Overview

Introduction

The Great Debate: Medicaid in the eye of the storm

The Challenge of Change: Balancing cost controls with the health of millions

The States
at Work
A report on reforms being road-tested in the states

Medicaid's Third Rail: Long-term care

The Rx Factor: Controlling prescription drug costs

The Great eHealth Hope: How technology can help

Something of Value: Experiments in cost sharing

Tools to Live By: Managing for better performance

Trading Places: Tapping into private insurance

The Radical Reformers:
A New Approach

The printed version of the full report in PDF format

Battling misuse and abuse

Tools to Live By

Improved management is one way to stretch Medicaid dollars and improve quality of care.

The old model for Medicaid programs was we were bill payers, but there has been a renewed call for better management,” says Doug Porter, assistant secretary of the Department of Social and Health Services in Washington State. Today, he says, “You start reconsidering what it is you’re buying, why and how you pay for it, and who you buy it for. You shift from paying claims to managing the demand on your program.”

One of the most effective tools for better management of Medicaid has been managed care. In recent years, a growing number of states have moved many of their Medicaid beneficiaries into such programs. Many pay a per capita fee for the care of each patient (so-called capitated plans), transfering financial risk to the managed-care organization. Providers, at the same time, can be rewarded for providing better care — not just more care.

A report by The Lewin Group, a health care consulting firm, noted that capitated managed care saved Florida 8 to 9 percent compared with fee for service. Similarly, the legislative analyst’s office in California estimates in a 2004 report that its managed-care system saves the state “hundreds of millions of dollars annually.” No surprise then that many states are now expanding their managed-care programs and including the disabled and elderly.

Success, however, requires maintenance and oversight. Consider Illinois. It has served only 10 percent of its Medicaid beneficiaries that way and not necessarily well. A 2004 U.S. District Court decision about health care access found that Illinois’ managed-care companies offered children on Medicaid less in the way of preventive services than fee-for-service systems. A Lewin analysis found that money actually spent on medical services, as opposed to administration or profit, was as low as 49 percent in one managed-care organization, compared with well over 85 percent by managed-care groups in such states as Washington and Pennsylvania. The more successful programs used independent enrollment brokers (to avoid excessive marketing costs), client education, technology to monitor encounter data, skilled individuals to provide oversight and independent evaluation.

One advantage to managed care is that it lends itself more readily to tracking and charting providers through quality measures, and states are increasingly utilizing their capacity to do this. In Virginia, for example, a managed-care performance report records the quality of care and outcomes for patients.

Medicaid managers also have access to an accreditation process through the National Committee for Quality Assurance. The NCQA, in collaboration with U.S.News & World Report, has ranked a number of its accredited Medicaid managed-care plans in terms of how thoroughly they cover areas such as breast cancer screening, child immunization, flu shots for adults and eye exams for diabetics.

An alternative approach in managed care is primary care case management. This system pays providers to manage the care of an individual, while still permitting the same provider to charge for individual services. The point here is not the payment system so much as establishing case-management services and physician responsibility for a set of patients. Arkansas, for example, has been successful at establishing case-management programs through physician networks. The system still operates on a fee-for-service basis, but by giving doctors an administrative fee per member each month and offering them administrative extras — such as quick payment and electronic tools — patients end up with a medical home. When Arkansas started this program, “right off the bat our emergency room use started an instant decline,” says Roy Jeffus, director of the Arkansas Division for Medical Services.

Damage Control

Many of the principles behind case management stem from disease management, a tool that appears to have great potential. The idea is to supervise the overall care of patients with chronic diseases to prevent health crises and avoid unnecessary hospitalizations. “This is the next generation in improving care by managing it better,” says Brendan Krause, a health analyst at the National Governors Association.

With disease management, a Medicaid program can take utilization data and mine it to identify those who suffer from a particular condition and then communicate with them directly. Individuals who have asthma, for example, can be asked to participate in a program that educates them on the effectiveness of anti-inflammatory drugs. In North Carolina, the asthma program lowered hospital admission rates by 34 percent, and costs per beneficiary by 24 percent.

