With Medicaid spending spiking, states have resorted to some new strategies to keep their costs under control while improving the quality of care, a panel of experts concluded following the unveiling of the 11th annual survey of the 50 state Medicaid officers by the Kaiser Family Foundation's Commission on Medicaid and the Uninsured.

State spending on Medicaid is expected to increase by 28.7 percent in fiscal year 2012, according to the survey. The loss of $100 billion in enhanced federal aid for Medicaid has left states with a significantly bigger piece of the pie to cover. At the same time, states are facing a combined $103 billion budget shortfall in 2012, according to the Center on Budget and Policy Priorities.

There are concerns that Medicaid could be a target for the congressional deficit reduction committee because the federal government still provides substantial support for Medicaid to each state. There are also concerns about long-term care, as the elderly and disabled make up 25 percent of the Medicaid population, but amount to 68 percent of its costs.

This confluence of challenging factors has put pressure on state Medicaid offices, and they are exploring a fairly common set of options to deal with it. In the last two years, states have been increasing taxes and reducing payments to providers, increasing co-payments for beneficiaries, overhauling their prescription drug plans and expanding managed care programs.

States have started initiatives to coordinate care for those people who qualify for Medicaid and Medicare (aka dual eligibles), who account for about 39 percent of Medicaid spending despite being only 15 percent of the program's population. Because of their costs relative to their share of the overall population, dual-qualified people are a primary focus for Medicaid reform, Robin Rudowitz, principal policy analyst for the Kaiser Commission on Medicaid and the Uninsured, tells Governing. This year, the Center for Medicare and Medicaid Innovation awarded up to $1 million in planning grants to 15 states to help them develop new ways to serve that population.

Colorado, for example, is developing a statewide data and analytics system to process Medicaid and Medicare information and analyze care delivery for dual-eligible patients among regions and providers. That information will then be used to develop incentives for providers that improve care while reducing costs.

Section 1115 waivers have also been a driver of change. The Kaiser survey found that 17 states plan to implement new waivers or waiver amendments in FY 2012. (More information on the 2012 waivers is available on page 103 of the Kaiser survey, posted below). Most of those waivers focus on delivery or provider payment reforms, according to the report. New York submitted a waiver that would allow the state to mandatorily enroll recipients into managed long-term care plans. The proposal includes quality measurement and reporting mechanisms. Reimbursement to providers would be based on risk-adjusted capitation.

The opportunities for improvement are widespread, says Valerie Harr, director of the Division of Medical Assistance and Health Services with the New Jersey Department of Human Services. Her state recently concluded an Emergency Room Diversion pilot program, issued a requirement for dual-eligible beneficiaries to enroll in managed care and implemented an oral health initiative.

"State Medicaid programs are starting to increase their creativity," Harr says. "Instead of straight reductions, they're looking at new innovative models where you can reduce costs but increase quality."