Medicaid Mess: Growth in Enrollment Worsens Funding Problems

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Legislative Affairs Feature -- July 2002  

By  Ken Ortolon
Senior Editor

When the Texas Legislature adjourned in May 2001, physicians and advocates for the poor and uninsured were giving themselves a well-deserved pat on the back for their successes during the session.

Lawmakers went into the 77th session staring at a projected $5 billion budget shortfall and the need to make an emergency appropriation to fund the final month of Medicaid from the previous biennium. Despite that, Medicaid advocates won the first significant provider fee increase in almost a decade, as well as major reforms to make it easier for low-income children to enroll in the program and stay on Medicaid longer without re-enrolling.

But Medicaid may be a victim of its own legislative successes. Just nine months into the current biennium, Medicaid once again was facing substantial cost overruns brought on by rapidly rising pharmaceutical costs and tremendous caseload growth resulting largely from the 2001 reforms and a flat economy. And, with lawmakers once again facing a projected multibillion-dollar budget shortfall going into the 78th Legislature in 2003, lawmakers and key stakeholders are scrambling to find solutions to these budget woes.

"We, like many states, are experiencing tremendous growth in Medicaid enrollment," said Texas Health and Human Services Commissioner Don Gilbert. "We will have an estimated 2.2 million recipients in Medicaid by the end of this biennium. That's up considerably from what was appropriated."

Good News, Bad News  

The good news for Medicaid is that outreach programs and the easier enrollment process have been hugely successful in getting poor children into Medicaid. The bad news is that the successes have outstripped what lawmakers budgeted to pay for enrollment increases this biennium.

As of mid-May, Medicaid enrollment was already more than 150,000 recipients over what had been projected for 2002. By the end of the biennium, that number will rise to 230,000 more recipients than expected, says Commissioner Gilbert. That means the state will average some 175,000 more Medicaid enrollees than expected for the entire two-year budget cycle. Almost all of those new enrollees are children.

Commissioner Gilbert says some of the Medicaid enrollment jump can be blamed on the flattening economy. "There's no doubt that there's a relationship between Medicaid enrollment and the state of the economy," he said. "But far more than that are two things that have driven the Medicaid caseload."

The first, he says, is the massive outreach effort that accompanied the launch of the Children's Health Insurance Program (CHIP), which provides insurance coverage for children in families that earn too much to qualify for Medicaid but too little to afford private insurance.

"We contracted with community-based groups to be our outreach entities to go out into the communities and help families without insurance enroll in the CHIP program," Commissioner Gilbert said.

That outreach effort has brought more than 550,000 children into CHIP, but it also has identified thousands who qualified for Medicaid, as well.

The second major factor is Senate Bill 43, the children's Medicaid simplification bill passed in 2001. Authored by Sen. Judith Zaffirini (D-Laredo), the bill changed the Medicaid enrollment process to be similar to the simpler CHIP enrollment process. The application form has been cut to three pages, and providing proof of income and assets has been made easier. Now, Medicaid applicants do not have to go into local Medicaid offices to enroll their children. The application can be completed by telephone or mail.

Commissioner Gilbert says lawmakers and the Health and Human Services Commission (HHSC) underestimated by almost half the impact simplification would have on Medicaid enrollment. And the price tag for the enrollment jumps and rising drug costs has been placed at $197 million over what was appropriated for the biennium. That number could go even higher.

Juggling Act  

While HHSC is staring at a nearly $200 million shortfall, it also has had the unenviable task of looking for ways to scrub an additional $205 million from the Medicaid budget. In the 2002-03 appropriations bill, lawmakers outlined mechanisms to reduce Medicaid spending by that amount. Those mechanisms included expansion of the primary care case management model (PCCM) for Medicaid managed care statewide and implementation of a sliding-scale copayment for Medicaid patients. Those proposals, however, were put on hold.

