- Email: [email protected]
The New Medicaid Proposals and Competition in the Health Care System
The New Medicaid Proposals and Competition About 10% of the U.S. population received Medicaid services last year. The federal government spent about $14 billion and the states spent more than $11 billion to provide services to these approximately 22 million people. These payments reflect a 433% rise in the federal Medicaid payments between 1970 and 1980. During last year's presidential campaign, candidate Reagan pledged to decrease federal expenditures and the federal role in the health care area. Since Reagan was elected, he has tried to live up to that pledge, challenging Congress with proposals that would cut deeply into the Medicaid budget and, possibly, result in basic changes in the Medicaid program. Reagan probably won't get his way entirely with the present Congress, and some of his proposals have already been modified. But one thing does seem clear: Medicaid will not be the freewheeling, open-ended program it has been for the last 26 years. States will not be assured of unlimited federal matching funds, and some services may just disappear from the program in some states. The Medicaid proposals are complex, and even seasoned Washington-watchers have a hard time keeping track of them. By late this year, Congress is expected to receive Reagan's competitive health care package for consideration. This would not only propose to change Medic.aid but also other governmentfinanced health programs and private health insurance programs. In the interim, Reagan is trying to control the program by placing direct spending limits on it, by giving states more latitude to make cuts in the program, and by making changes in the eligiblity requirements for services, and where and from whom services may be obtained.
erican Pharmacy Vol. NS21, No.8, August 1981/455
•
10
the Health Care System
Effects on Pharmacy These changes may have profound effects on pharmacy practice. In particular, the administration proposes to take away Medicaid beneficiaries' freedom to choose their health care providers. Also, states would be allowed to purchase drugs and services through competitive bidding arrangements. (A de-
W@W~ Aw®Jl)Y~il~
that if pharmacists have to bid on Medicaid services, maintain separate drug inventories, or handle more paperwork, many pharmacists may not be able to participate in the program. "If growing ranks of pharmacists individually decide they can no longer participate in Medicaid, this would greatly reduce patients' con·venience of access to pharmacy service. This would also have the effect of limiting or rendering nonexistent the Medicaid patient's right to freedom of choice in the selection of a pharmacist. ... "The American Pharmaceutical Association recognizes that public funds must be spent prudently . However, we feel it is unlikely that anticipated savings for the public would be realized under a state-run competitive bidding program."
tailed analysis of the current Medicaid program and the proposed changes is shown in the box on p. Federal Moves 15-16). But Paul R. Willging, deputy adReactions to these proposals by ministrator of the Health Care Fipharmacy organizations have been nancing Administration, the federal strongly negative. body that coordinates Medicaid acAPhA President WilliamS. Apple tivities, has told pharmacists that stated recently before the Virginia things may not be as bad as they .Pharmaceutical Association that think. "the practical service delivery probIn a May speech, Willging speculems inherent in a competitive bidlated that competitive bidding and ding system would virtually guarantee the inability of the states to pro- - loss of freedom of choice may not affect pharmaceutical services bevide nondiscriminatory health care cause drugs account for only 6% of services to Medicaid recipients .... the total Medicaid costs. These cost"It is becoming more and more cutting moves may only be applied apparent that the fight to maintain to more expensive sections of the a single nondiscriminatory health program. care system for all Americans is Another move by the adminisheaded down the drain, the victim tration to increase the cost effectiveof a political decision to cut federal ness of Medicaid is the elimination spending at virtually any cost." of all federal requirements concernIn addition, APhA has publicly ing the amount and method of reimstated that a competitive bidding bursement of providers. This may strategy would increase the bureauaffect, indirectly, the way pharmacracy and paperwork for the states, cists are paid for their services. and may create inventory control, Limitations on pharmacy fees are management, and quality assurance left largely up to the states, subject problems. only to "maximum" limitations set In its testimony before the House Subcommittee on Health and the by federal regulation. The MAC reEnvironment last year, APhA said imbursement program, also, is not 15
