Big 'R' or Little 'r'?

State Leadership Turning Spotlight on Medicaid Reform

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Cover Story -- March 2004  

By  Ken Ortolon
Senior Editor  

Last year saw two historic debates with major implications for health care. First, at the urging of President George W. Bush and the Republican leadership, Congress enacted the first major reforms of Medicare in the program's nearly 40-year history. That legislation included a prescription drug benefit that will boost federal health care spending for seniors by $400 billion over the next 10 years and repeal the restrictions limiting the availability of medical savings accounts.

And, at the state level, Gov. Rick Perry and legislative leaders took on organized medicine's No. 1 issue -- lawsuit abuse -- and delivered reforms that already have begun to lower medical liability premiums.

Texas physicians obviously were staunch supporters of liability reform and applauded the Bush administration and Congress for their willingness to tackle what Texas Medical Association President Charles W. Bailey Jr., MD, described as a "long overdue" debate on Medicare reform.

Now, state leaders are setting the stage for a third major health care debate in 2005, one that some physicians say could present an unprecedented opportunity to improve medical care for poor Texans and those with disabilities. Several initiatives are under way, including one by Governor Perry that will take a hard look at transforming Medicaid, the state-federal program that provides care for Texans with disabilities, the elderly, and children and pregnant women living at or near poverty.

"This is a wonderful opportunity to reshape the Medicaid program," said Rio Grande City family physician Antonio Falcon, MD. "My feeling is that in the process we may be able to find a lot of ideas that save money and, in turn, can be rerouted to pay physicians more so there can be greater access. I think it may be a once-in-a-generation opportunity."

Getting to Work  

In November, Governor Perry created a work group of hospital administrators and physicians to reexamine Medicaid from all angles.

Lt. Gov. David Dewhurst announced in January that he has charged the Senate Health and Human Services Committee with a major interim study aimed at identifying new approaches to deliver care to Medicaid patients. Meanwhile, in the House, at least two committees will look at issues related to Medicaid and the Children's Health Insurance Program (CHIP). Speaker Tom Craddick has asked the House Appropriations Committee to look at graduate medical education funding (GME) through Medicaid. All Medicaid GME funds were stripped from the budget in 2003. And a select committee chaired by Rep. Diane White Delisi (R-Temple) is looking at the broader issue of state health care spending, including Medicaid and CHIP.

All this attention is being paid to Medicaid while health care costs are straining the state budget. Texas is not alone. So far, every state has enacted one or more measures to bring their Medicaid and CHIP spending under control.

When lawmakers convened in January 2003, they faced a $10 billion budget deficit, and Governor Perry, Lieutenant Governor Dewhurst, and other leaders were determined to make budget ends meet without enacting new taxes. Virtually every state program took budget hits, including Medicaid and CHIP, which account for nearly a quarter of the state's general revenue budget.

Anne Dunkelberg, of the Center for Public Policy Priorities, says state dollar cuts of roughly $835 million for the biennium translate to a $2.3 billion overall reduction in Medicaid and CHIP spending because of federal matching dollars lost. "Payment cuts for health care professionals, reduced maternity coverage, the elimination of mental health, eyeglasses, hearing aids, and podiatry care for adults on Medicaid, and the elimination of the Medically Needy spend-down program for adults with catastrophic bills are all part of this picture," she said. "Local communities are already feeling these impacts as well as the deep decline in CHIP coverage, with January 2004 enrollment down to 413,000, compared with 506,000 in August 2003."

The Center for Public Policy Priorities describes itself as a nonpartisan, nonprofit policy research organization seeking sound solutions to the challenges faced by low- and moderate-income Texans.

San Antonio pulmonologist John R. Holcomb, MD, who chairs TMA's Ad Hoc Committee on Medicaid, says "nobody has yet recognized the pain" that will come from the loss of federal dollars for Medicaid and CHIP, but he says local hospital districts and county commissioners courts are going to be hardest hit.

"Any county with a hospital district is going to have to pick up the burden for those patients who had some sort of coverage that was a mix of state and federal dollars," Dr. Holcomb said. "Those dollars are no longer available. The county commissioners are going to be very surprised. They are going to have some real trouble making their hospital districts work."

Ron Anderson, MD, president and chief executive officer for Parkland Hospital and Health System in Dallas, says his institution feels the cuts. Parkland alone lost $36 million in Medicaid and CHIP funds, which he says has hurt the viability of Parkland-run managed care plans for Medicaid and indigent patients. It also has forced the hospital to cut staff, delay elective surgeries, reduce pharmacy services, and take other steps to cut costs.

While the revenue has been lost, the patients have not, Dr. Anderson says. "Patients have to be cared for if they come to you," he said. "When you cut Medicaid, you raise the number of uninsured. The people don't go away, the costs don't go away. They get shifted to the nonprofit and public sector locally."

