Nearly all states cut Medicaid payments as stimulus runs out

Forty-six states reduced Medicaid pay for fiscal 2012 so far, with physicians affected in 14 of them.

By Doug Trapp — Posted Nov. 7, 2011

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Fourteen states and the District of Columbia cut Medicaid physician pay for fiscal year 2011, down from 20 states in fiscal 2010. But continuing state budget deficits could lead to more new fee cuts than those already adopted for fiscal 2012, according to the Kaiser Family Foundation.

The foundation's 11th annual survey of state Medicaid programs concluded that continued Medicaid budget pressure on many states led them to expand cost-saving measures in 2011 and 2012. These moves included increasing enrollment in Medicaid managed care, reducing or ending optional benefits such as dental care, tightening prescription drug formularies, and enacting or hiking co-payments, according to the Kaiser report, released on Oct. 27.

However, reducing Medicaid fees to doctors and other health professionals was the most common cost-saving option enacted by states, according to the report. Twenty-two states adopted Medicaid physician fee cuts in fiscal 2011 or 2012, said Vernon K. Smith, PhD, report co-author and managing principal of Health Management Associates, a research and consulting firm.

In total, 39 states reduced Medicaid fees for physicians, hospitals or others caring for Medicaid enrollees in fiscal 2011. In fiscal 2012, 46 states adopted rate cuts, according to the report.

Not all states cut Medicaid physician pay. Six states actually increased Medicaid doctor fees in fiscal 2011. Alaska raised rates for fiscal 2012. Also in fiscal 2011, 33 states were able to expand Medicaid eligibility, and 22 states did so for 2012. These expansions were possible in part because of funding from the 2009 federal stimulus package and the health system reform law.

Overall, state fee cuts outstripped the increases, Smith said. "The cuts tend to be broad and large, and the increases tend to be smaller and targeted." Also, reductions this year were about as likely to apply to primary care services as to specialists, Smith said. Previously, states had cut specialist pay before setting their sights on primary care.

The stimulus provided $103 billion in enhanced Medicaid funding from fiscal 2009 to 2011, Smith said. But those funds dried up this year, eliminating a source of federal revenue that had been used to plug budget holes.

States are not eager to reduce Medicaid physician pay, Smith said. "Rate cuts are undertaken only because of the intensity of the fiscal pressure that states are under." Also, the threat of repeated Medicaid fee cuts raises concerns that enrollees will have more difficulty accessing needed care, he said.

CMS approves California cuts

California has enacted some of the most controversial Medicaid fee cuts in recent years, including a 10% reduction enacted this year and approved on Oct. 27 by the Centers for Medicare & Medicaid Services. The cuts will apply to services provided by physicians, therapists, optometrists and others.

California already is ranked near the bottom for Medicaid physician fees, and Medicaid patients are having a tough time accessing care, said California Medical Assn. President James T. Hay, MD.

"With these cuts, physicians will only be reimbursed $11 per Medi-Cal patient visit," Dr. Hay said, even though Medicaid patient visits cost physician practices several times that much to provide.

In a statement, CMS said the state provided extensive documentation that the fee reductions will not affect access to care. The agency also said it will monitor access. The medical society said it was "very disappointed" that the state did not share the data it used to justify the fee cuts.

CMS has not yet ruled on other Medicaid changes requested by California, including $5 co-payments for physician visits, $50 co-payments for emergency department visits and a cap of seven office visits per year. Past fee cuts enacted by the state remain under a legal challenge that is pending before the U.S. Supreme Court.

The District of Columbia reduced Medicaid fees by 20% in 2011 -- the single-largest fee cut of the states that reported the percentages to the Kaiser Family Foundation. However, two years before this cut, the same administration doubled D.C. Medicaid fees to reach Medicare levels, said K. Edward Shanbacker, executive vice president of the Medical Society of the District of Columbia.

Few private practice physicians accept Medicaid patients in D.C., Shanbacker said. The pay increase probably didn't raise Medicaid physician participation in the district because previous D.C. Medicaid officials didn't do very much to recruit new doctors, he said.

Washington state increased Medicaid fees for primary care physicians in 2011, but cut them by almost the same amount for fiscal 2012, said Health Management Associates. Bob Perna, senior director of health care economics at the Washington State Medical Assn., said that because the changes in pay varied by billing code, physicians might not have noticed the swing equally. But he said, "The big problem is the rate changes do not keep up with the increases in the cost of providing care."

Too much uncertainty

The number of states reducing Medicaid pay for fiscal 2012 could exceed the 14 that already have adopted cuts if some states revisit their budgets, Smith said. Medicaid total spending projections grew by just 2.2% for fiscal 2012, while enrollment is expected to increase by 4.4%.

"Almost two-thirds of the states said that the likelihood of a Medicaid shortfall in 2012 was at least 50-50," Smith said.

Though state revenues have grown for 18 months straight, they are still at least 6% below their pre-recession levels, said Tracy Gordon, a fellow at the Brookings Institution's Economic Studies program.

State Medicaid spending already has increased dramatically, Smith said. The expiration of stimulus funding and continued high enrollment led to the single-largest increase in overall state Medicaid spending in the program's history: 28.7% for fiscal 2012.

Federal Medicaid funding could decline further. The Joint Select Committee on Deficit Reduction, which has until Nov. 23 to adopt at least $1.2 trillion in spending cuts, could consider a few major reductions that impact Medicaid. One could be limiting the extent of Medicaid provider taxes on physicians and hospitals. Typically, states count the taxes as local Medicaid funds, then repay the taxed doctors and hospitals while using the additional federal matching dollars to maintain their programs. In his fiscal 2012 budget, President Obama said limiting these Medicaid provider taxes beginning in 2015 would save the government $18 billion.

States also must prepare to implement the health reform law's Medicaid expansion, which is expected to cover 16 million additional people beginning in 2014. "This is a huge challenge for states, particularly with the demand on their already-limited administrative resources," Smith said.

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States continue Medicaid physician fee cuts

Primary care doctors in 10 states and the District of Columbia and specialists in 13 states and the District of Columbia sustained Medicaid fee cuts in fiscal 2011. Several of those states adopted additional pay cuts for fiscal 2012.

Primary care

2011 cut: District of Columbia, Missouri, New York, Texas, Virginia, Wisconsin

2012 cut: Georgia, Ohio, South Dakota, Washington

2011 and 2012 cuts: Arizona, California, Colorado, Maryland, South Carolina

2011 increase: Kansas, Mississippi, Nebraska, North Dakota, Washington

2012 increase: Alaska


2011 cut: District of Columbia, Minnesota, North Dakota, New York, Texas, Virginia, Wisconsin

2012 cut: Georgia, Nebraska, North Carolina, Ohio, Oregon, South Dakota, Tennessee

2011 and 2012 cuts: Arizona, California, Colorado, Connecticut, Maryland, South Carolina, Washington

2011 increase: Kansas, Louisiana, Mississippi, Nebraska, North Dakota

2012 increase: Alaska

Source: Health Management Associates, October

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