Overview of HHR Spending During the 2008-10 biennium, $9.2 billion - - PDF document

Overview of HHR Spending

• During the 2008-10 biennium, $9.2 billion in state

spending is budgeted for Health and Human Resources (HHR) programs. − HHR accounts for 26 percent

• f

the Commonwealth’s state spending.

• Four state agencies account for 95 percent of spending

within Health and Human Resources. 2008-10 State Spending on HHR Agencies

($9.2 billion from the general fund)

Department of Medical Assistance Services (DMAS)* 66% Social Services (DSS) 9% Comprehensive Services Act (CSA) 7% All other 5% Mental Health, Mental Retardation & Substance Abuse 13%

* Includes state match from Virginia Health Care Fund.

• The Department of Medical Assistance Services

accounts for two-thirds of every state dollar spent in HHR.

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Medicaid Funding for Mental Health and Mental Retardation Services is Significant

2008-10 State Spending on HHR Agencies

($9.2 billion from the general fund)

Social Services (DSS) 9% Comprehensive Services Act (CSA) 7% DMAS-funded MHMR Services 8% All other 5% Department of Medical Assistance Services (DMAS)* 58% Mental Health, Mental Retardation & Substance Abuse 13%

* Includes state match from Virginia Health Care Fund.

• Payments made on behalf of individuals with mental

illness and mental retardation make up a significant share of DMAS’ spending.

• Medicaid-funded mental health and mental retardation

(MHMR) services account for eight percent of HHR spending. − MHMR services are among the fastest growing expenditures within Medicaid.

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Four Agencies Account for Growth in HHR

• Four agencies explain virtually all (96.8 percent) of the

growth in state spending in HHR since FY 1998.

HHR Agencies Contributing to Growth since FY 1998

DMAS* 70.7% MHMRSAS 10.9% DSS 7.0% All other 3.2% CSA 8.1%

* Includes state match from Virginia Health Care Fund.

Increase in state spending equals $2.8 billion.

• Medicaid explains 71 percent of spending growth

within HHR during this period.

• While spending at DMAS has increased 8.5 percent

each year since FY 1998, it is not the fastest growing program.

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CSA is the Fastest Growing Program in HHR

• General fund spending on the Comprehensive Services

Act for At-Risk Youth and Families (CSA) increased from $101 million in FY 1998 to $324 million in FY 2010.

Comparison of HHR Agency Growth Rates

10.2% 8.5% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% C S A D M A S * M H M R D S S A g i n g H e a l t h D R S S H H R B

• a

r d D e a f & H O H D B V I Average Annual Growth

* Includes state match from the Virginia Health Care Fund.

• Per capita spending in CSA has nearly doubled since

1998 at the same time caseloads grew by 62 percent; increasingly complex cases and expensive residential placements explain much of the growth. − Enrollment has been relatively flat until recently.

• Unprecedented fiscal policy actions were taken last

session to facilitate placements in less expensive, community-based settings.

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Policy Choices Also Contribute To Rising Spending

• Current law -- state and federal -- dictate many fiscal

policy decisions in health and human resources.

• In Medicaid, the “forecast” recognizes the cost of

continuing services based on anticipated changes in enrollment and per capita spending, which is a function

• f price, volume, and intensity.
• Last week, a new Medicaid forecast was issued

indicating that increased enrollment and rising costs will require an additional $325 million GF during the current biennium. − Last session, the General Assembly appropriated $352.3 million from the general fund to accommodate anticipated Medicaid growth.

• Discretionary decisions reflect choices made to address
• ngoing or emerging policy issues.

− Last session $41.6 million GF was appropriated to improve the Commonwealth’s civil commitment process and strengthen the community-based mental health system in the wake of the tragedy at Virginia Tech in April 2007.

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Discretionary Spending on the Mental Retardation Waiver Program

• Last year $41.6 million GF was appropriated to expand

the mental retardation (MR) waiver program by: − Adding 600 mental retardation waiver slots; − Increasing provider rates by 3.6 percent; and − Allocating start-up funding for new waiver slots.

• Since 1998, enrollment in the MR waiver program has

more than doubled from 3,172 to 8,362 at a cost to the general fund of $172 million – a five-fold increase.

General Fund Growth in the Mental Retardation Waiver Program

$42 million $216 million 3,172 slots 8,362 slots $- $50 $100 $150 $200 $250

FY 1998 FY 2010

Dollars in millions

• 1,000

2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

Number of slots

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HHR Spending Will Likely Continue To Rise

• Medicaid is projected to grow 8.0 percent annually

during the next ten years due to a combination of increasing enrollment, especially among the elderly and disabled, and rising per capita spending. − Because enrollment in Medicaid is counter-cyclical with the economy, caseloads are rising as the Commonwealth’s economic conditions worsen.

