Medicaid Health Providers Brace for New Round of Fee Reductions

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The easiest way for a state to trim Medicaid costs is to cut back on reimbursements to doctors and hospitals. But there's already a shortage of primary care, and further cuts could make it worse.

There are only three ways a state can reduce its Medicaid burden, and two of them are highly problematical. 

Cutting the number of people served by Medicaid is generally prohibited by the new national health law. So is denying coverage to patients for visits to hospitals and doctors, although "optional" benefits such as prescription drugs and mental health treatment can be dropped. 

But the one Medicaid cost that states have usually been able to cut without worrying too much about the federal government is reimbursement to the providers themselves. And that is what most of them are doing this year.

At least 33 states have reduced provider fees for the fiscal year that starts July 1, according to a report by the National Association of Budget Officers. "Provider pay cuts are the lesser of three evils," says Matt Salo, head of the National Association of Medicaid Directors.

Historically, that's been the case. While the federal Medicaid statute requires states to set reimbursement rates "sufficient to enlist enough providers" so that Medicaid care for the poor is comparable to care given to people with private health insurance, the law provides no standards for rate setting and the federal government has so far left the calculation up to states.

But the rules are in flux. Proposed federal regulations published in April require states to prove that lower rates will not make it harder for Medicaid patients to get doctor's appointments. A Supreme Court case to be heard this fall will determine whether providers can continue to sue states on the grounds that their rates of compensation are too low. And starting in 2013, states will be required by federal law to raise primary care physician fees under Medicaid to the same level paid by Medicare.

States with the highest health care provider payments:
  1. Alaska
  2. Wyoming
  3. Nevada
  4. Arizona
  5. Delaware
  6. Connecticut
States with the lowest health care provider payments:
  1. New Jersey
  2. Rhode Island
  3. New York
  4. Maine
  5. California
  6. Florida
Source: Kaiser State Health Facts

No surprise

This year's provider cuts come as no surprise to state officials or the health care industry.  Lingering unemployment has kept Medicaid rolls high, while federal stimulus funding for the beleaguered program — $50 billion in 2010 and $60 billion in 2011 — evaporates July 1. It was inevitable that states would make drastic cuts to their Medicaid programs almost anywhere they could.

Doctors and hospitals have been working with states to mitigate the impact of fee cuts on certain sectors of the health care market. For example, in South Carolina, where infant mortality rates are high, obstetricians and neonatologists were exempt from the cuts. State medical association officials had braced for cuts as high as 15 percent and said they were relieved when the final budget proposals came to no more than 5 percent.

In the fall, the U.S. Supreme Court will hear a case in which a federal court blocked California from implementing a 2008 reduction in payments to dentists, health clinics, pharmacies and other medical providers. The issue in the high court case is whether providers and patients have the statutory right to sue California, or any other state, over Medicaid reimbursement rates. The Obama administration is siding with the state and against the providers, arguing that the cuts were legal.

A decision in favor of California and the federal government would likely suppress future lawsuits; a decision in favor of providers would maintain the long-standing legal practice of allowing doctors, hospitals and other health care providers to sue states over the fees they pay for Medicaid services.

How many doctors?

At the root of the whole provider fee dilemma is the question of whether enough doctors and hospitals will be willing to serve the existing Medicaid population of about 60 million, plus 16 million more who are expected to become eligible in 2014. On average, Medicaid reimbursement rates are 50 percent lower than those paid by private insurers and 30 percent lower than the federal government's provider fees under Medicare.

How much difference do provider rates make in the quality of Medicaid care? It depends on whom you ask, and how you ask the question. Edwin Parks, Vice President for Health Policy at the Center on Budget and Policy Priorities, insists that Medicaid beneficiaries have as good or better access to primary health care services as those with private insurance. In fact, Parks says, Medicaid patients, particularly children, are more likely to receive preventive care than the rest of the population.

The larger problem, in Parks' view, is that most people-whether they have Medicaid cards or private insurance — still lack adequate access to primary care doctors, because there aren't enough of them in the health system. The shortage is most severe in rural communities and low-income urban neighborhoods. That's why the federal health law requires states to boost Medicaid fees for primary care physicians starting in 2013.

For specialized care, there is some evidence that reimbursements make a clear difference, and that Medicaid recipients are less likely to get the treatment they need. A study published in the June 16 issue of The New England Journal of Medicine found that 66 percent of people in Cook County, Illinois, who said they received their coverage under Medicaid were denied appointments for children with specialists in conditions such as diabetes, seizures, asthma, broken bones or severe depression. That compares with 11 percent who said they had private insurance.

Some argue the study isn't relevant to the rest of the country, because Illinois is broke and behind on its Medicaid bills. Still, it provides some documentation for the widely held belief that specialists tend to avoid taking Medicaid patients.

But the connection between reimbursement and quality of care is not always clear cut. For some types of health care providers, dentists for example, states have raised fees to commercial insurance levels without any improvement in access for Medicaid patients. "If dentists decide that Medicaid patients might break more appointments, you can't pay them enough to participate," says Eileen Ellis, a Medicaid expert at Health Management Associates. "It's a real dilemma for states."