States still targeting Medicaid pay to contain costs

They are on track to continue their trend of reducing or freezing rates as spending outpaces available revenues.

By Jennifer Lubell — Posted June 25, 2012

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More than half of the states in fiscal 2012 took budgetary actions to cut payments to health care professionals as a means of containing Medicaid costs, and more than a dozen so far have proposed doing so in fiscal 2013.

A semiannual report released June 12 by the National Governors Assn. and the National Assn. of State Budget Officers paints a picture of states that continue to struggle with the significant fiscal challenges of their Medicaid programs. Medicaid continues to outpace overall general fund expenditure growth in states’ recommended budgets, even though fiscal 2013 budgets project only about a 4% rate of growth in overall state Medicaid spending, the NGA and NASBO stated in their report.

“Over the past 10 years, the growth in state spending on Medicaid has exceeded the growth in all other categories of spending, and has been twice as much as the growth in education spending,” the report stated. Medicaid represents the single largest portion of total state spending, estimated to account for 24% in fiscal 2011, the most recent year for which data are available.

State spending on Medicaid increased by about 20% in fiscal 2012 — following a 23% increase in fiscal 2011 — while federal spending declined by 8% due to the expiration of temporary federal stimulus funds.

“With the growth of Medicaid expenditures, spending priorities will again face competition for state budget dollars this fiscal year,” said NGA Executive Director Dan Crippen in a statement. “States have undertaken numerous actions to contain Medicaid costs, including reducing provider payments, cutting prescription drug benefits, limiting benefits, reforming delivery systems, expanding managed care and enhancing program integrity efforts. These efforts alone, however, cannot stop the growth of Medicaid.”

In fiscal 2012, 30 states reduced payments to health care professionals, and 14 froze pay rates. Nineteen limited benefits to enrollees, seven eliminated certain benefits, and 22 took steps to cut costs for prescription drugs.

“With the increased number of people going on Medicaid, states are looking at cutting rates as a way to handle the increased number of people that are on Medicaid. We have concerns that if you decrease rates for providers, that you’ll end up reducing access to care that’s so important to those folks on Medicaid,” said Jeffrey Cain, MD, president-elect of the American Academy of Family Physicians.

Looking ahead to fiscal 2013, states are contemplating another round of similar measures to contain Medicaid costs, although fewer of them — only 15 — plan to reduce health professional pay rates next year.

“One thing states recognize is they can’t cut providers year after year,” said Stacey Mazer, senior staff associate with NASBO.

Fiscal 2012 was a particularly intense year for states, with the federal stimulus funds going away, Mazer said. For 2013, it appears there will be more of a focus on longer-term strategies — moving more beneficiaries into managed care as well as coordinating payment, drug management strategies and program integrity efforts that make sure payments are correct, she said.

Louisiana, which has seen its total Medicaid spending increase from 23.7% to 27.5% of the state budget during the last few fiscal years, has looked to various delivery reforms to improve health outcomes and reduce costs. In leveraging the resources of private health plans, the state has expanded the availability of mental health services, “as well as giving over 875,000 Medicaid enrollees the ability to choose a health plan with resources like disease management and care coordination to help keep them healthy and out of the hospital. It is an approach that is saving taxpayers in Louisiana more than $135 million this fiscal year in Medicaid alone,” according to a statement from the state’s Dept. of Health & Hospitals.

Some states continue to look toward provider taxes or fees to increase resources for Medicaid. Such taxes are designed to secure more federal matching dollars, which typically are then used to reimburse the taxed health professionals and pay other Medicaid costs. In fiscal 2012, 16 states raised provider taxes or fees, or planned to do so by the end of the fiscal year. Ten states plan to raise provider taxes or fees in proposed fiscal 2013 budgets, the report stated.

States are dealing with increased Medicaid spending while still struggling to recover from the recession. “The fiscal fallout from the unprecedented budgetary declines in fiscal 2009 and 2010 put states well below historical growth trends in general fund spending and revenue,” the report stated.

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How states plan to contain Medicaid costs in 2013

Most states have proposed cutting Medicaid spending further in their fiscal 2013 budget plans. Pay reductions or freezes to doctors, hospitals or others are among the options being pursued:

  • Enhancing program integrity efforts (25 states)
  • Expanding managed care (20 states)
  • Reforming the delivery system (19 states)
  • Reducing costs and imposing limits for prescription drugs (18 states)
  • Limiting other benefits (18 states)
  • Reducing health professional pay rates (15 states)
  • Freezing health professional pay rates (10 states)
  • Instituting new or higher co-payments (7 states)

Source: “The Fiscal Survey of States,” National Governors Assn., National Assn. of State Budget Officers, Spring 2012 (link)

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