Will state health programs go under the knife?

May 1, 2002
Julie E. Williamson

Julie Williamson is a freelance writer living in Arizona.

Pharmaceutical Representative

States already cutting back, providers turning patients away.

As government officials scramble to breathe life back into a collapsed economy via budget cuts, many fear state-run healthcare programs will be among the first to end up on the chopping block.

Not surprisingly, the future of Medicaid is garnering considerable concern. The program that has surpassed Medicare in total expenditures and number of people served - representing some $250 billion and 40 million individuals - has yet to earn a top spot on the federal government's priority list. And despite dwindling reimbursement and a projected state budget topping $50 billion, sources agreed federal assistance may be even harder to come by now that dollars are being doled out to other initiatives in light of September 11.

"It's safe to say we're heading toward a crisis situation," said Susan Polniaszek, senior reimbursement analyst for the American Association of Homes and Services for the Aging, Washington. "This is the most severe budget crunch states have faced in decades, and they are grasping at straws right now, trying to find ways to cut. Medicaid is by far the biggest budget item for states, and without much federal [assistance], it has obviously become one of the biggest areas being looked at for cuts."

Scaled-back benefits

The fallout from such cutbacks could have catastrophic consequences. Medicaid cuts of $16.5 million being proposed by Vermont Governor Howard Dean, for example, would either leave beneficiaries with scaled back benefits or none at all.

Under Dean's proposal, the state's 3,200 elderly or disabled individuals enrolled in Medicaid would be required to pay half the cost of their prescription drugs. Those who get help paying for drugs under the Vermont Health Access Plan, which covers all drugs and currently requires only a $1 or $2 co-payment, would have to pay half the cost with a $750 limit. Beyond that, some 21,000 residents who receive assistance for other medical care under the VHAP program would see the services drop and co-payments increase. The state would also cease paying for dentures, chiropractic and podiatric services, and would further limit prescription drug choices.

"This is such a wide-sweeping problem that is having a dramatic impact on state programs now and could have a far greater impact on them in the future," said John Gillan, spokesman for the American Health Care Association, Washington. "We're critically aware of the situations right now in many states. It's very bleak and we could see even more cuts before all is said and done."

Washington State has proposed the most drastic cuts so far – a $71 million reduction to the $360.8 million budgeted for the current two-year fiscal cycle – with roughly 15 other states proposing similar cuts. Drugstores around the country are already threatening to stop serving Medicaid patients, close or reduce hours if the proposed reductions become a reality.

"This will send a number of pharmacies over the edge," noted Ernest Boyd, executive director of the Ohio Pharmacists Association, Dublin. "We've got to make a profit or we can't stay open."

Pharmacists aren't the only ones taking action, either. A growing number of physicians throughout the state of Washington are turning away new Medicaid patients due to a lack of pay under the Medicaid program. Those physician groups no longer accepting Medicaid patients contend they can no longer make up the difference between the state payments for medical care and the costs of providing it. A survey by a team of Washington State University researchers found that physician practices across the state suffered an average net loss of $94,999 last year.

According to a memo from the Washington State Medical Association, "medical practices statewide continue to limit their acceptance of Medicaid patients or drop out of the program altogether."

Prescription drug benefits appear to be taking the brunt of the blow under many states' budget proposals. Michigan recently implemented a plan to allow physicians to prescribe only certain discounted medications to its 1.6 million low-income patients who rely on state aid, including Medicaid and programs for infants and the elderly. Physicians are required to get authorization for medications not on the list, while drug companies that refuse to provide discounts risk being removed from the list.

And Michigan isn't alone. Maine prohibits physicians from prescribing more costly drugs to low-income patients without permission, and Indiana now limits low-income patients to four brand-name drugs per month. Florida is pushing for a similar program limited to Medicaid patients.

"Tightening of drug formularies and trying to require more generics is something many states are considering as a way to cut costs," Polniaszek noted. "What we need, though, is a better strategy at the federal level that addresses soaring costs from a long-term perspective."

Legislative priorities unveiled

Despite the seemingly gloomy climate, some industry observers believe a turnaround in state-run healthcare programs can occur if federal stimulus efforts pan out.

The National Governors Association, Washington, has been urging Congress to include provisions to help cover Medicaid costs, such as an amendment that would allow a temporary increase in the federal medical assistance percentage to help fund care for those most adversely affected by the economic downturn.

"Congress needs to realize that states need help. Even if the economy rebounds over the next year, states will not see any recovery for at least a year and a half. Furthermore, the revenue increase that might come to states will be dwarfed by Medicaid costs that are rising at nearly 12% a year and prescription drug costs that are climbing 18% each year," noted NGA Vice Chairman and Kentucky Governor Paul E. Patton, in a press release.

A spokesman for the U.S. Department of Health and Human Services said the agency has already approved plans to expand Medicaid prescription drug coverage to low-income seniors. In Illinois, for example, Medicaid would pay virtually all the costs of prescriptions up to $1,750 each year, with enrollees responsible only for a $3 or less co-pay for each prescription. Medicaid would pay approximately 80% of the costs of additional prescriptions, with enrollees paying 20% plus the nominal co-pay.

The DHHS has also launched Pharmacy Plus, a new initiative to allow more states to "immediately expand Medicaid prescription drug coverage to Medicare beneficiaries and other individuals with family incomes up to 200% above the poverty level."

Although individual state successes are a step in the right direction, sources agreed states will still suffer if the federal government doesn't commit to a comprehensive Medicaid program that addresses the problems from a long-term perspective. To that end, governors approved a policy calling for the appointment of a Medicaid commission to recommend fundamental long-term reform of the program, stating that "despite 20 years of developing recommendations to reform the program, little change has been enacted." The policy also calls for the commission to make recommendations on how healthcare coverage should be provided to those who are dually eligible for both Medicare and Medicaid. Although no formal calls to action have been made, there was some discussion by Michigan Governor John Engler at the NGA meeting in February about shifting dual eligibles who are receiving Medicaid over to Medicare.

The NGA recommends the commission be formed separately from the association and include bipartisan representatives from the administration, members of the House and Senate, governors, and nationally recognized experts in the field.

"We want the federal government to temporarily increase dollars paid to Medicaid for the short-term, but what we also need is its commitment to a comprehensive and flexible long-term solution," said Christine LaPaille, public affairs officer, NGA. "We see the Medicaid commission as a way to tackle these big issues affecting the program, but we need members of Congress to take an active part. Without a more direct role from Congress, these problems impacting our health programs will never be resolved." PR

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