Managing Medicaid

Medicaid Managed Care Leaves Physicians, Patients, and Legislators Frustrated

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Cover Story -- November 2000  

By Walt Borges
Associate Editor

If Texas legislators doubted that Medicaid would be a controversial and heated issue during the 2001 session of the legislature, Senior US District Judge William Wayne Justice sent a wake-up call on August 14 when he held that the state was not living up to its 1996 settlement of a lawsuit brought to improve Medicaid health care programs for indigent children.

The Austin-based judge pulled no punches in his evaluation of how poorly the state had handled Texas Health Steps, its version of Medicaid's Early Periodic Screening, Diagnosis and Treatment (EPSDT) program that serves the 1.5 million indigent children in Texas. While lambasting the state for its failure to publicize the scope of available medical and dental services, Judge Justice reserved some criticism for Medicaid managed care organizations.

He found that data on checkups compiled by Medicaid health maintenance organizations (HMOs) were "inflated and inaccurate" and that the checkups themselves were "grossly inadequate and incomplete." He also suggested that managed care organizations' use of "primary care providers" to act as gatekeepers for health care had become a barrier to timely care.

Judge Justice also found that managed care problems led many Medicaid enrollees to seek health care at hospital emergency rooms rather than through their primary care physicians. And he said managed care's cumbersome referral processes were impeding patient access to specialists, including pediatric care and mental health services. (See " The Judge Speaks.")

Texas Health and Human Services Commissioner Don A. Gilbert says that Judge Justice's criticism is misplaced, particularly when the judge suggested that checkup figures were overstated. Calling the judge's finding "perplexing," Mr Gilbert noted that the Health Care Financing Administration determines what information is reported and how it is reported.

Although Texas Atty Gen John Cornyn announced within days that the ruling would be appealed, the opinion added more fuel to what is likely to be a hot legislative debate in the 2001 session over the future direction of the state's $11 billion-a-year Medicaid program and the managed care component that has been used in the urban areas of Texas.

Texas physicians have a long-standing concern with the use of managed care to administer the Medicaid program.

"Our primary goal is to stabilize and promote the fragile Medicaid provider base to ensure adequate access to care for all recipients," said Paul B. Handel, MD, Houston, chair of Texas Medical Association's Council on Socioeconomics. "The legislature needs to raise reimbursement rates and reduce administrative complexities for physicians and patients." (A full report on Medicaid and Medicaid managed care problems was presented to the TMA House of Delegates in September by Dr Handel. The report is available online at

Because of low payment rates and high administrative burdens, Texas physicians are losing patience with Medicaid managed care. In an August letter to the Texas House Committee on Public Health, Robert W. Sloane, Jr, MD, of Fort Worth, chair of the TMA Council on Legislation, informed committee Chair Patricia Gray (D-Galveston) of "the increasing level of physician frustration, dissatisfaction, and in some cases, hostility, toward the Medicaid/Medicaid managed care program."

Unlike previous letters, which had focused solely on reform measures, Dr Sloane told Representative Gray that despite legislative and regulatory efforts to streamline the program, "many physicians feel that the program is untenable.

"Years of administrative red tape and low reimbursement combined with the perceived erosion in quality of services has conspired to create physician disillusionment with Medicaid overall," Dr Sloane continued. "Physicians no longer ask that Medicaid managed care be fixed. Rather, they ask that it be repealed."

While noting that TMA is not advocating this position, Dr Sloane encouraged Representative Gray and her fellow legislators to consider changing the current managed care system and developing a different model as an alternative. (See "What TMA Recommends and Why.")

The Lone Star State of Medicaid  

The managed care system was adopted by the Texas Legislature in 1995 in an attempt to increase health care access for the state's poor and low-income residents, to expand the available services, and to save taxpayer money.

But after initial rollouts of Medicaid managed care in Dallas, Houston, San Antonio, and other urban centers and surrounding areas, problems quickly became apparent. Those problems included enrollment difficulties, inappropriate assignments of patients to primary care physicians, and difficulties in covering and paying claims for treatment of newborn infants.

