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“The only thing necessary for these diseases to the triumph is for good people and governments to do nothing.”

Risk Management

Medicaid Program Policy Trends: Financing and Quality of HIV Care

from Drug Benefit Trends®
Posted 03/28/2003

Richard Conviser, PhD, Miranda Murray, PhD, Christine Lubinski, Andrea Weddle, MSW, Cindi Grayer, MS

Abstract and Introduction


Many state Medicaid programs have adopted managed care as well as a variety of other measures to ensure that MCOs caring for high-cost enrollees can continue to provide quality care and are protected from financial risk. This article describes several strategies that state programs have implemented to protect quality HIV/AIDS care. These strategies include capitated reimbursement, health-based payment systems, and risk pools. However, cost containment has driven state Medicaid programs to alter policies that have a direct impact on some or all groups of Medicaid beneficiaries. State and federal policy makers must balance the need for fiscal health with the public duty to ensure that Medicaid beneficiaries receive services that preserve and promote health.


The cost of providing care to Medicaid recipients with HIV/AIDS typically exceeds the average cost of providing health care to Medicaid recipients without HIV/AIDS, even those with disabilities. Many state Medicaid programs have adopted managed care programs, which have established a variety of measures to ensure MCOs caring for persons living with HIV/ AIDS (PLWH) and other high-cost enrollees can continue to provide care and are protected from financial risk.

In 1999, the Health Resources and Services Administration, through its HIV/AIDS Bureau's Special Projects of National Significance, funded a Center for HIV Quality Care. Its mission includes gathering information on all state Medicaid programs, including their reimbursement strategies, with a special focus on HIV care; documenting the changing costs of HIV care in the era of HAART, which began in 1996; and providing access to information on standards of care for HIV services. Much of the Center's work can be viewed on its Web site:

The Center for HIV Quality Care has followed the changes and trends in Medicaid managed care programs that affect significant numbers of PLWH. These include both cost- containment strategies and expansion mechanisms used by various states in treating PLWH. Cost-containment measures that improve access to care have been develop- ed through home and community-based service (HCBS) waivers, disease management initiatives, and tar-geted case management programs. In addition, efforts by some states to expand access to Medicaid coverage in ways that benefit PLWH in some cases have offered potential financial relief rather than additional burdens for strained state budgets. Although the focus of this paper is on the care of HIV-infected patients, the impact of state Medicaid practices and trends have implications for all Medicaid beneficiaries with high-cost chronic illnesses.

In the 1990s, many states instituted managed care in their Medicaid programs. By 1998, more than half of all Medicaid beneficiaries were enrolled in Medicaid managed care programs.[1] Full-risk managed care has 2 key features: the use of prepaid capitated reimbursement rates to participating MCOs and the use of "gatekeeper" primary care physicians to control beneficiaries' access to services.

In Medicaid managed care programs, capitated reimbursement to MCOs replaced traditional fee-for-service (FFS) payments. To institute Medicaid managed care programs, states initially had to obtain waivers from the Centers for Medicare and Medicaid Services (CMS) because these programs obligate beneficiaries to use only the providers contracted with the MCOs in which they are enrolled. This constituted a change from CMS' "any willing provider" requirement for FFS Medicaid programs. Congress relaxed the waiver requirement in its 1997 Balanced Budget Act.

Capitation rates for Medicaid managed care programs are typically determined on the basis of historic FFS health care utilization data, and the rates paid to MCOs are generally set according to a beneficiary's eligibility category. To participate in Medicaid, states must offer coverage to certain categories of people, including children of low-income families and their single parents through Temporary Aid to Needy Families (TANF), recipients of Supplemental Security Income (SSI), low-income seniors, and the blind. Within eligibility categories, beneficiaries must meet income and asset requirements determined by the state within federal guidelines. States also have the option of offering Medicaid coverage to other populations, including the medically needy and -- if the states apply for special waivers -- the uninsured and/or uninsurable who would not normally qualify for Medicaid. The capitation rates assigned to Medicaid eligibility categories are typically adjusted for enrollees' age, sex, and the region of the state in which they reside.

The second key feature of these managed care plans is the use of primary care provider gatekeepers. Some states have adopted a blend of managed care and FFS programs by paying primary care providers a small monthly fee to treat enrollees whose approved services are reimbursed on a FFS basis; these programs are known as primary care case management (PCCM).

