managed care CEOs didn’t know the charge master (cost structure) at his own hospital. What is
care? Why don’t we all pay the same? What is the ultimate basis for the cost of care?

JF: Well, when some hospitals say they are “aligning” to Medicaid rates, they are not aligning to
100% of Medicaid rates. There’s some variation.

TK: Can I ask a question? This isn’t a pre-loaded question. A lot of concerns I’ve heard about
Medicaid are nursing care facilities – people who experience a windfall at one point of year that
kicks them off the program, and then they have to get re-enrolled. Couldn’t we somehow have
people look at incomes annually?

JF: Because federal government rules, we have to do costs that way. For example, if someone
gets an inheritance, they have to spend that down before other costs can be absorbed. You can
put some money into a specialized account that can pay for standard costs – haircuts and
presents and things like that. And funerals. We encourage people to do that. We have tried to
make the application process for that a lot of quicker. If someone has to re-qualify for Medicaid
at a nursing home, things get paid retroactively.

Question from Janet Stutz: Thank both of you for supporting public education and funding our
school districts. As you know, there’s a voucher proposal out there that’s not in best interest of
public school students. And there are two bills are out there right now that are very important.
First, SAVE (Secure an Advance Vision for Education). That’s $1.2m that goes to maintaining our
schools. The other bill: a provision that would restrict school bond elections to only general
elections (in November). We have school facilities in Grinnell that are aging right now and we
can’t keep operating in ways that put money into facilities that aren’t sustainable. That bond
issue bill is a real concern that I have – we HAVE to do something here in Grinnell. We can’t put
money into buildings that don’t extend the life of the school. We want to keep LOCAL control of
elections.

Dave Maxwell (DM): On SAVE, there is a bill with a lot of support; people are saying maybe we
should take that issue back to the public rather than extending the tax again to 2050. Should it
go back to public? I BELIEVE WE SHOULD EXTEND IT – otherwise schools won’t be able to
sustain their facilities. There may also be provisions for school security in the new bill – I am not
sure all the provisions in the bill.

On the general election school bond bill, I am not sure where it is right now. One of the
problems is that when a bond issue fails, people just turn around and do it again. Some of the
interest in this new bill is from people who are trying to get more people to vote in those school
bond issues (during general elections). On vouchers—I completely agree with you. Grinnell
might be okay, but schools around Grinnell would not be.

TK: I ask our education committee members all the time about SAVE. We expect there will be
some extension of SAVE. There might be some provisions (new gym, etc.) that would go to
voters. I am all for school choice, but not at expense of public school system. Until I see a
program that does it, I won’t support it.

Janet Stutz: On the school bond question, it’s the supermajority requirement (60% to pass) that
hurts us so much. [We had 53% without our last bond]. Any other state, we would have
passed. And we had 3,000 voters. We have to go back to the voter soon—or what else do we
do with our failing buildings?

DM: I did get a good letter from your finance person [from Grinnell-Newburg School District].
So thank you for that.

Question: We just had wonderful bipartisan bill on mental health – but will you fund it?

DM: We will have to come up with money for it. One of problems is because of the change in
federal tax laws, we have to figure out where we are in Iowa; I think we need $880k for first
year of the mental health program, and then costs will go up considerably. I am sure we will be
able to come up with the money somewhere. But we have to get through the morass of tax
overhaul; because of federal law changing, we do have to go in and make some changes to
Iowa tax code. Iowa is one of only 3 states that allows federal deductibility, and we will
probably lose that. We want to make sure we don’t overload Iowa taxpayers. If the fed
government lowers taxes, it’s not fair that we in Iowa come down and take all of that money.

TK: Dave and I both recognize mental health are a priority; people on these committees have
been working hard on this issue back to last summer. It would be ridiculous to pass the bill and
not fund it. We’re not stopping, because there’s not a legislator I know that would say we are
doing enough on mental health.

Question from Margery Graves: We hear mental health saying it needs more money, Director
Foxhoven saying DHS needs more, and so on. Why are you talking about giving money back to
Iowans? It doesn’t do me any good to have $1,000 more if there are water quality problems or
my neighbor needs health care. Why not keep some of money and spend it on Iowa’s priorities?

TK: Well, if we don’t address federal deductibility, you will see massive increase in Iowan state
taxes. We haven’t got are appropriations for ’19 because we are still working on tax reform. In
the talk about Iowa’s Water and Land Legacy (IWILL)’s 3/8 cent tax increase—you know it
wouldn’t be 3/8 cent, it would be full cent. So maybe that first 3/8 goes to water quality,
another 3/8 would go to mental health, and some of the rest could go to education. That 3/8
cent tax alone would bring in at least $180m more year. There’s some talk in tax reform in
doubling personal exemption [for state taxes]. I can tell you more in a week or two.
DM: The Senate & House can’t come together until House comes up with tax plan; Senate tax
bill was idealistic, and House Bill won’t be at that level. We are not going to be cutting taxes in
Iowa, there’s no way we can. No one has convinced me that cutting taxes at the state level will
spur the economy. We get a lot of talk of 3/8 cent I-Will tax, if we can increase that other 5/8
cent it would help fund a lot of other issues. I-will would cover water quality, the first bite of
the rest would be mental health, the next would be our schools. But we don’t know what’s
going to happen in the next two weeks.