Instead, HHSC hopes to achieve much of the $205 million in savings through three steps. First, it proposes to change how it pays National Heritage Insurance Co. (NHIC), the state's Medicaid administrator. Instead of the insured premium arrangement that currently exists with NHIC, the company would act merely as a fiscal agent for the program. Instead of paying a monthly premium to NHIC, the commission would pay the company enough to cover each month's claims. That would free $88 million from a Medicaid trust fund that previously was used to pay claims in months when claims for services exceeded the monthly premium.

Second, HHSC has slashed some $48.5 million from hospital reimbursement through selective contracting. That is nearly twice what was anticipated under the appropriations bill.

The third major piece is $62.6 million in savings achieved through pricing changes in the Medicaid Vendor Drug Program.

Commissioner Gilbert says expansion of the PCCM model likely is on hold indefinitely.

"Frankly, the savings that we expected to get from expanding the PCCM model had mostly to do with more aggressive contracting for hospital care," he said. "The savings that we would have achieved through PCCM expansion have been taken care of in the hospital rate decreases that we are about to make."

Meanwhile, HHSC also has been looking for ways to squeeze money out of existing funds to cover the $197 million projected overrun. In testimony before interim legislative committees this spring, the commissioner laid out a proposal that would defer $225 million in costs to the next biennium by changing Medicaid's accounting system from an accrual basis to a cash basis. That means claims for services would be paid out of the appropriations for the biennium in which the claims are received, not the biennium in which the services were provided. That change would require legislative approval.

The Continuing Crisis  

No one is expecting Medicaid caseload growth or other cost drivers to slow anytime soon, so lawmakers and stakeholders --such as physicians, hospitals, pharmacists, and drug manufacturers -- are actively looking at additional ways to rein in spending.

A Joint Interim Committee on Health Services was appointed by acting Lt. Gov. Bill Ratliff (R-Mount Pleasant) and House Speaker James E. "Pete" Laney (D-Hale Center). Cochaired by Senator Zaffirini and Rep. Patricia Gray (D-Galveston), the interim committee has been charged with monitoring the impact of Medicaid and CHIP on the state budget.

"The cost of health care is driving the Texas state budget harder, higher, and faster than any other item," Lieutenant Governor Ratliff said in announcing the creation of the panel last September. "We must find a way to corral the costs while we continue to provide the services Texans need."

The interim committee is monitoring Medicaid cost containment and the implementation of children's Medicaid simplification legislation passed last year. It also is monitoring the administrative reorganization of Medicaid and CHIP, acute health reimbursement rates, caseload and cost projections, federal action affecting both programs, and any other items identified as relevant by the committee.

Several other legislative committees also are looking at Medicaid costs.

Meanwhile, Commissioner Gilbert asked the Texas Medical Association and the Pharmaceutical Research and Manufacturers of America (PhRMA) to form a work group to identify short- and long-term strategies to reduce Medicaid prescription drug costs. That group, cochaired by TMA Board of Trustees member Josie R. Williams, MD, of Bryan, began its work in December and already has produced several recommendations for short-term savings. Some of them were included in the proposed $62.6 million in cost savings HHSC already has proposed in the Medicaid Vendor Drug Program.

Short-term savings initiatives recommended by the TMA-PhRMA work group include:

  • Reducing the maximum allowable day supply for prescription drugs from 180 days to 34 days in combination with changes in patient prescription drug limits. This would reduce waste that occurs due to changes in drug therapy, poor tolerance of medications, or discontinuation of medications.
  • Encouraging use of generic drugs and maximizing use of Medicaid's maximum allowable charge for name brand drugs.
  • Deriving savings from upcoming patent expirations on numerous name brand drugs.
  • Educating physicians to improve their usage of prescription drugs. That education includes partnering with HHSC to disseminate physician prescribing pattern reports to educate physicians and other prescribers about their prescribing habits in comparison to their peers and inform them about drug costs; development of a peer education initiative wherein TMA and state specialty societies collaborate with HHSC and manufacturers on appropriate use of target drugs as well as potential alternatives to costlier drugs; use of focused medical review, when necessary, to identify prescribing outliers and to implement remedial steps as appropriate; and development of evidence-based drug management protocols for targeted drug classes.

