Medicaid cost growth down dramatically — is reform effort the cause?

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Interested legislators from both chambers heard a presentation this evening from Arkansas Medicaid director Andy Allison on the revised Medicaid shortfall projection, which has been cut by more than half to $61 million. Short version: costs are down, which is very good news, but we don't yet know why. But one possible explanation would be even better news — this may represent early returns on the program's efforts to incentivize providers to control costs through the Payment Improvement Initiative, indicating hope for long-term slowing of Medicaid costs.

The reduction in the growth rate of Medicaid spending over the first six months of fiscal year 2013 represents the slowest growth in 25 years (spending is still rising but is rising significantly more slowly than the long-term trend). But this didn't happen by kicking folks off the rolls. In fact, enrollment is actually growing faster than the long-term trend. Instead, the savings came from the cost per person, which had previously been growing at a rate of 4 percent, actually going down in the first half of this fiscal year. Allison said he was looking in to whether other states saw a reduction in per capita costs, adding that "it's certainly a first for me."

Allison said that DHS staff had thoroughly investigated the question of why this is happening, looking line by line and service by service. They found that there was no particular category of service or enrollee that explained it. Nor did the economic situation explain it, since enrollment is growing faster.

"We essentially have no other explanation for what's going on than that providers themselves have changed in their prescribing and authorizing of services for our members," he said.

Allison was at pains to clarify that just because that was the only explanation they could think of doesn't make it so. "I would not stand here and proclaim victory," he said.

He also cautioned that it could not be the Payment Improvement Initiative itself that directly led to the slowed growth — it was only in place for one of the two quarters and it has only been rolled out for a small portion of Medicaid services. Instead, it's possible that we're seeing "providers reacting to expected changes." Providers know payment reforms are coming and they're preparing for them. In health policy language this is the "sentinel effect" — basically, you work more efficiently if you know someone is going to be looking over your shoulder.

Of course, you can't have a Medicaid meeting without someone asking about...Waste! Fraud! Abuse!

Rep. Debra Hobbs (R-Rogers) brought up the fact that people approved for SSI are Medicaid eligible. She told a story about an illiterate, able-bodied man that she knows that gets an SSI check even though, according to her, he could work. "I've also heard stories about 'crazy checks' that some children get," she said. "And obviously if they are getting SSI they also are qualifying for Medicaid. Are you looking at those types of cases?" (This drew some jokes from folks in the audience behind me about Medicaid recipients with Cadillacs and Louis Vuitton bags.)

In fact, both SSI eligibility and its connection to Medicaid eligibility are federal issues beyond the control of the state Medicaid program. Hobbs acknowledged as much afterwards when I caught up with her but she said that she had concerns about the state program as well. "I've heard of people, like a lady that used to clean my house, she cut back one day a week on what she did so that her son could continue to qualify for ARKids," Hobbs said. "So in my mind, I'm thinking if you worked that extra day, you could afford to pay insurance for your child and probably have a little extra money too."

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