At least half of the states have started at least one disease management program. Most have not yet seen significant savings but believe they will in the long term — an optimism borne out by the experience of commercial managed-care plans. In those plans in 12 states, the overall costs per diabetic patient fell by nearly 25 percent. Some of those savings came from a 30 percent decrease in admissions to the hospital.

But the upfront costs are a big barrier for many states. State legislators are focused on the current budget cycle. “Many of the things we’re promoting take time to see results,” says Melanie Bella, a vice president with the Center for Health Care Strategies and former Medicaid director in Indiana. “There’s pressure to show savings within timeframes that aren’t realistic.”

One reason some states have hesitated to utilize disease management was a disappointing experience in Florida. But Florida’s effort, which got underway in 2001, was unique. It relied on contracts with large drug companies to provide disease management services for patients with serious conditions. Under the contracts, state payments were based on actual cost savings. A May 2004 report by the state’s Office of Program Policy Analysis and Government Accountability found that the cost savings were overstated and that the Medicaid agency hadn’t adequately assessed the health outcomes of the patients to see whether there was improvement. The state legislature ended the experiment with private drug companies. “One of the lessons learned is maybe it’s more appropriate to do disease management in conjunction with managed care — rather than one disease, one eligibility group at time,” says state Medicaid director Tom Arnold.”

Bleeding Dollars
Stanching the flow of misuse and abuse confronts a hard reality.

Florida reimbursed $11.6 million to providers for services rendered after patients had died. A provider in California was found guilty of billing 32 hours of services on a single day. In New York State, physicians bilked the system by prescribing HIV/AIDS drugs for bodybuilding purposes, school districts were reimbursed for phantom speech services, and ambulance carriers paid beneficiaries to pretend they needed transport.

There is fraud, waste and abuse in the Medicaid program, much of it coming from providers. The issue gained national prominence last year after an exhaustive New York Times investigation exposed rampant overpayments that occurred in New York State.

The most egregious problems tend to be intentional abuses. The more common ones may be simple mistakes. States that have excelled in pursuing overpayments of both kinds have developed a number of tools that make the job easier. In 1999, California created a fraud prevention bureau and added more than 250 staff for the effort. California collects fraud referrals and coordinates with other agencies to audit, investigate and apply sanctions. Total savings after expenses through 2003 were $80 million.

Tennessee set up a special inspector general’s office. Illinois does on-site inspections of high-risk providers. It conducts criminal background checks before admitting some providers into the program and has a probation period for the first 180 days of enrollment. South Carolina has improved its recovery rate by upgrading its technology and analytical capabilities and by emphasizing civil recoveries and the state’s False Claims Act, which enables it to collect three times damages in civil cases.

One area of unintentional waste has been third-party coverage. Private insurance, the Veterans Health Administration or Medicare can sometimes be responsible for charges that have been paid by Medicaid. By pursuing such claims, Maine’s Third Party Liability Unit recovered $17.7 million from third-party payers.

In many states, efforts to eliminate improper payments are not a priority, and resources are not the only issue. One particularly pernicious problem is the very real threat that when a state cracks down too aggressively, providers — many of whom are underpaid anyhow — will quit the Medicaid program. Ohio’s Inspector General found that seven speech and hearing centers had overcharged the program $3.4 million. The state settled for $155,000 from two of the seven and prosecuted one.

Ohio’s surveillance and utilization review chief, Jeff Corzine, said that vigorously pursuing the providers “essentially would have wiped out almost every speech and hearing center in the state, and we would have then lost a service for our population.” Since the providers had exploited a loophole in the Medicaid billing cycle, the Medicaid office chose to educate the speech and therapy centers, letting most providers off with a warning.

Collin Wong-Martinusen, the director of California’s Bureau of Medi-Cal Fraud and Elder Abuse, points out that unnecessary losses to Medicaid directly contribute to the real reason many Medicaid programs are unable to attract skilled health care providers: Reimbursement rates are woefully inadequate. The aggressive combating of Medicaid overpayments, he says, “will indubitably allow states to retain the level of resources necessary to build and sustain a vibrant provider network.”