Doing Medicaid Reform Right

Doing Medicaid Reform Right
August 20, 2012

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

Consumer Power Report #340

The selection of Congressman Paul Ryan as the vice presidential nominee for the Republican ticket has brought the issue of Medicare reform to the forefront of people’s minds. But Medicaid is next up, according to the Wall Street Journal:

Medicaid provides health insurance to more than 50 million poor Americans and nursing home coverage to six million seniors and Democrats will portray any “cuts” as heartless. The Agenda Project Action Fund, which ran the infamous tv ad showing Paul Ryan shoving an elderly woman over a cliff, is now running ads in up-for-grab states like Wisconsin. The spots warn of Medicaid cuts that would adversely affect hundreds of thousands of seniors in the state and claim that Madison “will lose $14 billion in funding.”

Earlier this year, Barack Obama berated the Ryan Medicaid cuts as well. Among the victims, he says, are “someone’s grandparents who, without Medicaid, won’t be able to afford nursing home care. ... Many are poor children. Some are middle-class families who have children with autism or Downs syndrome. Some are kids with disabilities so severe that they require 24-hour care. These are the people who count on Medicaid.”

The Ryan budget is hardly radical: it would block grant Medicaid to states much like the successful welfare reforms in the 1990s. States would get less federal money, and no more dollar-for-dollar match on wasteful expenditures. In exchange, they would get far more flexibility in how that money is spent. So far 29 Republican governors have sought that deal – fewer dollars for less Washington rules. Rhode Island, a state that received a waiver from federal Medicaid rules, has saved millions of dollars and improved care to seniors. “Medicaid is by far our biggest cost driver in our budget,” complains Florida’s Republican Governor Rick Scott. “We can improve services and run the program easily with billions in cost savings here in Florida if the feds let us.”

The truth is that most Democrat and Republican governors alike would be willing to trade less federal funding in return for more freedom and flexibility for their Medicaid programs. One of the reasons for that bipartisan undercurrent of agreement on the need for flexibility, rather than just throwing money at an already broken entitlement system, is that we now have examples of policy approaches beyond simply managed care to lower Medicaid costs and increase the quality of care. Chief among these examples is Florida’s pilot program, which you can read about here.

Here’s the story, in brief: A little more than six years ago, then Gov. Jeb Bush established a pilot program in five big counties in Florida with a total overhaul of Medicaid. (This plan has actually been endorsed by some key Obama administration HHS officials, so it’s not some instance of right-wing extremism.) The population involved is quite large, roughly 300k people on Medicaid – bigger than the total programs in 17 states. The program has received a wealth of attention from policy wonks but little mainstream coverage, in part because Gov. Crist never touted it, as it wasn’t his program. Thankfully, that’s beginning to change, and the Foundation for Government Accountability is beginning to highlight the successes of the program.

Under the pilot program, Medicaid recipients are given the choice of a wide variety of plans created by multiple insurers. The insurers are allowed to escape the vast majority of mandates on coverage, and instead just have to meet an actuarial value for the plan. This allows the state to keep costs flat while giving the insurers an incentive to create more tailored plans depending on need. You also have risk-adjusted capitated rates – or in non-insurer speak, you allow for better matching of payment to risk – so this doesn’t warp the incentives for insurers to make them avoid sick people. Instead, they’re rewarded for making sick people well.

Medicaid recipients get to choose among a dozen different plans with different offerings: one hospital, multiple, HIV-positive, etc. The plans are competing on benefits, copays, and provider networks, even above traditional Medicaid FFS. There’s a default plan, but the engagement is huge: 70 percent of recipients in the pilot choose a plan other than the default. (This is because, as Jeb was fond of saying, they’re poor, not stupid.) Early engagement in this form has a side benefit, too: It makes them more likely to seek care earlier, as opposed to waiting ‘til they need to go to the emergency room. Patients also get access to seven extra services not covered by any other Medicaid program (over-the-counter medication, dental, vision, etc.) They also have a cash incentive for healthy behavior, including quitting smoking, of up to $125 per person/per year – 64 percent of people in the program do it.

The outcome, according to the Florida Agency for Health Care Administration, is 64 percent better health vs. managed care, with 83 percent higher satisfaction from those in the program. And they’ve saved money, too: Florida is currently saving roughly $118 million a year on Medicaid in the five counties, with better outcomes for the people in it. The state will be approved soon for a statewide expansion of the program, and it expects to save almost a billion dollars per year.

