Rationalizing Rationing in Arizona’s Medicaid Program

A Harris Interactive/HealthDay poll released on Monday reiterated the deep divide that many Americans feel over the reform law. Roughly one-third of respondents said the law should be repealed, while another third wanted to preserve it. The final third was undecided.

According to the poll, most opponents of the law believe that reform will diminish, not improve, access; 74% said it will lead to a “rationing of health care.”

But what if rationing’s already here?

More physicians say they’re cutting back their Medicare patient loads because of low reimbursement.  Insurers are testing standardized payment methodologies amid new pressures to scale back spending under reform. And a state — Arizona — has begun denying lifesaving treatments to Medicaid enrollees.

State Officials Confront New Realities

Arizona officials say they’ve been forced to make drastic Medicaid cuts, and they’re hardly alone in seeking to trim program spending. Most states are struggling with soaring enrollment and limited funding for Medicaid. Meanwhile, CMS is working to boost Medicaid access ahead of the program’s official expansion in 2014.

State officials’ calculus, though, is complicated by the combination of the federal stimulus and health reform laws. Under those laws’ requirements, states must maintain certain levels of Medicaid eligibility to qualify for federal matching funds, prompting state officials to cut around their programs’ edges, scaling back provider payments and non-required benefits for enrollees.

A Kaiser Family Foundation report released in September paints a bleak picture. Every state but Arkansas and North Dakota made cuts to some element of its Medicaid program last year. About 80% of programs scaled back or eliminated some provider payments, while two-fifths of programs dropped coverage for services like dental care and imaging. A similar number of states are expected to make equivalent cuts in 2011.

Arizona Known for Considering Aggressive Cuts

Arizona’s health insurance programs have repeatedly been on the chopping block as officials try to cut their way out of a fiscal crisis. Facing a $2.6 billion shortfall, Arizona in March became the first state to trim its Children’s Health Insurance Program, dropping coverage for about 47,000 low-income children, only to restore the program’s funding weeks later.

In this latest case, Arizona sought to save $20 million through June 2011 by eliminating Medicaid coverage for basic health services, like physicals and podiatry, in addition to instituting very specific cuts to transplant coverage. Notably, Arizona will not cover organ transplants for Medicaid patients with hepatitis C, as well as lung transplants and certain heart, bone-marrow and pancreas transplants for all beneficiaries. Altogether, about 100 transplant patients have been affected by the change.

According to the New York Times, “no other state in recent memory has made such a numbers-driven calculation pitting the potential loss of life against modest savings,” and Arizona has faced controversy since the cuts took effect on Oct. 1. “For a state agency to deny and even revoke approval for an accepted standard of care is new territory,” says David Cronin, director of the Liver Transplantation at Children’s Hospital of Wisconsin.

After the changes, one Arizona patient was admitted to a hospital for a necessary liver transplant but was subsequently discharged after being unable to come up with a $200,000 deposit. Another cancer patient died, several weeks after learning that providers had found a viable bone-marrow donor, but that he had lost coverage, too.

Health Law Bound Up in Decision-Making

Arizona’s decision to cut back on transplant funding was based on a review of medical and statistical data with guidance from clinicians, state officials said. “When you are in a situation where there isn’t any money, and you have to make reductions, there were very hard choices that had to be made,” said Monica Coury, a spokesperson for Arizona’s state Medicaid program. The state’s governor, Jan Brewer (R), has pinned the blame on the federal health reform, although the Times notes that the cuts were made separately and prior to President Obama signing the reform bill into law.

Ironically, federal health reform is intended to increase transparency about the relative effectiveness of treatment — the very issue that Arizona lawmakers say would have helped them make a better decision. According to John Kavanagh, chair of Arizona’s House Appropriations Committee, state legislators lacked complete information about the effectiveness of transplants. For example, a state report tracking 14 Medicaid patients found that 13 died within six months of receiving bone marrow transplants. Outside specialists have since disagreed with the findings and suggested that transplant success rates are significantly better. Armed with this more accurate data, “it looks like most [transplant patients] should be reinstated,” Kavanagh said.

A further paradox is that the reform law was designed to help the poorest U.S. residents obtain life-saving treatments, but many states are weakening their Medicaid programs, rather than strengthening them. “While it’s tempting to make political hay out of this, the reality is Arizona’s decision, as painful as it may be, reflects decisions we as a society have to make,” writes health care consultant Joe Paduda.

Denials May Foreshadow Similar Decisions

The outcry may prompt Arizona’s Legislature “to reverse the cuts when it meets in January,” according to Sally Satel, a resident scholar at the American Enterprise Institute. However, the decision to trim transplant benefits represents a “real sign of the times” and a potential “precursor” to similar decisions by other states, said Alan Weil, executive director of the National Academy for State Health Policy. Namely, added federal funds for Medicaid can’t keep pace with the program’s growth, meaning officials are expected to keep finding ways to ratchet down costs and look for savings — even if that means making hard decisions as the federal reform law is implemented. According to the Children’s Hospital of Wisconsin’s Cronin, Arizona’s decision may be a “dress rehearsal” for future cuts in other states, given the government’s growing role as insurer.

Here’s a look at other recent health reform developments.

