Kansas committee weighs privatization, IMD waiver and workforce steps as contract nursing costs mount

Representative Bealick opened the special committee by warning that the state’s contract nursing expense is unsustainable, saying, “spending $46,000,000 a year in contract nursing at Larner Hospital is, quite frankly, a disservice to our people and it's just not an option.”

Committee members and witnesses spent the session reviewing options to reduce reliance on contract staff and to increase inpatient and community capacity. National and state experts — Wendy Morris of NASMHPD, Ted Letterman of the NASHPD Research Institute, consultant Kevin Ann Hupshorn and KLRD analyst Leanne Thorne — described the mixed record states have had with privatizing whole psychiatric hospitals, steps to protect state interests in contracts, and alternatives such as expanding community crisis centers and pursuing a federal IMD (Institution for Mental Disease) waiver so Medicaid can help pay for certain adult inpatient care.

Why this matters: committee members said the immediate driver is growing contract nursing bills and a statewide shortage of psychiatric staffing and beds. Testimony emphasized that privatization has helped some states recruit staff and achieve clinical goals, but also creates long-term contract, oversight and continuity risks unless contracts preserve state control over records, admissions, quality metrics and transition plans.

Most important facts - Committee members repeatedly identified contract nursing as a core budget pressure; Representative Bealick cited roughly $46 million in contract staffing costs at Larner/Larned campus this year. - National survey data presented by Ted Letterman showed widespread shortages: the consultants reported 43 of 48 responding states seeing psychiatric bed shortages and many states reporting severe nursing shortages; average entry RN salary across responding states (Feb 2023 survey) was about $65,000–$66,000 with top ranges up to roughly $98,000–$101,000 and a maximum observed of about $139,000. - Witnesses described three national experiences: (1) Florida and Kentucky had privatized full hospitals and reported recruitment benefits and some improvements; (2) several states considered privatization but bids exceeded state-run cost estimates and did not proceed; (3) many states privatize parts of operations (food, maintenance) rather than full management.

Expert takeaways and state options Wendy Morris, senior behavioral health adviser at NASMHPD, said privatization can improve hiring flexibility and bring university or system resources (for example, clinical rotations and magnet nursing status), but “privatization is absolutely not a magic bullet.” She urged contracts that preserve state ownership of records, require accreditation and define transition-back procedures.

Ted Letterman, of the NASHPD Research Institute, framed the problem nationally and urged strong contract oversight. He said Kansas is not alone: “Kansas is not alone in this,” noting a national trend of increasing forensic and acute bed shortages and long-term workforce pressures.

Kevin Ann Hupshorn, a consultant with long experience running public–private hospital partnerships, described Florida and Massachusetts cases where contractors reduced seclusion and restraint use, shortened length of stay and reopened admissions. He summarized a turnaround in one privatized Florida facility where, he said, the facility cut an average length of stay from years to “less than a year” and achieved Joint Commission accreditation under the contractor.

Medicaid funding and IMD exclusion KDADS Deputy Secretary Scott Bruner summarized the federal IMD rule: “federal law says that if…you’re an adult…ages 19 and 64, Medicaid can’t pay for that treatment” in an IMD, a restriction that blocks Medicaid reimbursement for many large state psychiatric units. Several witnesses and committee members urged pursuing an IMD waiver for behavioral health (Kansas already has an IMD waiver for substance-use treatment) so more inpatient care could qualify for Medicaid funding. Leanne Thorne (KLRD) reviewed the statute that currently requires legislative approval before privatizing any Kansas state mental health hospital (citing the post-2015 provisos and KSA language described in committee testimony).

Community alternatives and workforce efforts Several witnesses and stakeholders urged expanding community crisis centers, CCBHCs and university partnerships as lower-cost ways to divert admissions and grow the workforce through training pipelines, scholarships and “grow-your-own” programs. Amy Carter of the Kansas Mental Health Coalition urged maintaining and expanding crisis diversion and clubhouse supports so state hospitals remain the safety net for patients who truly need that level of care.

No formal votes or policy decisions were made in the hearing. Committee members directed staff to compile data and follow up: the chair said the committee will request additional materials and pursue another meeting to review cost projections, bed counts, reimbursement data and workforce proposals.

Quotes (selected, verbatim) Representative Bealick: “spending $46,000,000 a year in contract nursing at Larner Hospital is quite frankly a disservice to our people and it's just not an option.” Wendy Morris, senior behavioral health adviser, NASMHPD: “Privatization is absolutely not a magic bullet.” Ted Letterman, NASHPD Research Institute: “Kansas is not alone in this.” Kevin Ann Hupshorn, behavioral health consultant: “we were also able to shorten the patient's length of stay from approximately 9 years… to less than a year.” Scott Bruner, KDADS deputy secretary: “federal law says…if you're an adult…ages 19 and 64, Medicaid can't pay for that treatment” in an IMD. Leanne Thorne, KLRD senior research analyst: “SB 161 and SB 249 prohibited KDADS from expending any money…to privatize the operations of LSH or OSH without prior specific authorization” (summary of statutory language provided in memo). Amy Carter, Kansas Mental Health Coalition: “The decertification of Osawatomie State Hospital was not a surprise.”

Ending Committee members asked staff to return with a short set of deliverables before the next meeting: (1) one-, three- and five-year projections of contract nursing costs under a constant-policy assumption; (2) inventory of certified psychiatric beds across the state and billing/reimbursement rules (Medicare/Medicaid/insurance) for each bed type; (3) current SIA/contract beds and per‑day reimbursements; (4) status of the IMD waiver work and estimated fiscal impact; (5) existing and proposed crisis center/CCBHC capacity and locations; and (6) workforce pipeline proposals (scholarship/loan-repayment amendments, training capacity). The committee scheduled follow-up work and asked KDADS, KLRD and stakeholder groups to provide the requested data.