The Pennsylvania Coalition of Medical Assistance Managed Care Organizations (PAMCO) understands that the Governor’s Proposed Budget reflects a series of difficult decisions made to align the Commonwealth’s financial obligations with its available revenue. However, there are number of budget items that PAMCO would like to highlight for consideration during upcoming budget discussions.

HealthChoices Expansion

The Governor’s Budget reflects an expansion of the HealthChoices program into the rest of the Commonwealth during FY 2012/13. This expansion is a positive development for taxpayers. According to the Lewin Group, over the last 11 years, HealthChoices has saved the State and Federal government $5.9 billion in total Medicaid funds. The nationally recognized program and its contracted Medicaid Managed Care Organizations (MCOs) have also improved access and quality of care for Medicaid recipients.

The MCOs applaud the Administration’s decision to expand HealthChoices statewide in 2012/13. We will support the Department of Public Welfare (DPW) in implementing the program and seamlessly converting members from ACCESS Plus.

Managed Care Rates

In light of the difficult financial situation that the Commonwealth faces, Pennsylvania’s Medicaid MCOs appreciate that the Administration did not make significant cuts to the Capitation appropriation, including the value-based payment component. MCO funding must take into consideration the following:

• MCOs face rising medical inflation due to increased provider rate demands, advances in high cost drugs and medical treatments, and an influx of previously uninsured members with pent up demand for services.
   
• According to Federal law, payment rates to Medicaid MCOs must meet the test of actuarial soundness.
   
• The Administration is moving to expand HealthChoices statewide and is relying on a fiscally strong base of experienced MCOs to deliver cost savings to the Medicaid program. Continued underfunding jeopardizes the financial stability of the MCOs and undermines the foundation for those cost savings to be achieved.

Adequate funding for Medicaid MCOs should be a priority for the 2012/13 Budget.

Eligibility Changes

The Budget proposal makes two eligibility-related changes that will affect the Medicaid MCOs. The first would restrict the General Assistance program. The second would remove a category of eligibles from Managed Care, instead serving them through Fee for Service (people who become eligible as a result of a hospital stay). PAMCO recognizes that these program changes have been proposed in order to contain costs. The MCOs are concerned that the anticipated cost savings for these two measures have not adequately considered the resultant shift in Managed Care case mix and its potentially adverse impact on Medicaid MCO rates.

The budget must provide funding for MCO rates that reflect the increased acuity of the remaining members enrolled in Managed Care.

APR-DRGs for Non-participating Hospitals

The Medicaid MCOs recently became aware of a provision in Act 22 of 2011 (Section 1.4(B)) requiring them to pay out of network hospitals at the new APR DRG levels for 2012/2013. This is a significant departure from the previous requirement, negotiated by DPW, the MCOs and the hospitals, that allowed these claims to be paid under the prior DRG payment rates.

Since the new APR-DRG rates are, on average, 34% higher than the previous DRG rates, this change will have a financial impact on the MCOs, estimated at more than $20 million. However, DPW has confirmed that funding was not included in the Governor’s budget to implement this legislative mandate.

Repealing Section 1.4(B) would eliminate the need for the Commonwealth to include funding for this hospital increase in the 2012/13 budget. The MCOs anticipate that this new requirement will result in significant hospital cost inflation, even beyond the initial $20 million, for the MCOs and DPW. The only alternative that meets actuarial soundness requirements would be to fund this increased cost in MCO rates.

The budget must either repeal this provision or fund MCO rates to reflect the increased cost of paying the new APR-DRGs to non-participating hospitals.

Looking to the Future: Long Term Care

The largest component of expenditures in Medicaid is for Long Term Living and Support services for the elderly and disabled. In total, the elderly and disabled represent 38% of the total Medicaid population but 73% of Medical expenditures. Many states across the nation are tackling this problem through innovative Medicaid Managed Long Term Care models. The Administration has announced publicly that it is looking toward a similar approach, with the design details to be finalized during the coming fiscal year.

The Medicaid MCOs support the concept of Medicaid Managed Long Term Care and will be active partners in DPW’s public planning process. Estimates show that the Commonwealth could save nearly a billion dollars over a five-year period using a Medicaid Managed Long Term Care model.