The problem, of course, is that the pilot exists only thanks to the whim of HHS. States currently have to go back and beg every five years for an extension of their waivers. Massachusetts Gov. Deval Patrick, for instance, did this for Romneycare – he was overbudget, so he extracted another $4.3 billion from you the taxpayer for it, thanks to Sens. Kennedy and Kerry and then-HHS Sec. Mike Leavitt. States will always have an incentive to expand coverage and socialize costs until we reorder the system into one where they have to choose. Block grants – either the pure or partial variety – would allow for massive improvements in this broken program. Here’s the Republican Study Committee’s plan on that score. But what states do with that money and freedom is what really matters.

In sum: Florida is the best example we have, and perhaps the most replicable, for how statewide reforms should look going forward. Throwing money at the problem won’t fix it. Medicaid needs reform. It needs to return to its original purpose: covering the poorest of the poor, the sickest of the sick. That’s a true safety net.

-- Benjamin Domenech


IN THIS ISSUE:


FACT CHECKING THE OBAMA DEFENSE OF MEDICARE CUTS

The administration is trying to have it both ways by claiming the cuts don’t harm the quality of care:

Defense #2. Obamacare’s Medicare cuts don’t harm seniors’ health benefits

“Mitt Romney’s Medicare ad is dishonest and hypocritical,” claims Obama campaign spokeswoman Lis Smith. “The savings his ad attacks do not cut a single guaranteed Medicare benefit.”

This is a deeply misleading statement by the campaign. It’s true that the Obamacare Medicare cuts don’t make any changes to the Medicare insurance benefit, which means that the health-care services covered by the Medicare insurance plan are technically unchanged. But Obamacare’s Medicare cuts are bluntly structured, in ways that will harm seniors’ access to care.

Of the $716 billion in cuts, $415 billion come in the form of “updates to fee-for-service payment rates,” a euphemism for reducing Medicare’s payments to doctors and hospitals. But what happens when you reduce payments to doctors? Doctors stop being willing to see Medicare patients. And if you can’t actually get a doctor’s appointment, what does it really matter what your insurance plan covers on paper?

We already see this happening in the Medicaid program, where sick and injured children can’t get appointments to deal with urgent medical conditions, because Medicaid so severely underpays doctors relative to private insurers. By the end of this decade, under Obamacare, Medicare reimbursement rates are set to fall below those of Medicaid.

The Obama administration’s own Medicare actuary, Richard Foster, has explained that the Obamacare Medicare cuts could make unprofitable 15 percent of hospitals serving Medicare patients. “It is doubtful that many [hospitals and other health care providers] will be able to improve their own productivity to the degree” necessary to accommodate the cuts, Foster has written. “Thus, providers for whom Medicare constitutes a substantial portion of their business could find it difficult to remain profitable, and, absent legislative intervention, might end their participation in the program (possibly jeopardizing care for beneficiaries. [Our] simulations … suggest that roughly 15 percent of [hospitalization] providers would become unprofitable within the 10-year projection as a result of the [spending cuts].”

Sarah Kliff cited a study yesterday that showed that every $1,000 that a hospital lost in Medicare reimbursements was associated with a 6 to 8 percent increase in mortality rates from heart attacks. John Goodman pointed out in the Wall Street Journal that Obamacare’s coverage expansion will not be accompanied by an increase in the supply of doctors, which will lead doctors to focus their time on the privately insured patients who pay them the best.

APOTHEFACT CONCLUSION: Seniors’ benefits won’t change on paper. But they will change in reality, because fewer and fewer doctors will accept their insurance.

SOURCE: Forbes


THE NEXT EXODUS: PRIMARY CARE PHYSICIANS AND MEDICARE

From David Hogberg:

If you want to see Dr. Madrigal, it will cost $75 if your office visit is a simple one and $150 if it is more complicated. However, if you had been an elderly patient when she started her practice, your Medicare card would have paid for your visit.

“As a doctor, you’re actually ‘born’ into the Medicare contract,” she said.

Until recently, once a medical student received his medical degree, he automatically received a Medicare provider number. The regulations were changed a few years ago so that new physicians now have to sign up to be part of Medicare. But when Dr. Madrigal first became a physician, she became part of Medicare whether she wanted to or not.

