GOP Governors request ability to restrict Medicaid eligibility

This weekend’s shooting tragedy of Rep. Gabrielle Giffords (D-AZ) and her colleagues and constituents in Arizona shocks us all. The accused assailant isn’t speaking, but pundits are already assigning blame for his actions. The sheriff in Tucson faults the right-wing rhetoric. Others assign political motives, such as the lax gun laws, Giffords’s support for the health reform legislation, or her denunciation Arizona Medicaid reduction in transplant benefits for the gunman’s rampage. (I posted about the Arizona’s decision to limit transplants last month.)

Sadly, I think the event was simply a horrible act of mentally ill individual.

It is hard to say whether access to mental health services to address the attacker’s paranoia and drug use would have prevented the event. However, restricting eligibility for Medicaid would certainly reduce the availability to mental health services to many poor and disabled people without insurance. But, limiting eligibility to Medicaid is what Republican Governors of 33 states want. In a wrote a letter to President Obama on January 7, the GOP governors requested the ability to reduce eligibility for Medicaid in order “responsibly manage our state budgets on behalf of our citizens.”

According to the new federal health reform law, states cannot lower their eligibility thresholds or implement barriers to enrollment in Medicaid or the Children’s Health Insurance Plans. This provision is called “maintenance of effort.” States that violate this provision are in danger of losing Medicaid funding.

If the governors don’t get relief from MOE provisions, it is likely that many will move to reduce optional benefits for Medicaid recipients. From a mental health perspective, this means eliminated many optional services now offered by state Medicaid programs. Such optional services including physical, occupational and/or speech therapy, home and community-based services, case management services, and rehabilitative and habilitative services. State Medicaid programs may also reduce provider payments, which, in effect, reduce access to care after providers refuse to accept Medicaid patients.

Nevertheless, the governors have a point. Medicaid’s mental health spending is projected to increase rise by 49.7% due to federal health reform law’s expanded Medicaid coverage. Does this mean that the costs will be born solely by the state’s budgets. The answer is probably not.

Currently, these services are provided at the state and local levels. According to a report by the Urban Institute, by making these people eligible for federal Medicaid dollars, states and localities can potentially save between $19.9 billion and $39.7 billion on mental health services by shifting part of the responsibility to the federal government.  The report from the Urban Institute adds that, “Throughout Medicaid’s history, smart and creative state officials have responded to changes in federal law by reconfiguring their programs to maximize fiscal gains and minimize losses. This pattern will surely continue under the Affordable Care Act.”

Let’s hope this is the case, because there are many sick people that need mental health service interventions.

Fraud detection would change under statewide Florida Medicaid Reform

In my recent blog posting, I explained the likely motivation for Governor Scott to move to statewide Medicaid Reform expansion. It remains to be seen whether the Florida will follow this path. However, if mandatory managed care enrollment for Medicaid recipients does happen, the government’s approach to Medicaid fraud detection and prosecution will change. Florida’s new Attorney General, Pam Bondi, acknowledged this challenge in a recent news conference.

Under Medicaid Reform, a Jeb Bush era policy, most Medicaid recipients are required to enroll into a privately-run managed care company or provider services network. In theory, this means that the current fee-for-service system would all but disappear. Mandatory enrollment in managed care means that a middleman will be required to operate between the patient and healthcare provider. These organizations - not the state of Florida - must pay the healthcare provider claims for approved services.

According to the St. Petersburg Times article, Ms. Bondi said that the Florida A.G. office will “have to go to a different policing system. We'll need to have more auditors and forensic accountants involved.” Why? This is because Medicaid managed care makes reviewing claims for fraud more complicated.

According to Roberta K. Bradford, the Deputy Secretary for Medicaid, the Florida Agency for Health Care Administration (AHCA) Medicaid Program Integrity unit “concluded that 97% of [fraud] cases were fee-for-service related and 3% were [managed care] related.” She admits that these numbers should not be taken “to purport to represent the level of fraud and abuse in any particular arena [i.e., fee-for-service vs. managed care],” but that the agency’s “current detection methodologies” uncover vastly more fraud cases in the fee-for-service system.

If Medicaid managed care becomes mandatory, then the Attorney General’s office and AHCA may lose the opportunity to boast that they saved Florida $134 million in 2007, $124 million in improper payments and more than $56 million in fraud and abuse in 2008, and $287 million in Medicaid overpayments and ... more than $18.9 in improper payments in 2009. These announcements are designed to promote the idea that government fraud, waste and abuse fight is “not a giant money drain” but an actual money-maker, as U.S. Attorney Patrick Fitzgerald told the Chicago Sun-Times recently.

