Fiscal Fitness: How States Cope

SC finds rate cuts necessary to protect Medicaid's optional services

South Carolina Medicaid is taking a variety of innovative approaches to reduce waste in the program, reports Tony Keck, the state's Medicaid director. Optional services including adult vision, adult dental, and adult podiatry have already been eliminated, he says, with some exceptions based on Centers for Medicare & Medicaid Services (CMS) requirements.

"Although we would prefer to offer a full range of services on the fee-for-service side of the business, because we could not restrict eligibility, we had no choice," says Mr. Keck.

Some of the announced cuts to long-term care services were restored, he notes, including hospice care for adults and respite care provided through the Community Long Term Care Community Choices waivers. Several Medicaid managed care organizations are still providing these optional services, adds Mr. Keck.

"They do that for a variety of reasons, but we are not sending them the money to do that anymore," he says. "They are making the decision to do it on their own."

Optional services protected

Cuts in optional services will save about $2.9 million for the remainder of fiscal year 2011, and around $10 million in state dollars over the course of a full year, says Mr. Keck.

Provider rates were cut by 3% across the board in April 2011 for a $7.5 million savings, says Mr. Keck, so that optional services would not need to be cut any further. "Our argument to the legislature and the public was that we wanted to put patients first and provider reimbursement second," he says.

As provider reimbursement has been protected for the past three years by state law, says Mr. Keck, "it really was a big win for us, to get that law repealed."

South Carolina Medicaid reimbursement is generous compared with other states and payers, according to Mr. Keck. "While certainly nobody likes to take money away from providers, that reduction made sense, especially when we were facing a $228 million deficit," he says. "For the next fiscal year, we need to get about $125 million in state dollars out of what we call the 'provider line.'"

Cost-saving ideas

The agency has not lost any Medicaid providers to date since the rate cuts were made, reports Mr. Keck. In fact, the agency is actively soliciting ideas from providers to eliminate waste and inefficiency, he adds, in order to mitigate additional rate cuts.

"We are working with providers, and all sorts of interesting ideas have been coming up," says Mr. Keck. "Sometimes, things that we just haven't been doing as a department have increased our costs."

Providers called attention to the fact that Medicaid wasn't allowing a series of surgical and procedure codes to be reimbursed in an ambulatory setting, says Mr. Keck, so the procedures were being done in a more costly hospital setting. "It was a simple mistake," he says. "Just by that change alone, we'll get care reimbursed in a much less expensive setting."

The agency reduced administrative costs for its managed care organizations (MCOs), says Mr. Keck. "They had a 12% administrative cap, and we've lowered that down to 10.5%," he reports. "We've seen wide variations between our managed care plans, in terms of how efficient they are. We want to reward those that are most efficient."

The agency also asked MCOs to be more aggressive with care management, says Mr. Keck, and steps are being taken to decrease the "hassle factor" for providers. Medicaid providers often incur costs because of requirements that don't always add value, he explains.

Providers complained that the Medicaid enrollment system was creating "churn" that caused claims denials and administrative rework, says Mr. Keck, which led to the implementation of Express Lane Eligibility redetermination.

"Instead of re-enrolling those 90,000 kids through a whole bunch of paperwork, we're able to look at a lot of electronic databases that exist in the state that tell us yes, this child continues to be eligible," says Mr. Keck. "Until we learn differently, we will automatically re-enroll them."

This change will prevent thousands of wasted hours not only in Medicaid, but also in managed care plans and in provider practices, says Mr. Keck, because it will keep eligible children on the Medicaid rolls.

Incentives are necessary

The state law prohibiting reduction of provider rates had an unintended consequence, says Mr. Keck, because there was no incentive for providers to give input on cost reduction. "They knew there was nothing the department could do to lower their reimbursement rate, so the status quo was locked in place for several years," he says.

People need incentives to drive costs out of the program, says Mr. Keck. "One thing you learn in Medicaid pretty quickly is that one man's waste is another man's revenue," he says.

Mr. Keck says that he is very pleased with the feedback the agency is getting from providers. "They clearly understand that it's about margin," he says. "What they care about is the bottom line and what they take home."

Making smart decisions

The agency's Reduction Assessment Team created a list of opportunities to reduce waste in the system, says Mr. Keck, and more than 40 provider groups have met with the team to share cost-saving ideas.

"There hasn't been a tradition of using data between providers and the department to make smart decisions," says Mr. Keck. "One way we can help providers do that is to be much better about sharing data with them. We can help them interpret what it means, and where it does not meet up with norms or best practices."

After a parent of a child with cystic fibrosis reported that a certain therapy was constantly getting denied, says Mr. Keck, an important change in preauthorization requirements was made.

"As we sat down and talked about it, we came to realize that the provider was doing an excellent job of prescreening," he says. "Here we were coming around the back end, doing our own review process, when they had already done a more thorough one."

The agency created a "preferred" category for providers with a proven record of providing cost-effective care, says Mr. Keck, which means these providers don't need to obtain prior approval for certain high-cost treatments. "That saves them administrative time in trying to get us to approve something, and saves us from reviewing all that paperwork on the back end," he says.

This reduces hassles for the patient, the provider, and Medicaid all at once, says Mr. Keck. "In almost every case, the best clinical decision will also be the smartest financial decision. Sometimes, we lose sight of that," he says.