Cigarette tax helps Illinois physicians avoid Medicaid pay cuts; other cuts deep

Hospital pay reductions and restricted program eligibility will help the state achieve $2.7 billion in Medicaid savings.

By — Posted June 11, 2012

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Physicians in Illinois escaped proposed Medicaid payment cuts as part of a legislative effort to shave billions from the program, but the medical community has concerns about the effects of other approved program reductions.

The legislation, which passed both houses in the Illinois General Assembly on May 24, cuts $1.6 billion from the Medicaid program mainly by reducing payments to acute care hospitals, nursing facilities and mental health institutions, and by eliminating certain programs and services while reducing eligibility levels for others. These measures, combined with raising the state tax on cigarettes by $1 per pack, are projected to achieve $2.7 billion in total savings.

The Medicaid reform legislation was included as part of a larger package of health care-related bills. At this article’s deadline, Illinois Gov. Pat Quinn had not signed the measure but indicated that he would.

Some state lawmakers were concerned about the potential impact of these cuts on low-income beneficiaries. “I am disappointed that the General Assembly has passed a package of Medicaid cuts that asks the sickest, poorest and most vulnerable among us to sacrifice disproportionately,” State Sen. Jacqueline Collins said in a statement.

Reductions to the Medicaid physician fee schedule that had been considered during the legislative process were avoided, but in a May 25 analysis of the final bill, the Illinois State Medical Society said physicians remain worried about several other reductions in Medicaid services, utilization controls on services, and stepped-up fraud and abuse prevention activities authorized by the legislation.

Given the bill’s projected impact on hospitals and nursing homes, as well as certain utilization restrictions on drugs, physicians are concerned that “all we’re going to do is drive people into the emergency department,” said William Werner, MD, ISMS president. “That’s the most costly environment to provide care.”

Regulations to implement the changes still need to be written once the governor signs the legislation into law, he continued. “And that’s where the devil is in the details.” Language in the bill, for instance, calls for prior approvals for certain surgeries “consistent with Medicare standards concerning patient responsibility.” In addition, Medicaid no longer will provide the higher payment for cesarean sections if they later are deemed medically unnecessary.

From a patient protection and physician practice standpoint, “we need to understand what the guidelines are going to be, what will be the time line for getting preauthorization for these various services,” Dr. Werner said.

Under the final version of the legislation, any hospital that’s not a critical access, safety net or public hospital will experience a 3.5% cut to Medicaid pay rates, which on a yearly basis amounts to an overall cut of $108 million, said Danny Chun, spokesman for the Illinois Hospital Assn. While the association supports the overall health care package the Legislature put together, it strongly opposes the rate cut to hospitals, in addition to certain other reductions in the legislation.

The hospital association had released a 12-point plan of alternative provisions that the group said would have made the rate cuts unnecessary. Even though some of those recommendations were included in the legislation, the rate cuts were included as well. Chun said hospital inpatient rates under Medicaid haven’t increased since 1995.

Physicians are relieved that Medicaid cuts to physicians did not go through, but “this is not any reason to celebrate,” Dr. Werner said. “We are already dealing with extremely low Medicaid reimbursements for physician services in the state.” Medicaid payments are just 63% of Medicare rates, putting Illinois near the bottom of the list in the nation for Medicaid pay.

Health care professionals in the state said physicians were excluded from any Medicaid cuts in part because their rates already are so inadequate that many don’t treat Medicaid patients. The pay is so low that cutting physician rates wouldn’t have made much of a difference in terms of balancing the budget, Dr. Werner said. In addition, a 2005 consent decree to ensure that physician Medicaid payment rates were adequate to maintain access for beneficiaries “has set the tone that [physician] payments are not the go-to source for cutting the budget” over the past few years, he said.

In public statements Quinn praised the legislative efforts to restructure Medicaid and close the budget gap, in particular the cigarette tax. “Increasing the price of cigarettes will decrease smoking-related costs to Medicaid, which came to $1.5 billion last year. This legislation will help 60,000 people quit smoking, prevent 60,000 deaths from smoking-related conditions and keep 80,000 kids from taking up smoking in the first place,” the governor said.

As a way of generating additional revenue, the cigarette tax is something that the state medical society supports, Dr. Werner said, although the state’s business community is worried “that we’ll end up driving people to buy cigarettes over the border.” Missouri, whose 17-cent-per-pack tax is the lowest in the nation, borders Illinois.

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How Illinois Medicaid will be cut

Illinois lawmakers agreed to cut $1.6 billion in health spending and institute a cigarette tax to achieve a total of $2.7 billion in savings to Medicaid. Spending reductions of interest to physicians include:

  • Reducing eligibility of Medicaid adults in the optional FamilyCare program from 185% to 133% of the federal poverty level.
  • Eliminating the Illinois Cares Rx program that provides Medicare Part D wraparound coverage to seniors and the disabled.
  • Eliminating a medical general assistance program for adults.
  • Ending additional payments for C-section deliveries that are deemed medically unnecessary.
  • Imposing utilization controls on specialty drugs, such as HIV medications.
  • Requiring prior approval for more than four prescriptions in a 30-day period, with certain exceptions.
  • Requiring prior approval for certain services, such as coronary artery bypass grafts and bariatric surgery, consistent with Medicare standards concerning patient responsibility.

Source: Illinois State Medical Society

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