Midyear rate cuts may be harbinger of what's coming

Several states already have made midyear payment rate cuts for FY 2009. Also, although 32 states indicated that they had initiatives for 2009 to reduce the number of uninsured, officials in 10 states said those plans were already scaled back due to budget concerns. These are two troubling signs included in a new 50-state Medicaid budget survey from the Kaiser Family Foundation's Kaiser Commission on Medicaid and the Uninsured.

The most important issue identified by state Medicaid directors was an increasing concern about the fiscal and budget pressures now facing Medicaid, and how the economic downturn would affect the ability of their state to continue funding programs in the long run.

The report notes that Nevada revised its current year budget in August 2008 to cut payment rates for hospitals, as did New York, which also cut payment rates for nursing homes and managed care organizations. In September 2008, South Carolina announced cuts for doctors, dentists, and other ambulatory care services.

"As state fiscal situations worsen, actions in these three states may be a harbinger of things to come across the country," said Vernon Smith, PhD, of Health Management Associates, the study's lead author, in a recent media briefing held by the KCMU.

Here are other findings:

• Last year, there were the fewest benefit restrictions since the KFF began doing the survey in 2002, with just three states restricting benefits and in fiscal year 2009, seven states restricting benefits. For the most part, the restrictions were limits on specific benefits, such as the number of therapy visits allowed in a year, or eliminating coverage for eyeglasses.

• More than three-quarters of states expanded coverage for home services last year, including expansion in the number of persons that can be served and adding services that would help individuals remain in their homes.

"For long-term care, which accounts for a third of all Medicaid spending, there is one thing that you can say about state actions throughout the country, and that is a focus on shifting long-term services and dollars from nursing homes to care in the community," said Mr. Smith.

• States have been enhancing and refining their Preferred Drug Lists for supplemental rebates from manufacturers, for drugs subject to prior authorization. "Last year and this year, about two-thirds of states adopted policies to improve this area in one area or another," said Mr. Smith. One of the key focuses now is on assuring appropriate use of mental health drugs, particularly atypical antipsychotics for children.

• In FY 2008, nearly one-third of states expanded their managed care programs. All but two states, Alaska and Wyoming, have some form of Medicaid managed care. "From a Medicaid perspective, managed care provides a framework for improving performance," said Mr. Smith. "Every state contracting with a Medicaid managed care organization is using some form of quality measurement."

Most states now make the results available publicly as an incentive for performance, and tie payment in some way to performance.

• Even though Medicaid programs have invested a lot of resources to improve access to dental care, this remains a major issue, with directors in 39 states indicating there is "some" or "significant" problems. One third of states indicated that the situation is improving, usually as a result of state initiatives.

• Almost nine out of 10 respondents indicated that spending for behavioral health services, including prescription drugs, has increased substantially.

Mr. Smith noted that Medicaid has become "the major funder for mental health services in this country." Budget-related issues include inappropriate use of ERs, growth in psychiatric inpatient admissions, and a significant growth in the use of prescription drugs related to mental health. "One state indicated that of the top five prescription drugs paid for by Medicaid, four were for mental health," said Mr. Smith. "This is both a budget and quality-of-care issue."

• States expressed concern about the current state of the federal/state partnership, which has become strained over intense federal oversight audits and proposed regulations that would shift costs to states.

"In addition, the congressional delay in reauthorizing SCHIP has caused states to put plans for covering additional children on hold until future funding is assured," said Mr. Smith. "There is hope that a new administration might have the opportunity to improve the federal/ state partnership."

David Parrella, director of Medical Care Administration at the Connecticut Department of Social Services, who participated in the media briefing, said he is hoping for a restoration of a better spirit of partnership between the federal and state governments.

"It has been strained over the ongoing controversy over Medicaid regulations that CMS sought approval for over the last year, including regulations to restrict states' ability to use tools such as case management and rehabilitation services," he says. "We would like to get back to a more productive relationship with CMS in getting advance notice about where they are going, so we can have more open conversations."

Since a large percentage of Connecticut's revenues are generated by capital gains on Wall Street, the disruption is going to be reflected in January 2009 for some "drastically reduced revenue projections," said Mr. Parrella. "This will cause an expanding deficit in the state, which will probably only lead to further questions about reductions in the program as occurred back in 2003. It is not an unfamiliar phenomenon, but it's an unpleasantly predictable one."

However, Mr. Parrella added that Connecticut's long-term goals remain the same. "We are going to be in one of those modes that we have been in several times before—when we are trying to defend as best we can the improvements in coverage that we have made in recent years," he said. "That will probably mean we have to do more with less. But we will try to thin down whatever we can in administration before we touch client benefits."