Medicaid Mess

Cuts Will Reverberate Through the Texas Economy and Medical Community

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Cover Story -- June 2003  

By Walt Borges
Associate Editor  

How is a critical mass of uranium like Texas state budget cuts in Medicaid and the Children's Health Insurance Program (CHIP)? Both will begin chain reactions that, if unchecked, will have devastating effects on human life.

If this observation seems a bit pointed, listen to the words of M. Ray Perryman, PhD, a noted Texas economist whose predictions have been a mainstay of state economic policy for 15 years.


For Web sites
dealing with
Medicaid, see
June 2003 MedBytes

"The proposed cuts in Medicaid and CHIP [will] set off a chain reaction of responses in terms of access, insurance rates, local taxes, and dynamic fiscal resources which yields adverse consequences and minimizes or eliminates any short-term increases n [state] revenue," Dr. Perryman noted this spring.

If the warnings from Dr. Perryman and others have the markings of a jeremiad, it's because the statements about the demise of the state's health care programs for the poor and uninsured seem to have fallen on deaf ears in Austin.

By the time you read this, the Texas Legislature will have slashed the state budget, with the unkindest cuts falling on Medicaid and CHIP. The $25 billion spent on state Medicaid programs -- $15 billion on acute care -- would be pared by up to $8 billion in some budget proposals.       

How much Medicaid and CHIP would be slashed was unknown at press time because the Texas Senate's budget-cutting ax appeared a little less sharp than the one wielded by the Texas House. The differences in the two plans were to be resolved in a conference committee of the two houses.

But what is certain is that while the poor, those with disabilities, the young, and the old who are deprived of health care will bear the brunt of the cuts and decreased access to care, the secondary impact will be felt through all layers of the economy, and not the least in medicine. Physicians across the state will be struggling and health care jobs will be lost, even as Texas faces a growing access crisis for the poor.

Take Carlos Gutierrez, MD, an El Paso pediatrician who closed his office after 23 years last November after finding that Medicaid and CHIP fees could no longer provide enough income to meet rising expenses.

"Prior to the advent of CHIP, 40 percent of my practice was Medicaid," Dr. Gutierrez recalled. "After CHIP, it became 60 percent Medicaid and CHIP, rising to 75 percent. I was seeing 60 to 90 patients a day, and I still couldn't make ends meet. For three months before closing the practice on Nov. 1, I didn't draw a check."

Dr. Gutierrez has moved on, joining a group practice of 36 physicians, but he still has misgivings about the situation facing his former patients.

"The group limits the number of CHIP patients and Medicaid patients," he notes. "I'm doing better financially, but I can't help but worry about what has happened to the people. Who suffers? The patients do."

Dr. Gutierrez sounds another warning.

"What you need to realize is that many other physicians are close to making the same decision I did.  I foresee physicians not taking Medicaid and CHIP patients. I fear for the poor, and I fear for this region. How will we keep physicians here if they can go to other regions of the state, to the cities, and be paid more? We just lost our only pediatric gastroenterologist in El Paso. Who wants to see three times more patients than they would in another city, get paid less, and pay higher liability insurance premiums? We physicians will survive, but we will go somewhere else to practice."

Border Troubles  

John R. Holcomb, MD, vice president of clinical services for Methodist Healthcare System in San Antonio and chair of TMA's Ad Hoc Committee on Medicaid, agrees with Dr. Gutierrez. Dr. Holcomb predicts that high-volume Medicaid practices will close and move to other Texas cities or to other states. When that happens, "access will fall for everyone," he said, as the non-Medicaid portion of the practice would then be without a physician.

"Among physicians, there are a couple of different groups that will be affected," Dr. Holcomb noted. "The first is the rural and border physicians. They have a major portion of their practices devoted to Medicaid patients. Depending on the specialty, it may cost them $40 to $50 to see patients and they get back $25 to $30 from Medicaid. Unless they have a huge volume of these patients and can minimize costs, these doctors are losing money for each Medicaid patient they see."

Dr. Gutierrez says that in Trans-Pecos Texas, the concept of cutting reimbursements by 3 to 5 percent is ridiculous.

"It's horrible," he said. "It costs $26 in overhead to see a patient in El Paso, and that doesn't include the physician's salary. We are paid $28, and they want to drop the fee another 5 percent. You can see that it's crucial that the reimbursement not be cut further."

Dr. Holcomb notes that the legislature attempted to address this problem several years ago by offering physicians with a high volume of Medicaid patients a 2-percent fee "bonus," the only physician fee increase in Medicaid in the last 12 years. But anyone can do the math and see that such bonuses are insufficient when reimbursement is running 30 or 40 percent below the actual cost of seeing a patient.

"So why do these doctors see Medicaid patients? They see those patients because they see it as doing a service for the community," Dr. Holcomb said.

