By FY 02-03, Pennsylvania will have spent nearly a billion dollars from its share of the national tobacco settlement on a broad array of initiatives to improve the health of Pennsylvanians. Despite a somewhat rocky start, the state’s spending on these initiatives is in full swing and several initiatives are producing tangible results in key health care venues, including health insurance, medical research, care of the elderly, smoking cessation, hospital enhancements and nursing school enrollment.

Deliberations over how to spend the allocation had been acrimonious at times, notably among research institutions jockeying for more of the funding, and the enabling legislation came much later than expected, prompting critics to question whether the state was squandering its opportunity to put the funds to work. Having joined 46 other states in November 1998 in a Master Settlement Agreement with the tobacco industry, Pa. didn’t pass legislation to start funding programs until Act 77 of 2001, making Pa. the next-to-last of the states to do so.

Pa.’s share of tobacco settlement fund is expected to amount to roughly $400 million annually in the initial years over a 25-year period, and Act 77 divided ongoing annual funding into seven categories, as indicated below, with appropriation figures derived from the House Democratic Appropriations Committee:

• 30 percent to fund a new health insurance program for low-income adults and to fund Medicaid benefits for 10,000 working Pennsylvanians with disabilities, amounting to a combined total of $103.5 million in FY 01-02 and $130 million in FY 02-03.

• 19 percent to university and medical institute research, disbursed in part by proportion of National Institutes of Health and National Cancer Institute funding each institution already receives, and in part by competitive grant applications, amounting to $65.6 million in FY 01-02 and $82.4 million in FY 02-03.

• 13 percent to provide home- and community-based care for older Pennsylvanians, amounting to $29.3 million in FY 01-02 and $27.8 million in FY 02-03.

• 12 percent to tobacco use prevention and cessation activities designed to decrease smoking by teens and adults, amounting to $41.4 million in FY 01-02 and $52 million in FY 02-03.

• 10 percent to reimburse hospitals for the costs of providing uncompensated care and bearing extraordinary expense for some types of care, amounting to $34.5 million in FY 01-02 and $44.4 million in FY 02-03, to be matched by federal funds under the Medicaid program.

• 8 percent to expand income eligibility for the PACE and PACENET programs, which assists the elderly with the purchase of prescription drugs, amounting to $27.6 million in FY 01-02 and $34.7 million in FY 02-03.

• 8 percent to be transferred to a State Treasury endowment account to buffer the benefits of the tobacco settlement against reductions in receipts from the tobacco companies in future years, amounting to roughly $30 million for both fiscal years.

In addition to these ongoing appropriations, Act 77 set aside eight one-time appropriations for FY 01-02 as follows:

• $100 million to create three regional biotechnology "greenhouses," one each in Pittsburgh, Philadelphia and central Pa., for research and development of biotech products.

• $60 million to fund venture capital investments in the health sciences.

• $25.8 million to be transferred to the State Treasury endowment account, on top of the ongoing eight percent funding.

• $25 million to fund grants to community-based providers and collaborative efforts to improve the health status of individuals with low-income or who are at risk of chronic diseases.

• $20 million to rural hospitals to purchase medical and surgical equipment.

• $15 million to reimburse hospitals for the costs of providing uncompensated care, on top of the ongoing 10 percent, also to be matched by federal funds under the Medicaid program.

• $5 million to fund low-interest medical education loans.

• $3 million to fund low-cost loans and loan forgiveness for nursing students.

"It’s hard to complain when we’re one of the few states where all allocations are going to health care. I hope the Legislature maintains that focus," says Robert Gage, president of the Pa. Public Health Association, noting that the allocations are subject to review by lawmakers each year. Although he says he would like to have seen a larger portion of the appropriation to go to prevention initiatives, such as tobacco cessation and education about healthy lifestyles, Gage notes that the money represents well over a ten-fold increase in what Pa. has spent on these activities before the tobacco settlement. The research funding component, he adds, will also help build the state’s public health infrastructure, paving the way for real-time disease reporting.

Although only in its second year of funding, the tobacco money health initiatives are already having measurable impact in several areas.

