It May Be Time ‘To Take the Pain’ on Medicaid

Health care’s next decade will be shaped by impending rules and rulings — from CMS regulations to a Supreme Court decision — issuing forth from Washington, D.C.

But to glimpse the near future, industry watchers should look to Washington state.

A $2 billion budget gap has prompted the Evergreen State to consider drastic solutions, including unusually stark health cuts. Legislators and lobbyists have been in and out of court over a plan to institute Medicaid coverage limits for emergency department care.

Unfortunately, court battles can’t close these budget gaps.

Regardless of what providers and lawmakers ultimately settle on, Washington state’s Medicaid program will get a makeover — and stakeholders are running out of time to deal with it.

“[Here’s what] I’ve been telling all my members,” according to Matt Salo, head of the National Association of Medicaid Directors.

“There’s pain coming. … It’s bad now, and it’s going to get worse before it gets better.”

Nearly One-in-Four State Dollars Goes to Medicaid

Of course, Medicaid’s dicey financing often prompts dire warnings — and in recent years, the program may have beaten its gloomy predictions.

A new Kaiser Family Foundation report released on Wednesday found that state Medicaid programs bore up across the recession better than some expected. Thanks partly to federal matching funds, states largely kept eligibility levels intact while making significant investments in new information technology systems.

In its own annual survey, the National Governors Association recently offered some optimism about states’ slowly improving fiscal situations, too.

But NGA issued two caveats about states’ substantial Medicaid bill.

First, Medicaid remains the biggest chunk of state budgets (about 24% of spending in fiscal 2011), having surpassed K-12 education as a line item in 2009.

Second, Medicaid spending is getting bigger — fast. Continued gains in enrollment means the program’s cost growth is outpacing state tax revenue growth, and NGA projects spending to grow about 8% per year. The most significant impact: more than 15 million Americans expected to gain Medicaid coverage through the Affordable Care Act across the next decade.

So how are lawmakers dealing with looming program expansion? “Cost containment is a dominant theme,” the NGA concludes.

A look at the Western states proves this right.

Colorado lawmakers are weighing the Innovations in Medicaid Act, an effort to shift their program from fee-for-service payment to incentives that reward quality of care — and balance the state’s budget along the way. Oregon’s governor is proposing a similar transformation, for similar reasons.

California’s ongoing budget crisis means lawmakers are once again looking to scale back Medi-Cal; the Health Access blog details more than $1 billion “ugly cuts to health and human services” in the budget released by Gov. Jerry Brown (D) this month.

Washington State: Exception or Inception?

But there’s no more dramatic example than Washington state, where a slew of controversial proposals to scale back Medicaid spending have drawn national attention and mobilized the local provider community.

Working on a biennial budget cycle, the state Legislature in the 2011-2013 budget directed the state Health Care Authority to identify ways to reduce unnecessary ED visits and save $72 million.

After HCA’s first effort — a law that would limit Medicaid beneficiaries to three non-emergent ED visits per year — was halted by a judge, the agency is now considering a policy of retrospective denials. Under the new plan, Washington state won’t pay for Medicaid visits to the ED that are deemed “not medically necessary” after the fact.

Providers are “galvanized” by the proposal, according to a Washington state ED physician who blogs anonymously at MedPage Today.

The physician adds that the problem isn’t that the state is trying to curb excess Medicaid utilization, given the clear potential of some patients to use and abuse emergency services.

Instead, it’s that the new plan “doesn’t actually do anything to keep these patients out of the [ED]. They pay nothing now [and] they will pay nothing under the new policy.”

Planning for the Future

One reason that Washington state’s cuts run so deep: Lawmakers are working on an ever-tighter timeframe to produce savings.

“Their fiscal year started July 1,” NAMD’s Salo told California Healthline. If Washington state legislators had quickly agreed on a path to close the state’s shortfall, they would have had “24 months to make up that $2 billion [budget gap]. Now they have 18 months to get that $2 billion … and the cuts get more and more draconian.”

Washington state’s debate encapsulates Medicaid’s precarious position. The program is expected to deliver increasingly high-quality care at ever lower cost — but no one’s quite sure how to make that happen.

Can new vehicles to deliver care — like medical homes and accountable care organizations — actually work? Or are drastic efforts to ratchet back utilization, like Washington state’s ED plan, a necessary tonic after years of spiraling fee-for-service spending?

Policymakers are facing down another deadline, beyond current budget challenges. Medicaid programs are supposed to be ramping up to absorb millions of new enrollees within the next two years, under the Affordable Care Act.

