Expansion Waivers, Drug Pricing Among Top Medicaid Concerns

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By Nathaniel Weixel

Jan. 8 — The Medicaid program turned 50 in 2015 and is coming off a year of significant enrollment growth, due in large part to the expansion of eligibility under the Affordable Care Act. That enrollment trend is likely to continue into 2016, as the remaining states consider whether they want to expand coverage under the ACA, Medicaid stakeholders and health policy analysts told Bloomberg BNA.

Most stakeholders and analysts said they expect the biggest changes in 2016 to occur at the state or federal regulatory level, as Congress may be reluctant to roll out any major legislative proposals in an election year.

States will need to develop plans on how to pay for Medicaid expansion, as 2016 is the final year the federal government picks up 100 percent of the expansion costs; the federal share drops to 95 percent in 2017. States that used a waiver from the Centers for Medicare & Medicaid Services to expand coverage may need to renew that waiver in 2016, and will most likely be testing just how Republican-friendly the waivers can be.

Another continuing development in Medicaid, as well as in the Children's Health Insurance Program (CHIP), is the steady increase in states moving to managed care programs to provide coverage for enrollees. The federal government is expected to release in 2016 a major rule that will completely change how Medicaid managed care is regulated.

State Medicaid officials will be considering different types of delivery system reforms to ensure coverage for beneficiaries, especially the high-cost, high-need populations. In addition, governors and state officials are concerned about continued funding for CHIP. Funding for the program was renewed in 2015 as part of the larger Medicare “doc fix” law, but it will only last until 2017.

The new year also will bring continued efforts by primary care physicians, Medicaid health plans and the insurance industry to fight the pharmaceutical industry on the high cost of specialty and generic drugs, most notably those for hepatitis C. There are investigations ongoing in both chambers of Congress, and the CMS has also signaled its intent to examine how manufacturers price their drugs.

Expansion Boost

As in 2015, Medicaid expansion will play a prominent role for states in 2016. The ACA allows states to expand Medicaid to people earning up to 138 percent of the federal poverty level.

According to the most recent government figures, Medicaid enrollment has grown by over 13 million since the start of the ACA's open enrollment period in October 2013, mostly because of Medicaid expansion. Those numbers are expected to increase in 2016 but may be tempered slightly by an improving economy and by lower unemployment.

Stakeholders also said not to overlook the “woodwork effect” in states that don't expand Medicaid, where people who were previously eligible for benefits but weren't enrolled start enrolling because of the publicity and efforts around getting people signed up for insurance.

According to the CMS, 30 states and the District of Columbia have expanded their Medicaid programs under the ACA. Among states that had implemented the Medicaid expansion and were covering newly eligible adults in September 2015, Medicaid and CHIP enrollment rose by nearly 30.6 percent compared with the period of July-September 2013, while states that have not, to date, expanded Medicaid reported an increase of over 10 percent over the same period.

Florida, Tennessee, Utah and Wyoming tried to and failed to expand Medicaid in 2015, while Montana's expansion will take effect this year.

Deborah Bachrach, a partner at Manatt, Phelps & Phillips, and former New York state Medicaid director, told Bloomberg BNA that even in a presidential election year, non-expansion states will be seriously debating the possibility of expanding Medicaid. For the states that have already expanded, more data will be available on the benefits of expanded coverage, she said. Bachrach works as a consultant with Arkansas Medicaid officials.

Elections, Waivers

According to Matt Salo, executive director of the National Association of Medicaid Directors, there are two states “in play” in 2016 in terms of Medicaid expansion.

In Louisiana, newly elected Democratic Gov. John Bel Edwards has made Medicaid expansion one of his top priorities. That's a major political shift from the previous governor, Bobby Jindal (R), who had refused any attempts at expanded coverage.

Meanwhile, Kentucky may move in the opposite direction. Even though the state has already expanded Medicaid, new Republican governor Matt Bevin has pledged to roll it back, although lately his rhetoric has softened.

Expanding Medicaid is a much easier proposition for states than rolling back an existing expansion, both politically and economically, Bachrach and Salo said.

“The finances of shutting down expansion are very hard to overcome,” Salo said.

While Kentucky and Louisiana are in focus in 2016 because of elections, states will be closely watching Arkansas, which will need to decide how to move forward once its expansion waiver expires at the end of 2016.

Arkansas in 2013 became the first state in the nation to receive approval from the federal government for a demonstration waiver allowing it to require adults newly eligible for Medicaid under the ACA to enroll in private health plans offered through the exchange, with the federal government paying the cost through premium assistance. The initiative, often referred to as the “private option,” has allowed Arkansas to cover close to 220,000 Medicaid beneficiaries with commercial provider networks and to strengthen its state exchange.

“Arkansas is an early warning on where we see states moving. The Medicaid population has more needs than the standard commercial population,” Jeff Myers, president of Medicaid Health Plans of America (MHPA), told Bloomberg BNA.

The private option is credited with saving the state over $88 million and generating new revenue of $29.7 million in state fiscal year 2015, according to a 2015 Kaiser Family Foundation report.