What Medicaid Is Currently, the federal government matches authorized state spending on their Medicaid programs, according to a periodically adjusted formula. The matching rate, which is inversely proportional to a state's per capita income, ranges from 50-78%. The federal share of administrative costs is 50%, with certain exceptions. There are about a dozen broad services that states must currently provide in their programs. States may also provide, at their discretion, a number of other services, including payment for prescription drugs. Patients may obtain services from any qualified, participating provider. There is now no limit to the amount of money a state can spend on services; whatever is spent, the federal government will match according to the matching formula. Therefore, the federal government has little control over the size or rate of increase in the money spent on the program. Under the Reagan plan, states would no longer have this open-ended entitlement. In a February 18 proposal, part of the "program for economic recovery," the administration stated that "federal and state regulatory efforts to_ date have failed to stem the increase in costs because they fail to affect the underlying cost-increasing bias in the health care system that results from insulation of all parties in medical care markets from the cost consequences of their decisions .... "The Medicaid program has been growing faster than 15% a year for the past five years .... High federal matching, excessive benefit provisions, and overly generous eligibility have made the Medicaid program a very poorly managed social program that fails to provide cost-effective services to those most in need. Eligibility errors alone,
mandated by statute, but by federal regulation . However, the federal government' s desire to provide greater flexibility to states may cause some reexamination of the MAC program, according to a Department of Health and Human Services staffer. Any changes that might occur in the MAC program would depend on how federal regulators interpret current legislative revisions, and what changes are made in redefining the federal role as increased flexibility is provided to the states. While these major actions have been taking place in Washington, the states have not been idle. 1h
•••
Sen. Dole: A 9% cap on Medicaid increases for 1982
for example, are currently estimated to cost federal a state governments approximately $1.2 billion per yea The administration's proposal, as it went to Congre called for a reduction of 1981 Medicaid expenditures, a a 5% cap on Medicaid increases for fiscal year 1982. A 1982, spending would be allowed to rise with the rate inflation, as measured by the "GNP deflator." In real money, this would mean a maximum fede contribution of $16.4 billion this year and almost $17 lion in 1982. Savings are expected to be about $100 milli this year, about $1 billion in fiscal year 1982, and aboul billion in fiscal year 1983. An administration-endorsed bill later introduced i the House raised the cap to 6%. This bill was withdra
State Actions • A growing number of states, perhaps as many as 20, have adopted co-pay provisions. The Missouri legislature recently passed a bill that allows, but does not mandate, the state Medicaid administrator to establish an as yet undetermined co-pay fee. In contrast, the California legislature has passed a co-pay provision of $1.00 ·t hat is slated to be added to the current Medi-Cal prescription reimbursement fee of $3.60. This will give California pharmacists the highest reimbursement fee in the country. There may be a number of
exceptions to the co-pay require ment. The California legislature has als' provided for the establishment of i "prudent purchase plan" for Medi Cal drugs. This plan, expected to gr into operation next April and to cov er only 10 high-volume drugs at th beginning, would provide for th purchase of each drug from the on manufacturer who offers the stat the highest rebate on that drug. The plan is seen by the Californii Pharmacists Association as takin! away pharmacists' professiona right of product selection, and pos sibly causing drug shortages if a sin gle manufacturer is not able to sup 1
1
American Pharmacy Vol. NS21 , No. 8, Au ust 1981
• • •
and Wh at It May Be
Rep. Waxman: Disagreement with Reagan's proposals
owever, when it became clear that the bill would not ass in the Democrat-controlled House. ouse and Senate reconciliation proposals are somehat different than the Reagan proposal but, as American harmacy went to press, there was confidence in the adinistration that the final Congressional proposal would e close to the administration's. The Senate Finance Committee, led by Sen. Robert Dole R-KS), would propose a 9% federal spending cap on edicaid increases for fiscal year 1982. To offset this, the ederal minimum matching rate would fall from 50% to 0%. This would hit high income states the hardest, parcularly Alaska, California, Connecticut, Delaware,
