A state proposal to cut the growing cost of Medicaid would hurt group homes for mentally ill children and other nonmedical programs, say social service agency officials.

The Department of Human Services is proposing to trim 5 percent from growing administrative costs of Medicaid’s nonmedical programs. The affected agencies argue that the cuts would put some out of business and, in turn, would result in more homelessness for the mentally ill.

Agency officials are also upset by a new DHS regulation that will cause them to lose additional money by limiting rate adjustments and patient residential stays.

Department of Human Services officials said that though they are looking into the concerns, they believe care providers haven’t proved their case and are simply crying wolf about changes that would save the state about $2.3 million in fiscal year 2002.

“I think some providers will probably go under,” said Carol Carothers, executive director of the National Alliance for the Mentally Ill Maine in Augusta.

Carothers, who once ran a residential facility, said there might be some waste, but not much. “I don’t think there are slush funds and Taj Mahals of residential programs out there,” she said.

Medicaid is at the center of a projected $200 million-plus state budget shortfall. The cost-cutting measures, first proposed last year, will target the administrative portion of the so-called “Private Non-Medical Institutions” portion of the Medicaid budget.

PNMI reimbursement goes to residential and other programs that help the mentally ill and retarded, substance abusers and the elderly. It makes up almost 15 percent of the $318 million spent on Medicaid last year.

PNMI is a target because it has been growing rapidly. From 1999 to 2000, spending increased about 21 percent. The latest state projections expect spending, including state and federal dollars, to increase 28 percent to about $173 million for this fiscal year.

In recent years, DHS has promoted the use of PNMI funds as a means of saving state dollars. The funds get a federal match of about $2 for every $1 the state spends.

To do that, the state encouraged providers to start and expand PNMI programs. The goal was to bring mentally ill children who were forced to go out-of-state back into Maine-based programs, and to get more mentally ill people who had been deinstitutionalized from state mental hospitals into residential programs. In addition, PNMI has been a way to place eligible elderly individuals into boarding homes instead of nursing homes.

“The state’s been very creative in that, I’ll grant,” said Joseph H. Pickering Jr., executive director of Community Health and Counseling Services in Bangor.

Since 1998, the number of agencies providing PNMI-funded residential facilities for children grew from 88 to 110 last year.

Pickering, who oversees an agency with a $48 million budget, says providers reacted in good faith to the call to help at a time of space shortages. Buildings were built and staff people were hired, Pickering said. It’s no wonder that “one year later there are rising costs in PNMI,” he said.

Providers suggest state changes will only result in more cost shifting to areas that are primarily reimbursed from elsewhere. Providers take the position that the state isn’t doing enough planning.

“You can’t work in this environment,” said Lynn Madden, vice president of administrative services at Acadia Hospital in Bangor. “It has the combined effect of stifling the growth of these programs.”

Providers across the state have organized to protest the new rule. And people such as Madden and Timothy C. Woodcock, who is president of CHCS’ board, say they will complain despite possible retribution from DHS. Madden said DHS is very willing to retaliate in ways such as withholding referrals.

DHS’ Winslow said that was ridiculous. The rule is designed only to restrict growth in the administrative portion of PNMI, he said.

If the effect is just to trim administrative growth by 5 percent, why are the providers so angry?

“Because I think it’s a change,” Winslow said. “These providers have been reimbursed 100 percent of their costs without any checks on that, and that’s not something Maine government does anymore.”

Winslow said there has been adequate planning for the proposed cut and rule change. He also emphasized that direct care costs would continue to be reimbursed at 100 percent. The implementation of the proposed rule will be dependent on when organizations’ fiscal year 2002 begins, he said.

The state has begun a study of a few volunteer organizations to make sure the cuts aren’t deeper than planned. But that’s little consolation to the organizations trying to comply.

“You get a sense from the department that as long as their fiscal house is in order they just don’t care,” Woodcock said. “There is a fundamental lack of accountability at the state level.”

He suggested that DHS Commissioner Kevin Concannon is simply sitting “like Zeus and throwing regulatory thunderbolts.”

Providers say that with private insurance companies being “creative” about how to avoid paying for the mentally ill, and with mandates making the time it takes to enroll a patient almost as long as treating them, they are concerned about the future.

“The safety net is getting frayed,” CHCS’ Pickering said.