How Wisconsin Made Big Medicaid Cuts With Little Controversy

As Wisconsin lawmakers looked ahead to their two-year state budget early last year, the outlook was grim. As the economy continued its freefall, a projected $5.7 billion deficit ballooned to $6.6 billion, the largest in state history. Every state program was on the chopping block, but Medicaid, the health insurance program for low-income people, was an especially big target because it makes up one-fifth of the state’s budget.

Governor Jim Doyle’s initial budget prescription called for more than $400 million in cuts to Medicaid. By June, when the Legislature approved the budget, the reduction was up to $625 million — about 10 percent of Wisconsin’s total cost for the joint state-federal program.

But for Wisconsin, passing a budget with such drastic cuts to Medicaid was just the beginning for state health officials, advocates and the state’s 30,000 health care providers. Doyle and the Legislature devised a novel approach: They gave agency officials a dollar amount to cut, but ceded authority over how to reach that figure. They didn’t even require final legislative or gubernatorial approval to enact the changes.

What followed was an extraordinary six-month-long process, one that not only found the necessary savings but also increased coverage and implemented important reforms at the same time. Insurance companies and providers met with academics and advocates. State health officials refereed the discussions, with Medicaid Director Jason Helgerson and his staff ultimately responsible for sorting through hundreds of ideas aimed at reducing costs and improving health outcomes. The Wisconsin Medicaid Rate Reform Project, as it came to be known, was in motion.

A range of choices

Early on, participants in Wisconsin’s experiment saw how other states in the same budget hole were cutting Medicaid: They were trimming benefits for patients and paying doctors less.

Each of those options has a downside. Cutting benefits takes health care services away from Medicaid enrollees. Cutting reimbursement rates to providers risks driving them to stop seeing Medicaid patients. “States need to do this balancing act,” says Robin Rudowitz, associate director of the Kaiser Commission on Medicaid and the Uninsured. Cut provider rates too much, Rudowitz says, and it could limit patients’ access to care. In some states, courts have blocked rate cuts on these grounds.

States have their hands tied in another big way. The federal economic stimulus law, enacted early last year, provided states with temporary help to pay for Medicaid, but it also banned states from making cuts in eligibility for the program. That’s a tool some states have used in the past to reduce their costs by trimming enrollment.

At the beginning of the Wisconsin project, state health officials looked at what it would take to make their $625 million of savings through provider rate cuts alone. It was estimated that reimbursements would have to be cut across the board by 5.5 percent — a sizable pay cut for a program that’s already known for underpaying doctors. On the other hand, to reach the goal via benefit reductions alone would have required eliminating dental care for some Medicaid enrollees, cutting a state program for seniors that helps pay for prescriptions, and dramatically increasing co-payments, among other steps.

Wisconsin has a long history of generous health programs and there was no interest among participants in dismantling them. Instead, the reform project set high-level goals of what it hoped to achieve despite the budget cuts. The goals included protecting vulnerable populations, maintaining coverage levels, continuing expansions to cover the uninsured and avoiding across-the-board cuts. On its face, these goals would seem difficult to fulfill while trying to save so much money.

So the Rate Reform Project looked for ideas that sought to cut out unnecessary procedures and perhaps even produce better outcomes. For example, the state will save $4 million on hospital births by no longer paying for unnecessary C-sections. An evidence-based care initiative — aimed at paying doctors based on the value of a procedure rather than the number performed — will save $21 million. And hospitals were required to submit plans to reduce the rate at which people return within 30 days with the same illness, which the state estimates will save $4 million by 2011.

A big chunk of savings, $200 million in total, came from renegotiating contracts with health maintenance organizations. The state expects to save $18 million by withholding scheduled rate increases and another $26 million by reducing administrative payments to HMOs.

Ultimately, the Rate Reform Project compiled, analyzed and debated 500 ideas. Some came from the Wisconsin Department of Health Services; others came from nine committees broken down by subjects such as hospitals, physicians, pharmacy, HMOs and long-term care. Legislative staff and policy experts weighed pros and cons and how much each idea might save. The proposals were put into an online survey for providers and other health care workers to weigh in on; all the while, department staff kept tabs on what options carried the most support and went farthest toward meeting the project’s goals.

By the time the work was done, the outlook for Wisconsin’s Medicaid program didn’t just include reduced spending. It also included an expansion of coverage for 41,000 childless adults, thanks to a new tax on hospitals separately enacted by the Legislature, as well as some federal dollars that came along with that tax. The sum was a carefully considered overhaul of a complicated program, which was no small feat at a time when many states have simply slashed spending with seemingly little regard for the implications.

“I’m a big believer that bad budgets can create big opportunities,” says Helgerson, the Medicaid director. “You really have to convince stakeholders that the reductions are necessary. They have to be made. The question is how.”

A positive response

What is perhaps most surprising about the outcome of Wisconsin’s Medicaid cuts has been the response from patients, advocates and stakeholders. Despite the fact that hundreds of millions of dollars were cut from the program — a process that has spawned protests, outrage and even lawsuits elsewhere — the reaction in Wisconsin seems largely positive.

“They looked at things that would not affect current patients,” says Tom Petri, director of policy and communications at the Wisconsin Primary Health Care Association. “The mindset was, this is an enormous budget, helping an enormous amount of people, but there are some areas where we could squeeze.”

The plan also actually spends money in some areas with the goal that it will reduce costs in the future. Wisconsin now will pay physicians more to track a child’s body mass index, a step toward addressing childhood obesity, which can lead to more health problems later in life. The state also is expanding drug and alcohol dependency screening. Dr. Richard Brown, a professor at the University of Wisconsin School of Medicine and Public Health, gives state officials credit for taking the long view. “They really try to balance health outcome against costs,” he says.

Budget concerns linger

Still, the success of Wisconsin’s Medicaid project doesn’t mean the state’s budget problems have disappeared. Increasing the uncertainty is worry over what Congress will do with a proposed extension of the stimulus-funded increase of federal Medicaid dollars to states. The measure, which Congress has been considering for more than a year, would provide states between $16 billion and $24 billion for the first half of 2011. On Wednesday (August 4), the Senate cleared a major procedural hurdle to approving $16 billion in aid. The Senate is expected to pass the measure, although it still must clear the House.

The additional federal dollars, some say, could prevent another round of sweeping budget cuts in Wisconsin before the state’s next budget cycle in 2011. But until it’s finally approved, uncertainty will remain. And despite the success of Wisconsin’s recent Medicaid changes, that has some in the state concerned. “I’ve got our full board of directors, and the number one standing agenda item the last six months is this funding,” says the Wisconsin Primary Health Care Association’s Tom Petri. “If they do find a way to extend it, there will be this enormous exhale.”

But like many other states, Wisconsin still faces ever-increasing Medicaid rolls and rising health costs. There’s talk that even with the federal aid, another round of large cuts may be needed before long. For George Quinn, senior vice president at the Wisconsin Hospital Association, that’s worrisome.

As Quinn explains, hospitals, HMOs, pharmaceutical companies and other providers all took hits via the Rate Reform Project. And despite the largely positive reaction to the way the reductions were made, round two could be different. “It’s hard for me to believe that another round of similar cuts will be taken in the same vein as the first one,” Quinn says. “To turn around and face cuts would be a tough one for us.”