There are several developments at the state and federal level that may affect county budgeting and reimbursement for some AOD recovery services. These include:

1) The Governor's proposed budget and restructuring of state AOD services funds to counties,

2) The new Negotiated Net Amount state contracting process with counties,

3) The potential development of a managed care plan and expanded MediCal coverage for some AOD recovery services, and

4) Proposed national health care legislation.

Each of these important initiatives are in process. It is difficult to predict either when or in what form these proposals will be implemented and how they will specifically impact county AOD funding. Attending to them is important, because each of these developments has the potential to importantly affect patterns of county AOD funding. Therefore, they need to be tracked in order to incorporate important changes into longer-term AOD services and funding planning.

Restructuring. The Governor's proposed budget includes a provision for restructuring of state AOD funds. Restructuring is also referred to as "realignment," in reference to the 1991 realignment legislation.

The proposed state-county restructuring proposal will establish a Community Services Fund in each county. Each county would receive a share of Vehicle License Fee revenues and a portion of property tax revenues for this fund. This funding would be available to counties for support of indigent health, mental health, substance abuse, in-home supportive services, adult protection services, foster care, and, at county option, other related programs. Counties would have broad authority to determine service and funding levels. The state's role would be largely limited to planning, technical assistance, and passing through federal funding.

Under this proposal, counties would assume full responsibility for funding and operating alcohol and drug programs. Counties would have much greater fiscal flexibility in the use of revenues allocated to the Community Services Fund. Counties would have unrestricted control over unexpended monies remaining in these funds at the end of the fiscal year. Counties could decide to retain these monies in the Community Services Fund for expansion of services, or they could transfer the monies to the county general fund.

Although realignment has not yet been approved by the legislature, knowledgeable political observers expect realignment to be approved in some form, as there is bipartisan support for the concept.

Negotiated Net Amount. This new process changes the way the state gives out Community Development Block Grant funds to counties. It changes the units of services for residential programs from the number of bed-days provided to the number of dedicated beds, and for non-residential programs from hours of service or clients served to hours of staff availability (based on staff time cards).

The state's net rate contract will establish a net rate that it contracts with the county for. Inequities in rates between providers in the county may have developed over the years. The NNA process will result in all services being subject to a newly developed rate scale. Some providers may have increased rates for the services they provide, and some may have reduced rates. Thus, the NNA process can lead to re-budgeting for county AOD recovery services and some reconfiguration of the types and capacity of services provided.

Managed care and expanded MediCal reimbursement. There is a new policy initiative underway in California to develop a managed care plan for AOD recovery services, similar to the mental health managed care plan that is currently being implemented in San Mateo County. The County Alcohol and Drug Program Administrators Association of California (CADPAAC) is currently developing such a proposal that is called the California Option for Recovery (COR). The state Alcohol and Drug Program has also retained a consultant to develop a similar plan. The two plans will be integrated as much as possible; the expectation is that a proposal will be selected by the ADP and CADPAAC before the summer of 1994 to become an amendment to the state MediCal plan and approved as a waiver from the federal Health Care Financing Administration.

The County Alcohol and Drug Program Administrators Association has passed a resolution that:

• The California Department of Alcohol and Drug Programs and the California Department of Health Services should amend the State Medicaid plan to include the CADPAAC benefit package as the new Drug MediCal benefit, and
   
• The State of California prior to realignment should increase the current State allocation for AOD funds by $63 million; and
   
• The Counties should adopt restructuring after the above funding is in place, the benefit plan has been adopted and the risks to local jurisdictions due to realignment are resolved.

One of the most important aspects of the development of a managed care plan is that it would allow reimbursement for some AOD services through MediCal. MediCal reimbursement can only be provided for "medically necessary" services. Whether most substance abuse recovery services are "medically necessary" is a matter of debate. CADPAAC believes that many are, while another more traditional view is that only physical health services such as those provided by doctors and nurses are medically necessary. This issue has not been resolved. If more AOD services are determined to be medically necessary, they would be only the direct service components of recovery programs. Examples of services that could be covered are: individual, group, and family counseling, other structured elements of recovery programs such as living skills training, and case management. Examples of services that would not be covered are: room and board costs for residential programs, general education, vocational services, recreation, and child care. Thus, managed care and expanded MediCal benefits would create a new funding stream for some recovery services.

The complex regulations and narrow focus of Medicaid may put a number of limitations on MediCal funding of AOD recovery. Many costs of providing services would not be covered and programs would need to maintain their current level of funding from existing resources for these components. In addition, various complex requirements would result in some programs not providing covered (medically necessary) services, and preclude some agencies from participating in the managed care plan. Finally, some clients served by the programs would not be eligible for MediCal coverage.

National health care. National health care that ensures coverage for every citizen is a priority of the current presidential administration. However, there are several competing legislative proposals. Space prohibits summarizing the various options in this report, and in any event the specific form of the final legislation that will be adopted may have little relevance to AOD recovery services. It is unclear to what extent any national health care plan will include AOD recovery services. Political observers have suggested that we should expect little in this area, as AOD benefits will add significant costs to any plan. Consequently, proposed AOD benefits (and some mental health service benefits) may be initially included but offered up as a sacrificial lamb and removed from the final form of the legislation that is adopted, in order to ensure passage.

