States face "meltdown" over Medicaid

Washington -- Lawmakers' resolution to shave $10 billion in savings from Medicaid likely means that further cuts to physician reimbursement, patient rolls and benefits are ahead.

The recently passed fiscal year 2006 budget resolution calls for a $10 billion reduction in projected Medicaid spending over five years. While a significant sign of congressional intent, the measure is only a blueprint for the final budget. Now lawmakers in various committees must fill in the details of how budget targets will be reached.

The Bush administration has proposed finding Medicaid savings by curbing what it sees as inappropriate use of state cost-shifting mechanisms and cracking down on waste, fraud and abuse.

It's hard to believe that the government will be able to find $2 billion in savings a year through those measures alone, said Stephen Edwards, MD, past president of the American Academy of Pediatrics and chair of AAP's access subcommittee.

States will have little choice but to make even deeper cuts to their programs, he said. Many states have repeatedly frozen or reduced physician rates over the past three years.

"We are going to cut in the meat of a program that is already underfunded," he said.

Dr. Edwards practices in North Carolina, which has one of the highest Medicaid reimbursement rates in the country, about 95% of Medicare rates. That payment level is the key to the program's success, allowing physicians to offer children a medical home where they can consistently receive preventive services and access to medical care.

But the North Carolina Legislature is currently considering a 5% payment reduction. Such a cut would undermine that success, he said.

"Physician reimbursement always seems to be at the top of the list" of places to cut, he said.

But physicians have more to fear than Medicaid cuts alone.

In instructions to the Senate Finance Committee, budget negotiators indicated that Medicaid is the intended target of the $10 billion in savings, but Medicare or any other entitlement program under the panel's jurisdiction could come under the knife. Any cut to Medicare would make finding additional dollars to reverse upcoming reductions in physician Medicare rates more difficult.

The AMA is fighting to prevent next year's estimated 4.3% Medicare physician payment cut and to replace the reimbursement formula.

A reduction in Medicare payment could have a ripple effect for Medicaid, which in most states ties reimbursement to Medicare's rates.

Because the budget resolution is only the first step in the budget process, opponents of Medicaid cuts still have time to fight the proposed changes. There is strong opposition both inside and outside of Congress.

A block of Democratic lawmakers, as well as a few Republicans, have been waging a very public campaign in support of Medicaid.

"There may well be places where we can save money in Medicaid," said Sen. Gordon Smith (R, Ore.). "But I am opposed to blindly cutting the program when we have a real opportunity to improve it."

The budget move also has generated some public opposition. In a recent AARP survey, 60% of respondents said they are against the Medicaid cuts and 57% said the program is already underfunded.

That pressure might have helped Smith, who led a fight to lower the Medicaid cost-savings target, which initially ranged from $17 billion to $68.6 billion.

The AMA is pleased that the level of proposed Medicaid budget cuts has been reduced, said J. Edward Hill, MD, president-elect of the Association. "We will be working with the congressional committees of jurisdiction on the details to ensure that Medicaid remains a viable safety net for patients in need," he added.

The National Governors Assn. is warning that any reduction in the federal Medicaid contribution could devastate states still in the throes of economic recovery.

At a forum last month, Gov. Mark Warner of Virginia argued that waning federal support could not come at a worse time. States are already facing increasing pressure on the Medicaid program because of a fall-off in employer-based coverage and a rise in the use of personal asset transfers, which enable people who would not otherwise qualify to go on Medicaid to pay for nursing homes and other long-term care services.

"Maybe the state Medicaid systems could absorb one of those cost shifts, but to have three of them taking place simultaneously means that we are on the road to a meltdown," he said.

More cuts on horizon

That pending meltdown has state legislatures scrambling for ways to reduce their Medicaid programs even further. This comes after several years of cutbacks, which have kept the programs' per capita growth below that of Medicare and private insurers.

So far, states have contained costs by freezing or reducing physician reimbursement, restricting eligibility, limiting covered services and prescriptions, and adding or increasing cost-sharing arrangements.

States are proposing more of the same. Texas has already implemented changes that drop thousands of Medicaid beneficiaries, and Tennessee is moving forward with plans to significantly reduce Medicaid enrollment over the next couple of years. Missouri Gov. Matt Blunt recently signed a measure that will cut tens of thousands of people from Medicaid this year and end the program entirely by 2008 on the premise that a new system will be created to replace it.

Other states are considering strategies to restructure the program to take advantage of promised savings from the private sector.

Florida Gov. Jeb Bush recently gained approval of the Florida House for a proposal that would turn most of the responsibility for running the program over to managed care companies. The plans would be paid per Medicaid recipient and would have to decide how to administer benefits.