~
ply enough of a drug to meet the demand of the Medi-Cal system. • The Pennsylvania Pharmaceutical Association undertook a stateWide survey to determine what course of action that state's pharmacists want to take concerning Niedif caid. Of the three legislative proposals f outlined in the survey, preliminary f results in June indicated that the proposal most likely to be supl ported by pharmacists was one that ' Would remove all drug coverage from the Medicaid program except that for maintenance drugs (a list of these would be developed by PPA); provide Medicaid beneficiaries with
ti:fican Pharmacy Vol. NS21, No. 8, August 1981/457
Hawaii, Illinois, Maryland, Michigan, Nevada, New Jersey, Washington, and Wyoming. The House Subcommittee on Health and the Environment, led by Rep. Henry Waxman (D-CA), did not adhere as closely to the Reagan proposal. Waxman and other committee Democrats are in strong disagreement with the Reagan proposals and the manner in which the proposals have been made. Waxman did not propose a cap; instead, he called for a reduction in the funds to which states are entitled, in the amount of 3% in 1982, 2% in 1983, and 1% in 1984, for a total cut of 6%. To help the states adjust to these spending cuts while maintaining necessary services to program beneficiaries, the administration proposes that states be permitted to undertake certain cost-cutting measures. It is here that pharmacy may be most strongly affected. Since drug coverage is optional, it is speculated that some states may do away with it altogether in an attempt to cut corners. Under Reagan's proposal, states would no longer be required to provide Medicaid beneficiaries with freedom of choice of providers. The proposal contends that this change would enable states to save significant amounts of money while maintaining quality care. In addition, states would be allowed to purchase drugs and services through competitive bidding arrangements. There is at least one provision in the administration bill that would call for increased spending. States that have, or want to develop, automated eligibility systems-to help ensure correct determination of eligibility and prevent fraud-would receive large federal matching funds. The federal government would match state expenditures at 90% for system development and 75% for operation.
a subsidy to buy nonmaintenance drugs; establish the fee for maintenance drugs at $3.25 subject to annual review; and reimburse pharmacists within 30 days or pay them interest on the unreimbursed amount. • In mid-June, Illinois dropped 800 nonprescription and prescription alternative drugs from the Medicaid formulary. The drugs not eliminated include insulin and related items, antacids, bulk-producing laxatives, ostomy supplies, vitamins for use in pregnancy and infancy, and family planning items. The state has proposed to slash another 800 drugs from the formulary in
September. • Some pharmacies in Oregon have taken the decisive step of severely limiting the number of Medicaid prescriptions they fill. Although the state's $2.88 dispensing fee was slated to be increased this year, the shaky state of the Oregon economy prevented it. • The Medicaid fee for prescription drugs in Virginia went up from $2.70 to $2.85 on July 1. In addition, pharmacists no longer have to pass on 100% of acquisition cost savings when they engage in drug product selection. -PAM
17
erican Pharmacy Vol. NS21, No.8, August 1981/455
•
10
the Health Care System
Effects on Pharmacy These changes may have profound effects on pharmacy practice. In particular, the administration proposes to take away Medicaid beneficiaries' freedom to choose their health care providers. Also, states would be allowed to purchase drugs and services through competitive bidding arrangements. (A de-
W@W~ Aw®Jl)Y~il~
that if pharmacists have to bid on Medicaid services, maintain separate drug inventories, or handle more paperwork, many pharmacists may not be able to participate in the program. "If growing ranks of pharmacists individually decide they can no longer participate in Medicaid, this would greatly reduce patients' con·venience of access to pharmacy service. This would also have the effect of limiting or rendering nonexistent the Medicaid patient's right to freedom of choice in the selection of a pharmacist. ... "The American Pharmaceutical Association recognizes that public funds must be spent prudently . However, we feel it is unlikely that anticipated savings for the public would be realized under a state-run competitive bidding program."
