Who says Medicaid can't get worse?

As public dollars are stretched to cover more people, disaster looms in some states.

By Wayne J. Guglielmo
Senior Editor

Two years ago, Tennessee pediatrician Ted Taylor was asked to speak at a legislative dinner hosted by the state medical association. The occasion for Taylor was a sad one, and as he spoke he had difficulty holding back tears. After 20 years of caring for children in his native Elizabethton, a small, low-income city in the northeast corner of the state, he and his partner had decided to close their office and join a group practice in Johnson City. His decision, Taylor knew, would have a profound effect on hundreds of his patients who participated in TennCare, the state's then 5-year-old managed Medicaid experiment. Many already had to travel from the far reaches of Carter County and surrounding counties to see him; the new location would make their visits that much harder.

But the program's low reimbursements and notoriously late payments had finally taken their toll. "I was in such debt by this point that even though I was cutting my income more and more, I couldn't keep my head above water," Taylor says today. "My only choice was to move." In his new practice, his proportion of TennCare patients has dropped significantly, as his commercial-patient load has risen.

Taylor isn't the only Tennessee doctor who's had to rethink his participation in TennCare. (Only 49 percent of the state's pediatricians participate in Medicaid, compared with a national average of 67 percent, according to a survey by the American Academy of Pediatrics.) Nor is TennCare the only Medicaid program having trouble recruiting and retaining physicians.

Indeed, in states across the nation, longstanding problems like below-market rates, late pay, and general bureaucratic hassle have combined to limit physician participation in both managed and traditional Medicaid. Recent legislative efforts to address this issue have helped somewhat. But these days, many states face severe budgetary shortfalls because of the nation's slowing economy, made worse by the events of Sept. 11.

For physicians who continue to treat Medicaid patients, the fiscal crunch will almost certainly limit their pay, to say nothing of patient access. "If things don't change, physicians like me will end up closing our practices to all but established Medicaid patients," says FP Arlene M. Brown of Ruidoso, NM. New Mexico is among those states where doctors participating in Medicaid are struggling to keep from losing recent hard-won gains.

To determine how deep the crisis really goes, we spoke with doctors, Medicaid officials, and others in both managed care strongholds and other states around the country.

Managed Medicaid: A poor Rx for physician participation

Doctors frustrated by TennCare saw at least one of their gripes addressed this year. In the spring, Volunteer State lawmakers passed legislation that created a uniform TennCare claims process. The goal—not yet achieved—was to minimize the red tape that delays payments to providers.

Allocating more money for physician services isn't on the docket, however (even though payments for long-term and other nursing home facilities were increased). That leaves Tennessee physicians understandably wary about participating in TennCare. "For a long time," says the Tennessee Medical Association's director of government affairs, Scott Smith, "there hasn't been a whole lot of incentive to take part in the program."

Doctors fed up with low payments are also casting a skeptical eye toward the Oregon Health Plan, according to James A. Kronenberg, associate executive director of the Oregon Medical Association. "Initially, the plan was popular with doctors because it seemed like a rational way to go about prioritizing health care needs in order to serve the greatest number," says Kronenberg. "But given the problems with the plan, more and more doctors have chosen to close their practices to new patients or to get out altogether. They simply can't afford to participate."

The major complaint of Oregon doctors, at least until this fiscal year, was the great disparity between hospital and physician payments. According to the biannual financial study commissioned by the OMA, in FY 1999-2000 payments to hospitals averaged 74 percent of the commercial rate, while payments to doctors averaged 47 to 55 percent of the commercial rate, depending on withholds. Hospitals were also paid more than doctors as a percentage of Medicare—95 percent compared with 71 to 80 percent, again depending on withholds.

"This disparity has increased since our last study two years ago," concluded the report. The Oregon Association of Hospitals and Health Systems disputes these findings. But the Office for Oregon Health Plan Policy and Research does not. "We believe the medical society's analysis is correct, though we haven't done our own study," says internist John S. Santa, the OHPPR administrator.

This biennium (2001-03) for the first time, total pharmaceutical spending will outstrip hospital expenditures. That—coupled with a looming state budget deficit—is the likely death knell for widespread physician pay hikes. (To date, only one health plan participating in OHP has increased physician reimbursement.) For the short term at least, Oregon doctors, especially those in rural areas, may see things get worse before they get better.