Both features of managed care programs are intended to provide incentives for MCOs to deliver cost-effective care to their enrollees. However, for PLWH and their advocates (including many primary care and specialist physician providers), the application of managed care methods by Medicaid programs in the 1990s gave rise to several concerns. These included whether managed care would give patients appropriate and timely access to specialists, whether the capitation rates paid to MCOs would be sufficient to ensure adequate compensation for HIV/AIDS providers, and whether MCOs would be more inclined to discourage enrollment of potentially high-cost clients than to develop care programs tailored to their special needs.[2,3]

If high-cost clients were distributed relatively uniformly across MCOs, categorical capitation rate-setting would be equitable. MCOs' expenditures on high-cost clients would be balanced by their low expenditures on other patients within the same capitation rate categories. In practice, however, MCOs with staffs that include skilled and experienced HIV care providers -- who, according to several published studies, deliver higher quality care than inexperienced HIV care providers -- may attract disproportionate shares of enrollees with HIV/AIDS and thus be subject to adverse financial risk.[4-8] The consequence is that the MCOs providing the best HIV care experience the greatest overall financial liability for enrolling PLWH.[2] Studies have confirmed that certain MCOs in several states are indeed at financial risk because they attract large numbers of PLWH among their enrollees.[9,10]

Various strategies that states may adopt to protect MCOs against adverse risk from high enrollment of PLWH, as well as other measures to assure high-quality care for PLWH enrolled in Medicaid managed care programs have been explored.[2,11-13] The first such measures took effect in 1997, when Colorado and Maryland instituted health-based payments to MCOs in their Medicaid programs. Over the next several years, other states turned to health-based payments. In 2001, when CMS held a conference involving states that had instituted some form of health-based payment, 10 states were represented.[14]

Medicaid Program Policy Trends

from Drug Benefit Trends®

HIV/AIDS Care Costs and Categorical Capitation Rates

The financial viability of both MCOs and the providers who contract with them depends on whether they receive enough money to cover the costs of care. It is important to estimate the costs of care with a high degree of accuracy so that third-party payers are able to develop payment rates that reflect the true cost of delivering care. Currently, the federal government -- through Medicaid, Medicare, the Department of Veterans Affairs, and the Ryan White CARE Act -- is the major payer for care for PLWH. In fact, Medicaid is the single largest payer for direct medical care for HIV, covering 55% of the adult population at some point in their illness and 90% of children with HIV infection.[15]

Given the disproportionate effect of the HIV epidemic on marginalized populations (eg, racial/ethnic minorities, injection drug users, gay men of color), it is likely that federal and state governments will continue to be the largest payers for the care of PLWH. As more of these patients enroll in managed care plans, novel financing mechanisms, such as risk-adjusted methodologies, need to be developed so that PLWH and their providers are not discriminated against by health plans. The goal of this section is to estimate the cost of HIV/AIDS care and to compare that cost with reimbursement rates for enrollees in Medicaid programs.

Before the availability of HAART, it had been demonstrated that FFS care costs for Medicaid beneficiaries with AIDS were 6 times as high as those for other disabled Medicaid beneficiaries.[16] As a result of the growing use of HAART, HIV care patterns have changed: inpatient hospitalizations have declined, and spending for pharmaceuticals and outpatient care has increased.[17] However, the overall annual costs of HIV care have changed only slightly. The HIV Cost and Services Utilization Study, a national probability sample of PLWH receiving care, recorded a decline of less than 10% in the average monthly cost of care between 1996 and 1998, from about $1692 to about $1525.

Among the factors responsible for variations in costs for HIV and AIDS care are differences in regional practice patterns and costs and the varying needs of people in different stages of illness. An analysis of paid, federal, fiscal year 2000 Medicaid claims in New York State for more than 64,000 PLWH showed monthly Medicaid expenditures averaged $2351, and monthly reimbursement under the state's impending special needs plan (SNP) for PLWH will be as high as $2932.

