Medicaid Oversight and Advisory Committee (HB 90)


Minutes of the<MeetNo1> 1st Meeting

of the 2006 Interim


<MeetMDY1> August 28, 2006


The<MeetNo2> Medicaid Oversight and Advisory Committee (HB 90) meeting was held on<Day> Monday,<MeetMDY2> August 28, 2006, at<MeetTime> 12:30 PM, in<Room> Room 169 of the Capitol Annex. Representative Derrick Graham, Chair, called the meeting to order, and the secretary called the roll.


Present were:


Members:<Members> Senator Richard "Dick" Roeding, Co-Chair; Representative Derrick Graham, Co-Chair; Senators Walter Blevins Jr., Tom Buford, Julie Denton, and Dan Seum; Representatives James E Bruce, Joni L Jenkins, Jimmie Lee, and Stephen R Nunn.


Guests Legislator:  Representative Tom Burch.


Guests:  Michael Wooden for Eli Lilly & Company; Cathy McGeehan for Novartis Pharmaceuticals; Nancy McKee for Wyeth; Bob Kelley for MERCK; Bill Doll for the Kentucky Medical Association; Brad Hall for the Kentucky Pharmacist Association; Gene Huff for McBrayer, McGinnis, Leslie and Kirkland; Karen Lentz for Schering; Darlene Eakin for the Kentucky Optometric Association; Barry Ingram, Shellie Potter, and Stephanie Brammer-Barnes for the Department for Medicaid Services; Jan Gould for the Kentucky Retail Federation; Sheila Schuster for the Kentucky Medicaid Consortium; Michelle Finn for the Brain Injury Association of Kentucky; John Cooper for Capital Link; Patrick Jennings and Hunter Bates for Bates Capitol Group; and Scott Williamson for the Cabinet for Health and Family Services.


LRC Staff:  Barbara Baker, Miriam Fordham, and Cindy Smith.


            The minutes of the February 27, 2006 meeting were approved without objection.


The first item on the agenda was a presentation on the Federal Budget Deficit Reduction Act by Christi Raniszewski Herrera, Director of the Health and Human Services Task Force at the American Legislative Exchange Council.  Ms. Herrera reviewed the components of KyHealth Choices as Family Choices, Comprehensive Choices, Optimum Choices, and Global Choices.  She also discussed the "get healthy" benefits of KyHealth Choices including disease management benefits.  She also discussed Medicaid expenditures.  She said that in FY 2004 total Medicaid expenditures reached $288 billion.  Medicaid accounted for 16.9 percent of state-level expenditures, more than spending on higher education, transportation, and all other forms of public assistance combined.  She said that the Federal Medical Assistance Percentage (FMAP) pays for more than half of Medicaid spending through a complex formula, based on each state's per capita income.  It is a guaranteed return-on-investment for state Medicaid dollars.  She reported that the average federal match is 57 percent, but Kentucky's federal match is 69 percent.  She said that FMAP is causing spending to spiral out of control.  Medicaid spending is unsustainable, and it poses a real threat to other state funding priorities as well.  She said that problem is that federal money is not free because state's own taxpayers pay federal, state, and local taxes.  They do not distinguish which branch of government takes their money.  Skyrocketing Medicaid spending, in the form of higher taxes, could hurt the recipients that Medicaid is supposed to help.  Medicaid's "command-and-control" reimbursement system tells providers what they are paid for services, regardless of market value.  This pushes providers out of the network and narrows patient choices.  Doctors treating Medicaid patients get about 62 percent of what Medicare pays.  Medicare reimbursement is 80 percent of what private markets pay.  Medicaid's beneficiaries have little or no cost-sharing requirements, making Medicaid virtually free.  There is no reason for them to be prudent health care consumers.  She reported that the RAND study found that removing price sensitivity induces patients to consume more medical care by as much as 43 percent.  Overconsumption affects the private market as well as Medicaid.  She said that ALEC believes that Medicaid should not be a program that gives its beneficiaries the best care someone else's money can buy, regardless of the cost.  She reported that only 39 percent of Medicaid spending is spent on mandatory coverage, and that 21 percent of adults and 27 percent of children who qualified for Medicaid were eligible for private insurance.  Instead of expanding eligibility, the goal of Medicaid reform should be to return as many people as possible to the private market.  She also discussed the "cliff effect".  She stated that poor families might be hesitant to accumulate wealth, because they know they will have to spend it down in order to qualify for Medicaid benefits.  As a result, recipients consume more instead of save more, which eliminates self-sufficiency.  She also discussed '"crowd-out".  She said that when the government begins to provide a services, it crowds out private-sector alternatives.  In states that offer many of the optional benefits, Medicaid offers better coverage that many private plans.  Next, she discussed Medicaid reform and the Deficit Reduction Act of 2005 (DRA).  Prior to the DRA, states looking to reform their Medicaid programs had to apply for a Section 1115 Research and Demonstration Waiver which involves a five step negotiating process with CMS, with waiver applications.  She said that CMS admits that $100 billion of Medicaid is delivered through waivers and demonstrations but the waiver process stifles state innovation.  The DRA is projected to reduce Medicaid spending by $4.8 billion in five years and to reduce Medicaid spending by $26.1 billion in ten years.  The major components of the DRA are cost-sharing, long-term care, benefit flexibility/opt-out, and health opportunity accounts demonstration.  Critics think that cost-sharing means "barriers to coverage".  The RAND Health Insurance Experiment found that cost-sharing reduces spending and keeps health outcomes generally stable.  The cost-sharing component of the DRA permit states to charge premiums and copayment for up to 20 percent of medical care and higher copayments for non-emergency care rendered in an emergency room setting.  Total cost sharing is prohibited from exceeding five percent of a family's income.  The DRA's long-term care components include a $500,000 cap on previously unlimited amount of home equity one can possess before qualifying for Medicaid; an increased "look back" period for Medicaid-qualifying asset transfers from three to five years; previously exempt "impoverishments" as penalizable assets; and eliminates the "half a loaf" Medicaid planning strategy.  The DRA provides home and community based care and self directed care as optional benefits, and an increased FMAP percentage is paid for each person that transitions from an institution to the community.  She said that Medicaid was a one size fits all system in which rigid benefits were not tailored to meet individual needs.  States no longer have to standardize coverage across populations and across the state.  Instead, they can provide one of several benchmark benefits.  States can also use Medicaid/SCHIP dollars to pay for employer-sponsored insurance.  She reported that the five-year, ten state "Health Opportunity Account" (HOA) demonstration is designed to combine the success of Health Savings Accounts (HSA) and Health Reimbursement Accounts (HRA).  States can enroll some of their Medicaid beneficiaries into a HSA like account, funded with a risk-adjusted amount based on health needs.  Ten HOA demonstration states will be approved to operate for five years, after which HOAs can be made a permanent part of the state's Medicaid program.  Lastly, she gave an update on market-based Medicaid reform in other states, including Florida, Oklahoma, West Virginia, Idaho, and South Carolina.


