Better options for Medicaid?

Published 12:07 am Saturday, March 2, 2013

Many Alabamians may be unaware that Medicaid is the second largest budget item for Alabama’s state government at $5.23 billion in combined state and federal spending. For being such a significant expenditure, the average Alabamian might believe the state’s Medicaid beneficiaries receive some of the most generous health care around.

Unfortunately, that is not the case with Alabama Medicaid. The state’s Medicaid program provides few services not mandated by the federal government and has some of the strictest eligibility requirements in the country.

According to State Health Officer Don Williamson, Alabama’s Medicaid program was on the brink of collapse if it did not receive funding from last year’s September 18th transfer from the Alabama Trust fund. This year, even with the benefit from the transfer, Williamson claims Medicaid will face a $100 million budget shortfall. He also predicts that “after 2014, there is no money left” for Medicaid. So what is causing Alabama’s Medicaid woes?

First, Alabama Medicaid is essentially designed to provide health care on a fee-for-service basis. When a Medicaid beneficiary seeks health services, frequently at hospitals or emergency rooms, the care provider sends the bill to Alabama Medicaid, according to an approved payment schedule. While the current system provides “on demand” access to health services, it merely treats individual health symptoms rather than developing a comprehensive approach to long-term beneficiary care.

The second critical problem is that Medicaid’s current model is unpredictable and unsustainable from a cost standpoint. Dr. Williamson’s budgetary comments provide ample evidence that Alabama has serious challenges in both budgeting for and controlling the cost of the current Medicaid model. Because the state pays for services as they are billed and utilization rates vary significantly, Alabama Medicaid has a particularly challenging time planning for future health costs. Not only is Medicaid unpredictable, but the current model lends itself to higher medical bills.

According to the Kaiser Family Foundation, Alabama’s general population utilizes emergency room visits and hospital admissions 17% more than the national average. These types of care represent a significantly higher cost for both health care providers and Medicaid than front-end care involving primary care physicians. Developing a Medicaid system where beneficiaries are treated as people with life histories and habits rather than isolated points of service is crucial to detecting medical problems before they become acute and more costly.

There are two primary solutions that make sense: require accountability from providers for beneficiary outcomes and shift the risk of financial loss away from the state. Alabama’s neighbors in Florida and Louisiana, as well as many states around the nation, have discovered that some care providers and commercial managed care groups are willing to comprehensively administer Medicaid for a set amount per-patient, also known as a “capitated payment.” The state benefits because it no longer bears the risk of unexpected cost increases in the state’s Medicaid budget, and it is able to hold providers accountable according to care management agreements focused on beneficiary health outcomes.

At the same time, Medicaid beneficiaries are healthier because the care providers’ economic viability is contingent on their ability to produce positive health outcomes from front-end health investments rather than expensive acute treatments further down the road.

More importantly, changing the way Alabama administers Medicaid is the right thing to do for Alabama’s most vulnerable. Medicaid beneficiaries use the emergency room or delay seeking treatment largely because nobody has helped them find a primary care doctor. A care management system would ensure that Alabamians with the greatest need are able to more effectively develop relationships with their doctors. As a result, doctors will be able to improve health outcomes through better patient histories, communication and follow-up while being supported by a system designed to facilitate ongoing patient care regimens and ensure that Medicaid patients keep their scheduled appointments.

Beneficiary care coordination and risk protection for Alabama must work in tandem. Care management without simultaneous risk-shifting fails to maximize the state’s ability to control volatile Medicaid costs. Commercial managed care groups and provider networks vying for the opportunity to serve Alabama’s Medicaid population must also be willing to immediately take on the risk of Medicaid cost fluctuations to provide budget stability for the state.

Alabama must develop better health care options for its Medicaid community. If Dr. Williamson is right, the state literally cannot afford to wait any longer.


Cameron Smith is Policy Director and General Counsel for the Alabama Policy Institute, an independent, non-profit research and education organization.