Table 1. New York HIV Special Needs Plan (SNP) Premium Rates*

Premium Groups (Age)New York CityRest of State
5 BoroughsMetro
ADC/HR child (0 - 20 y) -- $254.82 --
ADC/HR adult (21 - 64 y)$469.48$597.42$392.91
SSI child (0 - 20 y) -- $626.06 --
SSI adult (>/= 21 y)$755.87$634.45$539.31
ADC/HR child (0 - 10 y) -- $1330.27 --
ADC/HR adult (21 - 64 y)$2234.19$1629.19$995.51
SSI child (0 - 20 y) -- $1815.53 --
SSI adult (>/= 21 y)$2932.10$2406.62$1206.32
All ADC and HR|| (< 6 mo) -- $254.82 --
All uninfected (6 mo - 20 y) -- -- --
ADC, Aid for Dependent Children; HR, home relief; SSI, Supplemental Security Income.
*From April 1, 2002, to December 31, 2003.
Metro area includes Nassau, Suffolk, and Westchester counties.
These rates were set at 95% of fee-for-service and reflect the full SNP benefit package without a charge for NYS individual reinsurance coverage.
§Outpatient Detox/Alcohol has been moved from the HIV/AIDS rate since effective April 1, 2002. This service is no longer part of the mainstream Medicaid benefit package.
||All children younger than 6 months will be paid at the HIV rate.
These rates will be based on the average regional mainstream rates for HIV SNPs, which are not presently mainstream Medicaid plans. For SNPs that are currently mainstream Medicaid plans, the plan's current rates will be used for the uninfected enrollees.

[18] Similarly, reimbursement for AIDS care in Maryland in 2002, based on recent prior service use patterns, was as high as $2809 per month.

Table 2. Maryland AIDS and HIV Capitation Rates

Eligibility CategoryEffective DateRate change, 2002 - 2003
AIDS, Baltimore$2444.91$2809.01$2935.60Up 4.5%
AIDS, Rest of state$2264.37$2603.47$2659.43Up 2.1%
HIV, Families with children$650.70$742.00$563.30Down 24.1%
HIV, Disabled$1467.95$1659.38$1655.85Down 0.2%

In contrast, monthly costs for 700 HIV/ AIDS patients at an Alabama clinic in 2001 averaged just $1553.[19] In New York, inpatient care accounted for 39% of paid claims, and pharmaceuticals accounted for 25%. In Alabama, however, inpatient care accounted for just 13% of the costs, and medications (both HIV and non-HIV), for 79%. The Alabama study also showed substantial variations in monthly costs by stage of illness, ranging from an average of $1157 for PLWH with CD4 cell counts of 350/µL or greater to $1989 for those with counts between 50 and 200/µL and $3044 for those with counts less than 50/µL.

Similarly, a study by the HIV Research Network using 1999 data from 9 sites in 3 regions of the country showed average monthly inpatient costs varying from $242 for those with CD4 cell counts greater than 500/µL to $1234 for those with counts less than 50/µL and outpatient costs of $153 and $208, respectively.[20] Not surprisingly, care costs also depend on the incidence of AIDS-related illnesses. A Maryland study found that costs of care increased with the presence of opportunistic infections and other AIDS-related conditions, with cytomegalovirus retinitis, toxoplasmosis, and AIDS-related dementia being the most expensive.[21]

Receipt of ancillary and case management services also affects the cost of care. A Florida study compared Medicaid spending for AIDS HCBS waiver program participants with traditional Medicaid program participants.[22] Case management in the waiver program provides participants with drug regimen counseling, improving compliance and reducing the need for inpatient care.[22] Consequently, waiver participants have lower inpatient costs.

HIV care costs tend to be far higher than even the highest categorical capitation rates paid by Medicaid managed care programs.[16,23] Data on most states' capitation rates are shown on the Web site of the Center for HIV Quality Care. An examination of all such rates is beyond the scope of this paper. In the discussion below, we focus on the rates in 2 states that have large populations infected with HIV: Florida and Texas. Neither state has adopted any special reimbursement mechanisms to protect MCOs against adverse risk.

In Florida, reimbursement to MCOs is based on enrollees' age, eligibility category, and geographic region. The highest rates are in Dade County, which includes Miami. As of mid 2001, for persons aged between 21 and 54 years, capitation rates were $221.12 per month for TANF enrollees and $663.15 for disabled enrollees. Behavioral health services are not included in these rates.