tailed analysis of the current Medicaid program and the proposed changes is shown in the box on p. Federal Moves 15-16). But Paul R. Willging, deputy adReactions to these proposals by ministrator of the Health Care Fipharmacy organizations have been nancing Administration, the federal strongly negative. body that coordinates Medicaid acAPhA President WilliamS. Apple tivities, has told pharmacists that stated recently before the Virginia things may not be as bad as they .Pharmaceutical Association that think. "the practical service delivery probIn a May speech, Willging speculems inherent in a competitive bidlated that competitive bidding and ding system would virtually guarantee the inability of the states to pro- - loss of freedom of choice may not affect pharmaceutical services bevide nondiscriminatory health care cause drugs account for only 6% of services to Medicaid recipients .... the total Medicaid costs. These cost"It is becoming more and more cutting moves may only be applied apparent that the fight to maintain to more expensive sections of the a single nondiscriminatory health program. care system for all Americans is Another move by the adminisheaded down the drain, the victim tration to increase the cost effectiveof a political decision to cut federal ness of Medicaid is the elimination spending at virtually any cost." of all federal requirements concernIn addition, APhA has publicly ing the amount and method of reimstated that a competitive bidding bursement of providers. This may strategy would increase the bureauaffect, indirectly, the way pharmacracy and paperwork for the states, cists are paid for their services. and may create inventory control, Limitations on pharmacy fees are management, and quality assurance left largely up to the states, subject problems. only to "maximum" limitations set In its testimony before the House Subcommittee on Health and the by federal regulation. The MAC reEnvironment last year, APhA said imbursement program, also, is not 15
What Medicaid Is Currently, the federal government matches authorized state spending on their Medicaid programs, according to a periodically adjusted formula. The matching rate, which is inversely proportional to a state's per capita income, ranges from 50-78%. The federal share of administrative costs is 50%, with certain exceptions. There are about a dozen broad services that states must currently provide in their programs. States may also provide, at their discretion, a number of other services, including payment for prescription drugs. Patients may obtain services from any qualified, participating provider. There is now no limit to the amount of money a state can spend on services; whatever is spent, the federal government will match according to the matching formula. Therefore, the federal government has little control over the size or rate of increase in the money spent on the program. Under the Reagan plan, states would no longer have this open-ended entitlement. In a February 18 proposal, part of the "program for economic recovery," the administration stated that "federal and state regulatory efforts to_ date have failed to stem the increase in costs because they fail to affect the underlying cost-increasing bias in the health care system that results from insulation of all parties in medical care markets from the cost consequences of their decisions .... "The Medicaid program has been growing faster than 15% a year for the past five years .... High federal matching, excessive benefit provisions, and overly generous eligibility have made the Medicaid program a very poorly managed social program that fails to provide cost-effective services to those most in need. Eligibility errors alone,
mandated by statute, but by federal regulation . However, the federal government' s desire to provide greater flexibility to states may cause some reexamination of the MAC program, according to a Department of Health and Human Services staffer. Any changes that might occur in the MAC program would depend on how federal regulators interpret current legislative revisions, and what changes are made in redefining the federal role as increased flexibility is provided to the states. While these major actions have been taking place in Washington, the states have not been idle. 1h
•••
Sen. Dole: A 9% cap on Medicaid increases for 1982
for example, are currently estimated to cost federal a state governments approximately $1.2 billion per yea The administration's proposal, as it went to Congre called for a reduction of 1981 Medicaid expenditures, a a 5% cap on Medicaid increases for fiscal year 1982. A 1982, spending would be allowed to rise with the rate inflation, as measured by the "GNP deflator." In real money, this would mean a maximum fede contribution of $16.4 billion this year and almost $17 lion in 1982. Savings are expected to be about $100 milli this year, about $1 billion in fiscal year 1982, and aboul billion in fiscal year 1983. An administration-endorsed bill later introduced i the House raised the cap to 6%. This bill was withdra