It will be a perplexing, difficult transition. So prepare to take the pain, NAMD’s Salo counsels. And seize on creative solutions like coordinated care rather than across-the-board payment reductions.

“You can’t just cut your way out of this budget problem,” he told California Healthline.

Here’s what else is happening around the nation.

The Supreme Court Review

• Last week, Democratic attorneys general from 11 states and the District of Columbia, several health care advocacy organizations and women’s groups, and a coalition of business organizations filed briefs with the Supreme Court in support of the federal health reform law (Norman, CQ HealthBeat, 1/13). The briefs challenge the central argument against the individual mandate that Congress does not have the authority to force residents to purchase health insurance (Frieden, CNN Justice, 1/13). The attorneys general also intend to file two more briefs supporting the legality of the law’s Medicaid expansion and addressing the issue of severability (Winfield Cunningham, Washington Times, 1/13).

In the States

• Wisconsin Gov. Scott Walker (R) has halted implementation of a health insurance exchange until the Supreme Court rules on the constitutionality of the federal health reform law. However, the state has not returned a $37 million federal grant for developing the exchange. Walker is the only Republican governor who has kept an Early Innovator grant (Nocera/Millman, Politico, 1/16).

The 2012 Election

• The 2012 presidential election might have more of an effect on the federal health reform law than the Supreme Court, which is scheduled to review the constitutionality of the law in March. Most legal observers agree that even if the high court strikes down the individual mandate, the remainder of the law will stand. Even if a new Republican president is unable to convince Congress to strike down the law, he could direct the HHS secretary to delay implementation, relax regulations and potentially defund the overhaul (Haberkorn, Politico, 1/15).

Promoting Reform

• At a campaign event in Richmond, Va., last week, first lady Michelle Obama called on supporters to resist Republicans’ efforts to dismantle the federal health reform law. Obama also highlighted a reform law provision that allows young adults to stay on their parents’ insurance plans until age 26. She said, “[T]hat’s how about 2.5 million of our young people are getting their coverage. So will we take that insurance away from those kids?” (National Journal, 1/11).

Rolling Out Reform

• A number of states are facing a time crunch to create the health insurance exchanges mandated by the federal health reform law by the first deadline of Jan. 1, 2013. Many states, even the early-adopter states, face various logistical and regulatory challenges without adequate guidance from the federal government. States have encountered a number of logistical challenges, such as how to determine eligibility, what insurers will be required to offer in their plans and how the exchange will work with Medicaid (Quinton, National Journal, 1/12).
• Patient advocates are uncertain and apprehensive about a recent HHS proposal to allow states to determine the “essential benefits” that health plans will be required to cover in the state insurance exchanges under the federal health reform law. Many patient advocates had expected a clearer national standard for essential benefits. In addition, they are concerned that people in individual and small-group markets will not have consistent benefits across the U.S. Many observers also are wondering when HHS will release final rules on the proposal and whether it will release public comments on the plan (Norman, CQ HealthBeat, 1/12).
• In a letter to HHS last week, a coalition of patient advocacy groups asked the department to extend the public comment period beyond Jan. 31 on a proposal defining essential benefits in state-based health insurance exchanges. The letter states that more time is needed because of the complexity of the issue and because the bulletin was released right before the holidays. The groups asked for an extension of 45 days to respond (Baker, “Healthwatch,” The Hill, 1/11).

Studying Its Effects

• The federal health reform law will significantly increase the number of individuals with diabetes who are Medicaid beneficiaries, according to a Health Affairs study. Under the health reform law, Medicaid enrollment is expected to increase by about 16 million individuals and about one million of them are expected to have diabetes, according to the study. The researchers found that per capita spending on adult beneficiaries with diabetes was about three times higher than beneficiaries without diabetes (Fiore, MedPage Today, 1/14).
• Insurance premiums would increase by as much as 25% if the federal health reform law is implemented without an individual mandate, according to a new study from the Robert Wood Johnson Foundation. The study found that premiums could increase because young, healthy people would be less likely to purchase coverage. Premiums would increase by about 10% in states with high levels of participation in the new health insurance exchanges and by at least 20% to 25% in states where fewer individuals use the exchanges (Baker, “Healthwatch,” The Hill, 1/12).

Spotlight on ACOs

• A number of states are attempting to control health care spending growth by implementing Medicaid initiatives similar to accountable care organizations, which are mandated under the federal health reform law. Although federal and state officials do not have exact figures on how many states are experimenting with such initiatives, 13 states have submitted Medicaid amendments for medical homes to CMS, and four have received approval so far. States are taking approaches that include shared savings programs and offering bonus payments for improving patient outcomes (Daly, Modern Healthcare, 1/9).

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