• The cost of providing CSA services for children and

youth is also expected to rise, exceeding 10 percent each year of the current biennium.

• Higher spending on Medicaid and CSA combined with

lower revenues will place additional financial pressure

• n other state programs.
• As the largest program within HHR, Medicaid will

likely be targeted for budget reductions. − What is Medicaid? − Who is enrolled and what services do enrollees receive? − How much has Medicaid grown and why? − What options are available to control rising costs?

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Medicaid: Three Programs in One

• Medicaid provides health and long-term care services

to low-income Virginians. It is a: 1) Health insurance program for low-income families, primarily children and pregnant women; 2) Funding source for individuals with significant disabilities; and 3) Long-term care program for the elderly.

State Spending on Medicaid (Dollars in millions)

$3,111 million $1,164 million

$- $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 FY 1998 FY 2010

• Medicaid spending growth trailed the national average

from 1990 through 2004 but exceeded it from 2004 through 2006.

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Virginia Spends Less on Medicaid Than Other States

Medicaid Spending Compared to U.S. Average

$591 $1,028 $4,644 $4,662 $- $1,000 $2,000 $3,000 $4,000 $5,000 Per capita Per enrollee

Virginia US Average

• Virginia ranks 48th among its peers in terms of per

capita Medicaid spending. − Fewer residents are enrolled in Medicaid (8.9 percent) compared to the U.S. average (15.0 percent).

• Virginia ranks 31st in Medicaid spending per enrollee,

slightly less than the national average.

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Who receives Medicaid?

• The federal government requires states to serve certain

mandated populations to receive matching funds. − A national survey found that 71 percent of Medicaid enrollees are mandatory. Mandatory Population Groups

Aged, blind, or disabled Member of a family with children Low-income children and pregnant women Certain Medicare beneficiaries with incomes less than 135% of federal poverty guidelines (FPG)

• Mandatory groups must also meet financial criteria

(e.g., income and resource) to be eligible for Medicaid.

• States that choose to expand coverage beyond

“mandatory population groups” are eligible for federal Medicaid matching funds. Optional Population Groups

“Medically needy” individuals whose income exceeds Medicaid limits but who are impoverished by medical bills Individuals who are at-risk of needing nursing home or an ICF-MR level of care without home- and community-based waiver services Aged, blind, or disabled with income under 80% of FPG Nursing home residents with income under 300% of SSI (221% of FPG) Children under 21 in foster homes, private institutions, or subsidized adoptions Women screened and diagnosed with breast or cervical cancer

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Income Eligibility Levels Vary Considerably

Current Income Eligibility Levels for Medicaid Recipients as a Percent of Poverty

80% 133%* 22 - 30% 30 - 51% 221% 100 - 200% 0% 50% 100% 150% 200% 250%

Elderly or Disabled Needing LTC Medicare Beneficiaries Pregnant women & children under age 19 Aged, blind

• r disabled

Medically Needy Low-income families with children

* Eligible for FAMIS up to 200% of poverty

Poverty level equals $17,600 for a family of three

• Income eligibility levels range from:

− 221 percent of federal poverty guidelines or $1,911 per month for an individual who is aged, blind or disabled needing long-term care services; − 22 to 30 percent of poverty for low-income families with children based on historic Aid to Families with Dependent Children (AFDC) standards from 1996 that vary from $325 to $434 per month for a family of three.

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Individuals Who Are Blind and Disabled Are Driving Caseload Growth in Medicaid

• In 2008, 894,286 individuals were eligible for Medicaid

services, an increase of 197,553 or 28 percent since 1998.

• Children represent the largest group in Medicaid, but

caseloads have increased more rapidly among the blind and disabled -- 44 percent compared to 29 percent.

Medicaid Enrollment by Population Group

90,644 4,942 127,264 365,307 108,576 81,541 16,941 182,636 470,988 142,180 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 Aged Blind and Disabled Low Income Children Low Income Caretaker Adult Foster Care Children FY 1998 FY 2008

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Medicaid Spending Is Heavily Weighted Toward the Aged, Blind and Disabled

• Low-income children make up 53 percent of recipients

but only 21 percent of expenditures.

• The aged, blind and disabled, on the other hand,

account for only 30 percent of recipients but more than two-thirds of expenditures.

Medicaid Recipients and Expenditures (FY 2008) Aged Aged Blind and Disabled Blind and Disabled Low income children Low income children Caretaker adults

Caretaker adults

0% 20% 40% 60% 80% 100% Recipients Expenditures

30% of recipients 68% of expenditures

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Per Capita Spending Is Highest for Recipients Who Are Elderly and Disabled

• Medicaid services for the aged, blind, and disabled are

3 to 6 times higher than low-income children and caretaker adults. − The aged, blind and disabled typically require more intensive and expensive services, over a longer period of time, than families and children.