If Medicaid Reform goes statewide, profound pressure will be placed on the private managed care companies to help the new A.G. find millions in healthcare fraud.

First, the AHCA contract with managed care companies requires that Medicaid managed care companies “report all suspected or confirmed instances of provider or enrollee fraud and abuse under state and/or federal law to MPI within fifteen days.” Yes, the AHCA contract requires reporting of SUSPECTED fraud.

Next, if Medicaid fee-for-service system changes to mandatory managed care, then the recently touted federal waiver for the Florida government “to review Medicaid’s fee-for-services program and identify any outliers, anomalies, or other indicators of fraud” will be severely undermined. It remains to be seen if the waiver can be applied to managed care claims data, or if this would violate federal law, as written in the Houston Chronicle. Nonetheless, the Florida A.G.’s office will need for their forensics review. As of March of 2010, the managed care healthcare claims encounter data reporting was not sufficient for AHCA to detect fraud. (Uh oh.)

Statewide Medicaid Reform expansion will bring additional scrutiny to private managed care companies’ fraud and abuse efforts. Added government auditors will certainly bring additional legal and technology expense to managed care companies. It is unclear if this will make the Florida Medicaid program less fraudulent and more efficient. It will be interesting to follow, though.

Why is Florida Considering Medicaid Reform Expansion?

Florida’s Governor-elect Rick Scott faces a $3.5 billion state budget shortfall with few savings options more attractive than the $20.2 billion Medicaid program. Scott's healthcare transition team leader, Alan Levine, proposed in his policy recommendations that “the fastest way to achieve savings … is by expanding [Medicaid Reform] statewide.” This means requiring most Medicaid recipients to enroll in a privately-run managed care organizations or provider services networks.

Of course, Levine’s assumption on savings of Medicaid Reform is overly ambitious. The researchers from University of Florida did find slight savings - on average - for recipients enrolled in Medicaid Reform plans, but Georgetown points to the added program complexity and care access challenges that may actually nullify this financial gain.

Even without analytical support, Alan Levine’s recommendation is not a surprise. Levine supported Medicaid Reform as Gov. Jeb Bush’s Secretary of AHCA – the agency that runs the insurance program for financially disadvantaged citizens. Still, fervent opposition to Medicaid Reform continues from physicians and consumer advocates.

So, why is Levine so supportive of statewide expansion of Medicaid Reform? Succinctly put … to stop the private managed care companies from cherry-picking healthy patients. (Alan Levine acknowledged as much in a statement about the private managed care company, WellCare, leaving the Medicaid Reform program.)

Private managed care organizations are hired by Medicaid in Florida already, and similar organizations provide services to 70% of Medicaid recipients in the United States. These companies, in turn, pay physicians and hospitals for the delivery of healthcare to members enrolled in their plans. Private managed care is different than the traditional fee-for-service Medicaid program. With fee-for-service, no middleman is between the doctor and the patient. To "manage" healthcare, the managed care companies receive per-member-per-month average payments for their enrolled members, called “capitation.” Managed care plans discourage the sick (and costly) patients and attract healthy (and less costly) patients in order to increase profits – called cherry-picking.

Florida Medicaid Reform is unique in that recipients do not have the option to enroll in traditional fee-for-service. This eliminates the problem of the healthy joining managed care and the sick going to the state-run Medicaid fee-for-service program. Furthermore, in Florida Medicaid Reform, the managed care companies are paid a lower rate for healthy members and a higher rate for sicker members. The managed care capitation payments are adjusted to account for certain diagnoses that predict future healthcare expenditures. These “risk-adjusted rates” help solve cherry picking to a certain extent. The more accurately the risk adjustment payment model predicts the future healthcare costs of a member, the less incentive the managed care company has to cherry pick.

The current payment system (non-reform) in Florida is designed in such a way that health plans are still incentivized to attract the healthy Medicaid recipients. What ends up happening is that the sicker members go to the traditional Medicaid fee-for-service. This eventually increases the fees paid managed care by the state, because the capitation rates are paid based on the fee-for-service average cost that includes those very sick members. Statewide risk-adjustment with mandatory enrollment in managed care breaks this cycle.

In part at least, Levine recommends statewide Medicaid Reform expansion in order control private managed care industry’s ability to cherry-pick the healthy Medicaid patients. Certainly, this is a major problem in the insurance market for which risk-adjustment is a potential solution. Considering the lack of evidence to support Medicaid Reform’s improved efficiency, it seems that the recommendation may be driven more by conservative philosophy to privatize healthcare than actual Medicaid Reform results.