Dr. Holcomb, a pulmonologist, says his practice is representative of other doctors affected by the cutbacks. In his practice, Medicaid has always accounted for less than 10 percent of revenues; currently, for less than 5 percent.

"We see Medicaid patients because there is a community need to treat these people," Dr. Holcomb explained. "For a pittance, we see and treat complicated medical cases."

As a result of low reimbursement, he cannot justify taking new Medicaid patients. "I won't abandon the patients I'm seeing now, but I can't afford to take new ones."

Dimensions of a Crisis  

TMA's 2002 biannual physician survey and an April 2003 survey by the Texas Academy of Family Physicians (TAFP) lend credence to Dr. Holcomb's predictions.

In the TMA survey, Texas physicians reported that Medicaid accounted for 11 percent of practice revenues in 2002, down from 14 percent in 2000. Among the specialty physicians surveyed in 2002, pediatricians received 27 percent of their practice revenues from Medicaid and 10 percent from CHIP. For obstetrician-gynecologists, 14 percent of revenues were attributable to Medicaid patients and 2 percent to CHIP. Family practitioners reported 15 percent of revenues from the two programs, with 13 percent from Medicaid.

While CHIP revenues ranged from 1 to 3 percent by geographical region, Medicaid revenues showed a strong relationship to geography. (See " Medicaid and Texas Geography .")

The falling revenues from Medicaid reimbursements were reflected in less access to care. While 96 percent of the doctors in the 2002 survey accepted new patients in their practices, only 49 percent would accept all new patients covered by Medicaid. Another 23 percent said they would accept new patients but would limit the number of Medicaid patients they see. That left 28 percent unwilling to accept Medicaid patients at all.

Two years before, in 2000, 67 percent of the surveyed doctors accepted all Medicaid patients and 23 percent accepted patients up to a practice limit. The remaining 10 percent did not see any Medicaid patients.

Only 40 percent of the surveyed physicians in 2002 would accept new CHIP patients, while another 10 percent would accept patients if they had not reached the limits set by their practices. That means that 50 percent of the surveyed doctors would not accept new CHIP patients.

TAFP added more fuel to the fire of concern with its survey indicating that 40 percent of family physicians who treat Medicaid patients would leave the health care system because of the reimbursement cuts being considered.

"There will be a mass exodus of physicians leaving the Medicaid program if reimbursements that are already inadequate are cut further," said TAFP President Robert Hogue, MD.

The House budget proposal included a 5-percent reduction in payments to physicians. The Texas Senate was focusing at press time on 3.5-percent cuts.

TAFP maintains that Medicaid paid only about 50 percent of the cost of seeing Medicaid patients in 2002, and the budget cuts would make matters far worse.

The TAFP survey found that 89 percent of the state's family physicians participate in the Medicaid program, but only 59 percent would continue to participate if reimbursements were cut 5 percent.

New Medicaid patients would have an even tougher time finding doctors. While 78 percent of family physicians surveyed by TAFP accepted new Medicaid patients under the 2002 reimbursement, only 32 percent said they would accept new patients under the reimbursement cutbacks.

It's even worse for patients who need referrals to specialists. The survey found that 84 percent of the family physicians already had difficulty in making referrals of Medicaid patients to specialists. Dr. Hogue says fee cuts will make the problem worse. 

Other voices also are sounding the alarm.

At the Texas Department of Health, the Health Disparities Task Force reported in February that the state should maintain or increase funding for Medicaid and CHIP.

"CHIP and Medicaid programs must not be reduced, because they are valuable tools for access to health care," the task force wrote.

The report was accepted, but its recommendations were ignored and not discussed during the debates over Medicaid and CHIP budgets.

Hidden Costs  

Dr. Holcomb is baffled by the apparent lack of foresight among legislators and the state's elected leaders who back the Medicaid cuts as a budget balancer. The cuts ignore the reality that the uninsured and poor will continue to get sick. The cuts instead transfer the costs of that care from the state to local governments, he says. (See "Medicaid by the Numbers.")

"The legislature may trim 200,000 kids from the Medicaid and CHIP rolls, but those are 200,000 kids who will still get sick," Dr. Holcomb pointed out. "Parents without private insurance, Medicaid, or CHIP will delay taking their kids to a doctor until they are very ill. Then the kids will be taken to the hospital. Many will stay 10 days longer than they should because they can't find a subspecialist to see them."

Dr. Holcomb says the 100-plus hospital districts in Texas and their supporting taxpayers will end up with the bill for treating the uninsured. But health insurers also will pick up part of the tab.

"As much as possible, the hospital districts will try to protect taxpayers and shift some of the cost to health insurers," Dr. Holcomb said. "That may mean that a hospital room will cost $950 a day versus $900 the year before. For patients with insurance, the insurer will cover the additional cost."

Health insurers will wrap the increased costs into premiums, which will be paid by employers and their insured workers, Dr. Holcomb says.