• Per capita spending on children in foster care increased

almost five-fold since 1998 as the cost and utilization of residential treatment services has risen.

Per Capita Spending on Medicaid Enrollees

$11,229 $11,626 $1,834 $3,171 $8,560 $1,819 $1,449 $711 $6,681 $6,985

$0 $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 Aged Blind & disabled Low income children Caretaker adults Foster care children

FY 1998 FY 2008

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What Services Does Medicaid Provide?

• Federal

law requires states to provide certain mandatory services to Medicaid beneficiaries. − It is estimated that 60 percent of Medicaid expenditures are “optional.” Mandatory Services

Hospital services Nursing facility services Physician services Medicare premiums, copays and deductibles (Part A and B) Certified Pediatric Nurse & Family Nurse Practitioner Services Early & periodic screening, diagnostic, and treatment (EPSDT) Certain home health services (nurse, aide, supplies and treatment services) Laboratory and X-ray services Nurse midwife services Rural health clinics and federal qualified health center clinic Family planning services and supplies Transportation

Optional Services

Prescribed drugs Mental health and mental retardation services Home & community-based waivers Medicare premiums, copays, and deductibles (Part B – medically needy) Dental and skilled nursing facility care for persons under age 21 Clinical psychologist Services provided by certified pediatric nurse and family nurse practitioner Intermediate Care Facilities for the Mentally Retarded (ICF/MRs) Optometry, podiatry, and home health services (PT, OT, and speech therapy) Certified pediatric nurse and family nurse practitioner services Case management services Prosthetic devices Other clinic services Substance abuse treatment Hospice * Bold denotes one of 10 largest Medicaid service expenditures.

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Five Medicaid Service Categories Accounted for 85 Percent of Spending in FY 2008

FY 2008 Medicaid Expenditures by Category

(dollars in millions) $1,707 $1,231 $809 $424 $367 $451 $174 $180 $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 Long-term care Managed care Hospitals Mental health Medicare Premiums Pharmacy Practitioners Other 5 Largest Categories

• Long-term care services such as nursing home care,

intermediate care facilities for persons with mental retardation (ICF-MR), and community-based waiver services account for 32 percent of overall spending.

• Capitated or fixed payments to managed care

companies comprise 23 percent of spending.

• Inpatient, outpatient, and emergency hospital services

make up 15 percent of Medicaid expenditures.

• Mental health services and Medicare premiums make

up an additional 15 percent of spending combined.

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Managed Care Pays for Hospital Services, Physician Visits and Prescription Drugs

• Payments to managed care companies are distributed

across service categories including hospital services (44%), provider payments (29%), prescribed drugs (16%) and other services (11%).

FY 2008 Medicaid Expenditures by Category

(dollars in millions) Distributed $1,347 $424 $367 $379 $533 $587 $1,707 $- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 L

• n

g

• t

e r m c a r e M a n a g e d c a r e H

• s

p i t a l s M e n t a l h e a l t h M e d i c a r e P r e m i u m s P h a r m a c y P r a c t i t i

• n

e r s O t h e r Estimated distribution

• f $1,231 million

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Utilization and Inflation Explain Most New Spending in Medicaid

Medicaid Spending Growth since FY 1998 $1,490 $194 $118 $65 $57

$- $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 Utilization and Inflation Provider rates MR Waiver Program Eligibility and Service Expansions Other

77 percent of increase

Overall general fund increase = $1.9 billion

• Utilization and inflation or “the forecast” updates

projected spending based on trends in enrollment and per capita costs but also prior-year policy decisions. − In 2005, dental service rates increased 30 percent at a cost to the general fund of $7.8 million but spending on dental services is expected to grow by $36.3 million through FY 2010. − Additional general fund appropriations for the MR waiver program ($118 million) far exceeds the difference in projected expenditures from 1998 to 2010 ($177 million), primarily reflecting increases in per capita spending.

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Medical Inflation Explains Most of the Growth in Forecasted Medicaid Spending

• The General Accounting Office indicates that health

care spending per capita, a function of medical price inflation and utilization, increased 6.9 percent annually from 2000 through 2005. − Medical price inflation has increased, on average, 4.4 percent a year. − Utilization, the volume and intensity of health care services consumed, increased 2.5 percent a year.

• Applying these factors to Virginia’s Medicaid program

suggests that medical inflation accounts for 52 percent

• f spending since 1998.

Explanation of Medicaid Utilization and Inflation Medical Inflation, $771 million Utilization, $438 million Enrollment, $281 million

0% 20% 40% 60% 80% 100%

$1,490 million 19% 29% 52%

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Advances in Medical Technology Are Driving Health Care Spending

• Health economists and policymakers agree that

medical advances are driving utilization and costs in health care.

