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AAPD Update on the Medicaid Commission
September 1, 2005

September 1, 2005 – This morning the Medicaid Commission delivered its first report to the Secretary of Health and Human Services Michael Leavitt. Shortly after it is given to Secretary Leavitt, that report will be delivered to Congress. It can be found on the Commission's website. Letters from Commissioners John P. Monahan, President of State Sponsored Business in Camarillo, CA., and Douglas A. Struyk, President and CEO of The Christian Health Care Center in Wyckoff, NJ, also will be delivered as a supplement to the report.

Commission Process

The Commission consists of 13 voting members and 15 non-voting members representing a diversity of interests and views. The report submitted today reflects the Commission’s recommendations for achieving $11 billion in scorable Medicaid savings over the next five years. Although the Commission received over 100 submissions, the only options they could consider for this report had to have been previously scored by either the Congressional Budget Office (CBO) or the Centers for Medicare and Medicaid Services Office of the Actuary (CMS OACT), or ones that contained sufficient detail upon submission to allow OACT to provide a score prior to the Commission’s meeting on August 17-18, and that demonstrated $10 billion in savings over the five-year period.

On the first day 33 proposals were presented and discussed. Most of these proposals were submitted by the President’s Budget FY 2006, the National Governors Association, and the Congressional Budget Office (2005 Budget Options). One was submitted by former Governor Angus King and one by the Association for Community Affiliated. Initially, five proposals were offered by the National Association of Chain Drugs Stores, but were unable to be scored for consideration. The meeting also included two hours of testimony by a number of advocates.

Vote on Recommendations

On August 18, Chairman Governor Don Sundquist and Vice-Chair Governor Angus King prepared a "Chairman's Mark." The Mark that was finally approved by the voting Commissioners consisted of six of the options presented the day before and reflected the Chairs’ recommendations for the Commission. A brief summary of each of the final recommendations is listed below:

  1. Allowing states to establish pharmaceutical prices based on the Average Manufacturer Price (AMP) rather than the published Average Wholesale Price (AWP). Additionally, reforms should be implemented to ensure that manufacturers are appropriately reporting data. Estimated savings are $4.3 billion over five years (OACT).
  2. Providing Medicaid managed care health plans access to the existing pharmaceutical manufacturer rebate program currently available to other Medicaid health plans. States should have the option of collecting these rebates directly or allowing plans to access them in exchange for lower capitation payments. Estimated savings are $2 billion over five years (OACT).
  3. Moving the start date of penalty period for persons transferring assets for Medicaid eligibility from the date of the transfer to the date of application for Medicaid or the nursing home admission date, whichever is later. Estimated savings are $1.4 billion over five years (CBO).
  4. Increasing the “look-back” period from 36 months to five years for transfer from personal assets of Medicaid applicants during a period of time prior to application. Applicants are prohibited from transferring resources during the “look back period” for less than fair market value. Estimated savings are less than $100 million over five years (OACT).
  5. Allowing states the flexibility to be able to increase co-payments on non-preferred drugs beyond nominal amounts when a preferred drug is available, to encourage beneficiaries to fill the least costly effective prescription for treatment. States should be given the ability to develop effective tiered co-pay structures to encourage cost-effective drug utilization where appropriate for all beneficiaries, regardless of income. All co-payments for the preferred drug list should become enforceable. States should be given broad authority to waive co-payments in cases of true hardship or where failure to take a preferred drug might create serious adverse health effects. Estimated savings are $2 billion over five years (OACT).
  6. Changing the law so that managed care organizations (MCOs) are treated the same as other classes of health care providers with respect to provider tax uniformity requirements. Specifically, states would be required to tax all managed care organizations, not just those with Medicaid contracts, in order to meet the uniformity requirements. States should be prevented from guaranteeing that tax revenues paid to states by MCOs be returned. Estimated savings are $1.2 billion over five years (CBO).

Proposed Amendment to the Mark

During discussion of the Chairs’ Mark, Commissioner Gwen Gillenwater, a disability advocate who is a voting member of the Commission and who is senior director of policy and outreach for the American Association of People with Disabilities, moved to amend the Mark. She proposed substituting recommendations four (increasing the look back period) and five (tiered co-payments for prescription drugs) with a proposal to increase the flat rebate paid by brand-name drug manufacturers by increasing the minimum rebate percentage. Estimated savings for recommendations four and five together were $2.1 billion, while the substitute would have saved an estimated $3.22 billion over five years.