In Texas, managed care has been adopted on a region-by-region basis and is mandatory for most TANF enrollees but voluntary for those with disabilities, except in Harris County (Houston), where it is mandatory for all. For SSI beneficiaries without Medicare coverage, the capitation rate in Harris County in 2002 was $598.55 per month, excluding prescription drugs, transportation, and tuberculosis clinic services. For the latter, MCOs refer clients to public health facilities; prescriptions are filled by pharmacists participating in the state's Vendor Drug Program and have no limits. Clearly, capitation rates in both Florida and Texas are substantially lower than the costs of providing HIV and AIDS care.

Medicaid Program Policy Trends

from Drug Benefit Trends®

Strategies to Protect MCOs Against Adverse Risk

Health-Based Payment Systems

One way to protect MCOs against adverse risk is for states to adopt health-based payment systems (whose components are risk assessment and risk adjustment). Their purpose is to match the capitation rates paid to MCOs with the needs of their enrollees, as measured by historic data on the enrollees' health care utilization. If these systems are instituted when a state Medicaid program first adopts full-risk managed care, FFS data are used to assess the relative risks of MCO enrollees and to determine the capitation rates that will be paid to the MCOs. However, especially in states that require managed care enrollment, this source of data quickly dries up, and managed care encounter data have to be substituted. Often, MCOs are not good at collecting and/or reporting such data during the first several years of Medicaid managed care programs; this requirement can therefore pose ad- ministrative challenges.

Under health-based payment systems, the MCOs that enroll persons with the greatest health care needs receive the highest capitation rates. Three health-based payment systems have been adopted by public (and some private) payers in the United States: Diagnostic Cost Groups (DCG), Adjusted Clinical Groups (ACG, formerly known as Ambulatory Care Groups), and the Disability Payment System (DPS). These systems differ from one another in their methodologies, but all have the intent of grouping together all enrollees with similar levels of health care utilization for reimbursement purposes.

A variant of the DCG method, known as DCG/HCC (Hierarchical Condition Category), has been adopted by Medicare in response to a congressional mandate that it initiate use of a health-based payment methodology.[24] However, in state Medicaid programs, the predominant methods used are DPS and ACG. The latter has been in use in Maryland since 1997 and Minnesota since 2000.

DPS was developed for use with disabled Medicaid enrollees. However, the interest of state programs in providing health-based payments also for persons enrolled in Medicaid under TANF, few of whom are disabled, has led to the development of an alternative method -- Chronic Illness and Disability Payment System (CDPS).[25] CDPS has supplanted DPS in Colorado (in 2002; DPS was adopted there in 1997), Oregon (in 2001, after DPS was adopted in 1998), and New Jersey (in 2001, after DPS was adopted in 2000). DPS is still in operation in Michigan (where it was first adopted in 2000) for children with special needs only. CDPS has also been adopted in Delaware (2000), Utah (2001), and Tennessee (2001), as well as in Washington State for nondisabled populations (2001). Different health-based payment methodologies yield more accurate payments (ie, closer to the costs of care) for different categories of Medicaid eligibility and under different scenarios, but several simulations suggest that CDPS most closely matches payments with costs over the broadest range of conditions.[25]

Early adopters of global health-based payment systems -- Colorado, Maryland, New Jersey, Michigan, and Minnesota -- used state-specific rates. More recent implementers -- Oregon, Pennsylvania, Oklahoma, Tennessee, and Utah -- have used national weights; Colorado and New Jersey are considering switching to them. CDPS weights may be recalibrated based on newer data, and some think that the weights should be based entirely on managed care utilization patterns rather than on historic FFS data, because managed care may bring about changes in the use of services.[3]

The adoption of health-based payment methodologies can greatly affect the revenue that flows to MCOs participating in a state Medicaid program, and the prospect of this can instill fear in MCOs. To ease the initial impact of the transition to such methodologies, several states have established "risk corridors" to limit the deviation of health-based payments from historic capitation amounts. In the first years of risk adjustment in Oregon and Michigan, these corridors were set at 10%; in Minnesota, they were set at 5%. Another way states can limit MCOs' risk is to provide stop loss insurance against catastrophic per-enrollee losses. Maryland initially offered such insurance for per capita expenditures in excess of $61,000 per annum, but it has since discontinued the program.


