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Medicaid payments endure another round of cuts

Dominika Osmolska Psy.D.'s picture

About a dozen states have announced budget cuts by reducing payments to doctors, hospitals and other health care providers that treat the poor. The cuts, most of which went into effect July 1 or will later this month, could add to a shortage of physicians and other providers participating in Medicaid.

Cutting payment rates further is a depressing prospect in a system that is already in bad shape. Some states, such as South Carolina, are already experiencing severe Medicaid doctor shortages. Insurers and employers are also concerned about the cuts, as it inevitably means raising prices for private insurance to help offset the Medicaid burden.

"It's always a concern that when providers get less from Medicaid, that they will shift the costs to private insurance so families and employers pay more," says Robert Zirkelbach, a spokesman for America's Health Insurance Plans, an industry group.

States reducing Medicaid payments to physicians this month are Colorado, Nebraska, Oregon, South Carolina and South Dakota. Arizona, which cut rates in April, will impose another cut in October. States reducing payments to hospitals include Colorado, Connecticut, Florida, Nebraska, New Hampshire, North Carolina, Oregon, Pennsylvania, South Carolina, Texas, Virginia and Washington. New York cut hospital payment rates in April.

In March, California approved a 10% Medicaid cut to doctors and hospitals, but those reductions are pending because of an existing lawsuit.

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The payment cuts are part of a larger effort by states to reduce the cost of Medicaid, typically the largest- or second-largest expenditure after education. In some states, dental services and other “optional” benefits have been completely done away with. And many states are requiring enrollees to sign up for private Medicaid managed care plans.

What stance ought we to take in response to this announcement, on an issue which has become so contentious? Federal-state Medicaid costs were $366 billion in fiscal 2009. The federal stimulus package gave states $100 billion to help pay their share, but that funding ended June 30, and states are still struggling.

Physicians are notoriously wary of accepting Medicaid patients, but it is not because they are heartless, money-grubbing bastards. The problem is not only that the program underpays doctors, but it is a huge bureaucratic burden on those providers who choose to use it. It turns out that doctors are far more likely to take uninsured patients than those with Medicaid. They are often willing to take a small fee out-of-pocket than deal with the onerous Medicaid paperwork. Moreover, a study out of the University of Virginia showed that Medicaid patients were 13 percent more likely to die in-hospital than those with no insurance at all.

How can we spend more than $400 billion a year on a welfare program, only to get worse health outcomes? How does a Medicaid recipient fare worse than his or her uninsured counterpart? A new survey from the U.S. Government Accountability Office highlights the problem even more starkly. It shows that children have worse access to physicians than those with no insurance at all. The survey, which drew from 932 respondents, found that 21% of physicians were taking “none” or only “some” new patients aged 0-18, compared to 45% for the uninsured, and 53% for Medicaid/CHIP. Medicaid especially underperformed the uninsured among primary care physicians (23% private / 45% uninsured / 55% Medicaid) as compared to specialists (17% / 47% / 49%).

The GAO survey asked physicians why they don’t want to deal with Medicaid patients. Among physicians who have opted entirely out of participating in Medicaid/CHIP, 94 percent said “low reimbursements” greatly or somewhat limit their willingness to take Medicaid patients. The other top problems were “billing requirements and/or billing paperwork burdens” (87 percent said this greatly or somewhat limits their participation); “delayed reimbursements” (85%); “burdensome provider enrollment or participation requirements” (85%); and “difficulty referring patients to other providers” (78%).

All this tells us that Medicaid is victim to extreme government mismanagement: burdensome requirements, excessive paperwork, and unresponsive bureaucrats. While throwing more money at the program might not necessarily fix it, taking it away is certain to make the situation far worse.