Following Commissioner Anthony McCann’s second to the amendment, there was a period of healthy debate. Several non-voting commissioners supported the substitution. Dr. John C. Nelson, a former president of the American Medical Association said, “If we raise the co-payment, some people will not get the care they need. These are real people.” Dr. Carol Berkowitz, president of the American Academy of Pediatrics, said that co-payments of $3 to $5 could quickly add up to substantial costs for a low-income family with four children. Another commission member, Julie Beckett, said that a $5 co-payment for each drug and doctor’s visit “is a lot if you have multiple chronic conditions and multiple needs.” Ms. Beckett is policy director of Family Voices, an advocacy group for children with special health care needs.

Other Commission members disagreed. Michael J. O'Grady, a voting member of the Commission who is also an assistant secretary of health and human services, said the higher co-payments could make beneficiaries more ‘price-sensitive’ and would not impose an undue burden. “We are talking about the price of a pack of cigarettes,” Mr. O’Grady said. He noted that the maximum co-payments had not been changed since the early 1980’s. Under the proposal, the Congressional Budget Office estimates, Medicaid recipients would pay $4 billion in additional charges over the next five years. In the end, however, Commissioner Gillenwater’s amendment failed by a vote of 12 to one.

Summaries of the recommendations are appended to the report. The information contained in those summaries was taken directly from the information provided by the authors of the proposals. Each summary includes language used by the proposal author for the purpose of describing the summary, key points/findings, and final thought for each narrative.

NGA new release

Also this week on August 29, the National Governors Association (NGA) released a new paper entitled “Short-Run Medicaid Reform,” focusing specifically on policies that could be included in the revenue and spending reconciliation bills. The paper expands on governors’ recommended proposals for streamlining Medicaid and is consistent with the policy recommendations in “Medicaid Report: A Preliminary Report,” their first release. The three areas that seem to have merited the most attention by the NGA are (1) prescription drugs, (2) long-term care which includes asset transfer, and (3) cost-sharing. Regarding cost-sharing, the report says: “States should be given the ability to implement common-sense, enforceable cost-sharing throughout the Medicaid program both to increase responsibility of Medicaid beneficiaries for the cost of their health care, and encourage cost-effective care in the most appropriate setting. This new flexibility would be completely at state option, and states could choose to further restrict the types of cost-sharing in theprogram by income level, beneficiary category or service type.”

Virginia Governor Mark Warner, co-chair of the working group that developed this report, said, “This paper is an effort to provide greater details of short-run solutions. Medicaid numbers will continue to grow even if these policies are enacted. That’s why we must continue to look for long-term reforms to ensure that Medicaid is sustainable.” Governors appreciate the Medicaid Commission that adopted several of the NGA’s recommendations for this first report and look forward to working with the Commission to find long-run solutions to restructuring Medicaid.

Responding to the recent report of the NGA, Commissioner Gillenwater stated, “The challenges facing our state governors are tremendous. Being a native Virginian and having directed a center for independent living in far southwestern Virginia where many people qualify for Medicaid and/or Medicare, I have great respect and appreciation for the efforts of Governor Warner and Medicaid Director Patrick Finnerty. But I have even greater respect for those people who struggle every day to survive where health care options are limited and incomes are even more limited. At a time like this when our country has staggered with the devastation in Louisiana, Mississippi, and Alabama, we must foremost be concerned with the people whose needs are greater than their ability to provide for those needs.”

Second Charge of the Commission

By December 1, 2006, the Commission shall submit to the Secretary a report making longer-term recommendations on the future of the Medicaid program that ensure the long-term sustainability of the program. They shall develop proposals that address the following issues:

According to the report submitted today, the Commission shall consider how to address these issues under a budget scenario that assumes federal and state spending under the current baseline; a scenario that assumes Congress will choose to lower the rate of growth in the program; and a scenario that may increase spending for coverage. The Commission shall assume that the basic matching relationship between the federal government and the states will be continued.

Future Meetings

The Commission will meet again on October 26 and 27, 2005, although the location of that meeting has not been determined. Another meeting is planned for early December, 2005 in Washington, D.C.

Next Step

Commissioner Gillenwater stated that she hoped the early meetings would be focused first on the populations of Medicaid beneficiaries who would be affected by any changes to the program, as well as looking at the health care system in general – trends and challenges. Medicaid does not exist in a vacuum; it’s impossible to separate Medicaid and Medicare. Gillenwater said, “Sometimes we overlook the successes in Medicaid. It was an important supplement in the welfare to work programs, and for people with disabilities using the Ticket to Work, Medicaid buy-in is crucial.”

In the first meeting of the Commission when members were introducing themselves, Commissioner Gillenwater quoted Franklin D. Roosevelt, “The test of our progress is not whether we add more to the abundance of those who have much, it is whether we provide enough for those who have too little.”

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