With or without health-based payments, state Medicaid managed care programs may further protect MCOs against adverse risk by carving out coverage for certain drugs from capitation rates. Several tests (such as for viral loads) and drug treatments (such as protease inhibitors) were introduced for HIV care in the mid 1990s, making it difficult for states to estimate the financial burden these innovations would impose on MCOs. Hence, many states elected to reimburse MCOs for these tests and medications on a FFS basis, over and above capitation payments. Once states have a better sense of the use and costs of these treatments, they can include them in capitation rates (as Maryland has done).


Risk Pools

The use of risk pools is a strategy that many states routinely employ to cover the delivery and postnatal costs for new mothers and their newborns. Tennessee and Pennsylvania both established risk pools to reimburse MCOs experiencing adverse selection as a result of disproportionate shares of enrollees with high-cost conditions. The development of risk pools is administratively less cumbersome for both states and MCOs than global health-based payment systems, because the former require MCOs to report encounter data only for enrollees with high-cost conditions rather than for all enrollees.

To protect MCOs against adverse selection, the risk pools must have funds sufficient to make up for the cost difference between high-cost enrollees and typical enrollees in the same Medicaid eligibility category (eg, TANF or disabled). Pennsylvania did not release information about the amount of funds in its risk pool, but the funds in Tennessee's risk pool did not begin to cover the differential between the cost of HIV care and categorical reimbursement paid to MCOs.[12] Tennessee abandoned its risk pool when it adopted a global health-based payment system in 2000, and Pennsylvania will reportedly adopt a health-based payment system in 2003.[3]

Medicaid Program Policy Trends

from Drug Benefit Trends®

Improving Access to Care

In addition to financial mechanisms to ensure the flow of appropriate funding to MCOs caring for PLWH, there are several other ways in which Medicaid programs can improve access to care for this population. These include optional medically needy programs, waivers to expand Medicaid coverage to persons with early-stage HIV disease, HCBS waivers, disease management programs, and ticket-to-work programs that allow those who work to maintain Medicaid eligibility.

Medically Needy Programs

PLWH in some states can receive Medicaid coverage through an optional medically needy category. This allows persons who are in eligible Medicaid coverage categories, such as those with disabilities, but who exceed income ceilings to qualify for coverage by counting their medical expenses against their income to "spend down" to a qualifying income level. Thirty-six states have medically needy programs, and 35 of them are open to persons with disabilities.[26] Income limits for these programs vary across the country; a survey of 40 state Medicaid programs found income limits ranging from 15% to 87% of the federal poverty level (FPL).[27]

HIV-Specific Waivers

In 2000, Medicaid began awarding waivers to states for the purpose of expanding coverage to PLWH in early stages of HIV. Thus far, such waivers have been approved in Maine, Massachusetts, and the District of Columbia. As with all Medicaid waivers, these are required to demonstrate revenue neutrality over a 5-year period. The first waiver was awarded to Maine in February 2000, but its implementation was delayed from October 2000 to July 2002. Program benefits include HAART and other drugs, office visits, laboratory services, case management, inpatient care, and mental health and substance abuse services. Eligibility criteria include a diagnosis of HIV infection and an income of less than 250% of the FPL. Enrollment under the waiver was initially capped at 130 persons.

Massachusetts received approval in 2001 for a modification to its existing waiver in order to expand most Medicaid benefits to PLWH with incomes of less than 200% of the FPL. For employed persons, the state pays health insurance premiums to the individual, insurer, or employer; it also provides wraparound benefits for services not covered under an employee's health plan.[28] The Massachusetts program began accepting applications in April 2001 and during its first year enrolled 700 PLWH. A program was also approved for implementation in the District of Columbia in September 2002. The District's program has an income cap of 100% of the FPL and an enrollment cap of 200 to 400 persons. Some of the savings in the District's program are to be achieved through the use of the Federal Supply Schedule to purchase antiretroviral drugs at rates substantially below AIDS Drug Assistance Program and Medicaid program rates.[29]

