The Medicaid Odyssey: Illinois Managed Care Dilemma

1. The Medicaidiad and the Odyssey The Financial Setting Surrounding Managed Care for Medicaid Recipients

2. “We are weak eyed astronomers using broken telescopes looking through clouded skies at stars that died a thousand years ago.” George Hovanec telling Chief of Staff Gene Reineke that he just had to trust him on the numbers. December 31, 1994.

3. IHA’s Four Questions • Why does Illinois not compare to other states in the use of managed care? • How can we have 8% health care growth when revenues grow at 3%? • Can HMO style managed care save money in the context of Illinois’s unique financing system? And what are the consequences if savings exist? • Are HMO’s the answer to Memisovski?

4. The Chart that Launched 1,000 Lobbyists • The Average State has 57% of their Medicaid population enrolled in Managed Care. • Illinois has only 7% of our population enrolled in Managed Care. • That ranks us 47th in the Nation. • Only Alaska, Mississippi and Wyoming utilize Managed Care less than Illinois. Missouri = 44% Wisconsin = 49% Indiana = 68% Kentucky = 85% Iowa = 89% Pennsylvania = 79% Michigan = 75% Florida = 63% California = 53% New York = 45% Texas = 39% Illinois = 7%

5. What does the evidence show? • “Managed care” does not manage large portions of other state’s budget -and/or- • “Managed care” is not limited to at risk capitation (HMO’s) • “Managed care” does not prevent rapid growth in Medicaid spending

6. Percentage of Budgets in Capitated Plans

7. Spending Growth Per Year FFY 1998-2002 Missouri = 20.2% Iowa = 18.9% Pennsylvania = 18.8% Wisconsin = 17.4% Texas =17.3% California = 17.2% Michigan = 14.9% Florida = 14.8% Indiana = 14.8% Kentucky = 11.6% New York = 10.6% Illinois = 9.2%

8. During that Period…… Illinois ranked 43 in annual percentage spending growth. . . . . not bad for a state that ranked 47th in managed care penetration. First Observation: Perhaps we didn’t go heavily into Capitated plans because we managed to make spending containment decisions on our own.

9. There’s a sucker born every minute • My minute was at 8:14 a.m. , November 27, 1953. • Let’s talk about the historical reasons for why Illinois isn’t more heavily into managed care and start the discussion about the long term affordability of Medicaid.

10. Extreme Pressure in the Early 90’s • Medicaid Spending Spiraled Out of Control • Tribune Series on Medicaid – a system in crisis • Medicaid Liability Projected to be $37 billion by FY05 (Current~$8B)

11. The Trojan Horse The FY95 Proposed Budget • Rapid Movement into Managed Care • Nine Month Medicaid Budget • Creative Financing to handle payment cycles

12. The plan morphed into Mediplan+ • Lengthy public hearings and a highly detailed bill. • Cynically viewed, it was a deformed camel. • Positively viewed, it was a vision of how elected officials wanted health care for the elderly, low income, and disabled to be delivered.

13. Mediplan+ Basic Elements Capitated Risk Plans Medical homes Managed Care Community Networks Consumer Choice Carve Outs • Behavioral Health • Sick Children’s Carve Out • Rehabilitation Hospital Care • Early Intervention Services • School Based Health Services • Eligibility Based Populations • Disproportionate Share Adjustments Client Education Plan Monitoring • Utilization Control • Quality Control

14. The result, the deformed camel got us through the desert • Lengthy waiver negotiation • Rate freezes, hospital cuts, assessment repeal • Welfare reform • MSI scandal • Medicaid Liability projected to equal $3.8 billion in FY05 (Current~$8B)

15. And, Unlike Other States, We Never Went to Managed Care. Why Did We Take the Road Less Traveled? • The Road we went down achieved our goals. • Traditional HMO’s did not like the design the legislature and Governor had chosen. • The financial picture improved and we worked on increasing quality and access. • The political climate changed and we moved to expand eligibility for children, the disabled, and seniors.

16. Low Expectations- $1 Billion in Savings –Better Results. * KIDCARE

17. Why Didn’t the HMO’s Like It? • Too many carve outs • Complicated referral design • Low rate left little room to manage care - $49 per TANF client

18. Improved Finance • The late 90’s were very, very good to Illinois. • Strong revenues combined with good Medicaid performance took away impetus for cost savings • Focus moved to increasing rates to maintain and improve access

19. Brief Summation FY94-FY98 • Available evidence from other States does not demonstrate that managed care will automatically reduce total Medicaid Growth. • Illinois’s choice not to go to Capitated managed care is probably attributable to its success in controlling cost without it and the vision of past General Assemblies and Governor’s being in conflict with the HMO models of Capitated plans.