Dr. Holcomb also objects to cuts in state Medicaid spending for fiscal reasons.

"We lose the matching dollars for Medicaid that the federal government provides. Instead of providing care for the poor for 30 cents on the dollar, we will end up paying the whole dollar."

The federal dollars lost in Texas will end up in other states, he predicts.

"The whole idea of cutting back is cost ineffective. What is saved in the state budget, we'll end up paying in our local communities."

Evaluating the Impact  

Dr. Perryman's recent study of Medicaid's impact on the state economy (found on the TMA Web site at ) was commissioned by TMA and the Texas Hospital Association. It assessed CHIP's and Medicaid's impact on the Texas economy by analyzing their current spending levels and estimating what they would be after economic "multipliers" -- factors that amplify the effects of spending -- come into play.

The Perryman study found that current Medicaid spending of approximately $25 billion in 2002-03 brought overall benefits to the state of $56.174 billion in total expenditures, $29.5 billion in gross state product, and 474,420 jobs.

The federal contributions to Texas Medicaid spending accounted for the majority of the economic effect, generating $33.7 billion in expenditures (another word for business activity), $17.7 billion in gross state product, and 284,360 jobs.

The Perryman Group found that CHIP generated $2.67 billion in expenditures, $1.4 billion in gross state product, and 22,562 jobs. Again, federal matching funds provided a majority of the multiplied benefits to the Texas economy, creating $1.96 billion in expenditures, $1 billion in gross state product, and 16,276 jobs.

Even the state government benefits from taxes such economic activity generates. Dr. Perryman and his team found that Medicaid and CHIP generated $1.53 billion in taxes, fees, and other state revenues, offsetting nearly 24 percent of the state cost of the programs.

The Buck Stops Here  

"For some, this crisis is an opportunity to resize government," said Ron Anderson, MD, chief executive officer of Parkland Memorial Hospital in Dallas. He also is a member of the prestigious Kaiser Commission on Medicaid, which has conducted in-depth analyses of the Medicaid system and its problems.

"There are 40 states with a budget deficit, and 25 are going to solve their budget problems in part by cutting back Medicaid programs," Dr. Anderson said. "Many are making it harder to get care by erecting barriers to enrollment. Others use other means. For example, Utah funds primary care, but not hospitalization, by deleting optional programs previously funded by Medicaid."

Nationwide, the shortfalls in Medicaid total $72 billion, he says, but the Kaiser Commission found that only $6.9 billion of that deficit was due to increases in Medicaid and CHIP payments.

"The rest was revenue decline due to falling sales tax revenues and capital gains taxes," Dr. Anderson said.

At the same time, enrollment in the Texas program is among the lowest enrollments in the country, Dr. Anderson explained. Women and children make up 75 percent of the recipients, but Medicaid spending on women and children comprises only 23 percent of the total. The other 77 percent of Medicaid dollars are spent on the elderly and Texans with disabilities.

"In Texas, the problem with Medicaid is not that it is broken or out of control," Dr. Anderson said, explaining that a rise in enrollment during economic downturns is expected.

"Still, fewer people are on Medicaid today than in the early '90s," Dr. Anderson said. "Medicaid in Texas is a conservative if not penurious program.

"The problem is a revenue problem," he added. "There's not enough revenue taken in by the state. In Texas, that is a long-term problem."

If Medicaid takes care of fewer Texans, "it affects the poor -- and everyone else," Dr. Anderson said. "A lot of people in Austin are failing to see the connections."

Walt Borges can be reached at (800) 880-1300, ext. 1385, or (512) 370-1385.

Medicaid and Texas Geography

The impact Medicaid has on a physician's revenue depends on the part of the state in which he or she practices, according to TMA's 2002 physician survey. The survey revealed the following:


Region   Percentage of Medicaid Revenue  
Brownsville and South Texas
El Paso and West Texas
Lubbock and Northwest Texas
San Antonio and Houston
North Central Texas

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Medicaid by the Numbers

Families USA advocates continued Medicaid funding to take care of the needs of American families without health insurance. In January 2003, it released a report entitled "Medicaid: Good Medicine for State Economies," from which the following numerical profile is drawn:


$280 billion   Estimated Medicaid spending in the nation in 2003
$159 billion   Federal contribution to state Medicaid programs in 2003
$121 billion   50 states' share of funding for Medicaid programs in 2003
187,901   Number of jobs generated by state Medicaid spending in Texas in FY 2001
47 million   Number of Americans whose health care was paid for by Medicaid in 2002
45   Number of states that limited state Medicaid funding in 2001
41   Estimated number of states attempting to cut state Medicaid funding in 2003
77 percent   "Discount" provided to some states through matching fund grants for Medicaid
43 percent   Percentage of Medicaid federal grants to the state
2   Rank of Medicaid spending in state budgets, surpassed only by state spending on elementary and secondary education

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