Representative Burch asked if this plan has been compared with plans in other countries.  He noted that other countries report better health outcomes.  Ms. Herrera said that other countries' programs are under-funded, poorly run, and their data on the prevalence of disease is inaccurate.  She said that America is at a crossroads and that ALEC advocates market-based reform.


Representative Burch asked what the savings are in states that have implemented market-based reforms.  Ms. Herrera said the savings is not being seen yet and there are no hard numbers.  She said more stable footing will be seen, as well as quality outcomes, and that built-in market principles would increase quality.  In Florida, the spending will remain the same, but there will be a decreased growth rate.


Representative Burch asked about whether there would be a live person on the phone at call centers.  Ms. Herrera said that live operators served as advocates in market-based programs.


Senator Denton asked about the states that are implementing 20 percent cost-sharing.  Ms. Herrera said that West Virginia and Idaho are using this percentage.


Senator Denton asked why anyone would opt out of Medicaid for private insurance and whether the cost-sharing is different.  Ms. Herrera replied that those who opt out are subject to the rules of the private insurance plans.  Some chose to opt out for dignity.


Senator Denton asked about the quarterly deposits for health reimbursement accounts.  Ms. Herrera said that the same amount is deposited in four quarterly cycles, and it is evaluated every year.


Senator Denton asked what the percentage is of the Medicaid population that is able to work and qualify for a private health insurance option.  Ms. Herrera said it is about 21 percent of eligible adults.


Representative Nunn commented on the importance of looking at the human side.  He noted that insurance is very expensive and low income people decline insurance due to cost.  Government serves a worthy purpose in providing access to health care.


Representative Jenkins asked about the RAND study and asked that staff get copies of it to all members of the Committee. 


Representative Graham asked how a copay increased under a private insurance plan would affect the Medicaid recipients.  Ms. Herrera replied that the Medicaid recipient could have a higher copay because they have to live by the rules of the private sector. 


Representative Graham asked about the Medicaid experiment with private insurance in Florida.  Ms. Herrera replied that the experiment is in two counties and will be expanded over a ten year period.


Representative Graham asked about the economic impact of Medicaid programs on state economies.  Ms. Herrera said there are no hard numbers yet because the plans are new.  The cost savings will come without the 8 - 10 percent growth rate per year. 


Representative Burch commented about various Medicaid policies and noted that if the service is not used, then costs are not increased.  Ms. Herrera replied that before the DRA care was standardized, market-based reforms will decrease costs.


Representative Graham asked about the limits on copays under the DRA.  Ms. Herrera said she is not familiar with specific cost sharing, but it should not exceed 5 percent of the family's income.


