| Last Updated: | 5/20/2010 |
| Budget Issue: | Cost containment proposals. |
| Program: | Department of Health Care Services- Medi-Cal |
| Finding or Recommendation: | See details. |
The Governor’s May Revision proposes federal fund savings of $542 million (assumes enhanced federal matching rate) from the implementation of various cost containment measures that fall into four general categories: (1) limits or caps, (2) increased copayments, (3) rate reductions or freezes, and (4) elimination of benefits. In addition, the Governor assumes savings from moving certain seniors and persons with disabilities into managed care. Please see below for our specific recommendations for each proposal.
All of these proposals require either federal approval of a waiver or a state plan amendment (SPA) to implement. Federal waivers generally allow a state to waive certain program requirements, in order to further the purposes of the program. Amendments to the state plan, the state’s Medicaid operating contract with the federal government, are granted if they meet federal requirements. In general, SPAs are largely administrative processes that take less time for approval than waivers, which can take many months for approval. The administration’s copayment-related proposals require a federal waiver due to federal limitations on imposing cost sharing requirements on Medicaid beneficiaries. The DHCS plans to incorporate its proposal to mandatorily enroll seniors and persons with disabilities in health plans into the Medi-Cal 1115 Waiver renewal. In general, we recommend adoption of some proposals, alternatives to the Governor’s proposals in other cases, and rejection of one proposal.
| DHCS Medi-Cal Cost Containment Proposals | |||||
| 2010-11 General Fund Savings | |||||
| (in millions) | |||||
| Proposal | 2010-11 Savings | Waiver or State Plan Amendment (SPA) Required | LAO Recommendations and Comments | ||
| Caps/Limits (adults only) | |||||
| Enteral nutrition—limit to tube feeding | 10.3 |
|
Consider Alternative Approach.Currently, for enteral nutrition products, Medi-Cal pharmacy providers must provide a description of the patient's diagnosis and clinical documentation establishing that the patient cannot prevent medically significant disability, illness, or death with regular food alone. This proposal would limit the approval of enteral nutrition to tube feeding. As an alternative to the Governor's proposal that has the potential to achieve some level of state savings, the Legislature could tighten the criteria for approval of enteral nutrition products. For example, documentation of clinical malabsorption could be required. This alternative would result in a lower level of savings than the administration's proposal. | ||
| Hard cap of six prescriptions | 5.4 |
|
Reject Governor's Proposal.In our view, prescription drugs are a core medical benefit. This proposal would, with some exceptions and to the extent allowable under federal law, limit a beneficiary to only six prescriptions a month. Currently, when a Medi-Cal beneficiary receives more than six prescriptions per month any additional prescriptions must be approved by DHCS. This may significantly negatively impact health outcomes of those beneficiaries who are most medically fragile. | ||
| Cap on hearing aids of $1,510 annually | 0.3 |
|
Consider Alternative Approach. This proposal could negatively impact some individuals given the average cost of a hearing aid was $1,840 in 2005. Medicare and most insurers do not cover the cost of hearing aids. As an alternative, the Legislature could limit coverage of hearing aids to once every three or four years as is done in at least 17 other states. This alternative may result in a lower level of savings than the administration's proposal. | ||
| Cap on durable medical equipment (DME) of $1,604 annually | 3.6 |
|
Adopt Governor's Proposal. We recommend the Legislature adopt this proposal to achieve savings, given the state's fiscal condition. However, we note this proposal could negatively impact some individuals who require expensive wheelchairs or a combination of DME that would exceed the cap. | ||
| Cap on select medical supplies. Incontinence supplies $1,659 annually; urological supplies $6,435 annually; and wound care supplies $391 annually. | 0.8 |
|
Adopt Governor's Proposal. We recommend the Legislature adopt this proposal to achieve savings, given the state's fiscal condition. However, this proposal could negatively impact some individuals whose medical supplies expenditures exceed the cap. | ||
| Cap on outpatient physician services of ten visits annually | 112.3 |
|
Consider Alternative Approach.We believe the cap would negatively impact those with the greatest need for health care services. The demand for services could also shift to more expensive emergency room (ER) utilization which would erode the proposed level of savings. One option the Legislature may wish to consider is to impose a cap, but allow exceptions for certain services or conditions. This alternative would result in a lower level of savings than the administration's proposal. At least one other state, New York, appears to limit office visits to ten per year and several others limit visits to twelve per year. Numerous states have no limitations. | ||
| Copayments (all ages) | |||||
