Pa. considering shift in Medicaid payments to help cut rising expenses

Pennsylvania is considering paying Medicaid recipients as much as $200 as an incentive to visit higher-quality and lower-cost hospitals and doctors.

Experts say the strategy has never been tried by other states.

Gary Alexander, the state's secretary of public welfare, said his agency hoped to launch the plan by early next year to help control rising expenses in the $30 billion Medicaid program.

"We are looking at a model to save hundreds of millions of dollars by steering Medicaid beneficiaries to the most cost-effective settings," Alexander told about 300 health-insurance executives last week at a meeting in Washington. "To reward beneficiaries, we would give them some incentive . . . so if the state saves $1,000 on a medical procedure, we may give the beneficiary $100 or $200 as a reward."

After his talk at a conference sponsored by the industry group America's Health Insurance Plans, Alexander told Kaiser Health News that his incentive plan would initially apply to the nearly one million Medicaid recipients still in traditional fee-for-service Medicaid. Later, he said, it could be expanded to more than 1.2 million in private Medicaid managed-care plans, which predominate in the Philadelphia area.

Alexander said he did not believe the state would need to get approval from the federal government for the incentive program, although other Medicaid officials disagreed.

Darin Gordon, the Tennessee Medicaid director who served on the same AHIP panel as Alexander last week, said the incentive plan would be unique. "While we have been looking at charging higher co-pays for higher costing/lower performing providers to encourage use of the higher-value providers - the Pennsylvania approach may result in an even larger behavior change due to the size of the incentives."

Interestingly, neither the Pennsylvania Hospital & Health System Association nor the chair of the state's Medicaid advisory board said they knew of the incentive plan.

Advocates for the poor said they would be concerned about any plan that would limit recipients' access to care.

"People on Medicaid should be able to go to the doctor or medical provider of their choice," said Michael Froehlich, an attorney with Community Legal Services in Philadelphia. "We are all in favor of better-quality health services, but if it comes at the expense of restricted access to neighborhood doctors, then I think we would want to take a closer look at it."

Pennsylvania, like most states, already has too few doctors, especially specialists and dentists, participating in Medicaid, he said. Recipients also tend to lack access to convenient transportation and may be unable to reach low-cost providors.

Carey Miller, a spokeswoman for Alexander, said the incentive plan "is something we are looking at but not something we are doing at this time."

The state budget, passed last summer, requires the welfare department to make $400 million in cuts. And it also gives the agency wide discretion to change benefit rates and increase co-payments for child care and health care without much legislative oversight.

"We have a savings target to meet, and we can't wait months and months to do it," Alexander said when the budget passed.

But the measure set off alarms among advocates for the poor, who portrayed it as a power grab by the executive branch that would shred the safety net for hundreds of thousands of people - mostly women and children.

Some cuts have already come. In March, the state ended adultBasic, its subsidized insurance program for working people. The program ended with about 40,764 subscribers - and a waiting list that reached 505,624.

In the last decade, a growing number of private health insurers, including Aetna, have lowered co-payments to members as an incentive for using lower-cost and higher-quality doctors and hospitals. In Medicaid, the joint federal-state health program for low-income people, enrollees typically pay nothing or nominal co-pays for most care.

At the meeting, Alexander said his agency was taking a "slow approach" to implementing the 2010 health law, which will add 16 million people to Medicaid, including nearly 700,000 in Pennsylvania. "We have enough to do without looking to do any expansion at the point," he said.

Pennsylvania is one of 26 states that have filed suit against the Obama administration to get the health bill declared unconstitutional.

Pennsylvania Medicaid costs and enrollment has soared during the last decade, and today about one in six state residents receives Medicaid benefits.