More cuts coming for Medicaid? Utilization management can't be ignored

Medicaid programs may never have had as much reason to redouble their utilization review efforts, in order to be sure funds are not being spent inappropriately, as they do right now.

Fourteen states reversed planned restrictions to Medicaid eligibility, and five states abandoned plans to do this, in order to qualify for enhanced Federal Medical Assistance Percentages (FMAP) through the American Recovery and Reinvestment Act (ARRA), according to a September 2009 report from the Kaiser Commission on Medicaid and the Uninsured.

The funding also allowed many Medicaid programs to maintain optional services and avoid drastic provider rate cuts.

The ability to avoid devastating cuts may have been short-lived, however. Some Medicaid programs are now contending with another round of budget cuts, due to declining revenues. Another looming threat on the horizon is the loss of the enhanced FMAP dollars on Dec. 31, 2010.

"Every dollar counts, and utilization management is one approach that has long-lasting impacts," says Leslie Clement, Idaho's Medicaid administrator . " While it can't be 'the' solution, it helps with long-term sustainability."

Clement says Idaho's revenues continue to fall short of needed funding, while enrollment increased 4% in state fiscal year 2009. There is a projected caseload increase of 8% in the current 2010 year. "Expenditures continue to increase. The gap is anticipated to be especially significant in state fiscal year 2011, when the increased FMAP drops," says Ms. Clement. "There is no way to mitigate the potential impact. We need to assume that the FMAP will go away because of when our legislature is in session."

The impact to Idaho Medicaid, says Ms. Clement, "will be devastating, with costs increasing, caseload increasing, FMAP decreasing, and state revenues in decline. We have no good policy options for quickly reducing our costs to balance the budget. But we will be forced to make those decisions."

Pricing reductions for hospitals and nursing homes, pricing freezes for providers, and reductions in optional benefits for behavioral health and developmental disability services have all already been done. "We also implemented some utilization management approaches," says Ms. Clement. "More of these will be implemented for the current FY 2010 year."

These new approaches included a transportation brokerage system, adding all Medicaid participants into an outsourced dental plan, and implementing utilization management for diagnostic imaging. "These management strategies are expected to realize $10 million in annualized savings," says Ms. Clement. "These strategies will be added to existing hospital utilization management and case management, which have realized an average return on investment of $5.04." That translates into a total net savings of about $3.7 million.

Additional savings have come from Idaho's pharmacy management program, which assures that only medically necessary prescriptions at the least cost are authorized.

One promising development is that new systems can now identify practice patterns that don't conform to evidence-based standards or that aren't being utilized appropriately. "We are looking forward to implementing a new MMIS system in 2011, which will provide additional system edits and audits," says Ms. Clement. "Utilization management can be effective for containing costs over the long term. But without the right technology, it can be very labor-intensive."

Low-hanging fruit already picked

Heather Burdette , MBA, assistant deputy director of Ohio Health Plans, says, "After years of coming up with increasingly creative ways to save money, we have taken all the low-hanging fruit. Now, we are at the point of taking advantage of those which are more difficult to implement and/or have a lower return on investment."

Ohio Medicaid's caseload increased by about 170,000, or 9%, in the past 12 months. "This is the largest caseload growth during a 12-month period in more than seven years," says Ms. Burdette. Ohio Medicaid has made these changes in utilization management:

—A study on Durable Medical Equipment utilization is currently being completed.

"This will inform policy changes which might be able to increase our efficiency in this area of our business," says Ms. Burdette.

—An effort is being made to reduce inappropriate use of advanced diagnostic imaging services, such as magnetic resonance imaging.

Ohio's 2010/2011 biennium budget states that "Not later than Jan. 1, 2010, the Department of Job and Family Services shall implement evidence-based, best practice guidelines or protocols and decision support tools for advanced diagnostic imaging services available under the fee-for-service component of the Medicaid program." "To that end, we are finalizing our proposals to meet this requirement," says Ms. Burdette. "Once we complete our research and settle on an approach, we'll be able to provide an assessment of the impact."

—Custom wheelchairs, transportation, oxygen, therapies, and over-the-counter drugs were bundled into nursing facility rates. 

"This will align incentives for nursing facilities to utilize the most efficient means to provide quality health care to their residents," says Ms. Burdette.

For instance, a nursing facility might previously have scheduled an ambulette to transport a resident to a doctor's appointment. "Today, they might find it more efficient to use their own adequate transportation resources and coordinate office visits to save money and reduce the number of trips," says Ms. Burdette.

—Pharmacy is being carved out of managed care.

This is being done to allow consumers, providers, and pharmacists to have one formulary to work with, with consistent prior authorization requirements for consumers.

"To help ensure utilization does not increase unnecessarily, we have structured the managed care capitation rates to align their incentives around utilization management with our goals," says Ms. Burdette. "We have also worked closely with the plans to ensure they have the tools necessary to make the transition seamless, so they will be our partners in this as we move forward."

Approach has limits

One obvious limitation of utilization management efforts, however, is that most of these occur when patients are already in the hospital, instead of preventing them from getting there in the first place.

"There isn't enough being done to ensure they do not get rehospitalized, and there is much to be saved there," says Anne Gauthier, a senior fellow at the Washington, DC-based National Academy for State Health Policy. "The emphasis is on the expensive cases, but the best approach is a full chronic care model. That can reap the most savings."

There is no question that utilization review is important for Medicaid programs. "That needs to be done, but it isn't going to get at the biggest issues. It won't really improve the delivery system to improve care with care of patients with chronic illnesses," says Ms. Gauthier. "Broader payment reform is another new approach, but there aren't many states really thinking about that right now."

The most innovation is coming out of programs aiming to strengthen primary care, sometimes through medical homes, says Ms. Gauthier. "They are trying to connect practices in ways that provide a better system for patients, so that in some cases, they avoid hospitalization altogether. And if they are hospitalized, there is appropriately coordinated support when they leave, so they take their medications, which is a leading cause of readmission. And they are seen by a physician quickly if necessary, so they don't wind up back in the hospital again."

These kinds of initiatives, combined with the use of electronic medical records and health information exchanges, can help identify the patients at most risk of being hospitalized. "These patients need continuing management of their chronic disease. Paying attention to those patients is the opportunity for the biggest savings," says Ms. Gauthier.

Another potential missed opportunity for state Medicaid programs involves savings achieved through health information technology (HIT). These would likely be much more significant if HIT planning efforts were tied to utilization review approaches.

"Most states are planning on investing in HIT, but that planning is happening outside of folks doing utilization review," says Ms. Gauthier. "It's actually possible that Medicaid programs could see a return on investment in their HIT investments, if they implemented electronic medical records and Health Information Exchanges in conjunction with their systems for looking at utilization review. But as far as I can see, most are in two very separate tracks."

Making upgrades to existing MMIS systems, says Ms. Gauthier, "is taking over all the airspace. Most states have extremely clunky and old systems. So, just to get them into the modern age is taking all their efforts."

Clearly, no one wants Medicaid dollars to pay for inappropriate or unnecessary care, but there is also the big picture to consider, says Ms. Gauthier. "Recovering money fraudulently spent is important to do, though it's not the major driver of costs," she says. "It is true that sometimes millions of dollars are recovered. But that pales in comparison to the billions of dollars that could be saved if incentives were better aligned in our system. Providers could keep somebody out of the hospital and not be financially penalized for doing so."

Contact Ms. Burdette at (614) 466-4443 or, Ms. Clement at (208) 364-1804 or, and Ms. Gauthier at (202) 507-7586 or