Adult Health Insurance and Workers With Disabilities Program

The largest single ongoing component of the tobacco settlement, adultBasic, provides health insurance to uninsured Pennsylvanians age 19 through 64 who have incomes below 200 percent of the federal poverty guidelines, who have jobs that do not include health benefits, or who are unemployed. Coverage is offered through private insurance companies for $30 a month and includes physician services, diagnosis and treatment of illness and injury, preventative care, inpatient hospitalization/outpatient services, and emergency accident and emergency medical care.

The Pa. Insurance Department, which administers the program by contracting with four health plans across the state, reports that nearly 38,000 Pennsylvanians have enrolled in the program as of Dec. 2002, and anticipates the need for a waiting list for March 2003 coverage, when enrollment is expected to exceed the funding capacity of 48,000.

The second insurance component of the allocation goes toward a Federal entitlement option to fund Medicaid benefits for working Pennsylvanians with disabilities, a program that had existed since 1999, but did not have Pa.’s participation until the tobacco allocation, according to Chuck Tyrrell, policy specialist at the Pa. Welfare Department, which oversees the program. Prior to the program, income from work would cause most persons to lose their Medicaid eligibility if they had an income over the poverty level and $2,000 in liquid assets. Since the program’s inception, 1,500 Pennsylvanians have enrolled, most having HIV and mental illness, and are now able to retain their Medicaid eligibility at incomes up to 250 percent of the federal poverty level and $10,000 in assets, says Tyrrell. The Department has funding to serve up to 10,000 individuals and is doing outreach to grow the program’s enrollment, which he predicts will take time, given a 75 percent unemployment rate for people with disabilities.

Institutional Research Grants

The second largest tobacco settlement allocation funds the Commonwealth Universal Research Enhancement (C.U.R.E.) program, overseen by the Pa. Health Department, which directs roughly 70 percent of the grant to health research at institutions based on a straight formula indexing their awards from the National Institutes of Health, while the remaining 30 percent of the allocation is directed to individual researchers by competitive bid based on peer review of grant proposals. Criteria for the competitive grants are based on Healthy People 2010 national health objectives as applied to Pennsylvania, including identifying critical research areas and population disparities in health status, according to Patricia Potrzebowski, Ph.D., director of the Health Department’s Bureau of Health Statistics and Research.

Splitting the C.U.R.E. appropriation into indexed and competitive categories, as per Act 77 mandate, capitalizes on the existing infrastructure of established research programs, while also opening up funding to researchers who might have been shut out because of the constraints of an existing funding requirement, Potrzebowski says.

In FY 01-02, 37 institutions in Pa. were deemed to be eligible for formula funded grants, which ranged from $5,000 to over $8 million, for research on a wide range of subjects, including access to health care, arthritis, asthma, COPD, cancer, diabetes, heart disease, stroke, blood disorders, HIV/AIDS, infectious disease, neuroscience, osteoporosis, substance abuse and vision. Institutions may also spend up to 50 percent of their formula grants on infrastructure to build research capacity, such as constructing research laboratories, purchasing equipment and investing in research staffing.

Four non-formula research grants were awarded in FY 01-02 for research on bioinformatics as applied to cancer and/or infectious disease, based on criteria developed by an advisory committee that sought input from research consulting firms and from public comments, notes Potrzebowski. All four grants, totaling over $18 million, went to researchers at Pittsburgh institutions: Allegheny-Singer Research Institute, Carnegie Mellon University and University of Pittsburgh.

Six non-formula grants were awarded in FY 02-03 for research on a new set of research priorities as defined by the advisory committee: cardiovascular disease and four types of mental disorders. Splitting the $23 million in grants were researchers at Temple University, the University of Pennsylvania, and the University of Pittsburgh.

All research projects, formula and non-formula funded, are subject to a performance review and the Health Department is currently seeking a contractor to perform that function, expected by this July, Potrzebowski says.

The process of overseeing the C.U.R.E. program has also improved the Health Department’s oversight efficacy, says Potrzebowski. The department has learned of the administrative importance of a well-run peer-review process, and it has streamlined its grant application process, developing much quicker and more user-friendly electronic applications for prospective grantees, Potrzebowski notes.

