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Medicaid's New Math

Can a little cost-cutting actually improve the quality of health care? Two states are trying to find out.


Penelope Lemov

Penelope Lemov is a GOVERNING correspondent. She was GOVERNING's health columnist and was senior editor for several award-winning features.

There it sits: the Medicaid hog, eating up nearly 22 percent of state budgets. In 2007, states spent $151 billion of their own money on health coverage for the needy. That was 6.2 percent more than the year before -- not a horrific jump but significant nonetheless.

It's not surprising, then, that the cost-cutting pressure is on. Governors, legislators and other agencies that compete for state funding all want Medicaid officials to find ways to keep the program's spending in check. In tough fiscal times, most Medicaid programs try to do so using the usual tools -- curtailing enrollment, services, access or all of the above. But are there ways to save money without hurting the vulnerable people in the program or their providers?

There are a few ideas out there. True, they don't add up to the billions of dollars that some state budgets are short. Just a few million here and there. But, two programs -- one in the state of Washington, the other in Pennsylvania -- are based on sound principles and actually stand to improve care.

In fact, Washington State's Veterans Benefit Enhancement project started out with that idea. Veterans and their families generally are eligible for a richer menu of federally funded health services that come with fewer strings attached than is the case with Medicaid. Yet many low-income vets are relying on Medicaid for their health coverage. Washington State is finding alternative programs that can pay the vets' health care bills, such as those available through the Department of Veterans Affairs or the federal military retirement system. For example, older vets in long-term-care facilities can be transferred to the VA's books -- saving the state Medicaid dollars and the veterans themselves a lot of cash.

The program locates the vets through PARIS, a computer data-matching and information-exchange system administered by the federal Administration for Children and Families. Originally designed to catch welfare cheats, PARIS now includes information from Veterans Affairs, the Department of Defense and dozens of participating states. What Washington State found is that PARIS not only can match up vets with programs for which they are eligible but also can check out whether they're receiving duplicate benefits from other states.

Bill Allman, a Vietnam vet who's a manager with Washington's Department of Social and Health Services, came up with the idea for the program. He says it's partly a personal quest to help vets get the benefits they've earned, but it also is a way to cut costs for the state. Since the program was launched in 2003, Washington has saved $8.3 million in Medicaid expenditures.

Pennsylvania also is taking its Medicaid program down a road that could both save money and improve care for beneficiaries. Pennsylvania Medicaid will not pay hospitals for the care that results from serious medical mistakes, or "never events," as many such errors are known.

Pennsylvania is not the first to think of this. Medicare announced this past summer that, as of October 2008, it will no longer pay the extra costs of treating eight egregious medical errors, such as operating on the wrong limb or leaving an instrument in a person after surgery. Next year, it will add to the list hospital-acquired blood infections, blood clots in legs and lungs, and pneumonia contracted from a ventilator. Several private insur-ers also have announced a crackdown on payments for medical blunders.

While a handful of states also have taken some action on never events -- several demand that hospitals report a specified list of serious medical errors to state authorities -- Pennsylvania apparently is the first put its Medicaid program behind it. The state didn't have to wait for federal officials to give their OK. Medicaid rules give states the authority to set their own hospital-reimbursement policies.

What kind of money are we talking about? Pennsylvania officials have not come up with any figures on how much the new rule would save. But the federal Centers for Disease Control and Prevention estimates that nationwide, patients develop 1.7 million infections in hospitals a year. On average, a case of pneumonia acquired at the hospital can add $10,000 to a patient's bill; an antibiotic-resistant bloodstream infection, $100,000.

Pennsylvania's approach -- like Medicare's -- is to "encourage" hospitals to prevent such mistakes from occurring. But when they do happen, at least the state won't have to dole out precious Medicaid dollars to pay for them

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