State Actions • A growing number of states, perhaps as many as 20, have adopted co-pay provisions. The Missouri legislature recently passed a bill that allows, but does not mandate, the state Medicaid administrator to establish an as yet undetermined co-pay fee. In contrast, the California legislature has passed a co-pay provision of $1.00 ·t hat is slated to be added to the current Medi-Cal prescription reimbursement fee of $3.60. This will give California pharmacists the highest reimbursement fee in the country. There may be a number of
exceptions to the co-pay require ment. The California legislature has als' provided for the establishment of i "prudent purchase plan" for Medi Cal drugs. This plan, expected to gr into operation next April and to cov er only 10 high-volume drugs at th beginning, would provide for th purchase of each drug from the on manufacturer who offers the stat the highest rebate on that drug. The plan is seen by the Californii Pharmacists Association as takin! away pharmacists' professiona right of product selection, and pos sibly causing drug shortages if a sin gle manufacturer is not able to sup 1
1
American Pharmacy Vol. NS21 , No. 8, Au ust 1981
• • •
and Wh at It May Be
Rep. Waxman: Disagreement with Reagan's proposals
owever, when it became clear that the bill would not ass in the Democrat-controlled House. ouse and Senate reconciliation proposals are somehat different than the Reagan proposal but, as American harmacy went to press, there was confidence in the adinistration that the final Congressional proposal would e close to the administration's. The Senate Finance Committee, led by Sen. Robert Dole R-KS), would propose a 9% federal spending cap on edicaid increases for fiscal year 1982. To offset this, the ederal minimum matching rate would fall from 50% to 0%. This would hit high income states the hardest, parcularly Alaska, California, Connecticut, Delaware,
~
ply enough of a drug to meet the demand of the Medi-Cal system. • The Pennsylvania Pharmaceutical Association undertook a stateWide survey to determine what course of action that state's pharmacists want to take concerning Niedif caid. Of the three legislative proposals f outlined in the survey, preliminary f results in June indicated that the proposal most likely to be supl ported by pharmacists was one that ' Would remove all drug coverage from the Medicaid program except that for maintenance drugs (a list of these would be developed by PPA); provide Medicaid beneficiaries with
ti:fican Pharmacy Vol. NS21, No. 8, August 1981/457
Hawaii, Illinois, Maryland, Michigan, Nevada, New Jersey, Washington, and Wyoming. The House Subcommittee on Health and the Environment, led by Rep. Henry Waxman (D-CA), did not adhere as closely to the Reagan proposal. Waxman and other committee Democrats are in strong disagreement with the Reagan proposals and the manner in which the proposals have been made. Waxman did not propose a cap; instead, he called for a reduction in the funds to which states are entitled, in the amount of 3% in 1982, 2% in 1983, and 1% in 1984, for a total cut of 6%. To help the states adjust to these spending cuts while maintaining necessary services to program beneficiaries, the administration proposes that states be permitted to undertake certain cost-cutting measures. It is here that pharmacy may be most strongly affected. Since drug coverage is optional, it is speculated that some states may do away with it altogether in an attempt to cut corners. Under Reagan's proposal, states would no longer be required to provide Medicaid beneficiaries with freedom of choice of providers. The proposal contends that this change would enable states to save significant amounts of money while maintaining quality care. In addition, states would be allowed to purchase drugs and services through competitive bidding arrangements. There is at least one provision in the administration bill that would call for increased spending. States that have, or want to develop, automated eligibility systems-to help ensure correct determination of eligibility and prevent fraud-would receive large federal matching funds. The federal government would match state expenditures at 90% for system development and 75% for operation.
a subsidy to buy nonmaintenance drugs; establish the fee for maintenance drugs at $3.25 subject to annual review; and reimburse pharmacists within 30 days or pay them interest on the unreimbursed amount. • In mid-June, Illinois dropped 800 nonprescription and prescription alternative drugs from the Medicaid formulary. The drugs not eliminated include insulin and related items, antacids, bulk-producing laxatives, ostomy supplies, vitamins for use in pregnancy and infancy, and family planning items. The state has proposed to slash another 800 drugs from the formulary in
September. • Some pharmacies in Oregon have taken the decisive step of severely limiting the number of Medicaid prescriptions they fill. Although the state's $2.88 dispensing fee was slated to be increased this year, the shaky state of the Oregon economy prevented it. • The Medicaid fee for prescription drugs in Virginia went up from $2.70 to $2.85 on July 1. In addition, pharmacists no longer have to pass on 100% of acquisition cost savings when they engage in drug product selection. -PAM
17