Updated: MIPPA 2008...one more IPA-ism to join the mix with BIPA and HIPAA

Earlier this month, the Center for Health Care Strategies released a nice 2-page summary of the effect the Medicare Improvements for Patients and Providers Act of 2008 will have on state Medicaid programs. The primary changes in MIPPA apply to Medicare Advantage Special Needs Plans for dual eligibles (aka dual-SNPs).

Dual-SNPs were created by the Medicare Modernization Act (MMA) of 2003 with the expectation they would simplify and coordinate care for persons eligible for both Medicare and Medicaid. But some recent reports by the Commonwealth Fund (report) and the Kaiser Family Foundation (report) found that these new plans were not living up to their expectations. For example, the reports found that very few dual-SNPs were: coordinating with their state Medicaid agencies to verify dual eligibility, providing true integrated care models, and demonstrating their added value.

In the plans defense, navigating state Medicaid programs is no easy task and meshing federal and state rules, regs, and statutes is very difficult.

In the states defense, the amount of resources necessary to develop a separate contract for the Medicaid portion of dual-SNP services (including those where Medicare is primary and those where Medicaid is primary) is prohibitive. That said, CHCS has a toolkit which includes just about everything a state needs to know, including integrated contracts.

In Florida alone, there are 17 dual SNPs, which would double the amount of contracting and oversight work for the State at the same time the State is reducing its staff.

And in CMS’ defense, it has published a roadmap to assist states but it is hard to plan when the target is moving and areas like marketing, appeals, and payment can be especially troubling. This is just an example of where something that sounded great in principle did not work well in practice.

But the satisfaction with these plans is high and they do address many of the most complex and costly patients in the Medicaid program. Thus, the long-term benefits are large and many of the MIPPA changes aim to improve the SNP program so that it can better achieve its promise. That said, many have supported an even simpler solution - the Federal government taking full responsibility for dual-eligibles. Stay tuned…

$100B Gap in state budgets by 2010 and its impact on Medicaid Programs

According to a new analysis of 15 states by the Center for Budget and Policy Priorities and summarized in the Wall Street Journal today (Drucker, Wall Street Journal, 10/25), total inflation-adjusted revenue is down in 14 of the 15 states for the quarter that ended in September compared to 2007. Also, the report estimates that states will face a total budget gap of $100 billion, or 15% of their budgets, by FY2010. The report is found at http://www.cbpp.org/10-24-08sfp.pdf.

This decline hurts in two ways. First, since states have to balance their budgets, it means they will more than likely take easier and faster solutions to balance the books, which means cuts to Medicaid providers and plans, tightening eligibility, and cuts to optional programs. The State of Florida has already recommended all three options in order to cut $1.2B for FY2009-10. Secondly, it has broad financial impact as health care is a major engine of local economies.

The irony in Medicaid is that it operated so differently than the private sector. When a market in the private sector undergoes hardship, those organizations that improve their operations and deliver higher value faster than their competitors tend to win out while weaker participants fail or are absorbed. In Medicaid, the hammer falls equally on all participants in across-the-board cuts. The problem is that nobody wants to sacrifice for the greater good and thus, everyone sacrifices equally with no consideration as to the value provided by individual programs or providers.

In the WSJ piece, Chris Edwards, director of tax policy at the Cato Institute, commented that the recession should prompt states to overhaul programs, adding, "Private companies do it all the time, and I think it's beneficial."

But the real question is - where is the political will, money, and creativity at the state level? Jim Collins, in his wonderful book, 'Built to Last: Successful Habits of Visionary Companies' made the case that those organizations that succeed over the long-term are good at two contradictory things at once: core functions and innovation (which disrupts core functions). States are very good at the former and not the latter - partly by political design.

Thus, the only way - other than another Federal bailout of a temporary FMAP increase -through the immediate mess for many states is to cut mercilessly but in order ensure long-term solvency, many states need to simultaneously marshal the political will to re-orient how they think about Medicaid, with a focus on reducing complexities and incentivising transparency, accountability, and value.

It seems contradictory, but states need to do two things at once in order to be successful in both the short and long-run, bail out the ship and build a new engine. Successful organizations do it every day - states should too.

Medicaid "Perfect Storm"

Medicaid Costs Increasing Faster than the Economy

According to a report released on Friday October 17, 2008 by the federal government, "spending on Medicaid is expected to substantially outpace the rate of growth in the U.S. economy over the next decade."

A press release by the federal government Deparment of Health and Human Services accompanying the report indicates "Medicaid benefits spending will increase 7.3 percent from 2007 to 2008, reaching $339 billion and will grow at an annual average rate of 7.9 percent over the next 10 years, reaching $674 billion by 2017. That compares to a projected rate of growth of 4.8 percent in the general economy."