In Michigan, another managed Medicaid state, the issue of physician pay has risen and dipped with dizzying speed this past year. After receiving a double-digit increase last year, Michigan doctors have seen Medicaid funding for physician services swing from a proposed 2 percent hike early this year to a threatened 5 percent cut more recently. In September, lawmakers voted to rescind the cut but not add any new spending for FY 2001-02, beginning Oct. 1. Many doctors feel fortunate to have dodged a bullet, but they realize that fundamental issues remain.

"Even with the increase last year, our reimbursement still covers only one-third of the cost of care, on average," says ophthalmologist Kenneth H. Musson, president of the Michigan State Medical Society. "Since that's a smaller net loss than before, some people see progress. But if you have a substantial portion of your practice in Medicaid, either you're going to go out of business or you have to go someplace else and not see any Medicaid."

Like Tennessee's Ted Taylor, Musson sees this second option as painful for physicians. "It's unfair to ask doctors to subsidize the care they deliver," he notes. "It's like asking the grocer to help pay for the groceries he sells to poor people."

Doctors in New Mexico were feeling similarly aggrieved before the 2000 state legislative session. With limited pay increases since 1977, doctors were reluctant to sign up with Medicaid. Then lawmakers passed an across-the-board increase and pegged Medicaid funding for physician services at 95 percent of Medicare for the fiscal year that began Oct. 1, 2000. Doctors were elated, despite the fact that Medicare rates in New Mexico are relatively low. But there was a wrinkle, which didn't become apparent until this year. Contrary to doctors' expectations, the state's Human Services Department has interpreted the action of the legislature as a one-time increase, rather than as an attempt to index New Mexico Medicaid rates to annual rises in Medicare rates.

Doctors disagree. In a Sept. 26 letter to HSD Secretary Robin Dozier Otten, pediatrician George P. Bunch pleaded for the annual increases to continue "to prevent physician reimbursement again falling so far below costs that many physicians may decrease or terminate their care for Medicaid patients." If Bunch's plea falls on deaf ears, he's vowed to work "with the 2002 legislature to get a permanent increase."

A mixed bag for doctors in other states, too

Doctors in heavily Medicaid managed care states aren't the only ones feeling the squeeze.

In Maine, where the vast majority of patients are still in traditional Medicaid, doctors think the combination of stagnant rates and increasing enrollments due to a slowing economy spells disaster. "The economics of your practice go down the tubes," says Gordon H. Smith, executive vice president of the Maine Medical Association, which has initiated a two-year campaign to boost physician pay. "The Medicaid bureau isn't opposed to our initiative," says Smith. "People there know they need to increase the individual provider reimbursement. Where we're likely to part ways is over how much to increase it." The association is also pushing for a Medicare-based payment methodology.

Even hard-won victories may be in jeopardy.

For the fiscal quarter that begins next April 1, Florida doctors are scheduled to enjoy a 4 percent increase for treating a Medicaid patient up to 21 years old. But even this modest increase may be lost as Florida officials struggle with a faltering tourism economy. As for actually increasing physician fees in this climate, that's "pie in the sky right now," says Ron Watson, a legislative analyst at the Florida Medical Association. "I'd be thrilled to keep it where we have it."

New Jersey is another state where a physician victory may be threatened by an anticipated loss in state revenues. This legislative session, doctors lobbied successfully for a $70 million hike in Medicaid funding for provider services. A chunk of that money is earmarked for an across-the-board increase in fee-for-service fees; another chunk will go to managed care plans to increase reimbursements for three historically underpaid specialties—emergency medicine, pediatrics, and dentistry.

But talk of budget cuts has raised fears that the victory may be short-lived. "Medicaid may be on the chopping block," says Beverly Lynch, a Trenton, NJ-based lobbyist working on behalf of the Medical Society of New Jersey and other physician groups.

One of the few unqualified success stories this year was in the Lone Star State, where the ever-powerful Texas Medical Association helped pass a package of Medicaid bills, including a $197 million fee update. Of this amount, $50 million has been earmarked for physicians and allied health professionals. Another $75 million in federal matching funds over the next two years will bring the total increase to $125 million.

In an effort to retain existing providers, funds will be directed, among other places, to high-volume Medicaid physicians practicing along the Mexican border and in inner-city and rural areas.

"Given that the legislature started this session with a $600 million shortfall in the state Medicaid budget, we're really pleased with the outcome," says Helen Kent Davis, the TMA's director of government affairs.

Doctors who practice in other states should be so lucky.

 

Wayne Guglielmo. Who says Medicaid can't get worse?. Medical Economics 2001;24:24.