The inside scoop on the biggest pot of money in the general fund budget

This piece on Medicaid initially appeared in this week’s Rumors & Rumblings. I noted then that it was much more in-depth than I initially intended, and that I might repost it as its own article. I’m hoping this will be a good snapshot of where things stand behind-the-scenes right now, and a good introduction to the topic for those who want to get up to speed on the biggest pot of money in the general fund budget.

– Let’s start with a little Medicaid 101 before we get down into the weeds –

Medicaid is the health program for families and individuals with low incomes or certain disabilities. It is jointly funded by the state and federal governments, and is managed by the states. Medicaid makes up by far biggest chunk of Alabama’s general fund budget each year — north of $600 million. In short, the total amount of money Alabama has for Medicaid is the sum of the state portion combined with “matching funds” from the federal government.

– Voluntary Healthcare Provider Tax –

States are able to use revenues from healthcare provider taxes to help finance the state share of Medicaid expenditures. Medicaid in its current form has become absolutely dependent on this tax. But unlike most taxes, the healthcare providers are happy to pay it — so much so that they volunteer for it. Why? Because the return is huge. For every dollar they put in, the feds send back multiples of that to Medicaid in return ($3.28 currently, if my math is correct).

Although the healthcare providers don’t get all of that money directly, boosting the size of the medicaid budget is clearly of significant benefit to them.

– Managed Care –

“Managed Care” is a term used to describe a variety of techniques intended to reduce the cost of providing health benefits and improve the quality of care. The government basically says “we have X dollars to provide care,” and private companies find innovative ways to make it work.

A quick success story to better understand the concept of managed care…

One private healthcare provider gave their patients cell phones. The patients could text, makes calls — whatever they wanted. The phones also had an alarm that reminded the patients to take their meds. If the patients weren’t taking their meds — which the providers knew by whether or not their prescriptions were being refilled in the right intervals — the phone would get cut off.

So how did this drastically reduce costs? The large majority of medicaid costs come as a result major problems arising from a lack of preventative or “maintainative” care. By incentivizing patients to stick to their regimen, the provider drastically cut costs and drastically improved the health of the patient.

But on the flip side, healthcare providers point out that Alabama may not be as ripe for healthcare savings as some other states are.

Alabama has the third smallest Medicaid budget in the country, and Blue Cross rates are some of the lowest in the U.S. This is obviously not a bad thing as it keeps rates low for employers. But because hospitals don’t make as much in Alabama off of health insurance providers, Medicaid for them becomes an even more important revenue source. Those who oppose managed care contend that the opportunities for massive savings may not be as plentiful as they are in other states, and worry that some rural hospitals may have to close as managed care companies cut costs to preserve slim profit margins.

– So here’s what’s been going on –

Healthcare providers have been voluntarily agreeing every year to “re-up” their provider tax. Because the medicaid budget — and ultimately the general fund — has become so dependent on the provider tax, the healthcare providers enjoy a ton of leverage over the legislature.

But the legislature is looking for ways to stabilize the general fund budget over the next couple of years. So they asked healthcare providers to agree two years in advance on what they would pay in provider taxes, and asked for two years to prepare to move the state toward a system of “managed care.” Both sides initially agreed to the plan.

But keep in mind, some healthcare providers are interested in managed care, some aren’t, but the Alabama Hospital Association (AlaHA) is generally opposed to it. So when the legislation was drawn up, it included a provision that would allow providers a “way out” during the two years in which the state would be setting up a managed care system. This “trigger provision” was a poison pill in the bill, and the agreement quickly went off the rails.

Then things got really interesting.

Last week, in an effort to get the hospitals to be more cooperative on the managed care plan, House General Fund Budget Chairman Steve Clouse dropped a bill that said the healthcare providers would guarantee five years of the provider tax, instead of the two years they had previously agreed to.

The healthcare providers went ballistic.

AlaHA quickly rallied their folks and organized what some of them were calling a “storming the state house” event for hospital CEOs and administrators that was set to take place Tuesday.

Monday, Rep. McClendon and Sen. Reed — Chairmen of the House & Senate Health Committees — had a four-hour meeting in Birmingham at St. Vincent’s Hospital with about 40 hospital CEOs and administrators. During the meeting they hammered out a deal that includes three main provisions:

1. Healthcare providers agree to a three year guarantee on the provider tax
2. The legislature has three years to come up with a managed care system that works
3. If the managed care system the legislature comes up with ultimately doesn’t satisfy the providers, the providers are on the hook to pay the state back for the costs it incurred in setting up the system.

The third provision was seen by many as a big win for the state, and the providers in turn got a little extra time to prepare as Alabama moves toward managed care.

A substitute bill that includes the three deal points outlined above is currently being drafted and expected to surface any day now. There’s still some underlying distrust among all the interested parties, but things seem to be in a good place at the moment.

[Update: The bill has been filed, House Bill 605]

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