Home and Community-Based Care

The third-largest category of tobacco funding has expanded the number of elderly Pennsylvanians the state can enroll in subsided home and community-based care as part of the state’s Medicaid waiver, significantly reducing waiting lists for the program, according to Acting Pa. Secretary of Aging Lori Gerhard. Just over 6,000 persons were enrolled in the program prior to the start of the funding, while over 4,000 additional persons are expected to be enrolled by this summer, she adds. Enhanced enrollment in the program is also reducing the number of elderly Pennsylvanians who might otherwise seek scarce nursing home beds, Gerhard adds.

The additional funding has expanded the Philadelphia Corporation for Aging’s capacity for outreach, assessment and counseling, notes spokesperson Marsha Braverman. The agency for several years has had a waiting list of up to 2,000 elderly Philadelphians looking for home and community-based care services, each of whom could wait up to 18 months before being served. That waiting list has been eliminated by the tobacco funding, says Braverman.

Tobacco Use Prevention and Cessation

The Pa. Health Department, which has oversight of this category of funding, has completed a number of activities with its funding so far, including the following.

• Selected 51 primary contracting organizations serving all 67 counties to support various community service providers, including grassroots organizations and coalitions, local chapters of the American Cancer Society, area health education centers, hospitals, county medical societies, school districts and county human service agencies. The primary contractors have developed three-year budgets and work plans to fulfill the nine components of CDC’s Best Practices for Comprehensive Tobacco Control Programs.

• Launched a new statewide Quitline, 1-877-724-1090, with services available 24 hours every day of the year.

• Developed and implemented a real-time, Web-based management information monitoring and reporting system for primary contractors and their service providers.

• Established pilot projects at University of Pittsburgh, Jefferson University and Penn State Hershey Medical Center to implement the Agency for Health Research and Quality (AHRQ) Clinical Practice Guidelines for Treating Tobacco Use and Dependence as part of standard curricula in health professional schools and clinical practice throughout the state.

• Established the Pennsylvania Youth Tobacco Survey to gather baseline information on tobacco use and attitudes of sixth- through twelfth-graders.

• Implemented a statewide media campaign to educate tobacco retailers on Pa.’s youth access to tobacco laws.

The department hopes by July to contract with an external evaluator for these programs, according to Judy Ochs, Director of the Pa. Health Department’s Division of Tobacco Prevention and Control. Preliminary signs of success may already be visible. According to department data, the combination of enforcement, education and community partner activity has reduced the amount of illegal tobacco sales to minors from 27.9 percent reported in 2001 to 14.5 percent reported in 2002.

In addition, Pa. now ranks seventh in the nation in terms of how close it comes to CDC’s population-based recommended funding levels for tobacco prevention and cessation, currently spending 81 percent of that recommended level, says Ochs.

The department was challenged during the initial funding year, however, seeing much of the $41.4 million allocation lapse into the tobacco endowment fund because it was only able to spend $12.6 million, says Ochs, given the mid-year signing into law of Act 77 and the time required for contracting activities, as well as for contracted organizations to create budgets, work plans and infrastructure. Ochs believes that a strong foundation is now in place for the future maturity of an effective infrastructure. In the process, she adds, the department set new records in contracting speed and has developed its first-ever downloadable Request for Proposals.

The state’s new Quitline has already helped 5,000 Pennsylvanians quit smoking, a relatively high success rate compared to Quitlines across the country, says Garry Pincock, CEO of the American Cancer Society, Pa. Division. Pincock acknowledges that building coalitions and infrastructure for mostly-new community-based programs takes a bit longer. Pincock says there is no doubt that much more of the allocated funds will be used in FY 02-03. He adds that the effectiveness of the programs will be boosted significantly if more physicians send patients to tobacco cessation programs.

One of the state’s primary contracting organizations for tobacco use cessation is Tobacco Free Allegheny, a nonprofit subsidiary of the Allegheny County Health Department created to manage about $2.7 million per year to be spent on prevention and cessation programs in the county, according to the organization’s Executive Director Linda Duchak. The organization has so far selected 20 service providers with whom to contract and expects to have 10 more on board by early February. The effectiveness of individual programs, as well as county-wide impacts, will be assessed by a surveillance and evaluation team from the Graduate School of Public Health at the University of Pittsburgh, notes Duchak, with impact data anticipated by December, after completion of the first year of programming.