Home and Community-Based Services Waivers

Section 1915 (c) of the HCBS waiver programs provide another avenue for states to expand Medicaid eligibility to targeted populations requiring intensive use of health services. These waivers permit Medicaid coverage for services not normally paid for if providing them prevents hospitalization or long-term care and allows patients to remain in the community. Services available under HCBS waiver programs may include case management, homemaker/home health aides, personal care services, adult day health, rehabilitation, and respite care.[30] Because the provision of these services theoretically saves hospital and/or nursing home costs, HCBS waivers also offer states the option of expanding eligibility to people with incomes of up to 300% of the SSI payment level, approximately $1639 per month in 2002. Fifteen states have HCBS programs for PLWH, and these play a critical role in providing access to services for PLWH in these states [31]

Table 3. States With AIDS-Specific Home and Community-Based Services Waivers

StateMaximum IncomeEnrollees
California300% SSI1424
Colorado300% SSI144
Delaware250% SSI410
District of Columbia100% FPLUnknown
Florida300% SSI6334
Hawaii100% FPL72
Illinois100% FPL1054
Iowa300% SSI17
Missouri100% SSI74
New Jersey300% SSI787
New Mexico242% SSI60
North Carolina100% SSI21
Pennsylvania300% SSI90
South Carolina300% SSI1073
Virginia300% SSI564

SSI, Supplemental Security Income; FPL, federal poverty level.

Disease Management Programs

These initiatives offer state Medicaid programs a potential cost-containment strategy that may also improve the quality of care. A number of states are experimenting with such programs for a variety of disease conditions. In 1999, Florida implemented in its PCCMprogram the first disease management program specifically designed for Medicaid beneficiaries with AIDS. The aim is to control unnecessary service utilization (and associated costs) and improve the quality of care. Services include patient and provider education, case management and care coordination, provider and beneficiary profiling, claims analysis, and chart audits. Nurse care managers check in with providers and beneficiaries to ensure that patients are receiving the standard of HIV care, including appropriate drug regimens.

The disease management organization (DMO) is expected to realize a certain percentage of savings over historical FFS costs for this population. After this level of savings is achieved, there is a profit-sharing arrangement between the DMO and the state Medicaid program. Florida has also implemented Medicaid disease management programs for asthma, diabetes, and hemophilia.

Two other states have approached disease management in different ways. With support from the Robert Wood Johnson Foundation, Tennessee has created a network of Centers of Excellence that share HIV knowledge and expertise among Medicaid providers at 8 facilities in various parts of the state, including several rural areas. New York has developed a SNP for HIV and AIDS whose MCO participants are to receive enhanced reimbursement rates for HIV/AIDS care, ranging from $255 to $2932. In turn, MCOs participating in the SNP provide an enhanced level of care for PLWH. Benefits include clinical coordination and medical case management in consultation with the enrollee's primary care physician, utilization management, quality assurance and continuous quality improvement, nonintensive psychosocial case management, treatment adherence services, and HIV prevention and risk-reduction education.[13]

Ticket-to-Work Programs

The Ticket to Work and Work Incentives Improvement Act (TWWIIA), passed in 1999, allows states to expand Medicaid eligibility to 2 groups:

  • Persons who would qualify for the SSI program if their earned income was not counted (known as the basic coverage group).
  • Persons between the ages of 16 and 64 who (in the absence of TWWIIA) would lose Medicaid coverage because their condition improves to the point that they no longer meet disability criteria (known as the medical improvement group).[32]

If persons choose to participate in the TWWIIA program, states must cover the basic coverage group and may choose to cover the medical improvement group. As of late 2002, 22 states had TWWIIA programs,

Table 4. States With TWWIIA Programs

StateMaximum Income*
Alaska250% FPL
Arkansas250% FPL
California250% FPL
Connecticut$75,000 per year
Illinois200% FPL
Iowa250% FPL
Kansas350% FPL
Maine250% FPL
Minnesota250% FPL
Mississippi250% FPL
Nebraska250% FPL
New Hampshire450% FPL
New Jersey250% FPL
New Mexico250% FPL
New York250% FPL
Oregon250% FPL
Pennsylvania250% FPL
South Carolina100% FPL
Utah250% FPL
Vermont250% FPL
Washington220% FPL
Wisconsin250% FPL
Wyoming100% FPL

TWWIIA, Ticket to Work and Work Incentive Improvement Act; FPL, federal poverty level.
*For a person in 2002, the FPL was $8860. The FPL is adjusted annually by the US Department of Health and Human Services.
New York's program is not yet implemented but is expected to begin in April 2003.

which expanded Medicaid to individuals with annual incomes ranging from $8860 in several states up to $75,000 in Connecticut. New York plans to implement a TWWIIA program in spring 2003.