Maybe state-wide Medicaid Reform with risk-adjusted will just create new problems. As health economist, Dr. Etienne Pracht, suggested to me: maybe we should all learn about the Theory of Second Best. Then again, would be rather go back to all traditional fee-for-service Medicaid and just hope unnecessary billing by healthcare providers stops all by itself?

Risk-adjusted Capitation Primer

Managed care organizations (MCOs) are paid by Medicare, Medicaid and private companies to provide insurance functions (e.g., claims payment) and preventive healthcare interventions designed to improve patient health outcomes. MCOs, in turn, pay providers for the direct delivery of healthcare to members enrolled in their plans. Typically, MCOs receive per-member-per-month prospective payments for the health care management of their enrolled members, called capitation. To make a profit, a MCO must manage the health services of their population in ways that keep the actual healthcare costs below the capitation payment, on average.

While promoting cost-efficiency, capitation payment encourages MCOs to attract members whose likely costs are below the capitation rate. MCOs can behave in ways that lower the likelihood of attracting the unprofitable members - through benefit design, provider network composition, selective marketing, or other methods. These prohibited activities are called risk selection (“cherry picking”) and discriminatory disenrollment (“dumping”).

To mitigate cherry picking and dumping, payors have begun to adjust the payments made to MCOs based on patient diagnosis, so that more is paid to MCOs for the enrollment of sicker individuals than for healthier ones. Conventionally, these capitated payments can be “risk-adjusted” to account for certain factors that predict future healthcare costs, such as demographics (age, gender, geography), diagnoses, and pharmaceutical utilization.

With risk-adjusted capitation payments, more is paid to MCOs for the enrollment of sicker individuals than for healthier ones. The more accurately the risk adjustment payment model predicts the future healthcare costs of a member, the less incentive the MCO has to cherry pick or dump members. Sicker members mean higher capitation payments for the MCO.

Predictive power of risk adjustment methodologies continues to improve, but comparisons in the literature investigating Medicaid recipient populations show that the predictive power (R²) of the risk adjustment models ranges from 0.11 to 0.18 (Kronick, Gilmer, Dreyfus, & L. Lee, 2000) and from 0.15 to 0.23 (Gilmer, Kronick, Fishman, & Ganiats, 2001). While risk adjustment does not explain much of the variability in future healthcare expenditures, it is still sufficient for many government payors, such as Medicare, to pay MCOs for managing beneficiaries’ care. (It should be noted that perfect prediction of future health expenditures is not the goal. If future healthcare utilization was known, then insurance would not be necessary.)

Notwithstanding improvements risk adjustment accuracy, about 80% of the future health care costs are unexplained using risk adjustment. This remaining risk leads MCOs to engage in risk selection behaviors. While risk adjustment is a significant improvement over average cost capitation, the incentive to attract healthy enrollees and avoid the sick ones still exists. Are risk-adjusted payments better than nothing, though?

Arizona Medicaid Transplants and Comparative Effectiveness

With rising unemployment and increasing Medicaid enrollment, state Medicaid programs are facing significant coverage cuts. In Arizona, coverage for certain transplants of the heart, liver, lung, pancreas and bone marrow was eliminated on October 1, 2010.

Beyond the rhetoric, the debate boils down to comparative effectiveness research.

The Associated Press quotes Arizona Republican Rep. John Kavanagh, who leads the House appropriations committee, as saying "We need to fund what works and not fund what doesn't work and pay for what we can afford."

So transplants aren’t cost effective? Dr. Yeager, the director of the Blood and Marrow Transplantation Program at the Arizona Cancer Center, claims that they have the efficacy data to refute Arizona Governor Jan Brewer’s decision.

But it really is it that simple?

Terasaki, Ozawa and Castro (2003) calculated kidney dialysis at an annual cost of $67,506, but report the annual anti-rejection medication for kidney transplants at $13,749. Using Medicare as an example, they calculate the savings to the 128,000 functioning transplants in 2003 to be roughly $344 million dollars per year for the U.S. government. This article also supports the cost effectiveness of Medicare’s kidney transplant policies.

Kidney transplants are cost-effective, but the other types may not be. Heart and lung transplants remain expensive, with quality-adjusted life-year gains at about $50,000 per year. Some experts consider this within the cost-effective range.

The New York Times quotes Alan Weil, the executive director of the National Academy for State Health Policy, as saying that Arizona’s cuts are “a precursor to a much larger number of states having this discussion.” In my state, Florida, no changes in coverage for heart, liver, lung bone marrow, and retinas were made at the most recent Florida Organ Transplant Advisory Council October 2010 meeting.

However, the budget shortfall in Florida will continue to grow – with Medicaid acting as “the single largest driver in next year’s budget projections.” Hopefully, Florida will use the comparative effectiveness studies to inform their decisions.