What probably won't happen is a complete rollback of the expansion, Bachrach said. She pointed to a report by the Stephen Group, a consulting firm hired by Arkansas, that found abandoning expansion would cost the state $430 million over four years.

Salo said he also doesn't expect that state to considerably alter its waiver.

“I wouldn’t assume that just because an authority runs out in 2017 doesn’t mean you can just shift gears,” Salo said. Arkansas spent a lot of time on its private option, he said, and any changes it wants to make will need approval by the CMS. And while the CMS wants to get as many states to “yes” as it can, there are some lines that won't be crossed. For example, the CMS has never agreed to a waiver that makes having a job a condition of coverage.

“CMS is sensitive to the needs of governors, but only to a point,” Bachrach said. 

In 2016 “we will still have the current administration, so what will their interest level be in allowing states to do radically different things than what they’ve been doing? Probably not much,” Salo said. “The current administration has shown they are willing to be very flexible to get a state from the no column to yes column. What’s unclear is how flexible are they going to be to keep a state in the yes column. So far, they've shown they're not very.”

Salo said the administration realizes there’s not much politically to be gained by being too flexible.

“It's based on the assumption that it's very, very hard, once a state has said yes [to expansion], to just drop the whole thing. The administration is likely to say ‘no' [to waiver provisions it opposes] under the assumption that the state won’t have the political wherewithal to back up” threats of rolling back expansion, he said.

Lower Federal Share

The CMS hasn't set a deadline for states to opt into the expansion, but Cindy Mann, former director of the CMS's Center for Medicaid and CHIP Services, told Bloomberg BNA that every state, not just the ones that have already expanded, will need to think about how to pay for it.

The federal government will pay 100 percent of the costs of covering newly eligible beneficiaries through 2016. After that, the government's contribution will drop to 95 percent in 2017, and eventually to 90 percent by 2020. The federal share won't fall below 90 percent.

“Every state that's gone forward or not thinks about [financing],” Mann said in an interview. “But it's not a secret. It's not a new issue that the match rate is dropping, but it is more imminent now.” Mann is currently a partner at Manatt Phelps & Phillips LLP.

Ron Pollack, executive director of the advocacy group Families USA, said he doesn't see the reduced match as an obstacle.

Even at 90 percent, the rate is “far more generous than what they’re getting in other parts of Medicaid. The hospital community, the insurance community, local chambers of commerce—[they] are pushing to expand Medicaid. Moving even to 90 percent [match rate] won’t deter expansion of the program,” Pollack said.

One of the more common ways for states to pay for Medicaid expansion is with a provider assessment, or “bed tax.” The hospitals pay the tax either as a percentage of revenue or based on the number of beds in their facilities.

In most states, according to the National Conference of State Legislatures, the cost of the tax is paid back to providers as an increase in the Medicaid reimbursement rate for their patient treatment and services.

According to the American Health Care Association, which represents nursing homes, provider assessments allow Medicaid-dependent providers to offer high-quality care despite chronically low reimbursement. Medicaid fails to fully reimburse hospitals, doctors and long-term care centers the total cost required to care for patients. In many cases, a bed tax allows providers to accept Medicaid patients without putting the viability of their centers at risk, the group said.

However, a bed tax may not be enough to convince the holdouts. NAMD's Salo told Bloomberg BNA that states with Republican governors or legislatures have needed to demonstrate that expanding Medicaid by getting providers to pay for it offers “very little risk to general revenue.” Virginia Gov. Terry McAuliffe (D), for example, has proposed taxing certain hospitals 3 percent of their revenue to pay for expansion and using the savings from expansion to pay for Republican-favored initiatives.

However, Salo said it's unclear if the tax will raise enough money to satisfy the conservative state legislature, which to date has been adamantly opposed to expansion.

Drug Prices

Another major concern for Medicaid analysts is the cost of prescription drugs. The issue has caught the attention of House and Senate lawmakers as well as officials at the CMS. Medicaid health plans have been asking Congress to step in and take action over the high price of specialty drugs, specifically those for hepatitis C treatment.

Advocates and Medicaid stakeholders are hopeful letters sent by the CMS in November to state Medicaid directors and drug manufacturers are the first signs of a policy change away from fee-for-service drug purchasing. The CMS sent letters to Medicaid directors of all 50 states, as well as to AbbVie, Gilead Sciences Inc., Johnson & Johnson and Merck & Co., which manufacture costly hepatitis C virus (HCV) drugs.

MHPA's Myers said it's almost unheard of for the CMS to send letters to manufacturers about how they price drugs. Those notices show the CMS is aware of the impact drug pricing has on Medicaid beneficiaries, he said.

“We've probably reached a breaking point on HCV. Whether or not Congress ends up doing something, I don’t know,” Salo said. “As we start to make real strides in developing treatments and cures for a lot of previously untreated or poorly treated conditions, specialized medicines will come with enormous price tags. I don’t think we as a society have figured out what we do when treatments like this are within everyone’s grasp physically, but financially will be prohibitive.”