TWWIIA also has a modestly funded demonstration program that allows states to apply for funds to expand Medicaid coverage to targeted populations for whom coverage under Medicaid would delay or prevent the onset of disability. As part of the demonstration program, Mississippi and the District of Columbia have received grants to expand Medicaid eligibility to PLWH before they become disabled with AIDS. Mississippi proposed to cover 500 PLWH aged between 16 and 64 years, limiting participants' unearned income to 135% of the FPL and earned income to 150% of the FPL.[33] The District of Columbia's proposed Medicaid expansion is capped at 500 enrollees.[34]

Medicaid Program Policy Trends

from Drug Benefit Trends®

Medicaid Changes in Response to Tightening State Budgets

As states continue to grapple with strategies to provide health care to persons with complex disease conditions, they are also working to contain spiraling costs associated with the Medicaid program, which is frequently the second-largest item in state budgets. In a survey sponsored by the Kaiser Commission on Medicaid and the Uninsured, virtually all states reported having acted to reduce the growth in their Medicaid program costs.[35] According to the survey, more than half the states are changing or have changed prescription drug policies by requiring prior authorization, developing preferred drug lists, and mandating use of generic drugs. In addition, a number of states are beginning to implement limits on the number of prescriptions per month that a Medicaid beneficiary may fill. States are also limiting or eliminating some optional services, especially adult dental care, and are implementing or increasing copayments for a variety of services from pharmacy to doctor visits.

The survey found that 29 states plan to cut or freeze provider payments in this fiscal year, notwithstanding the fact that low reimbursement rates already make it difficult to find adequate numbers of medical providers willing to participate in the program. It may be some time before the impact of these cost-containment measures is clear, but it is likely that persons with high-cost illnesses will be most adversely affected. In addition, copayments are onerous for those beneficiaries who require a variety of health care services on a regular basis, causing an accumulation of out-of-pocket costs that will burden low-income households and may trigger health care rationing as beneficiaries must choose between prescriptions and physician visits.

Tennessee's Medicaid program provides an example of the sorts of changes taking place in response to budgetary constraints. TennCare was a pioneer in 1994 in expanding Medicaid eligibility to uninsured and uninsurable state residents. However, it is currently back-pedaling from its earlier attempts to move toward universal health care coverage. TennCare has begun to restrict eligibility and benefits under a revised Section 1115 waiver approved by CMS in May 2002; all recipients are required to reapply for certification. Notification letters were sent in July 2002 to 235,000 enrollees, and 130,000 of them (most of whom failed to respond to the letter) were disenrolled at the end of October. Another 200,000 enrollees (of the 325,000 sent notices in August and September) could be disenrolled by January 2003. Benefits coverage changes were implemented in January 2003, with coverage for the uninsurable (including many PLWH) being reduced from previous levels. Prescription copayments between $1 and $3 were instituted, physician visit copays increased from $5 to $10, and the prescription copay cap was raised to $25 for enrollees with incomes above the FPL. During an 18-month transition period, MCOs are to be freed from medical cost risks.[36]

At the other end of the spectrum is Maryland, which instituted its Medicaid managed care program, HealthChoice, in 1997. In addition to adopting health-based payments across the board, Maryland developed special AIDS reimbursement rates based on historic Medicaid utilization data. Those rates were $2161 for residents of Baltimore and $1812 for persons living in the rest of the state. Care for HIV patients was reimbursed on the basis of the more general ACG health-based mechanism used for other Medicaid enrollees. That mechanism established 9 tiers or rate categories for families with children, with monthly reimbursement rates of $45 to $721, and 9 tiers for persons with disabilities, with rates of $95 to $1102.2 Those rates did not include payment for HAART, for which the state paid on a FFS basis.

