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Some Medicaid cuts appear to be "penny wise but pound foolish"
If a cutting an optional service saves Medicaid $5 million, will this cause costs to increase by $5 million in another area of the program? "That is the incredibly difficult thing with Medicaid in general," says Stan Rosenstein, principal advisor at Health Management Associates in Sacramento, CA, and former California Medicaid director. "It is very hard to do any cuts that don't have a ripple effect."
There is no question that Medicaid directors are currently making cuts that may end up costing the program more over the long term, according to Mr. Rosenstein. "I've been in this business 33 years, and I've never seen state budgets worse. Most states have been facing budget problems for five or six years now," he says.
The economy has yet to recover from a state tax revenue standpoint, Mr. Rosenstein adds. "It is certainly not at the level where it used to be," he says. "Any low-hanging fruit or easy cuts have been made."
That means that Medicaid directors are faced with making the kind of cuts that may end up costing the program more money later, which is "a tough situation," Mr. Rosenstein says. "Every time I've ever looked at it, we've always known that making some cuts could have a detrimental cost impact over the long term. But budgets have to be balanced on an annualized basis."
States at crisis point
The loss of the enhanced Federal Medical Assistance Percentages (FMAP) in June 2011, says Mr. Rosenstein, "is an enormous drain on state budgets and Medicaid programs. It's really become a crisis point for most state Medicaid programs."
Since states cannot reduce eligibility due to Maintenance of Effort requirements, says Mr. Rosenstein, they're forced to look for short-term savings by cutting the benefits people receive and the rates paid to providers.
"The Medicaid program must operate in the context of the overall state budget," Mr. Rosenstein explains. "The problem you face is that Medicaid is typically the second largest spending program in state budgets. As the Medicaid director, your program has to take its share of program cuts. You're in a situation where states don't have enough money."
Mark Trail, managing principal at Health Management Associates, says that for most state Medicaid programs, the number of options that exist to manage costs is getting smaller. Traditionally a state has had four areas to think about when considering how to manage cost of the program, he says.
"The four things that cost money in Medicaid include the people covered, the services included, the price paid for those services, and how much of those services are used," says Mr. Trail.
The American Recovery and Reinvestment Act and the Affordable Care Act took the "tool" of cost management via eligibility rules away from states, notes Mr. Trail. "Most states have already reduced the optional services they offer, so what might be left for most would not generate much savings," he adds.
Reducing provider rates has become increasingly difficult, given the requirements to maintain access as required in federal regulations, says Mr. Trail. Other approaches, he says, are managing utilization of services through managed care or requiring prior authorization for certain services. "Most states have employed many of these strategies, in one form or another," says Mr. Trail.
Costs are shifted
When eliminating optional services, says Mr. Trail, states assume the savings will be the amount previously spent in that service category. "They seldom consider how they may actually drive care to another service," he says.
In most states, adult dental care only covers emergency care, notes Mr. Trail. "Failure to control pain and/or infection will almost always end up in an emergency room," he says.
Judith Solomon, co-director of Health Policy at the Center on Budget and Policy Priorities (CBPP) in Washington, DC, says that some Medicaid cuts will cost more in the long run, "but because they save money in the short term, with an eye to closing a budget deficit, that's what states often do."
Since states are required to balance their budgets every year, it's hard to rely on forecasts of savings in future years, or even take into consideration that cuts will cost more money down the road, says Ms. Solomon.
The CBPP's fiscal team reviewed 31 budget proposals for Fiscal Year 2012 in its February 2011 report, Governors are Proposing Further Deep Cuts in Services. Some of the cuts will cost more in the long term, according to the report, such as cutting nursing home diversion programs and adult optional benefits.
If a certain provider classification is eliminated, says Ms. Solomon, such as podiatry or adult vision, the patient is likely to see a physician instead because Medicaid is required to cover physician services. "If someone is seeing a podiatrist, they would probably have to go to an orthopedist, or if a vision problem is being dealt with by an optometrist, the patient would probably go to an ophthalmologist," says Ms. Solomon.
The fiscal impact of this kind of cost-shifting is difficult to measure, says Ms. Solomon. "I don't know that it's necessarily more expensive, but it's not a true savings. It's hard to know how that plays out," she says.
Ms. Solomon notes that Kansas is eliminating funding for 850 families of children with severe emotional disturbances. "These are kids who very easily can end up in residential treatment programs, if their family loses the means of treatment that allows them to handle children with significant needs in the home," says Ms. Solomon.
Regarding steep provider payment cuts, Ms. Solomon says that these could mean less access to certain providers and more utilization in other areas. "The problem is that it's really hard to quantify that," she says.
There is typically no analysis done to take into account this kind of cost-shifting when Medicaid cuts are planned, adds Ms. Solomon. "When the budget people who are doing the calculations say what the savings are, they don't count that," she says.
She points to the 10% additional provider rate cuts in Texas and South Dakota. "In states that already have pretty low provider rates, does it mean that people will end up not getting primary care and end up needing more expensive care? It's really hard to say with certainty," says Ms. Solomon.