Advice to governors: Innovations to Medicaid can improve quality, savings

In the weeks following the November mid-term elections, which saw Democrats gaining control of Congress and the election of many new governors, a number of health policy think tanks saw an opportunity to make some changes in the nation's approach to health care and issued papers outlining ideas for members of Congress, governors, state Medicaid directors, and state budget officers to consider. While the groups did not necessarily coordinate release of their issue papers, they covered much of the same ground because there is no real secret about where Medicaid spending is concentrated and what should be done to try to control that spending.

The Center for Health Care Strategies (CHCS) suggested five promising Medicaid reform strategies for states to consider, while the Kaiser Commission on Medicaid and the Uninsured profiled high-cost Medicaid populations. Also, some states are reinventing their Medicaid programs, organizing them in ways they hope will be more cost-effective.

Recognizing that, as U.S. Supreme Court Justice Louis Brandeis once said, states are the nation's "laboratories for innovation," CHCS laid out five "Medicaid 'Best Buys' for 2007," reform strategies for governors to consider.

CHCS says while external factors such as congressional action to reauthorize the SCHIP program and developing solutions to cover the uninsured will put pressure on states, Medicaid still has many opportunities to lead through innovative care-management approaches addressing the complex and costly health needs of its most vulnerable members.

"Improving the way care is delivered in Medicaid will not only target scarce public resources more effectively, it can also spill over to improve health care delivery as a whole, for state employees, retirees, and commercially insured populations," according to CHCS researchers Melanie Bella, Stephen Goldsmith, and Stephen Somers. "This analysis of Medicaid 'Best Buys' outlines five of the most promising opportunities for improving the health of high-risk and high-cost Medicaid beneficiaries while slowing the rise in spending."

The authors noted that while increases in Medicaid spending seem unsustainable to some, any effort to restrict spending growth should recognize that Medicaid is 1) the health-care safety net for increasing numbers of people who have lost employer-based insurance; 2) the primary revenue source for safety-net institutions for the uninsured; and 3) the funder of last resort for long-term supports and services for people with disabilities and the frail elderly.

"Increasingly, policy-makers are realizing that short-term fiscal fixes — cutting rates, coverage, or benefits — simply shift the costs to other payers (for example, hospital uncompensated care pools) or to another day when people with preventable (and costly) health needs present themselves for publicly financed care," the authors wrote.

An alternative to cutting spending is to find ways to get better value for every tax dollar spent on Medicaid and to bend the trend in longer-term cost growth.

Medicaid's 80/20 rule

Center for Health Care Strategies president Stephen Somers, one of the report authors, tells State Health Watch that in every state a very small proportion of Medicaid beneficiaries account for the bulk of the program's expenditures. So, he says, up to 80% of spending goes for some 20% of enrollees, primarily those with severe chronic illnesses and disabilities and the frailties associated with aging.

"By examining patterns of illness in their Medicaid populations, states can target opportunities to achieve both short- and long-term returns on investment in health care quality improvement," he says.

According to Mr. Somers, with so much money going to cover services for relatively few people, it make sense to look there for efficiencies and savings.

CHCS is not the only group calling attention to the need to look at high-risk, high-cost populations. At the same time CHCS issued its report and recommendations, the Kaiser Commission on Medicaid and the Uninsured issued a report profiling Medicaid's high-cost populations.

Mr. Somers said many state Medicaid agencies and their managed care plan contractors have been identifying high-risk, high-cost populations and coordinating their care more efficiently and effectively through care management programs. He said they were succeeding in improving quality for patient populations for whom there are likely to be quicker returns on investment: high-risk pregnant women, children with serious asthma, and adults with congestive heart failure.

"This should help them convince other state policy-makers, including governors, legislators, and budget directors, to invest in longer-term quality improvement initiatives for other populations, such as those with diabetes, depression, and other combinations of chronic conditions," he wrote.

Both short- and long-term savings

He tells State HealthWatch he and his colleagues chose their five "best buy" reform strategies to cover both short-term and long-term potential savings. He says it remains difficult to find evidence-based studies demonstrating the value of the strategies, although CHCS has been working to try to collate such studies.

While each of the strategies has been discussed in various contexts in the past, Mr. Somers tells SHW he believes they have a better chance of being implemented more broadly now because state Medicaid agencies are increasingly becoming sophisticated purchasers of health care services.

"Many are well beyond 'one-size-its-all' managed care contracting and are increasingly confident in their own ability and that of their contractors to stratify their high needs populations and predict where tailored interventions will add the most value," he says.

While the recommendations are primarily targeted at state Medicaid agencies, Mr. Somers says federal agencies can play a role in helping encourage the changes. He notes the government sponsors a lot of Medicare research and demonstration, but very little in the Medicaid arena. The rest of the U.S. health and long-term care system could learn a lot from greater research and development investments in Medicaid innovations for targeted populations, he says. He expresses the hope that the Centers for Medicare & Medicaid Services, the HHS Office of the Assistant Secretary for Planning and Evaluation, the Agency for Healthcare Research and Quality and other federal agencies "will see and seize such opportunities."