Spotlight on Newly Elected Governors

  • As Republicans discuss strategies to repeal and replace the federal health reform law, newly elected GOP governors are taking steps to implement the overhaul in their states. Last week, Rep. John Boehner (R-Ohio) hosted 16 newly elected GOP governors in Washington, D.C., to discuss strategies for repealing the law. However, Maine Gov.-elect Paul LePage (R) said he still intends to work toward implementing the law. “I want to get all the money I can, without strings,” he said. In addition, Ohio Gov.-elect John Kasich (R) said, “I favor repeal and replace, but, look — I have to be in a position of designing a Medicaid program that’s got to work” (Ethridge, CQ Today, 12/1).
  • Last week, President Obama defended the federal health reform law during a meeting with 23 newly elected state governors, many of whom were Republicans. Oklahoma Gov.-elect Mary Fallin (R) said after the meeting, “The president was very firm that he does stand by his health care bill.” South Carolina Gov.-elect Nikki Haley (R) asked if her state would be able to opt out of a mandate requiring businesses to offer health coverage to their workers. Obama said he would consider letting the state opt out if it developed a solution that included a state exchange, prevented insurers from dropping coverage for people with pre-existing conditions and allowed for insurance pooling (Werner, AP/Washington Post, 12/3).
  • Since the midterm elections, HHS Secretary Kathleen Sebelius has reached out to newly elected governors through phone calls, letters and in-person meetings to build relationships prior to states’ implementation of several health reform provisions. Alabama Gov.-elect Robert Bentley (R) said, “I think before the … election there was not as much interest by the federal government in allowing the states some flexibility in creating their own [insurance] exchanges.” Meanwhile, many new Republican governors campaigned on dismantling the law and have pledged to turn down voluntary provisions. Kansas Gov.-elect Sam Brownback (R) said, “We’ll oppose [the law] every bit we can” (Haberkorn, Politico, 12/7).

On the Hill

  • Last week, Senate Finance Committee Chair Max Baucus (D-Mont.) said he is working with Sen. Mike Johanns (R-Neb.) to seek an agreement to repeal the 1099 tax-reporting provision in the federal health reform law. The Senate previously voted down two amendments in a food safety bill that would have repealed the 1099 provision. The provision is estimated to raise $19.2 billion in revenue from 40 million businesses that would need to start filing 1099 forms. Baucus has not yet provided ideas on how to replace that money if the provision is repealed (Ethridge, CQ Today, 11/30).
  • Democrats at a Senate Commerce Committee hearing last week criticized low-cost “mini-med” health plans, saying their limited coverage can be worse than no coverage at all (Stephenson, Reuters, 12/1). Some of the plans offer as low as $2,000 in annual benefits. Sen. John Rockefeller (D-W.Va.) said U.S. residents enrolled in the limited plans believe their health coverage will protect them from financial ruin if they become seriously hurt or ill. Rockefeller said the plans are worse than being uninsured “because of the false expectations and the false hope” (Abelson, New York Times, 12/1).
  • Some lawmakers are making contingency plans in the event that the individual mandate in the federal health reform law is struck down in the courts or is repealed by Congress. Sen. Ben Nelson (D-Neb.) recently said he is preparing legislation that would replace the mandate with financial incentives to purchase coverage. Meanwhile, Sen. Mike Enzi (R-Wyo.) said everyone should at least have catastrophic coverage. However, instead of mandating such coverage, Enzi said he would seek to ensure that those without insurance still pay the full cost of their own medical bills (Reichard, CQ HealthBeat, 12/3).

Eye on Small Business Tax Credits

  • Last week, the Obama administration released a fact sheet providing additional information on small-business tax credits available through the federal health reform law, in an attempt to encourage more employers to apply. U.S. officials have estimated that about four million small businesses could qualify for the credit, which is available to businesses with fewer than 25 full-time workers whose annual incomes average less than $50,000. The Congressional Budget Office has estimated that the credits could save small businesses $40 billion by 2019, according to the new fact sheet (Bunis, CQ HealthBeat, 12/2).
  • BlueCross BlueShield Association President Scott Serota praised the new guidance on small business tax credits. However, the National Federation of Independent Businesses — which joined in a multistate lawsuit opposing the reform law — is unsure how many small businesses actually will be able to use the credit. The group has estimated that fewer than two million small businesses could qualify because of the limitations on wages and workers (Bunis, CQ HealthBeat, 12/2).

Challenging the Overhaul

  • The office of Virginia Attorney General Ken Cuccinelli (R) is considering filing a petition to fast track the state’s lawsuit challenging the constitutionality of the federal health reform law’s individual mandate and send the case directly to the U.S. Supreme Court. Cuccinelli said state officials have talked with the Department of Justice about the possibility of circumventing the standard procedure for such cases, in which a complaint first is reviewed by a federal appeals court before it is sent to the Supreme Court. Cuccinelli said the state has inquired about a petition for a writ of certiorari to send the lawsuit directly to the high court, but he noted that “nothing’s been concluded” (Nolan, Richmond Times-Dispatch, 12/5).
  • Wisconsin Attorney General J.B. Van Hollen (R) recently said his office is examining two options for a challenge to the federal health reform law: filing its own lawsuit that would resemble a pending case in Virginia or joining the multistate lawsuit against the overhaul. Van Hollen said that “work is under way” to gauge the viability of the two options, adding that his staff is in contact with staff for Virginia Attorney General Ken Cuccinelli (R) and Florida Attorney General Bill McCollum (R). Van Hollen said he expects to make a decision in about a month, around the time Gov.-elect Scott Walker (R), who opposes the health reform law, takes office (Boulton, Milwaukee Journal Sentinel, 12/5).

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