Ten Steps to Reforming Medicaid Insurance

Jul 2 2008 - 11:00am
Medicaid Reform

Typically, Medicaid enrollees face restricted treatment options and limited access to health care. At the same time, they are sheltered from health care costs because they pay nothing out of their own pockets when they receive care.

This disconnection between patients and costs has led to a dramatic increase in public health care spending. All this could change, however, if the government were to implement the 10 Medicaid reforms discussed below.

Step 1: Free Patients.

One idea for improving Medicaid is to empower consumers in the medical marketplace by allowing them to control some of their own health care dollars.

A step in the right direction is the Deficit Reduction Act of 2005, which allows 10 state Medicaid programs to provide Medicaid recipients with Health Opportunity Accounts (HOAs) similar to Health Savings Accounts (HSAs) used in the private sector.

States that choose to participate receive federal matching funds of up to $1,000 per child and $2,500 per adult to be deposited into the HOAs. These funds can be used to purchase a variety of medical goods and services, and unused funds will be available for future use by the participants. Moreover, if patients become ineligible for Medicaid, they have three years to use up to 75 percent of their HOA balances to purchase private health insurance.

Step 2: Free Providers.

Doctors participating in Medicaid must practice medicine under an outmoded, wasteful payment system. Typically, they receive no financial reward for communicating with patients by telephone and email, teaching patients how to manage their own care, or helping them be better consumers in the market for drugs. Medicaid pays by task, and these are not reimbursable activities. Doctors who help patients in these ways are taking away from billable uses of their time.

Instead of letting Medicaid's payment rules get in the way, doctors and other health care providers should be rewarded for raising quality and lowering costs. Accordingly, providers should be able to propose and obtain a different reimbursement arrangement, provided the total cost to government does not increase, patient quality of care does not decrease, and there is a mechanism for accountability.

Step 3: Use Less-Expensive Therapies

Treatment in outpatient settings, such as doctors' offices, is generally less expensive than treatment in a hospital. However, Medicaid patients have limited access to physicians other than in public health clinics or hospital emergency rooms.

Increasing physician fees for examinations, tests, and procedures that can be performed in a doctor's office would increase patients' access to health care and reduce unnecessary reliance on hospital emergency rooms.

Performing more procedures in outpatient settings that were formerly performed in hospitals (such as minor surgeries that don't require an overnight stay) is a common way of reducing costs. A Pennsylvania study found about 10 percent of all hospitalizations for patients under age 65 are potentially avoidable. Caring for these patients in lower-cost, more appropriate settings could have saved the state about $2.8 billion in 2003.

Step 4: Use Less-Expensive Providers

Private-sector health plans routinely contract selectively, directing enrollees to providers who charge less for the same level of quality. Medicaid could selectively contract with hospitals that perform a high volume of specific procedures and demonstrate a strong relationship between volume and quality.

In some cases, this means reducing procedures performed in hospitals that could have been done in outpatient clinics. In others, it entails limiting inpatient care that could have been avoided by timely physician care.

Walk-in health clinics are a good example of a cost-saving alternative. By creating their own service bundles and setting their own prices, they have been able to lower prices significantly and provide better quality. Some third parties are now reimbursing walk-in clinic fees because they have concluded the services are cheaper than the alternatives.

Yet Medicaid programs typically do not. This is a no-brainer for Medicaid: It should immediately cover the services of walk-in clinics, encouraging enrollees to get this convenient, high-quality, and often preventive primary care.

Step 5: Use Less-Expensive Drugs


Pharmacy benefit managers (PBMs) working for private-sector plans use a variety of techniques to control drug costs, including preferred-drug lists, formularies, negotiated-prices companies, and single-source drug distributors. Medicaid managed care plans generally use PBMs as well, but some states have rules and regulations that limit their ability to control drug costs--including discouragement of less-expensive drug alternatives (such as generic and over-the-counter substitutes).

Medicaid patients who prefer brand-name drugs should be able to choose them if they pay more, or select substitutes at a lower cost, as those in private insurance plans do. A way to give Medicaid patients this option is to let them control some of their own health care dollars. Additionally, doctors should be given incentives to teach patients how to lower drug costs by shopping in a national online marketplace.

Step 6: Use the Private Sector


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