AZ Medicaid faces $1B shortfall

Phoenix Business Journal - by Angela Gonzales

Doctors and health advocates are up in arms over significant cuts to Arizona’s Medicaid program to save $27 million, but the worst is yet to come: A $1 billion budget shortfall is expected next year.

A federal matching program that would give the state Medicaid program about $1 billion expires in July 2011, which means Arizona will need to make up that loss, said Jennifer Carusetta, chief legislative liaison for the Arizona Health Care Cost Containment System, the state’s version of Medicaid.

AHCCCS currently receives a federal matching rate under the American Recovery and Reinvestment Act — a one-time boost to help states during the worst of the recession.

Carusetta said it has not been determined how the state will make up the lost funding.

“There are nothing but difficult choices to be made at this point,” she said. “That would be a policy decision the Arizona Legislature is going to have to make next year.”

AHCCCS’ total budget is around $10 billion. Arizona contributes about $2.5 billion of that in state matching funds. When the federal matching rate expires July 1, the state will need to make up roughly $1 billion to replace the loss in federal dollars, she said.

There are two ways to make changes to AHCCCS: reduce health care provider reimbursement rates, or cut enrollee benefits. A third option — changing the eligibility levels for services — was eliminated when federal health care reforms were implemented this year, prohibiting changes to eligibility.

AHCCCS already has cut enrollee benefits, including preventive services such as annual wellness exams and most dental care. The program has 1.3 million enrollees, but only those 21 and older were impacted by those recent cuts. AHCCCS slashed physician payments by 5 percent in 2009, and hospital rates have been frozen for two years.

“When looking at provider rates, we are under federal requirement to provide access to care, which means we need to have a sufficient enough provider network to provide services to members,” Carusetta said. “Once you cut rates too low, you risk losing that network and running afoul of that requirement.”

That’s why benefits were cut this year, effective Oct. 1, instead of provider rates.

The reduction in benefits will save Arizona’s General Fund $5.3 million this year, but will trigger a loss of $14.7 million in federal matching funds for the program in fiscal 2010-11. Next year’s savings to the General Fund are estimated at an additional $9.2 million, triggering a $17.8 million loss in federal funds.

Twenty percent of Arizonans are on AHCCCS, and 1 million have no health coverage at all.

Dr. Payam Zamani, founder and CEO of My Dr. Now, said he is shocked by the cuts. AHCCCS enrollees represent 30 percent of his patient base.

“Preventive care is the best way to obtain quality health care,” he said. “Hands down, these are the biggest cuts in AHCCCS history.”

Originally, AHCCCS proposed cutting gastric bypass surgery as a benefit, but federal requirements prohibit that. Instead, AHCCCS is cutting benefits that are not required by the feds, including most dental care, services provided by a podiatrist, cochlear implants, and well-person exams where there is no specific complaint and a patient is not being treated for any symptoms.

Zamani said these wellness exams are a crucial component of preventive medicine because they help keep costs down in the long run. Preventive medicine is the foundation on which the AHCCCS model was built, he said.

“It’s shocking to me,” he said. “We’ve been doing our best to notify our patients that physical exams no longer are going to be covered.”

But Carusetta said all of the benefits being eliminated or limited are considered optional services under federal law, and therefore AHCCCS is not required to provide them.

Tom Kelly, president and CEO of Schaller Anderson Inc. in Phoenix — which manages Medicaid programs nationwide, including the Mercy Care plan in Phoenix — said these cuts will be tough on Medicaid enrollees.

“There won’t be a huge impact on the health plans,” he said. “But anything that impacts our members negatively ultimately creates work and noise for us as well.”

AHCCCS: www.azahcccs.gov

My Dr. Now: www.mydrnow.com

Schaller Anderson Inc.: www.schalleranderson.com

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