Hospital Uncompensated Care and Extraordinary Expense

According to methodology defined in Act 77, the Pa. Welfare Department is identifying above-average cost burdens placed on Pa. hospitals by uninsured and underinsured patients and is reimbursing hospitals from this portion of the tobacco settlement allocation to supplement their existing sources of uncompensated care reimbursement. Using data from the Pa. Health Care Cost Containment Council, the department determines the amount a hospital receives based on a three-year average of its net inpatient revenue compared to its percent of Medicaid inpatient revenue, its percent of Social Security inpatient revenue and its existing uncompensated care payments, according to Tyrrell. A total of $61.6 million—which included federal matching funds—was distributed among 100 hospitals in FY 01-02, in addition to the one-time 01-02 allocation of $15 million distributed among 116 hospitals, he notes.

A total of $11.4 million was distributed to 90 hospitals in FY 01-02 for the Extraordinary Expense Program, meant to reimburse hospitals that may not have had a high uncompensated care ratio, but nevertheless treat a significant number of high-expense cases, such as automobile accident victims, says Tyrrell.

With federal matching funds, the FY 02-03 uncompensated care payments from the tobacco settlement to Pa. hospitals will be about $90 million, according to Nancy Bell, vice president of health care finance and insurance of the Hospital & Healthsystem Association of Pennsylvania (HAP). Bell says that the current tobacco settlement allocation can only address 10 percent of Pa. hospitals’ $800 million to $900 million in annual uncompensated care costs, and that HAP would like to see more allocated because of the size of the problem.

Another hospital advocacy group has emerged to try to increase reimbursement to hospitals that provide the majority of care to low-income patients by targeting Medical Assistance payments, Medicaid’s Disproportionate Share payments, health insurance sources and the tobacco settlement’s uncompensated care allocation. The Safety Net Association of Pennsylvania (SNAP) believes that the uncompensated care payments from the tobacco settlement were distributed too broadly among hospitals, according to Charles DeBrunner, SNAP president and president of DeBrunner & Associates, a health advocacy firm in Harrisburg. DeBrunner says that the state chose to distribute the funds to the upper 50 percent of hospitals that are negatively affected financially by uncompensated care, while he maintains that it should have restricted distribution to the top 25 percent, or those hospitals most acutely affected.

Charging membership dues based on a sliding scale indexed to a hospital’s tobacco fund distribution, SNAP hopes to lobby legislators during their review of Act 77’s allocation amounts, says DeBrunner. The group has six members so far, including Albert Einstein Medical Center and Thomas Jefferson University Hospital, out of a potential 48 hospitals it defines as true safety net hospitals.

PACE and PACENET

Nine percent of Pa.’s tobacco settlement allocation is being used to raise the income eligibility of these two state programs that provide free or low-cost prescription drugs to the elderly. Approximately 7,900 seniors were able to remain in PACENET because tobacco money was used to raise its income eligibility threshold by $1,000, while 7,200 seniors were able to stay enrolled in PACE because of a moratorium on cost-of-living or Social Security income increases putting enrollees over the eligibility threshold, according to Gerhard. The Dept. of Aging estimates that 13,000 seniors will remain eligible for PACE and PACENET through Dec. 2003 because of these enhancements.

One-Time Appropriations for FY 01-02

In addition to Act 77’s fixed appropriation percentages for the ongoing programs outlined above, the Act set aside several one-time appropriations for FY 01-02.

Three regional biotechnology "greenhouses," regional biotechnology "greenhouses," one each in Pittsburgh, Philadelphia and central Pennsylvania, are splitting $100 million for research and development of biotech products. The primary goal of the initiative is to stimulate economic growth and job creation by accelerating commercialization of discoveries in the life sciences, with an important byproduct of the process being improved human health through access to new drugs, drug delivery systems and medical devices, according to Michele Washko, spokesperson for the Life Sciences Greenhouse of Central PA (LSGPA).

LSGPA will divide its $32.8 million tobacco allocation into five broad categories, says Washko: a technology development fund to help move sponsored research results from the conceptual to the commercial arena; a gap fund for seed and pre-seed funding of startup companies; a relocation fund to assist life sciences companies seeking to relocate to the region; an incubator fund to support development of low-cost wet lab and office space within the region; and an intellectual property fund designed to help cover the costs associated with protection of intellectual property rights.