• Increasingly, medicine is available to treat the rising

prevalence of chronic disease such as asthma, diabetes and heart disease, contributing to higher health care costs. − Spending on statins to treat high cholesterol increased 156 percent between 2000 and 2005. − Spending on diabetes drugs doubled in six years, despite the lack of strong evidence that the new drugs are superior to

• lder

generation medications.

• As medical advances are diffused and incorporated

into clinical practice, more individuals receive “state of the art treatment”, raising overall health care costs.

• Managed care entities indicate that outpatient services,

physician payments and pharmacy services have increased between 10 and 18 percent in recent years.

• Virginia hospitals note that the acuity of patients

discharged increased 39 percent from 2001 to 2006.

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Policy Decisions Account for Twenty-Three Percent of Recent Medicaid Growth

• At least, twenty-three percent of the growth in

Medicaid since 1998 can be attributed to policy decisions. − Payments to providers, such as hospitals, nursing homes, physicians, dentists and personal care attendants, account for $194 million of Medicaid growth. − Additional mental retardation (MR) waiver slots as well as payments to MR waiver providers account for $118 million of the general fund growth in Medicaid spending. − Eligibility and service expansions accounted for $65 million of Medicaid growth since 1998 including: Providing services to children in residential facilities; Expanding coverage for children with developmental disabilities; Increasing access to the elderly and disabled up to 80 percent of poverty; and Including substance abuse treatment, organ and bone marrow transplants and cancer treatment.

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Growth in Medicaid Spending Has Not Gone Unnoticed

• As Medicaid spending has risen, repeated attention has

been paid to cost-containment measures.

• Cost-savings strategies have been implemented in

recent years to “bend the curve” in Medicaid including: − The integration of acute and long-term care for seniors and individuals with disabilities to improve care coordination and reduce hospitalizations; − The allocation of enhanced federal funding to create community-based services for up to 290 individuals residing in long-term care settings; − The creation of disease management programs to better manage chronic conditions such as asthma, diabetes, and heart disease; and − The establishment of various strategies to control the rising cost of prescription drugs including: a) drug utilization review, b) preferred drug list, c) specialty drug program, and d) maximum allowable cost program.

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No Single Bullet Will Limit the Growth of Medicaid Spending

• A combination of short- and long-term strategies will

be needed to help balance the current budget and restrain the rising cost of Medicaid in future years. − Immediate savings strategies typically involve changes to provider payments, eligibility levels, or benefits to recipients. Possible Medicaid Savings Strategies Freeze or reduce provider rates

• Eliminate inflationary increases
• Analyze current rates to ensure payment levels are

appropriate

• Create incentives for providers to meet certain policy

goals/withhold funding if benchmarks are not met Restrict or eliminate access to certain services

• Require prior approval for high-cost services
• Assess recent trends in service utilization to eliminate

possibility of improper billing and monitor use of high- cost services Tighten or eliminate eligibility for optional populations

• Pare back coverage for the medically needy
• Reduce eligibility for the elderly and disabled with

income under 80 percent of poverty

• Freeze enrollment for community-based waivers

Increase cost-sharing to encourage/discourage behavior

• Impose co-pays for non-emergent ER visits

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Longer-term Medicaid Savings Strategies

• Longer term savings strategies may require up-front

investments. − “Structural” cost-savings are frequently uncertain and difficult to reflect in the current budget. Possible Medicaid Savings Strategies More effectively manage high cost patients

• Ensure compliance with disease management programs
• Enroll foster care children into managed care
• Review utilization for mental health services

Reduce reliance on institutional settings for long-term care

• Construct smaller, community-based mental health

facilities to generate federal Medicaid funds Emphasize personal responsibility in health care decisions

• Expand benefits for compliance with policy goals/

restrict benefits for non-compliance Encourage use of Health Information Technology (IT)

• Reward providers for adopting Health IT/withhold

payments for non-compliance Create a public-private partnership to evaluate the cost- effectiveness of new medical technology - “What treatment’s work best, and how do you use them?”

• Develop clinical guidelines for providers to follow
• Limit or eliminate payments for certain services

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Conclusion

• Four agencies within the Health and Human Resources

Secretariat account for 95 percent of current spending and virtually all of the recent growth.

• Medicaid is not only the largest program within HHR

but also one of the fastest growing. − Medicaid provides health insurance for low- income families and children and long-term, chronic care for the elderly and disabled.

• The elderly and disabled make up less than one-third of

the Medicaid population but 68 percent of the cost.

• Compared to other states, Virginia covers fewer

individuals and spends slightly less per enrollee.

• As the largest program within HHR, Medicaid will

likely be targeted for budget reductions.

• Demand for Medicaid services tends to rise, especially

among low-income families and children, during periods of economic instability.

• Balancing the current budget will likely involve short-

term strategies, but “bending the curve” in the future will necessitate thoughtful consideration of longer-term

• ptions.