States eye LTC sector for help on Medicaid costs.

As states attempt to reduce ever-burgeoning spending on Medicaid, an increasing number are turning to the long term care sector for savings, according to a new report from the Kaiser Commission on Medicaid and the Uninsured.

The Washington, D.C.-based health care coverage analyst's 50-state survey recently released "The Continuing Medicaid Budget Challenge: State Medicaid Spending Growth and Cost Containment in Fiscal Years 2004 and 2005." In the report, the authors noted that the number of states focusing on long term care programs to control costs has increased from 10 in fiscal year 2003 to 17 in FY 2005.

With the number of persons on Medicaid growing by 33 percent since 2001--to the point where it now makes up 16 percent of all spending of state general fund revenues--states were forced to come up with ways to cut costs to stay within an increasingly tight budget, according to the report.

Those cuts are starting to involve long term care, which now constitutes about 35 percent of all Medicaid spending, according to Vern Smith, a principal at Lansing, Mich.-based Health Management Associates, which produced the study for the Kaiser Commission.

"A number of states are beginning to look at this area as a place where they might be able to find some savings by shifting care toward the home and community, to a less-restrictive and perhaps less costly setting," Smith said during a press conference. "I think it's (now) regarded as a fairly fertile field."

States' past Medicaid cost-cutting actions included reducing program eligibility, restricting benefits, increasing co-payments, freezing or reducing provider payments, controlling drug costs and reviewing disease management policies, according to Smith. Every state and the District of Columbia adopted at least one of these measures for three straight years, he said.

For example, long term care facilities now have to consider reducing the number of nursing home beds, tightening eligibility criteria and revising reimbursement methodologies, according to the report.

But for FY 2005, fewer states made efforts to make any further adjustments--such as implementing higher co-payments for prescription drugs--because they feel they've exhausted these avenues, according to Smith. "They've used up most of the arrows in the quiver and are looking to see the effect of things previously implemented," he said.

As a result, state Medicaid officials say they are "getting to the rock bottom" in terms of options, according to the report.

Fred Watson, president of the Georgia Nursing Home Association in Stockbridge, Ga., said his association's 350 member facilities have reduced their expenses by $50 million for the current fiscal year, which ends in June 2005. Many of the cuts were made in critical areas like employee benefits and liability insurance, he said.

"Some facilities have reduced benefits, not filled vacant positions and eliminated non-patient care positions," Watson said. "Benefit packages for employees such as health insurance and retirement plans are being changed to save money. And, employees are not getting wage increases to keep up with their annual cost living."

Georgia anticipates a larger reduction in services in the next year that could easily cause operators to close or greatly limit their ability to provide needed care to their patients, he added.

Although most states' revenue is expected to improve in 2005, all 51 Medicaid directors surveyed said they expected to remain under a great deal of fiscal pressure, Smith said. Officials in 39 states believe their situation will actually worsen in the coming year, while 12 said they felt the pressure would remain "constant but intense."

"The bottom line is that even with all of the actions that states have taken over the last several years, Medicaid spending growth has far exceeded the growth in state revenues," Smith said. "In the words of one Medicaid director, there are no more rabbits left in the hat, but they are still expected to control the rate of growth in spending:'

Despite pressure on states to reduce long term care costs, the nation's nursing homes are less likely in 2005 to see cuts in their Medicaid payment rates than physicians or inpatient hospitals, according to the Kaiser Commission report.

The study's authors noted that 13 states chose to cut or reduce payment rates to providers in FY 2005, down from 18 in fiscal 2004.

Of those 13 states, 11 froze rates and two made cuts, compared to 14 that were frozen and four with cuts in FY 2004, according to the survey.

In contrast, health care physicians in general saw rates frozen or cut in 33 states in FY 2005, an improvement from the 42 states that took such actions in FY 2004. Inpatient hospitals improved slightly during that period, with 27 states freezing or cutting payment rates in FY 2005, compared to 31 in FY 2004, according to the survey.