Included in the recommendations are:

1. Care Management for High-Risk Pregnancy. Medicaid covers up to half of all births in the United States, for a significant percentage of total Medicaid inpatient admissions. While hospital charges for a normal birth-weight baby average $5,800, those for a low-weight infant in need of intensive care can cost $1 million or more, showing where savings are possible. Women from lower socioeconomic groups experience poorer birth outcomes than other mothers, putting Medicaid at risk for higher delivery claims and neonatal intensive care unit expenses.

The report said managed care initiatives aimed at increasing the number of healthy births have substantially reduced NICU admission rates and have had positive returns on investment.

The report recommends implementing a statewide program to reduce NICU admissions for high-risk pregnant women, including incentives for plans and providers to implement prenatal care outreach programs for high-risk pregnancies.

2. Care Management Program for High-Risk Asthmatic Children. Medicaid provides care for one-third of all children in the United States and asthma care for children drives up costs considerably since some 12% of children on Medicaid are diagnosed with asthma. Estimated costs for their care are in excess of $16 billion a year. Asthma accounts for 14 million lost school days for children each year and 14.5 million lost work days for adults.

The report says care management for children with severe asthma can cut the incidence of asthma attacks and keep children out of emergency rooms and hospitals. Significant savings can come through targeting high-risk cases and creating financial incentives rewarding improved care management. States such as Arkansas, California, and New York have demonstrated that substantial reductions in hospital-based care can be achieved through targeted asthma interventions.

The report recommends that high-risk children with asthma be enrolled in care management programs, with appropriate financial incentives, operated either by the state, health plans, or care management organizations.

3. Managed Care Models for Aged, Blind, and Disabled Medicaid Beneficiaries. Aged, blind, and disabled beneficiaries account for 27% of Medicaid enrollees, but close to 70% of total Medicaid spending. Most of them are in unmanaged fee-for-service programs with little or no coordination of their complex array of health care needs. The authors said that while there are challenges to enrolling these populations in managed care, states are using a variety of models, including enhanced primary care case management and comprehensive care management, to provide higher levels of care coordination for beneficiaries with chronic needs.

The paper said managed care programs for the aged, blind, and disabled can improve health outcomes, control costs, and provide a measure of budget predictability.

The paper recommends that aged, blind, and disabled beneficiaries be enrolled in one or more models of managed care, including full-risk or partial-risk capitation through a contract with a health plan; a case management fee arrangement with a health plan, care management organization, or provider; or a partial-risk to nonrisk arrangement through a contract with an administrative service organization.

4. Managed Care Models for Long-Term Care Supports and Services. With Medicaid paying nearly 50% of the nation's total spending on long-term care, there is a significant incentive for states to better manage beneficiaries' long-term care needs, including the so-called "dual-eligibles" who also qualify for Medicare. Options available to states include programs that manage long-term supports and services only, those that integrate acute and long-term care, and those that integrate Medicaid and Medicare.

The report said the biggest opportunity lies in improving care for the 7 million dual-eligibles, who represent only 14% of Medicaid's enrollment but drive more than 40% of total Medicaid expenditures, with close to 70% of those expenditures being for long-term care services.

States not yet ready to fully integrate Medicaid and Medicare services still can reap benefits, according to the report, by developing programs to better manage long-term care services and supports and integrate long-term and acute services. Managed long-term care programs have been shown to improve quality, cost-effectiveness, and community placements in states such as Arizona, Florida, Texas, and Wisconsin.

The report recommends implementing a managed long-term care program for Medicaid beneficiaries; implementing a managed long-term care program for Medicaid beneficiaries that also integrates acute care services covered by Medicaid; and implementing an integrated care program for dual-eligibles with one of several approaches — wraparound or partially capitated contract for one or all of the services covered by Medicaid or a capitated contract with a Medicare Advantage Special Needs Plan for the full range of Medicaid primary, acute, behavioral, long-term care supports and services.

5. Care Management for High-Risk, High-Cost Members with Multiple Chronic Health Needs. The report noted that less than 5% of Medicaid beneficiaries account for close to 50% of total expenditures, with the top 1% responsible for more than 25% of annual Medicaid costs nationally. Most of these beneficiaries have multiple chronic physical and behavioral health conditions and/or disabilities, often complicated by socio-economic factors. "Developing programs to better manage the care of this very small, high-cost group of beneficiaries offers tremendous opportunities to increase quality and control costs," the report asserted.

Some organizations have achieved a significant decrease in costs and improvements in quality measures by using predictive modeling to identify persons who may become ill (and costly) and employing intense medical management for those with multiple diseases who are already very costly. "By reducing the need for, and utilization of, hospitals and nursing homes, costs for these patients can eventually be brought under much better control," the report said.

The authors recommend implementing a care management program that focuses on the top 1% to 5% of highest-risk, highest-cost beneficiaries and incorporating a targeted care management strategy for the top 1% to 5% of highest-risk, highest-cost beneficiaries into any managed care program or contract for aged, blind, and disabled beneficiaries.

Download the CHCS issue brief at www.chcs.org/usr_doc/Medicaid_Best_Buys_2007.pdf. Contact Dr. Somers at (609) 528-8400.