By 2006, she wanted out.

“To leave Medicare, you actually have to do quite a bit of paperwork,” she said. She turned to the Association of American Physicians and Surgeons (AAPS), an interest group that in recent years has helped physicians exit Medicare. The AAPS recommends that the physician first tell her Medicare patients that she is leaving Medicare. Second, the physician must file an affidavit stating that while she is opting out of Medicare she “will provide services to Medicare beneficiaries only through private contracts,” and “will not submit a claim to Medicare for any service furnished to a Medicare beneficiary during the opt out period.” The affidavit must be sent to all of the private companies that handle Medicare claims in the physician’s state.

The physician must then fill out a separate contract with each of her Medicare patients stating that the patient understands that the physician has opted out of Medicare. It states that the patient must accept “full responsibility for payment of the physician’s charge for all services furnished by the physician.” The patient must also understand “that Medicare payment will not be made for any items or services furnished by the physician that would have otherwise been covered by Medicare if there was no private contract and a proper Medicare claim had been submitted.” The patient must sign this contract in order to continue to be treated by the physician.

Even though she dropped out of Medicare, Dr. Madrigal’s hassles with the government haven’t ended. The “opt-out” period only lasts for two years, so Dr. Madrigal must re-file up-to-date affidavits biennially. She must make sure that her Medicare patients sign new contracts every two years as well.

Her reasons for leaving Medicare were similar to why she never took private insurance.

“There are things in Medicare that are hard to order,” she said. “For example, Medicare won’t pay for a bone-density scan on a patient to check for osteoporosis unless the patient either has very specific risk factors or already has a diagnosis of osteoporosis.”

Avik Roy has more on doctors leaving Medicare.

SOURCE: National Policy Analysis


WHY DO BRITONS LIKE THE NHS SO MUCH?

Theodore Dalrymple on misplaced affection for the NHS:

In April, the British Medical Journal published “How the NHS Measures Up to Other Health Systems,” a report about two studies conducted by the New York–based Commonwealth Fund that compared the health-care systems of 14 advanced countries. On the 20 measures of comparison, Britain’s famous (or infamous) centralized system, the National Health Service, performed well in 13, indifferently in two, and badly in five. Was this a cause for national rejoicing?

If popular satisfaction is the aim of a health-care system, the answer must be yes. According to the report, the British were the most satisfied with their health care of all the populations surveyed; they were the most confident that in the event of illness, they would receive the best and most up-to-date treatment; and they were the least anxious that their personal finances would prevent them from receiving proper treatment. One could doubtless raise objections to these measures of comparison, but let us for the sake of argument take the results at face value. Subjective satisfaction and relief of anxiety are not minor achievements. Indeed, though the free market’s ability to satisfy more needs and desires than any other system is usually cited as one of its principal advantages, here was an apparent instance of the contrary: a nonmarket health-care system that yielded the most satisfaction.

Still, the studies contained a paradox that the authors of the BMJ article failed to notice or, at any rate, to remark upon. On several measures of actual achievement, rather than subjective assessment, the NHS came out the worst of all the systems examined. For example, it ranked worst for five-year survival rates in cervical, breast, and colon cancer. It was also worst for 30-day mortality rates after admission to a hospital for either hemorrhagic or ischemic stroke. On only one clinical measure was it best: the avoidance of amputation of the foot in diabetic gangrene. More than one reason for this outcome is possible, but the most likely is that foot care for diabetics – a matter of no small importance – is well arranged in Britain; the amputation rate is four times higher in the United States.

Overall, however, Britain seems to face a self-esteem problem: too much of it. How is it that the population most confident that it will receive treatment of the highest possible standard, featuring the latest medical advances, actually has the worst survival rates in precisely those diseases that require the most up-to-date treatments?

The study referenced is here.

SOURCE: City Journal


HOSPITALS BATTLE MEDICAID RULE CHANGE OVER ILLEGAL IMMIGRANTS

Squeezing providers:

Hospitals throughout Florida are challenging a state rule that limits payments to treat undocumented immigrants.

The hospitals say the Agency for Health Care Administration made the rule without following the proper procedures and unfairly wants them to reimburse the state for some of the Medicaid payments used to treat immigrants who are in the United States illegally.

At issue is a technical dispute over how much Medicaid pays for emergency services and when an emergency patient turns into a “stable” patient still in need of care. AHCA’s position is that Medicaid covers emergency care for undocumented patients, but not the ongoing treatment needed to keep the patient stable.