Representative Graham asked if the RAND experiment studied cost sharing and if so, what the findings were.  Ms. Herrera said she was not sure of the breakdown, but the outcomes were no different than those that participated in cost sharing.


Senator Roeding invited Ms. Herrera back to the committee to discuss the outcomes of DRA.


The next item on the agenda was an update on Kentucky Health Choices by Glenn Jennings, Commissioner, Department for Medicaid Services, Cabinet for Health and Family Services.  Commissioner Jennings said that the state was divided into four categories.  They are: (1) Global Choices, which has 235,000 members; (2) Family Choices, which has 263,000 members which covers most children, including KCHIP children; (3) Optimum Choices, which has 3,500 members and covers individuals with mental retardation and development disabilities in need of ICF/MR level of care; and (4) Comprehensive Choices, which has 27,900 members and covers individuals who are elderly and/or disabled in need of nursing facility level of care.  He said the full roll out of Optimum Choices has not occurred yet, due to the need of the approval of the 1115 waiver to move individuals through the continuum of care.  They are continuing to work with CMS.  Commissioner Jennings sent a letter to ask CMS why there has been no answer to the 1115 waiver and if there is a way to accomplish the same thing with another waiver.


Commissioner Jennings reported that the four plans and additional cost sharing requirements were implemented on July 1.  On August 1, prior authorization was implemented, but it was not a smooth implementation.  Interqual is being reworked.  Also, any claim denials were suspended until September 15.  He said workgroups are going through codes and reviewing lists and they will be modified on September 1.  Theses updates will be communicated with the provider community.


Commissioner Jennings reported on another controversy concerning the 5 percent co-insurance on the tier 3 drugs.  He said the immediate decision made is that the 5 percent co-insurance has been tapped at $20 per prescription.


He also reported that chronic illness accounts for 74 percent of Medicaid spending.  If behavioral health is added, it accounts for 82 percent.  He said that consumer directed option allows individuals to direct some of their own care, which will be very effective.  He reported there are currently 10 pilot projects occurring in the Department for Medicaid Services.  The contractor has limited diabetes disease management.  There are currently 92 members, and that will be re-looked at in April.  They are currently in discussion with vendors about what can be done to roll out disease management and case management statewide.


Senator Denton expressed concerns about how copays or cost sharing are sizing up and asked why some groups have copays, while others do not.  Commissioner Jennings stated that federal statute says that children under the age of 18 do not have a hospital copay and that many other groups are excluded from copays.  He stated that he would bring back more specific information at the next meeting.


Senator Denton also expressed concern with the $20 limit on the copay because sometimes only Tier 3 drugs can be taken for certain diseases.  She said that some individuals will have to access more providers.  She thinks the $20 may penalize some individuals and she encouraged DMS to take a strong look at the Tier 3 drugs and make sure that the $20 copay is reasonable to the Medicaid population.  Commissioner Jennings said that the $20 copay was just the first reaction, and there may be other options.  He said that some drugs could be moved to Tier 2, but flagged for prior authorization.


Senator Denton asked for the percentage of individuals on Medicaid that could get health insurance through their employer.  Commissioner Jennings said he is not sure, but there is the Health Insurance Premium Program, which has a provision where health insurance can be paid through the employer.  There is access to wage records, and they can match eligibility to the wage record file to see how many more can get in.


Senator Denton asked about the "brown bag issue" and said that the reason the Cabinet wants the patients to go to the pharmacy and take the meds to the doctors to be infused is because if the doctor sells, they are not eligible for rebates.  Commissioner Jennings said he has not seen a written or internal policy on this.  Senator Denton asked for clarification on the reimbursement issues surrounding "brown bagging" of injectibles.  Commissioner Jennings stated that he would provide additional information on this topic.


Representative Graham asked about how soft limits are managed and how service denials are tracked by the Department.  Commissioner Jennings said that is part of the contract with EDS.


Senator Blevins asked how the bidding for KCHIP is handled.  Commissioner Jennings said that he has not looked into that yet, and he is not sure how the RFP process will be handled.


Senator Blevins asked if there is a limit to one dental appointment per month.  Commissioner Jennings said more savings will be moving in early October, with a program that will be implemented, which may be called "Kentucky Dental Choices".


Senator Denton asked if "Kentucky Dental Choices" will be a capitation program.  Commissioner Jennings said that dentists will be given $1 per person, per month in order to try to find dental homes for people.


At the next meeting Representative Graham asked Commissioner Jennings to have staff available to discuss the "brown bag issue" and Senator Roeding asked Commissioner Jennings to discuss the series of exempt diseases at the next meeting.


The last item on the agenda, an update on KASPER by Zach Ramsey, Director, Division of Fraud, Waste and Abuse/Identification and Prevention, Cabinet for Health and Family Services was postponed until the next meeting due to time constraints.


The meeting was adjourned at 2:28 p.m.