What to do with Medicaid

This post presents a short prescription for a near term proposed policy change for Medicaid. I give a short history of Medicaid for the general reader; the sophisticated health care reader can just skip to the end where I have recommendations.

Medicaid, Title XIX of the Social Security Act, which funds health care for the poor, has a long and tortured history. It was originally passed, believe it or not, as an unintended consequence of lobbying by the AMA. In objecting to Medicare (which became Title XVIII) because of its being a social insurance program, where everyone would pay in and everyone would be covered, the AMA proposed that a better program would be needs-based, and respect the importance of free choice of physician, and the importance of private practice.

The great Wilbur Mills of Arkansas, Chairman of the House Ways and Means Committee, a wily one, then said to them that he accepted their argument. But, he said, let's also respect the views of the Medicare advocates, and have two programs, a health care sandwich, with Medicare for the elderly and Medicaid for the poor. Medicare would be a federal social insurance program funded by payroll deductions; Medicaid would be a federal-state needs-based program funded by general revenues. Since all the poor could not be covered, income status would be combined with categories such as maternal and child health, and the disabled, linked to welfare categories, so a fair number of the poor would be covered, but not all. And so it happened.

Fast forward forty-five years. Health care costs have soared as few organizational innovations have worked to rationalize the care process. Both programs are floundering on the issue of costs. Because states can set the level of payment for Medicaid providers at whatever level they desire, and few physician groups have been able to have influence, few states have levels of payment that can support practices, which consequently opt out. The initial promise of free choice of physician with the poor then enjoying the same level of care as private patients, has been severely compromised. But the importance of Medicaid is high, since it covers about one-third of children in the United States. Nonetheless, since disabled adults are also included under Medicaid, a great bulk of Medicaid payments go to their very high expenses, and children receive a smaller and smaller proportion of Medicaid dollars.

In the early 70's another program was added, EPSDT, or Early and Periodic Screening, Diagnosis and Treatment. The theory was that if special funds were available to look at kids and examine them, more of this would be done. It was a stupid concept from the beginning, since there was no thought of how this would actually work - I know, I was there in Washington at the inception. But because it was another pot of money for caring for poor kids, no one really opposed it. As of now, it is simply a supplemental source of money that practices can bill for when they do their well child visits, do a lot more paper work, and get paid some extra money.

It is important to distinguish two words: "coverage" and "access." It is easy to "cover" a population - just make them eligible at a given income level. But where the rubber hits the road is the level of payments to providers. Make this low enough, and no one will sign up for the program, no one will "take Medicaid," and "coverage" is chimerical. Patients will be covered, but there will be no provider to actually provide the care.

Add one more wrinkle. Prior to the creation of Medicare and Medicaid hospitals and health departments ran clinics for the poor. There was no charge for patients, and often the doctors worked for free as part of their civic duty. In the 1960's "community clinics" appeared, often involving the ideology of community control, and the medical ideology of group practice. These were funded by OEO initially, then the U.S Public Health Service, and then other groups. They succeeded in being seen as idealistic and avoiding the opprobrium of charity. They received separate funding from the federal government that exceeded that of Medicaid - often they would receive Medicaid funding and then be topped off by extra payments to cover their "costs." These costs might have been higher than private practice costs, not only because of difference in efficiency, but the clinics also would accept those ineligible for Medicaid, and they might offer additional services.

Now, a short observation on what has happened in Medicaid here in Alameda County over the past 13 years. Originally, we were funded by Medicaid on a fee for service basis. The payments were very low, but in Alameda County 2/3 of pediatric patients were served by private practices. There were county clinics and free-standing independent clinics as well, the latter receiving the extra funds to supplement their Medicaid payments.

Enter managed care. By state mandate, each county had to have two programs, one by the county (Local Initiative) and one by a private insurance company, that would be available for patients to sign up for, and available for both clinics and private practices to become providers for. Amazingly, it worked. The Local Initiative with groups of local physicians and set their capitated fees at a rate reasonable for that time. Blue Cross, the private competitor, did not set their fees at a reasonable level, but with time and physician defections, eventually became competitive and even exceeded the levels of the Local Initiative. Amazingly, under this capitated arrangement, the physicians were paid much more than they used to be paid under straight fee for service while rendering the same care, and the state reduced its payments overall. It is still not understood where the money had been wasted under the previous system, and how the new managed care system had improved things. One thing for sure - patients were served better, not worse, than previously.

So, here is our present situation. The states have had trouble funding Medicaid for many years now. With Depression II looming, the financial embarrassment of states is becoming severe and acute. Medicaid is one of their biggest headaches; they just can't fund it. Since Medicaid is run through the states, levels of payment and care vary drastically. In California, levels of payment have sunk so low in many areas that access to care is not a practical reality - not Alameda County, but around the state where physicians are not organized and county health departments garner most of the money for their own bureaucratic and inefficient purposes. In other states with better physician organization - North Carolina, for instance - payment rates are up to 95% of Medicare rates, still poor, but bearable. In sum, though, Medicaid is a program that pays few providers enough to thrive, but costs enough to break the back of state governments.

This is the time for reform. Here is what I would do right now if I could, and I recommend this to policy makers:

1. Federalize the program; deal the states out. The governors would welcome this; Medicaid has become one of their number one headaches. Make payment somewhat regionally dependent, but view health care as a right, much like civil rights, and eliminate the depredations of some states (like mine, California.) It would also mean that efforts to influence the program could be centralized, and we wouldn't have to have 50 separate efforts like the one in North Carolina.

2. Eliminate EPSDT and fold the funding into Medicaid. There is no evidence I am aware of that validates EPSDT (called CHDP here in California) as helping anyone, except insofar as it forms another pot of money to fund and from which to draw. It adds more layers of administration, and at least as we experience it, lots of worthless paperwork.

3. Make it a principal to consider "access" along with "coverage." This would mean that before the government extended the reach of Medicaid recipients, payment levels would have to be "adequate." This would mean, almost automatically, that the incomes of patients covered would be low enough that there wouldn't be a lot of "crowd out."

4. Separate pediatric Medicaid from adult Medicaid. These very separate efforts should have separate funding and separate ways to administer the program.

5. Allow and encourage local managing organizations of health care providers to run the programs. I have mentioned previously the positive experience we have had in our local area with a group of pediatricians and pediatric specialists managing the delivery of care and the distribution of payments, credentialing, etc. This is the IPA model, which can really work well.

6. Eliminate the favoratism shown to Federally Qualified Health Clinics; make them play on the same field as private medicine. If there are special deals to be made for special programs - e.g., the Medical Home demonstrations, whatever - make these available to all.

I believe that all these proposals would be achievable in the near future, would markedly improve the program, and would be easily understandable to legislators. I believe that these proposals would also meet the need to lighten the load of state government financing. I believe that they would also decrease administrative overhead by eliminating multiple levels of bureaucracy.

-- Budd Shenkin