In testimony before the Joint Committee on Health Services on May 15, Dr. Williams told the committee that TMA and state specialty societies were preparing protocols for five drug categories including proton pump inhibitors, Cox-2 inhibitors, atypical antipsychotics, asthma medications, and nonsedating antihistamines.

"Final versions will be published in mid-June, at which time the association, in partnership with HHSC, state specialty societies, and county medical societies, will undertake a multifaceted physician/prescriber educational initiative designed to improve patient outcomes, quality, and safety while also assuring cost-effective utilization of prescription drugs," Dr. Williams said.

Long-term Fix  

While the TMA-PhRMA work group was working to identify savings in the Medicaid Vendor Drug Program, TMA has created its own Ad Hoc Committee on Medicaid, which is looking at broader, more long-term issues. San Antonio pulmonologist John R. Holcomb, MD, who chairs the ad hoc committee, says that panel is looking at cost drivers not only in the prescription drug program but also in nursing home care, durable medical equipment, home health services, and other programs within Medicaid.

"Certainly, the drug costs are going to have to be addressed," Dr. Holcomb said. "But the ad hoc committee is taking more of a global perspective. We want to know what the drivers are for all the costs in the program. As an association, I think we are really interested in a long-term strategy to manage what we know are going to be increasing costs over time."

The ad hoc committee plans to submit recommendations to the TMA Council on Legislation that in turn could be submitted to the legislature in 2003.

Meanwhile, several proposals already are being floated in the legislative arena. One is a provider tax. That idea was tried during the 2001 session when the Senate approved legislation to place a provider tax on nursing homes. Support for the idea fizzled, though, when Gov. Rick Perry announced he would not sign the bill.

While Governor Perry is not likely to be any more supportive of new taxes in 2003, provider taxes still are being discussed in legislative circles and could be expanded to include physicians, pharmacists, and other providers.

Another option on the table is copayments, which were originally included in the savings contained in the appropriations bill. But copays would produce minimal savings, would require a federal waiver, and would be voluntary. Patients could not be denied services if they could not afford the copay.

And, there has been discussion of shelving the planned expansion of continuous coverage for Medicaid enrollees from the current six months to 12 months. That expansion, which would put Medicaid on par with CHIP in terms of continuous coverage, is to take place by June 2003 if not put on hold. Dallas obstetrician-gynecologist Robert T. Gunby Jr., MD, who chairs the TMA Council on Socioeconomics, says physicians are concerned that if lawmakers were to roll back the planned expansion, they might roll back continuous coverage on CHIP, as well.

Regardless of what strategies emerge, physicians say the state must make some hard decisions to ensure the continued viability of Medicaid.

"Let's face it," Dr. Holcomb said. "We're looking at an underfunded medical program. If you were in a private business running a program like this, the government would be stepping all over you telling you to properly fund your benefits program."

Waco internist Joe H. Cunningham, MD, chair of the TMA Council on Legislation, says that despite the provider fee increases and other improvements made in 2001, Medicaid continues to be in crisis because Medicaid reimbursement still lags far behind Medicare and private payer rates. That disproportionately impacts border counties, rural areas, and inner cities where some physicians, particularly pediatric subspecialists, are limiting their Medicaid practice or moving to more lucrative practice locations where the payer mix will be better.

"We are very concerned about access to care, and we think we are going to have to find new money to increase reimbursement, or access is going to be impacted even further," Dr. Cunningham said.

Senator Zaffirini says that even with the 2001 fee increases, physicians participating in Medicaid are not getting fair reimbursement.

"We have to continue to visit that issue," Senator Zaffirini said. "It doesn't do us any good to expand eligibility if we don't have physicians to provide the services."

Commissioner Gilbert says there is no evidence the fee increases have brought more physicians into the Medicaid program or prompted those already in the program to open their practices to new Medicaid patients.

"There is, in my view, a critical need to move further and try to close the gap between Medicaid reimbursement and reimbursement from other payers," the commissioner said.

But with the state budget already bleeding billions of dollars in red ink even before the 78th Legislature convenes, the prospects for meaningful changes are slim, he says.

"It will absolutely be a hard sell."

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

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