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Rhode Island Medicaid Plan Arouses Liberal Ire

By John Reichard, CQ HealthBeat Editor

September 8, 2008 -- Congressional Democrats and liberal analysts are taking aim at a proposed transformation of the Rhode Island Medicaid program, saying it would set a dangerous precedent that would end Medicaid as an entitlement if widely followed by other states.

"Rhode Island's waiver proposal is a marked departure from any Medicaid waiver ever approved," the left-leaning Center on Budget and Policy Priorities said in an analysis of the plan. "The waiver would radically transform Medicaid's current federal–state funding partnership into a block grant without federal supervision or oversight, " said the Center's Judith Solomon in the analysis.

The proposal would establish a "global budget" for the various Medicaid services delivered to Rhode Island residents rather than allowing outlays to vary with the number of people qualifying for Medicaid under eligibility criteria and the use of a fixed package of benefits. While the latter approach helps assure that basic health care needs are met for those who qualify, its cost to states typically exceeds their revenue growth, leaving a smaller chunk of state budgets for education and other non-health care needs.

"Rhode Island is already feeling the pressure of the national economic downward spiral, with increased unemployment and decreasing general revenues, said Republican Gov. Donald L. Carciere in announcing the plan Aug. 8. Approval by the Centers for Medicaid and Medicare Services (CMS) of the "Global Medicaid waiver allows the state to implement reforms to protect the long-term viability of the program."

Rhode Island boasts that it is the first state to seek approval for a five-year test using global budgeting as a financing mechanism for all Medicaid populations and services. The fixed allotment of federal dollars involved "provides a measure of fiscal predictability to both the federal government and Rhode Island that would otherwise be lacking during what is expected to be a period of significant uncertainty," the waiver proposal states.

But the Center analysis warns that the approach would "radically transform" Rhode Island's Medicaid program. Under the plan, the state "would get no additional federal funds to help address unanticipated increases in health care costs or enrollment," Solomon said. If such increases occurred, "the state would have to increase its own spending or cut eligibility, benefits, or provider payments."

"The state acknowledges that the combination of federal and state spending under its proposals would be well below its own forecast of Medicaid costs for each of the next five years and that this gap would grow each year."

With Medicaid gobbling up more and more of its budget, Rhode Island is determined to clamp down. It aims to limit Medicaid outlays to 23 percent of its budget, the portion consumed in 2007. The federal government meanwhile would kick in its share of the state–federal program based on an assumption Medicaid spending would rise 9.2 percent each year, a figure that assumes a 6.8 percent annual increase in health care costs and a 2.3 percent annual increase in enrollment.

The Center's analysis calculates that by 2013, the sum of the federal block grant and the state's outlays that year would total $467 million less than the state's forecast for Medicaid spending than under current law. In exchange for the fixed sum of federal dollars, Rhode Island "is asking for permission to make significant changes in eligibility and benefits without federal approval or oversight." The state would gain authority to put various groups on waiting lists for eligibility and services and to limit benefits in ways not now permitted, Solomon said.

"Rhode Island could pick and choose what benefits to provide for different groups of beneficiaries," she said. "For example, it could provide physical therapy to seniors but not to people with disabilities. It could restrict the number of visits allowed for mental health treatment even if that would limit the treatment's effectiveness." It also could charge higher out-of-pocket payments than are now allowed.

However, the state asserts that the administrative flexibility it would acquire under its proposal would generate savings. It defends the plan as "responsible and appropriate" because it would make care more efficient in the state.

"The simplest way to balance the budget would be to eliminate programs and reduce eligibility," Carcieri said. "That may save a few dollars in the short run, but it does not address the problems that only systemic change can solve."

A key principle of the plan is that it provides "the right services, at the right time, and in the right setting," according to the waiver application. Frail and disabled beneficiaries would get care in their homes and in community settings rather than in costly nursing homes. Steps would be taken to prevent the use of emergency rooms for primary care services. Payment of providers would vary according to the quality of their treatment services.

The experiment is likely to be closely watched because of the budget implications—particularly its feature limiting state Medicaid outlays to a fixed percentage of the state's budget. "Would the governor of every state like to be able to do that? You betcha," said Barbara Coulter Edwards, a Medicaid consultant with Health Management Associates who formerly headed the Ohio Medicaid program. Edwards make her remarks at a Washington, D.C., conference Monday sponsored by the American Network of Community Options and Resources.

But the impact of such a major restructuring is poorly understood, said Donna Martin of Rhode Island's Community Provider Network, an association in the state that represents organizations in the state that delivers services to the developmentally disabled. "Stakeholders" in Rhode Island's health care system have been cut out of the process of reviewing the proposal before it was submitting to CMS for approval, Martin said at Monday's forum.

Meanwhile, the opposition of key Democrats raises questions about the viability of the plan. In an Aug. 21 letter to Health and Human Services Secretary Michael O. Leavitt, Senate Finance Committee Chairman Max Baucus of Montana and Sen. John D. Rockefeller IV of West Virginia said the proposed funding structure "puts beneficiaries, providers, and the entire state at risk should health costs or enrollment rise faster than expected." The senators added that "no block grant like this has ever been allowed under Medicaid; indeed, we are not certain there is authority in the Medicaid statute to permit such a block grant even under a waiver."

A similar letter from House Energy and Commerce Committee Chairman John D. Dingell, D-Mich., and Democrats Patrick J. Kennedy and Jim Langevin of Rhode Island said the plan would shift costs from the state to the federal government without sufficient oversight or accountability.

But the Bush administration has demonstrated a willingness to try to chop Medicaid spending increases in controversial ways. "We are optimistic that we will get a favorable response from CMS that will allow us to delve into the detailed planning of how best to deliver the services that Medicaid supports," said Adelita Orefice, deputy secretary of Rhode Island's Executive Office of Health and Human Services.

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