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Fiscal Fitness: How States Cope
Maryland Medicaid forges ahead with expansions, QI initiatives
As of July 2008, Maryland Medicaid expanded coverage of parents from about 30% of federal poverty level (FPL) to 116%, which was approved by the state's legislature during a special session in November 2007. This particular starting date proved to be significant.
"That was right before the recession started to hit us," says John G. Folkemer, deputy secretary of health care financing at Maryland's Department of Health and Mental Hygiene. In order to receive enhanced federal match under the American Recovery and Reinvestment Act, states were required to maintain the eligibility that was in place as of July 1, 2008. As this happened to be the starting date of the expanded coverage for parents, this group couldn't be considered when budget cuts were on the table.
Currently, there are about 60,000 parents in the expansion population, which is far more than projected. "We don't know how much of that was because of the expansion and how much was because of the recession," says Mr. Folkemer. "Undoubtedly, both are factors."
Mr. Folkemer says that Maryland's Medicaid program is seeing a tremendous growth in eligibility. "We probably had somewhere in the neighborhood of 50,000 people over what the appropriation was for," he says. "In dollar terms, that's close to half a billion dollars over what we had planned for in the budget. In terms of the general state share of that, we are in the neighborhood of [about] $150 million short of what we need."
About $150 million in deficiency appropriations are being proposed to cover Medicaid's expected shortfall for this fiscal year.
"We are still waiting for our state general assembly to act on that, but that is what is expected," says Mr. Folkemer.
Growth has surged as of July 2008, both because of the onset of the recession and the expanded coverage to parents. Those two factors have resulted in a steady climb in enrollment over the past 18 months. This is expected to continue for a period of time even after the economy improves.
"When we originally did the expansion of the parents, we weren't anticipating the recession," says Mr. Folkemer. "We thought there would be a bump in enrollment for the first six months or so, but [it] has been steady over that whole period. There is no evidence that it has slowed down yet, and it is still growing even now. I don't know at what point we would expect the growth to stop."
Three rounds of cuts
Maryland Medicaid made three rounds of cuts during FY 2010, in July, August, and November 2009. Most of the cuts were to provider rates.
"There were some funds available in certain accounts that got shifted to cover some of the shortfall. Even with that, we had $150 million that we had to make up for through the deficiency appropriation," says Mr. Folkemer.
Optional services were maintained, as it was determined they weren't going to offer any significant savings. "For the most part, if we did cut them it wouldn't really produce any savings. People could just get comparable services somewhere else," Mr. Folkemer explains. For example, if podiatry services were cut, enrollees might go to hospital outpatient clinics and get the same service at a higher cost.
Although no further cuts are planned for FY 2010, the budget for FY 2011 has a number of additional cuts to Medicaid. "What we are doing is just continuing the cuts that we already started for this year," says Mr. Folkemer. "Most provider rates are frozen, with no increases again."
For the most part, provider rates were cut across the board. However, nursing homes have taken some of the most drastic cuts, both in FY 2009 and again in 2010. During that period, long-term care community providers had their rates frozen, then a 2% decrease in reimbursement on top of that.
For FY 2011, the budget proposes to increase the assessment on the nursing homes to 4%. "For nursing homes, the tax was increased by 2%, combined with a 2% rate increase on Medicaid," says Mr. Folkemer. "The result is that nursing homes with an average percentage of Medicaid patients will have a net increase overall. Those with a low percentage of Medicaid patients will see a cut."
For hospitals, a $45 million assessment over the second half of FY 2010, and an assessment totaling $123 million for FY 2011, was just approved by the state's cost review commission.
"The hospitals certainly aren't happy about the assessment. But given the budget situation in the state, and recognizing that they get the lion's share of Medicaid payments, they reluctantly accepted the fact that they would have to bear a pretty big share of the reductions," says Mr. Folkemer.
Half of the $123 million increase in assessment will be done as rate increases, which means that payers, including Medicaid, will bear half the burden. The other half is a cut that the hospitals themselves will have to absorb.
For physicians, rates will be frozen. "They will not be getting increases that they had been getting for a number of years," says Mr. Folkemer. "We had hoped to be giving dentists some fairly substantial increases every year for three years. We did it the first year, but we haven't been able to for the last two years."
Access is being monitored, but so far significant problems haven't been noted. Ongoing access problems with dental services and some specialties in certain areas of the state are a particular concern.
"We haven't seen any worsening of that situation, at least so far. This is somewhat surprising, given that we have 150,000 more people covered," says Mr. Folkemer. "I think that may be because everybody understands the position we are in. We don't have the money to increase the rates. Thus far, it seems that providers are doing their best to continue to see the Medicaid patients."
Maryland Medicaid had plans in the works to expand benefits to childless adults. They are currently covered under the state's HealthChoice waiver as an expansion population, but only with a limited benefit package of primary care physician, pharmacy, and outpatient mental health services.
The plan was gradually to expand their benefits over a three-year period until they got full Medicaid coverage, but that was put on hold. "The only expansion we've done there is that this January we started covering substance abuse services and hospital ER services," says Mr. Folkemer. "But that's a lot less of an expansion than we had originally planned."
Another planned expansion involves a pharmacy waiver that would cover higher income people, giving them a discount through the Medicaid program. "That is a relatively low-cost thing, but at this point we don't have the startup money to kick it off," says Mr. Folkemer. "There are a number of other things we would like to do, but they are just on hold for now."
However, a few quality improvement (QI) initiatives are currently under way and haven't been slowed by the recession. "Our thinking is that if it is a QI that doesn't really cost us anything and might save us something, then we should continue it," says Mr. Folkemer. "We have a number of things going on in all different sectors, all affecting quality."
The cost review commission is working on initiatives to reward hospitals with lower readmission rates, lower hospital-acquired conditions, and those that provide services on an outpatient basis instead of inpatient.
A budget-neutral initiative involves incentives for managed care organizations based on certain quality measures. "We are now trying to do the same thing with nursing homes, by paying extra for the highest performing nursing homes," says Mr. Folkemer. "That got delayed a couple of years by the legislature, but we are going to be starting that in July 2010."
Mr. Folkemer says that, currently, his biggest concern is how the state will be able to afford the continued increase in enrollment, for however long it lasts. A related concern is what will happen when the enhanced federal match ends, even if it's extended through FY 2011.
"We hadn't heard anything at all about FY 2012. If nothing happens, right away that creates almost an $800 million hole for that year," says Mr. Folkemer. "Unless the economy is really turned around by that time, you may be looking at another significant round of cuts."
Taking an optimistic view, the Maryland FY 2011 budget assumes the extended match will continue through the end of that fiscal year. "If for any reason it doesn't continue, that will leave a $400 million hole in the budget," says Mr. Folkemer. "So, if it doesn't happen, we will have to figure out how to cover it. But in planning the budget, we had to assume one way or the other."
While Mr. Folkemer says there is no indication of improved revenue in Maryland, he acknowledges that many other states are in considerably worse fiscal situations. "And that is frightening, considering how bad we are," he says. "I don't think anybody anticipates that things are going to start turning around in the near future. Everyone is assuming that throughout FY 2011, at least, it's still going to be very tough."
Contact Mr. Folkemer at (410) 767-4139 or FolkemerJ@dhmh.state.md.us.