20. The Odyssey continues FY99-04 • Large spending increases returned • Payment cycles increased • Clamor for managed care returned

21. How can we have 8% health care growth when revenues grow at 3%? • The net cost of Medicaid isn’t growing at eight percent. • The decisions we are making lead to the growth as much as “alleged” lack of utilization controls.

22. Funding Components of the Medicaid Program 3% annual Growth

23. Is Past Performance A Guarantee of Future Performance? • Yes, if we want it to be. • There is no example of the federal government walking away from states that do the right thing. • Every year we have to think, plan, debate, and decide.

24. What drives the costs • Enrolled Eligibles • Changes in Utilization Per Eligible • Prices Paid to Service Providers

25. Growth attributable to enrollment FY97-FY03

26. Growth attributable to enrollment FY97-FY03

27. KidCare $41 M Family care $20 M. 100% Campaign $150 M. Senior Care $202 M. Working Disabled Form Simplification Continuous Eligibility Redetermination Policy Presumptive Eligibility Normal Caseload Growth Enrolled Eligibles

28. Growth attributable to Utilization FY97-FY03

29. Utilization Increase - Access or Abuse? • Primary reason for rate increases • Main line of defense in Memisovski Case • Driven by Pharmacy Costs

30. Spending Increases Due to Utilization

31. Spending Increases Due to Utilization

32. Distribution of Costs Across the Population A Few People Cost A Lot…A Whole Lot!!!!!!!!!! 5% of Medicaid clients account for 50% of costs Half of the spending pays the costs of 5% of the people.

33. Growth attributable to Price FY97-FY03

34. What Drives Price • Federal Pharmaceutical Laws • Legislated Rate Increases • Budget Agreements • Adjustments to Ensure Access

35. How have the price increases been allocated?

36. How have the price increases been allocated (continued)?

37. What Does All This Mean? • 29% of the growth is due to caseload - Beyond the Control of any provider, including HMO’s. • 15% of the growth is due to nursing home rate increases – Beyond the Control of HMO’s. • Of the remaining 56 percent of growth – 64 percent of growth is caused by pharmacy costs. • The rest of the growth accounts for annual increases of 1.9%.

38. Recap • Capitated Manage Care Doesn’t Necessarily Control Costs. • The Net GRF Costs of the Program Have Grown At/Or Less Than Long Term State Revenue Growth. • Solutions are Within Our Control to Manage Growth Without Expanding HMO’s.

39. Does Managed Care Work Within Illinois’s Unique Financial System? Charybdis Scylla

40. Two Problems That Must Be Addressed • If your goal is to contain net GRF spending increases, you have to protect existing financing (e.g.-Cook County IGT and the Hospital Assessment). • If your goal is to preserve and enhance the Health Care Network, you have to preserve/increase rates to Hospitals, Primary Care Providers and others.

41. A Short Course In HMO Rate Setting

42. Subtractions to Liability

43. One Last Subtraction and We Are Ready • Subtracting Hospital Adjustment Payments of $450 million leaves $3.022 billion to capitate. • This would include AABD, TANF, DCFS, KidCare, & Family Care clients • This equals about 40% of the liability which is consistent with the data from other states.

44. What Does This Mean For The System?

45. Another View – Amount Currently Spent on Health Care vs. Administration and Profit Note: DOI data for year ended 12/31/2003 as submitted by companies excluding Family Health Network

46. If This Is Indicative Of Performance…

47. Will You Have a Health Care System if You Take $659-$1B Million Away? • Most of the money will come out of the hospitals and pharmacies. • DSH hospitals will close or CHAP payments will increase. • Utilization will be below 1997 levels.

48. And Will We Really Save Money?

49. If You Reduce Cook County Hospital Utilization… • You Reduce A Funding Source For the Program. • A Thirty Per Cent Reduction In Cook County Hospital Utilization loses $275 Million in Program Spending. More than the alleged 8% Savings.

50. If You Reduce Hospital Utilization… • You reduce the amount available from the federal government for hospitals, nursing homes, DD facilities, and the over-all state budget.