The Smartest Cuts - Medicaid's "Best Buys"

With states across the nation facing unprecedented budget shortfalls, Medicaid - the largest item in most state budgets - is especially hard pressed. Many Medicaid...
by | May 2, 2010

With states across the nation facing unprecedented budget shortfalls, Medicaid - the largest item in most state budgets - is especially hard pressed. Many Medicaid directors are in the painful position of once again having to determine where to reduce spending from already cash-strapped programs.

For example, a state that drops dental care for adults may well see a rise in emergency room visits for dental emergencies and/or an increase in medical conditions that are linked to poor oral health. A program that cuts optional personal care services will likely experience an expensive increase in institutionalizations.

From firsthand experience as Indiana's Medicaid director, I know that being in the driver's seat of a state Medicaid agency when the budget calls for substantial cuts is a daunting proposition. Thoughtful analysis of potential long-term implications can help Medicaid programs prioritize proposed cuts. Looking to where the bulk of Medicaid dollars are spent can be tremendously helpful in making decisions about where to trim first.

In every state, a small percentage of extremely high-need patients account for the biggest share of Medicaid spending. Nationally, under five percent of Medicaid beneficiaries account for nearly 60 percent of total program costs. In the long run, providing better, more strategically managed care is critical to containing costs. Indeed, over time, eliminating duplicate services and reducing fragmentation of services for these high-need patients should generate savings in many cases.

Opportunities that Medicaid cannot afford to ignore - what my organization, the Center for Health Care Strategies (CHCS), has labeled Medicaid Best Buys - are detailed below. These are areas where Medicaid can potentially get the most "bang for the taxpayer buck," where investments in better managing care can both improve people's health and reap the greatest return. Potential Medicaid Best Buys for states include:

· Care Management for High-Risk Pregnancies -- Medicaid covers more than 40% of the newborns in the US, with births accounting for a significant percentage of total Medicaid inpatient admissions. Hospital costs for a healthy newborn average $1,500, compared to $79,000 per stay for a low birth weight infant in the neonatal intensive care unit (NICU). Innovative state and health plan programs that identify women in high-risk pregnancies and intervene with tailored prenatal programs have helped reduce the number of infants that need intensive care. For example, one health plan in New York State improved its prenatal outreach program for Medicaid members, thereby reducing NICU days and saving an estimated $2 for every dollar invested in the program. Avoiding a NICU stay for even one newborn can potentially save millions, and more important, can give a baby a much healthier start in life.

· Care Management for Children with Severe Asthma - For most states, asthma is one of the leading causes of emergency room visits and hospital admissions for children covered by Medicaid. Roughly 12 percent of children in Medicaid are diagnosed with asthma, with health care costs estimated at more than $16 billion annually. Care management programs that target children with severe asthma can reduce dangerous flare-ups, keep children away from emergency rooms and hospital inpatient stays, potentially saving substantial dollars. Arkansas' Medicaid program, for example, focused an intensive nurse case management program on a small group of children with severe asthma. Preliminary findings suggest that the state saved more than $6 for every $1 invested in the program.

These first two "Best Buys" can offer states shorter-term returns on program investments, by shortening or avoiding stays in intensive care units for newborns and reducing frequent emergency room and inpatient visits for children with asthma. States can invest potential savings from these efforts into programs to improve care for more complex needs populations that offer significant longer-term payoffs, including:

· Managed Care for Aged, Blind, and Disabled Medicaid Beneficiaries -

Medicaid beneficiaries with disabilities under age 65 - who are among the aged, blind, disabled, or ABD, population - have a complex array of health as well as psychosocial needs and are among the program's costliest patients. Most have multiple chronic physical and behavioral health conditions, yet the vast majority of these patients still receive their care in a piecemeal fashion through fee-for-service care. The result is poorly coordinated, inefficient, and often, unnecessarily expensive care. A number of innovative states are piloting new systems of care to better align payment in ways that promote integration of physical and behavioral health services. Enhanced primary care management programs in states like North Carolina and Oklahoma are seeking to improve health outcomes and control excessive costs by identifying patients who are most likely to benefit from care management and designing strategies to address their specific needs.

States can also look for opportunities to focus more targeted "high-touch" care management programs on the relatively small number of Medicaid beneficiaries who account for a significant portion of overall program spending. Among the most expensive 1% of Medicaid patients, close to 90% have three or more chronic conditions and nearly 70% have five or more. States that design programs for the top 1-5% of the highest-need, highest-cost beneficiaries can potentially improve care and patient outcomes and reduce frequent emergency room visits, hospitalizations, and nursing home placements. Pioneering states, including Colorado, New York, Pennsylvania, and Washington are piloting new models to rethink care delivery and control spending for their highest-cost populations.

· Integrated Care for Medicare-Medicaid Dual Eligibles - Adults who are dually eligible for Medicaid and Medicare (the "duals") are among the nation's most chronically ill and most costly patients, accounting for 46 percent of total spending within Medicaid and 25 percent within Medicare. Yet, the majority of the nation's nearly nine million duals receive fragmented and poorly coordinated care with no financial alignment between Medicaid and Medicare services. Integrating health and long-term care and financing for these high-need beneficiaries offers an important -- and, largely untapped -- opportunity for states to improve care and rein in costs for both state and federal government. Finding ways to share these savings is currently a hot topic among state and federal policymakers. States, like New Mexico and Vermont, are exploring innovative opportunities via special needs plans and alternative models to integrate Medicaid and Medicare services and provide higher-quality and more cost-effective care.

Admittedly, these Best Buy strategies will not be a panacea for every state Medicaid agency grappling with severe budget cutbacks. There will still likely be difficult and painful cuts. But taking advantage of these opportunities offers a better long-term approach for strategically prioritizing both where to cut and where to invest. Simply put, improving care for Medicaid's most ill and most costly beneficiaries offers the greatest potential for states to curb spending and bend the health care cost trend.

Future columns will delve deeper into specific examples to showcase how innovative states are maximizing Medicaid dollars to improve outcomes and generate cost efficiencies in serving low-income Americans with complex health care needs.

Melanie Bella is senior vice president of policy at the Center for Health Care Strategies, a nonprofit that works with Medicaid stakeholders to improve the quality of publicly financed care. She previously served as Medicaid director for the State of Indiana from 2001-2005.

Melanie Bella | Center for Health Care Strategies |