Redrawing the Box  

Concerns raised by the public and nonprofit hospitals apparently gave rise to the governor's Medicaid Reform Workgroup. Dr. Anderson and other hospital industry officials met more than once last fall with representatives of Governor Perry, Lieutenant Governor Dewhurst, and Speaker Craddick to ask them to take a serious look at the Medicaid program. Governor Perry responded with the appointment of the 17-member work group, which includes several hospital representatives, three physicians, a consumer advocate, and other professionals.

The governor asked the group to identify policy initiatives for the 2005 legislative session and suggest potential changes in federal law and policy. The group met twice in November and December and solicited recommendations on how to reform Medicaid from all groups represented on the panel. Those recommendations were submitted on Jan. 16. Dallas internist James Walton, DO, serves on the work group along with Dr. Falcon. He says the goal laid out by the governor is to come up with "innovative ideas to increase the effectiveness and efficiency in the Medicaid program."

Dr. Falcon adds that the governor has asked the work group to "think outside the box" and come up with ideas to make the program better and more cost effective.

"I think he is truly interested in looking at the program in its entirety and finding out what works, what doesn't, what can save us money, and what can bring in more money," Dr. Falcon said.

TMA supports the work group's efforts and its intent. "Texas physicians deeply appreciate your leadership on liability reform, and we equally welcome your initiative to review the Medicaid program," Dr. Bailey said in a cover letter submitted to Governor Perry with the association's recommendations. "Medicaid is inordinately complex. This complexity often drives policymakers to undertake reform at the margins. Physicians welcome your in-depth review of this program not only because it is long overdue but also because we believe it must be transformed. A wholesale overhaul will allow Texas to escape the ranks of states that engage in perennial, painful deliberations about how to 'reform' the program without achieving lasting progress."

Chris Britton, senior fellow with the conservative Austin-based think tank Texas Public Policy Foundation, says the rapid growth in health care spending by states makes this kind of review of the Medicaid program essential.

"With the rate of growth in expenditures and the importance of the program  relative to the population it serves, all of those studies are taking a hard look at what options the state can pursue," he said. "Those efforts need to be encouraged at the state level so states can articulate what direction they need these programs to go in to best manage them."

The Texas Public Policy Foundation is conducting its own study to determine what impact four major reforms might have on both cost and availability of coverage. Those reforms include using personal assets and risk transference mechanisms to offset Medicaid long-term care expenditures, using alternative mechanisms for the management of utilization of services, encouraging Medicaid and CHIP recipients to participate in employer-sponsored health plans, and maximizing federal matching funds. That means finding ways to gain federal matching funds for local dollars currently spent on indigent care that are going unmatched.

Tinkering at the Edges  

Dr. Holcomb says Texas needs to redesign Medicaid "from the bottom up. I think we're going to have to look at the benefit structure, decide where we think those benefits ought to be going, find ways to cover people who are not covered now, and find ways to stem the uninsured rate."

However, some have expressed concern that the governor's work group and state lawmakers will be able to make only so-called "little 'r' reforms" because of the constraints placed on states by federal law and regulations.

"In some ways our hands are tied because of some specific federal verbiage," Dr. Holcomb said. "I'm afraid that the things that are the most likely to produce sustainability are things that are going to have to come from the feds."

Mr. Britton agrees. "Working through the state system, you can do only so much. A lot of it is predicated on fundamental change at the federal level," he said. "I think that states need to articulate what direction they want to go so that you can make that case to the federal government for either regulatory or federal law changes that need to occur."

But Dr. Walton says "big 'R' reforms" just may be a possibility. "The Governor's Office has not limited the work group to ideas that would be simply incremental reform or 'little 'r' reform,' but it also is open to large ideas that would get to reforming the Medicaid system in a macro sense," he said.

And, if that requires congressional action, that may be possible, as well, Dr. Falcon says.

"We have a window of opportunity now to work with the Republican Congress to change some of the things that are onerous in the Medicaid law," he said. "Those changes can be huge, for example, changing the copay or changing who pays for illegal immigrants. Those are all things that can be discussed and brought forward at this point."

Principle-Driven Reform  

The Ad Hoc Committee on Medicaid developed the TMA recommendations. That panel originally was appointed to provide input to the legislature in the Medicaid reform and budget debate in 2003. The panel since has been reappointed to monitor reforms enacted last year, including creation of a Medicaid Preferred Drug List, and to provide input to the governor's work group.

In addition to Dr. Holcomb, Drs. Walton and Falcon are among a wide range of primary care and specialty physicians on the TMA committee.

In formulating recommendations to the governor's work group, the ad hoc committee developed a set of principles it believes should guide any reforms of the Medicaid system. (See " TMA Lays Out Medicaid Transformation Principles .") The committee urged that any reforms:

  1. Ensure patient access to timely, medically necessary primary and specialty care services;
  2. Promote cost-effective, proactive, and appropriate use of medical services;
  3. Simplify Medicaid regulatory requirements and streamline the delivery system; and
  4. Encourage innovative partnerships between the public and private sectors to address shared health goals.