Myers said it wouldn't be surprising if the administration “thinks they have ways they can encourage effective price negotiation.” He said a change in how the Medicaid program pays for prescription drugs may eventually allow health plans to negotiate with manufacturers, which could lead to lower prices for consumers. But even if drug companies are “doing the right thing” and pricing drugs affordably, a change is needed to the underlying Medicaid statute, Myers said.

“The real challenge will be for Medicaid—as you see more expensive therapies, how plans manage it so it doesn’t bankrupt the plan and the state,” Myers said.

Medicaid plans have put policies in place to prevent spending exorbitant amounts of money on drugs, especially in the HCV space. Sovaldi, the brand-name drug manufactured by Gilead, can cost $1,000 per day when purchased wholesale, which equals $84,000 for a 12-week course of treatment. Due to its high cost, states have put restrictions on which patients can get their treatment covered by Medicaid. The CMS reminded states not to limit access to potentially life-saving drugs because they are expensive. 

Each state has wide discretion in administering its own Medicaid program, but states must follow some federal standards. States can restrict coverage of the drug only if there's no medically acceptable reason to cover it. The CMS said it was concerned some states are restricting access to hepatitis C drugs “by imposing conditions for coverage that may unreasonably restrict access to these drugs.”

Myers said Medicaid plans have a fiduciary obligation to states, so the restrictions are about clinical relevance. “There are lots of reasons prior authorization exists,” Myers said, ranging from concerns around medication adherence, to effectiveness (both cost and comparative).

“Every state has put in protocols to prioritize coverage for those in need. That’s why [drug costs] are not busting budgets,” Salo said, but he predicted that may change.

As a society, “we've insulated ourselves from real pricing,” Salo said. “We don’t care what it costs; if it’s a cure, we deserve it.” He predicted consumers will sue states that deny them something they believe they need.

“If the courts blow open the access issue, then it will bust budgets, and we’ll have lots of opportunity to leverage pressure on manufacturers to bring prices down or pressure the government to figure out some kind of solution,” Salo said.

Managed Care Regulations

As Medicaid enrollment continues to rise, states are going to need to ensure they are delivering care in the most efficient but cost-effective way possible. One of the ways states are considering to manage cost growth and access to care is through Medicaid managed care plans, which are expected to see continued growth in 2016. Frequently viewed as an effective way to control costs, Medicaid managed care plans serve some or all Medicaid enrollees in 39 states and the District of Columbia, Myers said.

A proposed rule that would completely overhaul the Medicaid and CHIP managed care delivery system was published in 2015. The CMS is sorting through over 800 comment letters, and plans to release the final rule by April.

More than half of all Medicaid beneficiaries receive all or some of their care from risk-based managed care organizations, according to statistics from managed care plans and the HHS.

The proposed rule aims to align Medicaid and Children's Health Insurance Program managed care plans with other sources of health insurance coverage. The rule would overhaul the entire Medicaid managed care delivery system and represents the first update to managed care regulations since 2002. According to statistics from managed care plans and the Department of Health and Human Services, more than half of all Medicaid beneficiaries receive all or some of their care from risk-based managed care organizations.

Among many provisions, the proposed rule would set a minimum medical loss ratio (mandating that plans spend a minimum on medical expenses, not administrative expenses), establish a Medicaid managed care quality rating system and strengthen the delivery of managed long-term services and supports.

Salo wasn't thrilled with the proposed rule, and said he hopes the final rule gives states and plans time to adapt. “There's a lot of federal overreach in what they’re doing and what they’re trying to do [with the rule],” Salo said, calling it potentially very disruptive.

Salo said he'd like the agency to release the rule as early as possible to avoid what happened the last time the federal government tried to update managed care regulations, “which was the last thing the Clinton administration did and the first thing the Bush administration tossed out.”

CHIP Renewal

Authorization of funding for CHIP expires in 2017, but advocates hope program reauthorization is an issue in 2016.

“CHIP's not a 2016 play, but CHIP will be on the table in early 2017, so we’re hoping 2016 lays the groundwork so [lawmakers] are prepared to take action,” Jim Kaufman, vice president of public policy for the Children's Hospital Association, told Bloomberg BNA.

A November CMS report found federal insurance exchange plans don't offer the same level of coverage as CHIP plans. Kaufman said the report shows how important it is that Congress ensure children have appropriate coverage. CHIP should be renewed until the administration makes the ACA's insurance exchanges suitable for children, he said.

“As we look and decide the future, eliminating CHIP would take us backwards,” Melinda Dutton, a partner at Manatt, told Bloomberg BNA. “We want to at least do no harm.” The insurance exchanges were established with adults in mind and don't meet the unique pediatric needs of children, Dutton said.

The ACA required the HHS secretary to certify whether qualified health plans on the exchanges offered the same coverage benefits and cost sharing as CHIP. Funding for CHIP expires in 2017, and the CMS finding shows that states can't merely transition kids into qualified health plans on the exchanges and expect the same level of coverage. As a result, the agency suspended an ACA provision requiring states to develop an automatic transition policy.

To contact the reporter on this story: Nathaniel Weixel in Washington at nweixel@bna.com

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com