Since that time, Maryland's reimbursement strategy for HIV and AIDS care has undergone several changes. The most recent HealthChoice capitation rates from 2001 to 2003 are shown in Table 2. One difference from the 1997 rates is that starting in 2001, they include HAART, which costs between $800 and $1000 per month per enrollee.[37] Exclusive of HAART, the costs of care for people with AIDS receiving the therapies are similar to the 1997 reimbursement rates. Changes in the reimbursement rates for persons with HIV infection (non-AIDS) suggest the rates that HealthChoice initially paid for HIV patients were well below the costs of care. Recognition of this fact has led to the second major change in Maryland's reimbursement for HIV/AIDS care, namely, the establishment of separate reimbursement categories for HIV care for both disabled enrollees and families with children.

Recent HIV capitation rates, particularly for disabled enrollees, are higher than the highest rates available when Maryland first instituted HealthChoice. The decrease in HIV capitation rates scheduled to take place at the beginning of 2003 may reflect changing medical strategies regarding the appropriate point in HIV illness at which to begin administering HAART. When these therapies first became available in 1996, the strategy of choice was to use them early in the course of HIV infection, and almost always when CD4 cell counts dropped below 500/µL. As a result of the failure of these drugs to eradicate HIV, the limited times for which they are effective, and their sometimes serious (and even life-threatening) side effects, physicians are being advised to delay administration of these therapies in most cases until CD4 cell counts have dropped to below 350/µL. Maryland has also explored the possibility of adopting capitation rates for HIV and AIDS that vary with enrollee comorbidities.[38] However, the MCOs participating in the state's Medicaid program found the prospect of getting accurate encounter data from providers, including diagnosis codes for comorbidities, to be daunting. Hence, the state adopted reimbursement rates that do not depend on this information.

Medicaid Program Policy Trends

from Drug Benefit Trends®

Implications of the HIV Experience for the Care of Other Chronic Disease Populations

In recent years, the federal government has allowed states to increase the number of persons with health coverage through Medicaid and the State Children's Health Insurance Program. However, a new federal waiver program, the Health Insurance Flexibility and Accountability (HIFA) demonstration initiative, allows states more flexibility to reduce eligibility levels and benefits for optional Medicaid populations if they expand health care to previously uninsured people.

While a response to the large numbers of persons without insurance in the United States is important, there are concerns about the consequences of the HIFA approach for those who depend on comprehensive Medicaid services to preserve their health. The so-called optional Medicaid eligibility categories include 22% of all beneficiaries who are disabled and qualify based on medically needy status, as well as 56% of all elderly persons enrolled in Medicaid.[39] That the HIFA waiver process allows states to impose unlimited cost-sharing and to stop providing key services to these optional populations raises questions about both the scope and quality of care. More generally, cost-containment strategies that ration care through service limits or eliminations, reimbursement rate reductions, or eligibility limitations are likely to have the greatest impact on the beneficiaries who are most in need of health care services because of disability, chronic illness, or advanced age.

The response of many state Medicaid programs to the special needs posed by PLWH shows that other options that can contain costs without compromising the quality of care are available. These include HCBS waiver programs, HIV expansion waivers that provide coverage earlier in the course of illness, and disease management programs. The past several years have brought remarkable changes in treatment patterns for PLWH, including the widespread adoption of HAART, marked decreases in inpatient hospitalizations, and declines in opportunistic infections and mortality. The use of new practice guidelines and treatment patterns can improve quality without increasing costs. Thus, Medicaid programs should provide incentives for providers and MCOs to adopt such new practice guidelines and treatment patterns quickly.

As noted above, this rapid evolution of standards of care and treatment has been accompanied by changes in state Medicaid program policies as states work to contain costs while also meeting their obligations to offer comprehensive health care to beneficiaries. Driven by cost containment, these changes in state Medicaid policy have accelerated, and a number of the strategies have a direct impact on some or all groups of Medicaid beneficiaries. Especially in times of tightening state budgets, beneficiaries with a wide range of chronic illnesses and disabilities may face changes in Medicaid benefits that simply do not meet their fundamental needs. State and federal policy makers have an opportunity to balance the need for fiscal health with the public duty to ensure that Medicaid beneficiaries receive services that preserve and promote health. Novel financing mechanisms, such as using Medicaid funds to purchase private insurance and negotiating drug price reductions from pharmaceutical companies, can help contain costs while maintaining access to care.