Budget Woes Slow Medicaid Revamp

October 3, 2003
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GRAND RAPIDS — Ideas for revamping Michigan's Medicaid program will get serious consideration in Lansing, although new spending on health coverage for the poor is not possible given the state's fiscal crisis.

Any initial focus on Medicaid will come via examining how to better use the $6 billion spent annually for health coverage for 1.3 million recipients in Michigan — an all-time high — and making the program more efficient and cost effective.

"There are certainly ways we can do things better. We're going to look for ways to use our resources more effectively," said T.J. Bucholz, communications director for the Michigan Department of Community Health, the state agency that administers Medicaid.

For starters, the state in February plans to re-bid Medicaid HMO contracts based on "actuarial sound rates" and issues like customer service, quality of care and financial solvency, Bucholz said.

The re-bidding of Medicaid HMO contracts was already in the planning stages prior to the issuance of a report Sept. 23 by a trio of health care organizations that offered 10 suggestions for improving the Medicaid system in Michigan.

The report from the Partnership for Michigan's Health — consisting of the Michigan State Medical Society, Michigan Osteopathic Association and Michigan Health and Hospital Association — offers ideas to better fund Medicaid in Michigan and overhaul structural and administrative inefficiencies.

"It's a report that we're taking very seriously," Bucholz said. "Some of these things we're going to be able to do right now."

The "chronic underfunding" of Medicaid, which one research report last spring pegged at $950 million based on the cost of delivering care, has weakened the entire health care system in Michigan, said Dr. Hassan Amirikia, a Detroit obstetrician/gynecologist and current president of the Michigan State Medical Society. The situation, brought on by reduced payments and cuts in the program, will only worsen if left unaddressed, he said.

Many hospitals are operating on low margins or losing money and blame Medicaid reimbursements that no longer cover the cost of care. That in turn leads to increased cost shifting, where hospitals try to make up Medicaid losses through the rates charged to private payers, a practice that affects health premiums for employers.

Locally, Spectrum Health says it lost $23.9 million, based on cost, on providing care to Medicaid recipients during the most recent fiscal year.

In its proposal, the Partnership for Michigan's Health offers concepts that participants believe will lead "to greater innovation, greater efficiency, and superior health outcomes for Medicaid patients."

The partnership's proposal goes "well beyond budget issues. We need to fix all of the structural and administrative failures in the Medicaid delivery system," Amirikia said.

"Doctors and hospitals know the Medicaid system won't be cured overnight. Again, just like a human body, our health care system has been able to withstand a lot of abuse," Amirikia said. "But now it's really sick. It took years to get this way and it will take years to come back to recover."

Among the concepts the Partnership offered to the state are:

  • Erasing the disparities in reimbursements between Medicaid and Medicare.

  • Recognizing regional differences in local care networks around the state.

  • Considering other models of care beyond HMOs.

  • Enacting a single system for administrative tasks such as enrollment and processing and payment of claims.

  • Providing incentives for health care providers to develop and operate systems, particularly in areas where the existing system is not working.

  • Making Medicaid payment rates meet the same standard for actuarial soundness and prompt payment as the commercial sector.

  • Establishing a new system for payments to hospitals and physicians in areas with a high Medicaid patient population.

  • Committing to developing local programs by 2010 to provide access to basic health care for every low-income resident.

Given the state's budget crunch, including $300 million in additional cuts needed for the fiscal year that took effect just last week, Bucholz said any changes to Medicaid will have to focus for now on administrative and structural issues that can generate efficiencies and cost savings.

"We have to work within our means," he said. "With the state that the state's budget is in, we don't have a lot of resources to work with."

The report from the Partnership for Michigan's Health will likely get the attention of state lawmakers, as well, one West Michigan legislator said.

Acknowledging the underfunding of Medicaid, state Rep. Barbara VanderVeen, R-Allendale, believes that stabilizing the system is an issue the Legislature must address. Medicaid, she said, is "at a crossroads."

"They have some extremely valid points. We'd better take them serious," said VanderVeen, the vice chair of the House Health Policy Committee.

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