| $5 copayment for outpatient physician office visits | 78.8 | Waiver | Consider Alternative Approach.We agree with the concept of copays to help contain costs. Currently, beneficiaries have a $1 copayment per office visit, however services cannot be denied if the beneficiary does not pay. We note that the Healthy Families Program has a maximum annual out-of-pocket cap per family of $250. We recommend that if the Legislature adopts this and other copay proposals it consider establishing a similar annual cap for Medi-Cal beneficiaries. This alternative would result in a lower level of savings than the administration's proposal. Finally, we have concerns about the copayments being implemented through payment reductions for various health care providers. Please see our Analysis of the 2002-03 Budget Bill for more information on this issue. | ||
| $3 and $5 pharmacy copayments | 74.6 | Waiver | Same as above. | ||
| $50 copayment for nonemergency ER visits | 35.4 | Waiver | Consider Alternative Approach. We believe instituting a copayment for nonemergency use of the ER has the potential to reduce unnecessary utilization and reduce state costs. However, as an alternative the Legislature may wish to adopt a lower copayment amount of as much as $25. We believe an amount of this level would still have the potential to reduce inappropriate ER utilization. This alternative may result in a lower level of savings than the administration's proposal. Furthermore, there should be policy consistency between how similar copayments proposed in the Healthy Families Program (HFP) are implemented. | ||
| $50 copayment for emergency ER visits | 18.6 | Waiver | Consider Alternative Approach. We agree with the concept of copays to help contain costs, however, the proposed copay amount may be excessive for low-income populations that need ER services. If the Legislature adopts a higher copay as proposed by the administration for physician services of $5 it should consider imposing a copay of the same amount for necessary emergency visits in an ER visits. This alternative would result in a lower level of savings than the administration's proposal. Furthermore, there should be policy consistency between how similar copayments proposed in the HFP are implemented. | ||
| $100 copayment per hospital inpatient day (maximum $200 per admission) | 72.6 | Waiver | Consider Alternative Approach. We agree with the concept of copays to help contain costs, however, the proposed copay amount may be excessive for low-income populations needing inpatient services. If the Legislature wants to impose copayments on inpatient services it may want to consider a more modest amount, such as $50 to $100 for each hospitalization of any length involving at least one overnight stay. This alternative would result in a lower level of savings than the administration's proposal. Furthermore, there should be policy consistency between how similar copayments proposed in the HFP are implemented. | ||
| Rate Reductions/ Freeze | |||||
| Reduce radiology rates to 80 percent of Medicare | 18.1 |
|
Adopt Governor's Proposal. Current policy is to set new rates at 80 percent of Medicare. It is our understanding this would conform previously established rates to the current policy. No managed care plan savings are assumed because they already tend pay at a lower rate. We note that the department may need to complete a rate study to support implementation of this proposal. | ||
| Freeze inpatient hospital rates at January 2010 levels. Sunsets June 30, 2011. (Excludes designated public hospitals). | 84.5 |
|
Adopt Governor's Proposal. Due to hospitals potentially receiving significant supplemental reimbursements as a result of the hospital fee established by Chapter 627, Statutes of 2009, if approved by the federal government, we find this proposal is reasonable to achieve General Fund savings. However, we believe the level of savings proposed could be eroded due to public notification requirements. We note that the department may need to complete a rate study to support implementation of this proposal. | ||
| Elimination | |||||
| Elimination of certain over-the-counter drugs (all ages) | 6.6 |
|
Adopt Governor's Proposal. Coverage is not required by the federal government and such an exclusion is similar to many private health coverage plans. This option would exclude nonprescription acetaminophen-containing products and cough and cold medicines. | ||
| Elimination of Part B premium payment for beneficiaries with an unmet share of cost | 1.0 |
|
Adopt Governor's Proposal. We recommend eliminating paying Medicare Part B premiums for beneficiaries who do not meet their share of cost. California is the only state with this program. | ||
| Other | |||||
| Seniors and persons with disabilities (SPDs) mandatorily enrolled into managed care | 182.1 | Waiver | Withhold Recommendation. We agree with this policy in concept but withhold recommendation at this time given that we have not received the trailer bill language that would implement this proposal. We have some initial concerns with this proposal due to a lack of fiscal detail and because some aspects of how this proposal would be implemented are not well-defined. The transition timeline of SPDs into managed care appears to be fairly aggressive and it is unclear at this time how potential transition delays may impact these savings estimates. Budget year savings proposed are a result of deferring June 2011 capitation payments to health care plans into the next fiscal year. | ||
| Total Savings (assumes federal matching rate of 50 percent) | 705.0 | ||||
| Total Savings (with enhanced FMAP for full year) | 541.7 | ||||