Entrepreneurs, academic and research institutions, small businesses and individual researchers are all potentially eligible to receive funding from the greenhouse, which is encouraging collaborations between colleges and industry, with the initial round of funding from the technology development and gap funds expected to be released in the first quarter of this year, and funding in the other arenas to be released as appropriate opportunities arise, Washko notes, adding that all funds from the tobacco settlement allocation are expected to be released within five years. The legislation authorizing creation of the greenhouses requires a 100 percent match of the $33.8 million, although LSGPA anticipates exceeding that figure. Entities receiving technology development funds are obligated to submit a project status report at six months, and again at the end of the year, while the overall success of LSGPA will be measured by job growth, venture funding and development of commercialized life sciences projects, says Washko.

Another one-time tobacco settlement allocation, $60 million, is being used to fund early-stage venture capital investment for Pa. companies in the health sciences. Three venture capital firms have been selected, each of which has committed to raise a three-fold match of its $20 million in state funds by Feb. 28, according to Fritz Bittenbender, president of the Pennsylvania Biotechnology Association and former chair of the Tobacco Settlement Board.

A one-time $25.8 million was transferred to the State Treasury endowment account, on top of the ongoing eight percent funding it is slated to receive annually. Since Pa.’s annual settlement funding amount will vary as a function of future tobacco use, that amount will decrease as tobacco use declines, in turn decreasing the amount of funding available for all programs drawing from it. The endowment account is an important buffer against that decline in funding, says Bittenbender, who notes that the Settlement Board expects at least five years of significant settlement cash inflow, followed by five to six years of decline, and then a significant decline thereafter.

A one-time $25 million in funding grants has gone to community-based providers and collaboratives in locating and managing health care for low-income Pennsylvanians and to improve access to preventive, curative and palliative health care to them. Grantees had to be one of the following: a federally qualified health center, a rural health clinic, a free-standing hospital clinic serving a federally designated Health Professional Shortage Area, or a free or partial pay health clinic staffed by volunteer medical providers.

Forty-three entities throughout the state received an average grant award of about $200,000 for coordination and outreach activities. According to health department data, these grantees anticipate being able to identify nearly 18 percent additional low-income individuals with or at-risk for chronic diseases and anticipate an increase in enrollment assistance of almost 14 percent, while they also expect to be able to provide an increase of over 53 percent in the number of case management visits to low-income individuals and over a 77 percent increase in the actual number of patients utilizing case management. Total referrals for health services will increase by almost 87 percent with a 58 percent increase in the number of patients referred. Inappropriate Emergency Department usage and hospital stays by persons who are served by these entities and who are chronically ill are anticipated to decrease by 66 percent.

In addition to the coordination and outreach part of the community-based grant, a site funding component of the grant was shared by 79 organizations and 203 delivery sites, each receiving an average award of about $80,000. According to health department data, these grantees anticipate a 55 percent increase in the number of patients receiving health care who have income levels below 200 percent of the poverty level, a 15 percent overall increase in patient visits, an 89 percent increase in CHIP patient visits, a 20 percent increase in Medicaid patient visits and an 11 percent increase in visits by patients with no insurance or with adjusted payments.

A one-time allocation of $20 million was distributed to 39 rural hospitals across the state for the purchase of medical and surgical equipment, with individual grants ranging from $132,000 to $500,000. The hospitals had to match the grant and demonstrate that they serve Medicaid patients and provide services to patients regardless of the individual’s ability to pay. According to health department data, most hospitals are using the grant to purchase imaging equipment and over half expect the enhancements to help them recruit new physicians and retain existing ones. Grantees also said they expect the new equipment to increase patient safety and reduce medical errors, and reduce patient travel over hazardous rural roads to receive services.

A one-time allocation of the tobacco settlement funds also went to fund low-interest medical education loans ($5 million) and loan forgiveness for nursing students ($3 million). The loan program for Pa. medical students offers an interest reduction of one percent if the borrower agrees to practice medicine or conduct life science research full-time in Pa. for three consecutive years after graduation or licensure, and an additional one percent rate reduction if the borrower further agrees to do so in a designated shortage area of Pa.