The rule could save taxpayers “millions and millions of dollars,” but it would burden large hospital systems that provide loads of charity care, said Joanne Erde, an attorney representing the hospitals.

“What the state is saying is: ‘We don’t care if the patient is in the hospital or not or if the services are medically necessary, we’re not going to pay for anything beyond the point of stabilization’ – whatever that is,” Erde said. “And they’re applying it retroactively, back to 2005, in order to get money back from the hospitals.”

SOURCE: Tampa Bay Times


TEXAS DRILLS DOWN ON MEDICAID DENTAL FRAUD

An emerging area of fraud: Do you trust your dentist to be honest about the number of cavities you have?

A 2012 report by the House Committee on Oversight and Government Reform offered case studies in various states of supposed Medicaid abuse; it cited dental services in Texas as a particular problem area. By 2010, according to the report, Texas’ Medicaid program was spending more on braces than the other 49 state Medicaid programs spent combined on such orthotics.

Last year, the Texas Medicaid program paid out $1.4 billion to dentists and orthodontists – a roughly fourfold increase since 2006, according to state records. The federal government reimburses Texas for 60% of its spending on dental and orthodontic procedures. About 3.3 million of 26.4 million Texans are currently enrolled in Medicaid, according to the Texas Health and Human Services Commission.

Increased Medicaid funding as a result of the settlement has “created a window for fraud,” said Stephanie Goodman, a spokeswoman for the Texas HHS.

But as the state has begun aggressively targeting the alleged fraud, some Texas orthodontists say the poor have become unintended victims. Some practices have stopped taking Medicaid patients, while others have shut down amid scrutiny by state investigators.

Erika Mendoza of El Paso visited a clinic in June that had fitted her 13-year-old son with braces the previous year, only to learn it no longer would treat Medicaid patients because the state had frozen its Medicaid funding. She said the clinic offered to remove her son’s braces, but she would like him to keep them on until next year.

“I panicked and called every orthodontist in El Paso I could find,” said Ms. Mendoza, 31, a single mother who works for a local school district. “Only one doctor would take him – in September.”

SOURCE: Wall Street Journal


WHY RYAN MIGHT BE RIGHT ABOUT MEDICARE

Robert Samuelson highlights a new report:

Overlooked in the furor surrounding Paul Ryan’s Medicare proposal – a plan, it should be recalled, that wouldn’t start until 2023 and even then would affect only new beneficiaries – is a just-published study in the Journal of the American Medical Association (JAMA) suggesting that, well, Ryan might be right. The study finds that a voucher-type system might noticeably reduce costs compared to “traditional” fee-for-service Medicare. Three Harvard economists did the study, including one prominent supporter of President Obama’s health-care overhaul.

The study compared the costs of traditional Medicare with Medicare Advantage, a voucher-like program that now enrolls about 25 percent of beneficiaries. Medicare Advantage has cost less for identical coverage. From 2006 to 2009, the gap averaged 11 percent between traditional Medicare and voucher plans that, under the proposal by Ryan and Sen. Ron Wyden (D-Ore.), would serve as a price “benchmark.”

The central issue here is whether the runaway costs of the health sector, comprising nearly one-fifth of the economy, can be controlled without eroding medical quality. Almost everyone agrees that the delivery system – the amalgam of hospitals, clinics, doctors and nurses – should be reorganized to lower costs and eliminate unneeded care. The question is how.

One group favors market-like mechanisms. Consumers would receive vouchers, either payments or tax credits, to buy coverage. The theory: as people shop for low-cost and high-quality plans, competition forces the delivery system to restructure. Hospitals, doctors, insurers create more efficient networks with more coordinated care than today’s fee-for-service system. By contrast, fee-for-service reimburses doctors and hospitals for services they perform; this encourages unneeded tests and procedures.

The JAMA study doesn’t surprise advocates of this “consumer driven” health care. “Medicare fee-for-service is an inefficient way to deliver care,” says James Capretta, associate director of the Office of Management and Budget from 2001 to 2004. “It’s an engine for volume-driven spending.” Cost savings under a full-fledged voucher system would be much larger, he argues, because Medicare Advantage’s modest size has created only “muted competition.”

The full report is here.

SOURCE: Washington Post

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)