Medicaid and non-emergency use of emergency departments

The Deficit Reduction Act gave state Medicaid programs the option of instituting higher copayments for non-emergency use of emergency departments. Some states accepted the option and imposed copays from $3 to $50 to Medicaid recipients for non-emergency ED use. An interesting article in Health Affairs from September/October 2010 found that these copayments did not reduce their non-emergency use of the ED.

According to the study, this effect is contrary to the findings of other studies that show that copays may reduce use for other services and pharmaceuticals. Also, other studies show that commercially insured populations are sensitive to small changes in copays in the use of ED services.

So what makes the emergency department utilization different for Medicaid enrollees? Assuming that the study was designed correctly (and there were some limitations to the study), what is going on? The authors suggest some explanations in their discussion.

1. Medicaid recipients face significant barriers to primary care due to a lack of PCPs that are willing to accept Medicaid insurance payments. Thus, the ED may be a location of last resort.
2. The 1986 Emergency Medical Treatment and Active Labor Act (EMTALA) requires that the service be provided before the ED collects the copay. So, maybe the copay is not actually made to the hospital. (Does this add to the bad debt?) 
3. The Medicaid recipients may not have been aware of the requirement to pay a copay for nonemergency services in the ED. Therefore, the change in the law did not factor into their decision to seek non-emergency care in the ED.

Nonetheless, the contradictory findings underscore how little we understand about the causes of Medicaid recipients’ use of the ED for non-emergency services.

Truvada and Medicaid Policy

An important HIV prevention study released on November 23, 2010 showed that when gay men without HIV infection take an antiretroviral medication every day, the pill (Truvada) was more than 90% effective at preventing contraction of HIV. According to the National Institutes of Health infectious disease chief, Anthony Fauci, M.D., this pre-exposure prophylaxis is an important finding for HIV/AIDS research and “has the potential to make a significant impact in the fight against HIV/AIDS.”

This is the best news in HIV/AIDS research since a major clinical study in Thailand demonstrated for the first time that an experimental vaccine could prevent HIV infection among some people.  In October 2009, the study showed that the vaccine treatment group saw HIV infection rates reduced by more than 30% compared with those in the placebo group.

Not to dampen the spirit of this wonderful moment, but it is sobering to consider the financial impact what may someday become standard prevention practice for vulnerable populations. In an article published in the New York Times on November 23, 2010, “Daily Pill Greatly Lowers AIDS Risk, Study Finds,” Donald G. McNeil, Jr. writes that in the United States, Truvada “costs $12,000 to $14,000 a year.” However, the article acknowledges that insurance payers, such as Medicare, do not have established policies for paying for Truvada as a pre-exposure prophylaxis for vulnerable populations. What will be the immediate impact on payers?

As a specific example, Florida Medicaid pays risk-adjusted premiums to managed care companies that participate in the Medicaid Reform pilot counties. As of August 2010, the premium paid to health plans is for members diagnosed with HIV is $1,294.05 ($15,528.60) in the Jacksonville area and $1,899.30 ($22,791.60 annualized) in the Ft. Lauderdale area. Whereas the premium paid to managed care for a disabled male eligible for Medicaid is only $630.52 and $815.52 in the Jacksonville and Ft. Lauderdale areas, respectively.

What if Medicaid managed care companies encouraged doctors to prescribe Truvada as a pre-exposure prophylaxis to Medicaid eligible member that do not have an HIV diagnosis? Would the Medicaid managed care companies receive the increase payment?

According to the Medicaid rules, the answer is maybe. According to the Agency for Health Care Administration (AHCA), the identification of HIV-positive eligible payments in Medicaid Reform pilot areas are made through an algorithm based on specific diagnosis, procedure, and pharmaceutical codes. Developed by Julia Hidalgo, Ph.D., this algorithm examines claims data and if there are two or more Truvada claims in different months within the last 36 months, then the member is technically classified as HIV-positive. However, According to the Medicaid managed care reporting guide, AHCA reserves the right to audit the health plans for “documentation of completed lab testing as interpreted by a licensed physician” and “the health plan must provide the Agency with such enrollee‘s test results upon request.”

By reclassifying these members as HIV-payment eligible, Medicaid managed care would gain an additional annual revenue between $8,000 and $13,000 in Jacksonville and Ft. Lauderdale area, respectively. Assuming no other major medical claims, this could mean up to an additional $10,000 in annual net gain per member in Ft. Lauderdale for managed care plans (up to $3,500 in Jacksonville). AHCA could have an incentive to conduct these costly audits, as health plans may see opportunities for profit. It will be interesting to see if AHCA publishes their policy on pre-exposure prophylaxis for HIV.

 Thoughts?