In 1999, the legislature adopted a moratorium on managed care operations in new areas of the state, a freeze that remains in effect until the close of the 77th Legislature at the end of May 2001.

Senator Jane Nelson (R-Flower Mound), chair of the Senate Health Services Committee, says Medicaid managed care should be rolled out in other parts of the state only if substantial changes are made. Since 1999, her committee has "found a general sense that Medicaid managed care may be helpful in reining in costs to the state, but there are real concerns, starting with the issues being encountered by patients and physicians."

Senator Nelson says her committee recognizes the need to address many physician complaints, including payment delays and administrative burdens. Senator Nelson says legislators are looking to the Health and Human Services Commission (HHSC) interim report to evaluate Medicaid costs and its quality of service.

No one knows how much the state stands to save, because the HHSC interim report and legislative interim reports addressing other Medicaid problems were still in the works or had not been made public at press time. The HHSC interim study was originally set for release on September 1, but was pulled back and reset for release in late September. The Senate committee report that Senator Nelson worked on was awaiting the review of Lt Gov Rick Perry and may have been released as late as November 1.

Representative Garnet Coleman (D-Houston), vice chair of the House Public Health Committee, says that saving money is not the only goal of the legislature. "I don't think we will abolish managed care for Medicaid, but we will try to move it from purely managed cost toward the promise of managed care," he said.

Despite a lack of hard figures on costs and savings, Texas Medicaid can be profiled from existing figures:

  • Susan Zinn, JD, the lead attorney in the class action suit, Frew et al v Gilbert et al , that prompted Judge Justice's ruling, says the most recent estimates are that 1.7 million Texas children are eligible for Medicaid. That's one of every four Texans under age 21, Ms Zinn says.
  • Texas HHSC placed annual Medicaid spending in Texas at $11 billion for 1999. The Medicaid expenditures were jointly funded by state and federal taxpayers, with the state contributing 38% and the federal government contributing 62% of the expenditures. The state's Medicaid contractor, National Heritage Insurance Company (NHIC), said 1997 Medicaid expenditures comprised about 18% of the state budget.
  • A recent study by the Texas State Comptroller's Office using 1998 figures estimated that Medicaid expenditures accounted for about one in every eight dollars spent by Texans on health care.
  • For the average Texas physician, Medicaid accounts for 14% of annual revenue, according to TMA's 2000 Survey of Texas Physicians.
  • TMA physician surveys in 1998 and 2000 show that more than 30% of Texas physicians do not accept new Medicaid patients or limit the number of Medicaid patients they see in their practice.

Crisis undermines a traditional commitment  

Jesse Moss, Jr, MD, a San Antonio physician who heads the Lone Star Medical Association (LSMA) representing more than 500 African American Texas physicians, wrote to Representative Gray decrying the economic impact of managed care on African American physicians who traditionally serve Medicaid recipients in their communities.

In his letter of August 1, Dr Moss noted that African American physicians have been a crucial element in delivering high-quality local health services to low-income and indigent patients.

Dr Moss said that his association did not object to Medicaid managed care in 1995 because the members believed managed care "could improve minority Medicaid patients' access to care and health status while also addressing the state's Medicaid concerns.

"Unfortunately," Dr Moss continued, "our expectation of Medicaid managed care has not matched reality."

He said a recent member survey shocked LSMA leaders because of the extent of physician frustration and hostility with the new system.

Noting that Medicaid is the primary health insurer in many African American communities, Dr Moss wrote that 72% of his members disagreed that Medicaid managed care improved patient access, that 54% disagreed that it improved the quality of health care, and that 80% of the responding doctors found the program increases their paperwork burden and related administrative costs.

Dr Moss told Representative Gray that it was becoming increasingly difficult for LSMA members to participate in Medicaid managed care programs.

