2009-10 Budget Analysis Series: Health

DPH—AIDS Drug Assistance Program (ADAP) Growing Rapidly

The Governor’s spending plan proposes $418 million from all fund sources for the support of ADAP, an increase of almost $56 million or 15 percent over adjusted current–year expenditures. This augmentation is proposed to fund projected caseload and other increases in program costs. Under the budget plan, General Fund spending would remain flat at $96.3 million in both the current year and budget year. Monies from the ADAP Rebate Fund would be used to increase spending by $30.1 million in the current year and $86.1 million in the budget year over the spending level approved in the 2008–09 Budget Act. According to DPH, this projection represents the high end of the range of likely costs, and it is possible that actual costs will be lower.

The ADAP Rebate Fund, made up of rebates paid to the state by the manufacturers of the drugs provided to HIV/AIDS patients under the program, has a sufficient balance to fund the entire increase in projected program costs for 2009–10. We note that the administration projects that the balance in the ADAP Rebate Fund will drop from $80.3 million at the end of 2007–08 to $24 million by the end of 2009–10.

Low Fund Balance Will Increase Need for General Fund Support in Future Years. We find that using the proposed level of ADAP Rebate Fund monies for support of ADAP in the budget year will likely result in a very significant increase in General Fund support for ADAP in 2010–11 and beyond. The General Fund would have to backfill the reduced level of ADAP Rebate Funds available in future years, program costs would have to be reduced, or some combination of these actions would be needed.

As noted above, the requested increase in expenditure authority for the budget year is likely to be the worst–case scenario for the program. Due to drug price fluctuations, uncertainty regarding timing of costs associated with new drug therapies, and interactions with Medicare Part D, ADAP expenditures are difficult to predict with accuracy. Our analysis indicates that ADAP expenditures could be less than presented in the Governor’s budget plan. For example, using an alternative estimation model, the DPH Office of AIDS projected ADAP costs at $32 million less than actually requested in the current year and $68 million less in the budget year. If this alternative estimate proved correct, General Fund support would not have to increase until 2011–12 as long as the overall growth in program costs was paid for using rebate funds.

However, even if actual costs in the budget year reflected this much more optimistic projection, our projection of out–year costs show that General Fund support would need to increase significantly beginning in 2011–12 to maintain current service levels. If program costs grew as quickly as projected by the Governor’s budget, the General Fund support necessary to maintain current service levels could increase by $100 million as early as 2010–11. Aside from two years in which ADAP growth slowed because of the implementation of the new federal Medicare Part D drug benefit, costs in the ADAP program have been growing consistently at over 15 percent per year.

Cost–Cutting Actions Now Can Avert More Difficult Choices Later. In order to prevent the ADAP Rebate Fund balance from declining to the point where there are significant additional pressures on the state General Fund, we recommend that the Legislature begin to implement modest cost–cutting measures for ADAP in the budget year. This phased–in approach would preserve a larger balance in the ADAP Rebate Fund and decrease the need to make more severe reductions beginning in 2010–11. Other states with budget shortfalls in their ADAP programs have implemented such cost–cutting measures as capping client enrollment, eliminating drugs from formularies, modifying copayment requirements, and limiting per–patient expenditures.

Cost–cutting measures in ADAP would likely increase the barriers to receiving care for some patients, potentially impacting the health of HIV/AIDS patients and increasing the associated public health risks. It is also possible that additional federal aid could mitigate the future need for program reductions. The Ryan White Care Act, which provides federal funding for ADAP, will likely be extended or reauthorized by September 2009. Since program growth in most states has been significant and federal funds have not increased commensurately in recent years, it is possible that federal support for these programs could increase.

Nevertheless, based on the information currently available, our analysis suggests that measures should be implemented now to control the growth of costs in this program and avert the need to take more drastic actions later. We find that a reasonable initial target level of reductions would be in the several millions to low tens of millions of dollars annually. This recommendation is based on the fiscal condition of the state without prejudice to the merits of ADAP. Updated information will be available at the May Revision about the caseload and cost trends for ADAP. We will provide a more specific recommendation at that time that takes this additional information into account.

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