Economic Downturn Causing "Perfect Storm"

The cost of Medicaid is likely to increase even further as the economy falls into a recession, increasing the number of unemployed persons who will become newly eligible for Medicaid. The recession, however, will decrease state tax revenues available to fund the Medicaid program, resulting in a "perfect storm" that will strain state budgets and cause deficits.

As of September 2008, thirty states were facing estimated budget deficits for 2009 totaling nearly $50 Billion. States with the largest exposure to the housing downturn (such as California, Florida, and Nevada) will likely see the greatest impact on their budgets and the largest deficits.

Most states require a balanced budget, so state governments will have no choice but to take action. Unless the economy suddenly turns around causing increasing tax revenues (which is highly unlikely), the only choice will be to cut Medicaid payments and require the health system to do more with less.

What Will Happen?

During the last economic downturn (2001-2003 after the Internet bubble burst) state Medicaid programs found themselves in a similar situation. In 2002 Medicaid spending grew by 12.7 percent. Enrollment in Medicaid grew 10 percent in 2002, and between 2000 and 2005 total enrollment grew 40 percent.

Earlier this decade, state reactions to the increase in Medicaid recipients and decline in tax revenues were to freeze provider payments, restrict eligibility for Medicaid benefits, and take other steps to balance their budgets. Their reaction during the current economic decline will be similar, and in fact several states have already announced significant Medicaid provider rate reductions:

• California in July 2008 cut provider rates by 10 percent,
• Florida has proposed a broad reduction in rates for 2009 that will impact hospitals, managed care organizations (HMOs), and other providers,
• Nevada recently announced hospital payment reductions,
• New York passed a budget in August 2008 that cuts provider rates for hospitals, managed care organizations (HMOs), and nursing homes.
• Other states are looking to make similar cuts.

What Next?

These budget cuts will require everyone who served Medicaid recipients to do more with less. This is a very difficult environment, and it will not get any easier anytime soon. One effect will be that weaker providers and plans will stop serving Medicaid recipients, or go out of business as their cost of doing business exceeds their revenue. The strong, and those with innovative solutions enabling them to do more with less, will survive.

The other response will be for the federal government to infuse the states with funding - probably under a new "stimulus package." In fact, many states already have funding requests prepared for the new Administration and Congress. In addition, the State Childrens Health Insurance Program (SCHIP) that was temporarily reauthorized until April 2009 will come up for authorization again - providing another vehicle for fiscal relief to states. A similar package was passsed by Congress in 2003 (the Jobs and Growth Tax Relief Reconciliation Act of 2003), that gave states $20 Billion and a nearly 3 percent increase in the federal government annual payment to states for the cost of the Medicaid program.

Good News/Bad News

The bad news is that state Medicaid programs will soon be hit with a "perfect storm" of increasing enrollment and decreasing funding. It will require creative solutions to serve more people with less resources. In the process many parts of the health delivery system will feel the strain, and some organizations may go out of business or stop participating in the Medicaid program. On the other hand, as we have found in the past, crises will spawn creative solutions and we may see innovations that could transform healthcare.

Medicaid Growth

Medicaid, the state and federal government-funded program that finances health care services for low income, elderly, and disabled persons, is the fastest growing health program in the country. On Friday October 17 the federal government Department of Health and Human Services released the first annual fiscal report on Medicaid. That report shows spending on Medicaid to increase by 7.3 percent this year - far exceeding the 4.8 percent growth in the general economy.

The growth in Medicaid is fueled by legally required spending (known as an "entitlement"), expansions of program benefits in the past when the economy was good, and the currently souring economy that will increase the number of persons who are eligible for health care benefits under the Medicaid program.

The good news is that expansion of programs such as Medicaid and it's cousin the State Children’s Health Insurance Program (SCHIP) have actually reduced the number of uninsured persons in the United States by providing them health coverage. The not-so-good news is that the cost of medical care has been rising, causing the cost of Medicaid to increase too - and the cost to state budgets of Medicaid to rise. If we were in good economic times that increase could be absorbed by expanding state budgets. Now, however, it is a much different story.

Other findings from the report include:

- Enrollment in Medicaid in 2008 is projected to be 50 million persons - nearly a 2 percent increase over the previous year.
- Spending on Medicaid is projected to grow 7.9 percent, each year, for the next ten years - and the growth could be greater if there are more people enrolled because of a bad economy, or if government decides to increase the medical services covered under the program.
- Medicaid spending was about 15 percent of all spending on health care in the United States in the year 2006 (the latest year for which there are accurate statistics).

This blog is launched to help address the apparently inexorable rise in the cost of health care, the impact of rising costs on Medicaid and state governments, and solutions that will help improve quality of care, ensure access to health services, and contain costs.