Among the strategies identified by the committee for achieving those goals are to increase primary and specialty care physician participation; to promote the use of a "medical home" for all patients to coordinate and manage preventive, primary, specialty, and ancillary services; to enhance preventive care for all patient populations; and to continue the use of disease management initiatives. Underpinning all of those strategies is an implicit priority to make sure participating physicians in all appropriate specialties are available to deliver and support those services.

The ad hoc committee also made a specific recommendation to enhance Medicaid managed care by incorporating oversight and management of home health and durable medical equipment services. The panel also said the state should revisit the issue of federal Medicaid waivers relating to psychotropic medications, HIV/AIDS medications, women's health, and other services.          

Meanwhile, other groups represented on the governor's work group have weighed in with recommendations. Dr. Anderson said the Texas Hospital Association and the Texas Association of Public and Nonprofit Hospitals likely would recommend the state seek a waiver under the federal Health Insurance Flexibility Act to allow the state to expand Medicaid coverage to the working poor through which employees or their employers would pay copays or part of the coverage premiums.

Ms. Dunkelberg, who is the consumer representative on the work group, also has recommended restoration of some services cut by the legislature last year. The Center for Public Policy Priorities also supports the waivers regarding women's health, psychotropic medications, and AIDS services endorsed by TMA.

Regardless of the outcome of the deliberations of the governor's work group or legislative panels, the discussion at least is bringing the diverse elements of the health care industry together to focus on the problem, Dr. Anderson says.

"One of the things that's good is the industry has become stirred up about this," he said. "I'm seeing good discussions occur at the Texas Hospital Association. They've invited the Texas Association of Public and Nonprofit Hospitals, the rural hospitals, the children's hospitals, everybody together. I see the industry coming together to some degree. I see TMA taking a leadership role. We've got to try to come together as an industry and come together as advocates and look at this from the best perspective of what's good for the state."

Ken Ortolon can be reached at (800) 880-1300, ext. 1392, or (512) 370-1392; or by email at  


TMA Lays Out Medicaid Transformation Principles

Any changes in the state's Medicaid program should ensure patient access to timely, medically necessary care and promote cost-effective, proactive, and appropriate use of medical services.

Those are among a set of principles and recommendations developed by the Texas Medical Association Ad Hoc Committee on Medicaid and submitted to the governor's Medicaid Reform Workgroup in January.

"Medicaid transformation is important to all of our members," TMA President Charles W. Bailey Jr., MD, said in a letter submitted with the recommendations. "Physicians understand that changes to Medicaid impact the entire health care delivery system."

Dr. Bailey added that TMA believes "any systemic transformation must be driven by a framework of principles that can be used to evaluate specific proposals that emerge over time."

Under those principles, TMA believes any reform should:

  • Ensure patient access to timely, medically necessary primary and specialty health care services.
  • Promote cost-effective, proactive, and appropriate use of medical services.
  • Simplify Medicaid regulatory requirements and streamline the delivery system.
  • Promote and improve health care quality.
  • Recognize the interdependence of Medicaid and the public health system.
  • Assure accountability among all elements of the Medicaid system.
  • Maximize use of all available funding streams.
  • Recognize the necessity of an adequate, diverse physician and allied health professional workforce.
  • Encourage innovative partnerships between the public and private sectors to address shared health goals.
  • Recognize the diversity of the Medicaid population and devise strategies to address the unique health care needs and costs of each.

In addition to those principles, TMA also submitted eight specific recommendations for Medicaid reform. Those recommendations suggest that lawmakers:

  • Explore enhancing Medicaid managed care (HMO and primary care case management [PCCM]) by incorporating oversight and management of home health and durable medical equipment services into the responsibilities of the primary care provider.
  • Revisit implementation of federal Medicaid waivers relating to psychotropic medications, HIV/AIDS medications, women's health, etc., that could be used to fashion more cost-effective delivery of care in the long term.
  • Encourage accountability among patients as well as an investment in their own health care through implementation of nominal, administratively simply patient cost-sharing requirements within the Medicaid program.
  • Establish an emergency department utilization planning forum to research, analyze, and implement local, regional, and/or state approaches to reducing emergency department services for non-emergent care.
  • Develop protocols for appropriate transfer of patients from the nursing home to hospitals.
  • Enhance the existing PCCM model to enhance opportunities for additional savings through use of better care coordination, patient management, and disease management.
  • Explore initiation of "smart card" technology for integrating Medicaid eligibility, claims submission, and payment.
  • Seek a Health Insurance Flexibility Act waiver to blend local, state, and private (employer and employee) funds to create affordable health insurance options for low-income workers.

The complete text of the TMA guiding principles for Medicaid reform and the initial recommendations of the Ad Hoc Committee on Medicaid are available on the TMA Web site at

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