Medicaid payment inching up

Washington -- Next year -- for the second straight year -- at least two dozen states will increase their Medicaid reimbursement rates to doctors, a departure from years of stagnant pay.

These states will provide an average rate increase of 2% to 3% overall, according to Vernon Smith, PhD, one of the authors of an annual 50-state Medicaid survey released in October by the Health Management Associates and the Kaiser Commission on Medicaid and the Uninsured.

At least 24 states are increasing rates in the upcoming fiscal year, with three undecided. In 2004, only nine states increased Medicaid payment rates, Dr. Smith said. Of those nine states, three are increasing rates for 2006 and 2007, two increased rates for 2006 only, and two are increasing rates for 2007 only.

The states upping their rates are generally applying them across the board to all physicians and others, unlike previous years when most targeted the increases, Dr. Smith added. No states were planning Medicaid cuts when the survey was conducted in the summer -- also a first since the initial survey report in 2002.

Still, in many jurisdictions, even a large across-the-board jump isn't enough to compensate for years of level or reduced payment rates.

For example, although Michigan physicians will see a 2% specialty-wide increase and 68% boosts for certain types of preventive care, the raise follows about a decade of Medicaid rates outpaced by inflation and other rising costs, said Paul O. Farr, MD, president of the Michigan State Medical Society. "We're so far behind that now people estimate that Medicaid pays about 60% of the cost of doing business."

Massachusetts, as part of its MassHealth program, is planning increases between 5% and 6% for most specialties in each of the next three years, said Frank Fortin, spokesman for the state's medical society.

"So we're very happy about that," said internist Robert Lebow, MD, who is representing physicians on a MassHealth advisory commission.

Massachusetts also fared better than many in the past, with an average 2.3% rate increase each year from 2001 to 2006.

Maryland is targeting increases for certain specialties, and Indiana and New Mexico are considering increases. Indiana also is thinking about how it might handle coverage of the uninsured, said Dennis Rosebrough, spokesman for the state's Family and Social Services Administration.

And Kansas, which hadn't completely revised its Medicaid rates in 30 years, also is updating the pay scale. Medicaid recently paid physicians in that state 30% to 50% of Medicare rates, but a hospital assessment taking effect this year will provide funds to allow Medicaid rates to climb to within 83% of Medicare rates, said Jerry Slaughter, executive director of the Kansas Medical Society.

Mixed big picture

Part of the reason states are finding it possible to loosen their purse strings is that some are experiencing slower Medicaid enrollment growth. Enrollment increased by just 1.6% in 2006 -- the lowest level since 1999 and about half the amount predicted by Medicaid officials.

This trend, combined with Medicaid savings resulting from the new Medicare Part D program and years of cost cutting, has helped hold state Medicaid spending increases to 2.8% in 2006 -- less than half the 2005 rate, Dr. Smith said.

These more positive numbers -- which come after years of state budget crises -- are allowing state politicians and policy leaders to begin talking again about Medicaid improvements and considering rate increases for physicians and others that were out of the question a few years ago, he said.

Still, although 15 states saw this year's numbers decline, Medicaid enrollment has increased by a total of 40% since 2000, and some states continued to see higher 2006 enrollment.

Out of the major health care entities -- physicians, inpatient hospitals, managed care organizations and nursing facilities -- nursing facilities were the most likely to receive increases in 2006 and 2007.

"Illogical" system

Still, the Medicaid system needs work, said Michigan's Dr. Farr.

Keeping Medicaid rates low wastes money, Dr. Farr said. It would be smarter to spend $500 to prevent a heart attack with tests and medication than $50,000 treating it in an emergency department after the fact.

"Our system is illogical right now," he added. "And so by not granting good Medicaid coverage so that people can participate without losing their practice, we're actually increasing costs, rather than decreasing them."

Dr. Farr said getting Medicaid rates to meet doctors' expenses would take break-the-bank-sized increases. But without such action, fewer and fewer doctors will be able to care for Medicaid patients. "We're not saying we're going to get there overnight, but somebody has to realize the system we have is unsustainable."

Dr. Farr doesn't have much hope for change coming from Washington, noting it's easier to build coalitions on issues such as Medicaid at the state level. "The states will be leaders on this, not the federal government."