"A widespread exodus of African American physicians from the managed Medicaid program will substantially erode not only local access to services but also the vital cultural connections that minority physicians provide in caring for their patients," he wrote.

Border troubles  

Physicians aren't the only ones who are growing impatient with the problems of Medicaid managed care. Some Texas legislators have had enough, and managed care is emerging as a prime target.

State Sen Eliot Shapleigh (D-El Paso) laid out another challenge to Medicaid managed care in May. He questioned the capitation rates for managed care and the reimbursement rates of the Children's Health Insurance Program (CHIP).

In a May 5 letter to fellow senators involved in health care committees, Senator Shapleigh noted that capitation and reimbursement rates are based on Medicaid fee-for-service rates. "Within that system," he explained, "historical costs for each visit or type of procedure are derived by the utilization rates of each area or region of the state. Any geographic area with limited access to health care facilities and providers will produce low utilization rates."

He then cited figures showing that El Paso physicians are paid on the average 66% less than Houston physicians are for Medicaid patients and 35% less than Houston doctors when reimbursed under CHIP.

Senator Shapleigh went on to note that in many border areas, health care is often provided by physicians in Mexico. "As a result, border historical costs translate into erroneously low capitation rates," he wrote. "This clearly demonstrates why a health care provider in an area with historically low utilization would be reluctant to remain in the system."

He also noted that medical infrastructure in the border counties is sub-par, with 30 of 32 counties designated as medically underserved areas. The result, he pointed out, is that "physicians in one part of the state are unjustifiably expected to cover a greater burden of the expense of caring for patients than their counterparts in other areas.

"Finally," he continued, "it unfairly transfers to the border taxpayers the additional cost of poor access to health care."

Impact on rural health  

State Rep Bob Turner (D-Voss) says one aspect of Medicaid managed care that needs to be looked at is its use in rural communities. Managed care has far more potential to lead to the reduction of health care in rural communities than in suburban and urban communities, he says.

"I represent 17 counties, and Brownwood is the biggest town," noted Representative Turner. "Most of the counties have fewer than 3,000 residents and that means that we are very limited in health care providers."

He says most of the Medicaid HMO doctors practice in larger cities and towns, forcing Medicaid patients in his district to travel to see physicians who are in Medicaid HMOs. That is a problem because they must take off work and arrange for transportation to get the health care they need, he says.

"Managed care organizations seem to be in a world of their own," Representative Turner said. "We don't provide enough of a lucrative market for them to be interested in us. They are for-profit, and when there's no profit, their humanitarian instincts are lacking."

The legislature's sole physician, Rep Kyle Janek, MD, an anesthesiologist who represents a Houston district in the Texas House, remains skeptical about the value of Medicaid managed care.

"Texas farmed out its Medicaid population to for-profit managed care organizations, but that only partially solved the problem" noted Dr Janek, a Republican . "I hate to compare health care to street repairs, but it's as if we hired a company for the city and told them to go make the repairs that were easy. We told them, 'Don't worry about the rest, we'll do the hard repairs.'"

What that means in real terms, Dr Janek explains, is that the patients who won't get coverage through managed care will go to public county hospitals, which will increase the burdens county hospital districts place on taxpayers.

"I just don't see much sense in it," said Dr Janek. "In the Medicaid program, we're sending public money to a private, for-profit company. At the same time, the legislature is telling underfunded public teaching hospitals to go beg for private money. That makes no sense."

Dr Janek says the crux of the problem is for physicians to be paid a decent rate for treatment, which will make more doctors more willing to accept Medicaid patients, giving patients a chance to find better care than they currently can get.

Plan perspectives: solvable problems  

The Texas Association of Health Plans (TAHP), the trade association representing Medicaid HMOs, recently withdrew an August 1 recommendation to Senator Nelson to continue Medicaid rollouts. TAHP has decided not to take a position on the expansion of Medicaid managed care, TAHP Interim Executive Director Leah Rummel said September 19.

