Rationalizing Rationing in Arizona’s Medicaid Program

Rationalizing Rationing in Arizona’s Medicaid Program

Both parties have debated whether the federal health reform law would lead to rationing. After Arizona's unprecedented cuts to its Medicaid program, new questions have emerged about the difficult trade-offs around health care spending.

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 Roughly one-third of respondents said the law should be repealed, while another third wanted to preserve it.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

On the Hill

Eye on Small Business Tax Credits

Challenging the Overhaul

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