In terms of timing, some observers think that there will be an effort to pass national health care before the next election in November, while others think that there will be pressure to wait until after November 1994 because federal legislators up for re-election will want to avoid approving a plan prior to the election and taking a specific action that they will have to defend.

Still to be determined is the relation of any expanded Medicaid AOD recovery benefits to a national health care plan. The strategic position of the state ADP and CADPAAC is that, by taking the initiative to develop a managed care and expanded MediCal benefits package, then having the plan approved, will ensure its implementation, regardless of the national health care plan that is finally adopted.

Recommendation. In summary, the state restructuring and NNA processes will support a maintenance of effort by counties, and changes in funding streams resulting from managed care/MediCal expansion and national health care may make it possible to capture additional sources of revenue. The recommendation that results from these policy and funding trends at the state and national level is that current levels of AOD recovery service should be maintained, and expanded if at all possible, in order to maximize leveraging of these sources of revenue.

Special Federal Grant Funding

Federal grant funding has proven to be a valuable resource for communities wishing to supplement basic alcohol and drug treatment services with limited-term funding for special projects. Unfortunately, there has been no grant support for basic services. Federal grant funding from agencies such as the Center for Substance Abuse Treatment (CSAT) comes with the explicit condition that, if used to replace local funding, it will be withdrawn. Furthermore, areas without sufficient basic services to augment often fare poorly in the competition. Communities with many existing services, such as San Francisco, have done well in the process of obtaining federal funds. Funding is primarily for special populations and projects, for limited periods of time. Thus, replacement of the ADP's system-wide cuts (3% residential, 20% nonresidential) will not be possible with any existing federal grant funding program. Should the system be cut further, possibilities for federal funding may dwindle.

On the positive side, some of the gaps in services for particular populations, such as recovery services configured for Asians and Pacific Islanders, could be filled by federal grants. If future funding opportunities are similar to those of the last few years, San Mateo County has a excellent chance of acquiring funding if resources can be found to support the application process. San Francisco and Marin County programs have applied for and received multi-million dollar grants for specialized substance abuse treatment projects. San Mateo County has acquired McKinney Homeless Act funds for a residential program for women with children. Beyond this, the County has not acquired substantial federal funds. Yet, there appears potential for acquiring federal funding in the future.

The Center for Substance Abuse Treatment is the primary source of federal drug treatment funds that makes awards to local systems and programs (using the State as a pass-through with limited supervisory functions). Currently, CSAT is funding programs for "critical populations"-women and people of color: substance abuse services for people with HIV; projects to link substance abuse services other projects to link substance abuse services with other needed services, such as medical treatment; and projects to describe and evaluate services for substance abusing, mentally ill homeless. There probably will be opportunities to apply for these types of funding in the 1994-95 fiscal year.

The federal substance abuse funding system is in flux, and future funding decisions have vet to be made. The issue of how much San Mateo County may be able to acquire from federal sources is related to the larger picture of national priorities and high-level federal agency appointments.

The Clinton administration's 1993 substance abuse policy, delivered to Congress, stated that prevention and treatment should be emphasized over law enforcement. However, the Clinton 1993 budget proposed keeping the same relative amounts of money as had the Bush administration, which devote the most funding to law enforcement. Clinton's appointee to the Office of National Drug Control Policy, the "drug czar," is a former New York police official who opposes any cuts to federal law enforcement support. Recent Clinton budget proposals for the next fiscal year include modest increases in treatment and prevention, but the commitment of the administration to work for these is unclear.

Yet, even if there is no increase to CSAT, the CSAT funding programs mentioned above were begun during the Bush administration, and continued for the first year of the Clinton administration. Whether they will be continued in the same form may depend on who directs the agencies.

The Substance Abuse and Mental Health Services Administration (SAMHSA), which includes CSAT, still is being directed by a Bush appointee, but the Clinton administration has finally selected a director who will be taking over shortly. CSAT will also have a new director: currently, nine candidates are being interviewed. Substance abuse professionals are currently optimistic that federal grant support, in some form, will be continued. It is not expected to replace local funds, but special projects and populations will probably receive some support. Initial indications of the types and amounts available will probably emerge in the fall of 1994.

Pursuing this funding is time-consuming: grant applications typically are over one hundred pages long. The process is highly competitive, since many more communities apply than can be awarded funds. Successful applications require specified knowledge, not just of grant-writing, but of substance abuse treatment and related evaluation approaches. The ADP may be challenged to find the staff time and resources to pay for any needed consulting services to prepare a successful application.

Nevertheless, the process brought in substantial funding for other Bay Area counties, and San Mateo could similarly benefit.

The first steps-which are not costly-are to contact the appropriate federal agencies to be put on the mailing list for RFP'S, and to develop a plan for applying. The plan should special potential areas of interest, and identify who is responsible for beginning the application process.

Strategic Planning for Funding

Proactively working to bring in new funding involves a combination of both preparation and innovation. Preparation is required because, in a 60 to 90 day period, there is not enough time to start from the beginning. A team must be in place, and ideas somewhat developed. Innovation is also necessary, because each funder has their own criteria and focus. Funder's distinctive requirements usually mean that a county cannot succeed by designing a program and then looking for funding for it, or by trying to find funding to replace cuts in a particular existing program. However, by clarifying priorities in advance, and doing some preliminary planning, an applicant will be positioned to compete for funds successfully.

Following are recommendations for the San Mateo County ADP to proactively seek additional funds.