Tight state budgets slowing pace of Medicaid cost-containment initiatives

Even in good economic times, Medicaid directors have limited resources to do all that recipients, families, providers, legislators and taxpayers expect of them. "With a possibly long recession on the horizon, their ability to manage competing interests—limiting expenditures, expanding access to health care for children and families, and serving as the insurer of last resort for society's most vulnerable—is even more challenging," says Lisa M. Duchon, PhD, a senior consultant at Health Management Associates in Washing-ton, DC.

The financial pressures on Medicaid and State Children's Health Insurance Programs (SCHIPs) mean that state Medicaid directors need to know which cost-containment programs really work.

"Much of the health care world— insurers, providers, employers, and states—is now focused on cost containment, in recognition of the reality that we must 'bend the curve' of health care cost trends if we are to keep even the level of access and coverage we have today," says Robert W. Seifert, senior associate at the Center for Health Law and Economics at University of Massachusetts Medical School in Charlestown.

Many tools and approaches to systemic cost containment are available, but few offer the short-term solutions that state budgets need. "In fact, they may even require short-term investment, such as for the extension of health information technology, which would yield benefits over time," Mr. Seifert says.

Dr. Duchon says there is growing awareness that reducing the rate of growth in health care spending goes well beyond the medical care system, and this involves not only public health leadership, but also participation from departments of education, environment and natural resources, transportation, and housing at state and local levels.

"We are still early on, with states looking at different approaches," says Dr. Duchon. She predicts there will be growing interest in care coordination and patient involvement, to identify people at risk and keep them out of the hospital.

President Obama's health platform and the health reform legislation Sen. Max Baucus (D-MT) are promoting both include the creation of a new, national comparative effectiveness institute. Dr. Duchon also notes that this past year, Massachusetts passed legislation that requires the state to file a report by March 30, 2009, that compares the effectiveness of medical procedures, prescription drugs, and medical devices based on existing models of comparative research in Great Britain.

"So, we could see more action like that in other states, although I think this is something that should be undertaken at the federal level," says Dr. Duchon. "We're all waiting to see whether a really bad economy creates an imperative for passing national health care reforms that expand coverage and make health care more cost-effective, or keeps them on the back burner."

Not much concrete evidence

Part of the problem is that there still is much uncertainty about what constitutes cost-effective care. "It seems every few weeks or so, we hear that something considered to be a 'best practice' is not actually supported by the latest medical evidence," says Dr. Duchon.

In terms of the kind of information that states need in order to make purchasing decisions, that "is really just getting started," says Mr. Seifert.

"The one area that Medicaid is actually fairly advanced in is drug purchasing," says Mr. Seifert. "That is one area where the clinical effectiveness evidence is being used to good effect." He points to the Drug Effectiveness Review Project, a collaboration with 14 member states that provides evidence-based reviews of the comparative effectiveness and safety of drugs in many widely used drug classes: (www.ohsu.edu/drugeffectiveness).

"Part D probably helped more than anything in controlling Medicaid drug costs, because it took a lot of the more expensive drug purchases out of Medicaid and put them in Medicare," says Mr. Seifert. "Also, a lot of states have preferred drug lists that are based on evidence of effectiveness. That has helped control spending in the drug area for a lot of state Medicaid programs in the last five to seven years."

Other than that, there are some pay-for-performance initiatives that are trying to tie payment to quality or value. "But they are pretty small and unproven at this point," says Mr. Seifert. "I think that everybody acknowledges that we need to move in this direction. But there isn't a lot there yet, as far as I know."

The argument for cost-savings resulting from prevention initiatives is, overall, less compelling, but the Medicaid population may be an exception, according to Mr. Seifert. "There is less evidence that prevention is a real money-saver. But, Medicaid may be a group that hasn't had the regular care for chronic conditions like asthma or diabetes. If you then start giving it to them, I think you can realize some significant savings from avoided hospitalizations. If you can keep people out of emergency departments by teaching them home management of their diabetes, that could probably pay for itself."

One irony is that Medicaid programs are "sitting on huge amounts of claims and utilization data that would really go a long way toward making more value-based purchasing," says Mr. Seifert. "But a lot of states don't really have the wherewithal to do that type of analysis and turn it into policy decisions, or buy the services to do that sort of analysis. A lot of Medicaid programs, especially now, don't really have the luxury to analyze the data that they have to tailor their programs in a way that would result in better value."

Scarce resources are being directed toward running a Medicaid program, as opposed to doing long-term research on high-cost members and what kind of services they are using to craft a disease management program. "A lot of the medical home discussion revolves around specific subpopulations that are really the high-cost people," says Mr. Seifert. "If you could manage their care in a more deliberate way, you could probably be much more efficient in how you are spending for care for those people."

Pace of progress may slow

"This is something that states are going to continue to work on, even with the budget issues. It creates more of an imperative to work with managed care organizations to figure out who really needs close attention," says Dr. Duchon. "It goes back to that same old statistic that 80% of money gets spent on 20% of patients."

However, the reality is that for many states, the recession means that cost-effective initiatives will be slowed. "They may need to adopt them at a slower pace that their budget can afford," says Jonathan Seib, a policy advisor to Gov. Chris Gregoire in Washington state.

States are adopting strategies they've used over the past several years to limit spending, such as controlling drug costs, freezing or reducing provider payments, restricting eligibility, or reducing benefits.

"Thus, tight state budgets may slow or even reverse the pace of efforts to improve quality and coverage," says Dr. Duchon. "But they also generate pressure for more collaboration and partnership among purchasers, state agencies, contractors, and providers to improve the cost-effectiveness of care."

States that already have implemented cost-containment initiatives, such as care management programs, might be looking at expanding them to see additional savings.

"The budget situations now really make it imperative to try to do these kinds of things," says Mr. Seifert. "I think the states that have already begun to do care management would think about expanding that, in order to realize the savings."

Medicaid, he says, is doing what it is supposed to do in tough economic times—expand. "It's supposed to be there as a safety net for people who lose their jobs—that's what Medicaid is. But because Medicaid is such a substantial part of most state budgets, that is where the budget people look to realize some savings," says Mr. Seifert. "Nobody really wants to cut the programs or cut eligibility, which is shooting yourself in the foot anyway, because you lose federal revenue while you are trying to save."

Instead, cost-containment initiatives that lead to smarter purchasing may be cut instead. "Most of these things take some time to see any savings at all. That is the challenge. If states have to save money this year—and they do, because every state has to balance its budget—how do you do that within Medicaid when really, most of the significant savings you can realize are a multi-year sort of endeavor?" says Mr. Seifert.

If a state starts a cost-containment initiative now, "it's not going to get them very far in fiscal '09," says Mr. Seifert. "States that already have it started can build on it and add additional populations. Those states are probably ahead of the game. But that doesn't mean that everybody isn't under the gun."

This year, the attention of most state Medicaid directors is on a more immediate problem: They are hoping for some federal help to manage their increasing case loads and the costs that go with them.

"Longer term, I think cost containment will probably concentrate the minds of some Medicaid directors," says Mr. Seifert. "But anything that starts up right now isn't going to result in any savings for this year and probably the next. Each state is making its own decisions about where it wants to allocate its scarce resources."

Contact Dr. Duchon at (202) 785-3669, ext. 15, Mr. Seib at (360) 902-0557, and Mr. Seifert at (617) 886-8065 or Robert.Seifert@umassmed.edu.