Confronted with sudden deficits, states are considering a raft of proposals to rein in Medicaid spending, including rollbacks or delays of expansions passed when state coffers were overflowing.
Providers, claiming they're already drastically underpaid by Medicaid, are fighting to minimize the financial impact of cuts that in many cases appear inevitable for fiscal 2003, starting around midyear. With Medicaid ranking No. 2 behind elementary and secondary education in state budget allocations, it's a prime target when budgets are tight, policy experts say.
Often, the route of least political controversy is reducing payments to doctors and hospitals.
"We've seen more states looking to provider cuts than actually dropping people from coverage," said Jocelyn Guyer, a senior policy analyst at the Kaiser Commission on Medicaid and the Uninsured, a research organization in Washington. She added that some states are quietly scrapping outreach programs that are meant to drum up enrollment.
In New Mexico, Gov. Gary Johnson has proposed a $46 million cut in projected Medicaid spending for fiscal 2003, which starts July 1. The state is squeezed by a revenue drop and Medicaid spending that's ballooned from unemployment, eligibility expansions and population growth, said Maureen Boshier, president and chief executive officer of the New Mexico Hospitals and Health Systems Association.
The hospital association is working with the state on launching a low-cost health insurance program and advocates passage of legislation to create an 18-member task force to examine where cuts should be made. Boshier said hospitals would rather see cuts in benefits such as eyeglasses and transportation than a reduction in eligibility for poor children.
"The handwriting is on the wall; there's not enough money to support the program that we have," Boshier said.
In Michigan, hospitals reluctantly have agreed to a one-year trial run of a tax on their revenue, said Sherry Mirasola, a spokeswoman for the Michigan Health and Hospitals Association. The tax, proposed by Gov. John Engler, would raise $22 million annually and boost the state's federal match by another $28 million. "We obviously are approaching it with much caution and a lot of conditions," Mirasola said. But with a nearly $1 billion projected state deficit for fiscal 2003, she said, "Things get more desperate and difficult."
Michigan hospitals are not alone. A survey released by the National Conference of State Legislatures this month shows Medicaid is over budget in 23 states this year. Another five states say Medicaid could bust its budget in coming months. A similar number reported Medicaid deficits a year ago, but those shortfalls were smaller and states could better afford to fund them, according to the conference. This year, 45 states reported revenue shortfalls whereas 20 did a year ago.
Richard Cauchi, a program manager for the Denver-based conference, said that although most states can fund current Medicaid deficits with reserves, at least 30 are weighing program changes for fiscal 2003. While Medicaid gets re-examined every year, he said, "there's simply more urgency because of the fiscal restraints."
For next year, governors in at least six states-Georgia, Maine, Massachusetts, Nevada, New Mexico and Vermont-have proposed eliminating or delaying expansions in eligibility or benefits, according to the conference.
Medicaid drug spending, which grew at a whopping 18.1% annually from 1997 to 2000, also is under attack. At least 20 states are considering a "preferred drug list," which would require physicians to obtain permission from Medicaid before prescribing nonlisted medications, Cauchi said. The strategy already is being implemented in Florida, Michigan and Oregon, he said.
Kentucky expects to save $100 million next year by requiring prior approval for the most expensive drugs, and another $8 million by allowing pharmacists to charge Medicaid customers a $1 copayment for most prescriptions. The measures, which passed the state Senate last week, are meant to help the state avert a $268 million projected Medicaid deficit in fiscal 2003.
Aid has been slow to come from the federal government. Proposals to increase the federal Medicaid match and delay a cutoff in the "upper payment limit" loophole, which diverts federal Medicaid funds to public hospitals, were part of an economic stimulus package that died earlier this month. Federal legislation is pending to improve states' ability to increase disproportionate share spending.
"We're gritting for a tough year," said Molly Collins, the American Hospital Association's senior associate director for policy. "State budgets are very sensitive to the economic cycle because states are required to balance their budgets."
Already some states are in crisis.
In Oklahoma, provider payments were suspended abruptly this year after the authority that administers the state's Medicaid program announced a $21.3 million shortfall halfway through its fiscal year. The state Legislature is expected to appropriate extra money to fund the gap, said Patti Davis, executive vice president of the Oklahoma Hospital Association.
Meanwhile, Illinois hospitals are fighting proposed payment reductions totaling an estimated $200 million, in addition to emergency cuts in the current fiscal year. Testifying in the state Legislature last week, Illinois Hospital Association President Ken Robbins proposed alternatives, including raising the state's cigarette tax and buying drugs in bulk, and argued that under-funding Medicaid could cause hospitals to close.
"There has been a lot of attention from the Legislature and from the governor's office to the issue, but they have a big problem to solve, and no easy solutions," said Trisha Cassidy, a senior vice president for system development and strategy at 536-bed Loyola University Health System in Maywood, Ill. The hospital anticipates a $3.5 million shortfall in its Medicaid revenue in the current fiscal year and a $10 million drop-off under next year's funding proposal. Loyola's total annual revenue was $537.1 million in 2001.