NASHVILLE-Providers of community mental health services warn the system will "edge closer to collapse" and some agencies might close if Gov. Bill Haslam and state lawmakers slash TennCare payments by 8.5 percent.
TennCare figures show mental health services and eight other provider categories collectively could lose $114.2 million July 1.
The other providers include nursing homes, services for the mentally ill, home health, lab, X-ray and dental services and transportation providers.
In a letter to Haslam, Bob Benning, chairman of the Tennessee Coalition for Mental Health and Substance Abuse Services, said providers initially thought "mental health services in general were treated quite favorably in your budget."
"Now that we understand that community providers of outpatient mental health services stand to see a potential rate reduction that could total up to $25 million, we must do everything in our power to avert that from occurring," Benning wrote.
The reduction includes $8.5 million in state money that draws down $25.2 million in federal matching funds.
Last week, mental health providers dashed to the state Capitol hoping to persuade lawmakers to block the cuts.
TennCare spokeswoman Kelly Gunderson said the agency had no choice in the cuts because recession has bitten deeply into budgets. She also said the state reimburses TennCare providers at about 85 percent of Medicare rates, compared with 75 percent nationally.
She said the agency "will just have to monitor our mental health network as these reductions are implemented."
Some provider groups had believed most, if not all, of the identified cuts would be covered by the expansion of an assessment on hospitals' net patient revenues.
The coming cuts include a 7 percent reduction approved last year for the 2012 fiscal year that begins July 1. Haslam is recommending an additional 1.5 percent cut for the coming year.
To avoid the cuts, officials would need to find $28.56 million in state funds to draw down $85.64 million in matching federal matching dollars.
Dick Blackburn of the Tennessee Association of Mental Health Organizations said the hospital assessment "still buys back all of the benefit limits ... but it will not pick up any of the rate reductions for us. And the 1.5 percent is in addition."
He said his members, which include Fortwood Center in Chattanooga, "are just left hanging with a lot of other providers."
Hospitals sought the fee last year to avoid hundreds of millions of dollars in payment cuts to hospitals, limits on hospital stays for TennCare enrollees and restrictions on physician visits and other services.
This year, hospitals hope to raise the 3.52 percent assessment to 4.52 percent. That will raise $449.8 million and draw down an additional $870.5 million in Medicaid matching funds.
The money will "buy back" some cuts in services and payments to hospitals and doctors, but it won't cover mental health and other providers.
"The big thing is there's only so much we can cover," Tennessee Hospital Association President Craig Becker said.
Becker said some hospitals lose more from the assessment than they get back in federal matching funds.
"We actually have a lot of hospitals getting hurt," he said, warning hospitals' agreement to push the assessment could collapse if it gets much higher.
Gayla Sasser, executive director of the Tennessee Association for Home Care, said her members are "very concerned."
Sasser said TennCare officials attended her association's conference last week and "held out some light of hope that perhaps state revenue projections would do better than expected.
That could mean more flexibility in what cuts are made, she said, but added that state lawmakers would "decide how any excess funds are spent."
House Majority Leader Gerald McCormick, R-Chattanooga, said he is concerned about the TennCare cuts' impact on "some of the more vulnerable people."
If revenues come in better than expected, McCormick said, "I think we need to direct the money as much as possible to help the people who can't help themselves."
In McCormick's view, the mentally ill and addicts would qualify.
The cumulative impact of the cuts for fiscal 2010 and 2011, along with Haslam's proposal for FY 2012, is $353 million.
That includes Haslam's previously announced plans to save $44 million by lowering payments for unnecessary cesarean-birth deliveries and save $24.9 million by reducing reimbursement to emergency room physicians providing nonemergency services.