Ms Rummel noted in the August 1 letter to Senator Nelson that the Medicaid HMOs are cooperating with TMA and the Texas Hospital Association to draw up standard credentialing and referral forms, and that many administrative problems for physicians and hospitals had been caused by conflicting contract provisions that have since been resolved.

Ms Rummel indicated TAHP support for streamlined eligibility requirements, continuous 12-month eligibility for Medicaid recipients, and elimination of the assets test that limits some participation by low-income families, reforms that TMA is also backing.

She said many of the problems with providing managed care for newborns had been resolved. She acknowledged that newborns had been lost in the system for periods of up to 6 months and physician payments had been delayed, but she blamed those problems on the complex state eligibility system, which requires time-consuming interviews and complicated paperwork. By providing proxy identification numbers for newborns, Medicaid HMOs were able to provide patient services immediately and reduce reimbursement time to less than 30 days, which is the legal limit for paying doctors who have submitted fully documented claims, Ms Rummel wrote.

One area of likely contention between the health plans and TMA is over the use of the primary care case management (PCCM) system in several of the markets in which Medicaid HMOs are operating. Ms Rummel warned that PCCMs, which are state-administered programs that provide flexible case management through primary care physicians, have an edge when competing with HMOs because they are subject to fewer requirements. TAHP will seek the elimination of PCCMs "in markets that have HMO participation," wrote Ms Rummel, arguing that "the cost effectiveness of the PCCM has not been demonstrated, and there is no level of budget certainty.

"The PCCM should only be utilized in rural areas of Texas where there is no HMO penetration," the TAHP letter indicated. Ms Rummel says TAHP also supports the use of PCCMs in areas that have no Medicaid managed care presence.

TMA's Council on Legislation takes another tack on the issue. Recommendations from the council reach the opposite conclusion: PCCMs are needed to keep Medicaid HMOs in check and to provide patients with chronic conditions alternative case management that has fewer barriers to specialized care.

Rolling out or rolling back?  

The continuation of Medicaid managed care rollouts will be opposed by TMA, and the idea has left some legislators and critics of the state's Medicaid system less than thrilled.

Others, such as Lisa McGiffert, a health care analyst and advocate for Consumers Union's southwest regional office in Austin, are skeptical about how far managed care has reformed Medicaid.

"There were four objectives of managed care: provide better patient access, improve services, expand coverage to a higher income level, and save money," Ms McGiffert says. "Are more doctors available to take patients? Are there more visits? The evidence so far doesn't show that those things aren't happening, but we don't have any evidence that they are happening. If the Medicaid system isn't doing these things, we need to know."

Many Medicaid recipients are satisfied with the managed care they receive, says Ms McGiffert. "In general, managed care works pretty well for healthy people. People like managed care when it meets their needs, and surveys show consumer satisfaction among healthy consumers. But the key group is high users. The problems with Medicaid managed care are going to show up with people with chronic health problems," she said.

"Are the consumers complacent? Maybe, but we shouldn't be. We all are chronic illnesses waiting to happen," Ms McGiffert said.

Representative Coleman said his goals in the Medicaid debate are to "ensure that there are sufficient providers in the system, that there is ample payment to keep the providers in the system, although that's not as important to me as making sure that we simplify the paperwork. We need continuous eligibility for the children and we need to get rid of the assets test that keeps many people from being enrolled in the program."

Asked whether the moratorium on rolling out Medicaid managed care in new areas of the state will continue, Representative Coleman says legislators will have the entire legislative session to fix the system before deciding to lift the moratorium.

Dr Janek says he is waiting to review the delayed interim reports on Medicaid managed care, but he says that thus far nothing has happened to make him change his mind about holding the line to prevent future rollouts.

"There's only one way I would vote to lift the moratorium," Dr Janek said. "There would have to be a chance for more legislators to have their phones ring off the hook as their constituents call about their managed care problems. Then we might get a vote to repeal Medicaid managed care." 


TMA Advantage: What TMA recommends (for fixing Medicaid managed care) and why
The judge speaks  

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