Health task force approves report projecting $959 million in savings

The Health Reform Legislative Task Force approved the final draft of a report that says the state will save at least $959 million in Medicaid costs over five years by continuing to implement the reforms it’s already implementing or is planning, or more if certain reforms are adopted.

The report was written by the consulting firm The Stephen Group after two years of meetings.

The task force was formed in early 2015 as part of the debate over extending the private option, the program that uses federal Medicaid dollars to purchase private health insurance for more than 300,000 Arkansans with incomes up to 138% of the federal poverty level.

Its job was to help create a replacement for the private option and to find savings in the overall Medicaid program, the health program funded primarily by the federal government with a state match. It hired New Hampshire-based The Stephen Group as a consultant and had input in Hutchinson’s new version of the private option, Arkansas Works, which recently received a waiver from the Obama administration to go into effect next year.

The report found that costs for traditional Medicaid are higher than other states and are growing unsustainably – conservatively, by 5% a year for the next five years, from a cost of $5.4 billion in 2017 to $6.9 billion by 2022, or a total of $31.2 billion from 2018-22. State general revenues required to fund the program will grow $500 million between now and 2021. Among the causes for the growth: a lack of hospital payment initiatives and a lack of care management strategies based on value and risk. The state relies too much on nursing homes and institutional settings rather than home- and community-based programs.

Arkansas Works will cost $1.7 billion in 2017 and $2.3 billion in 2022, or $10.2 billion from 2018-22. It will have an impact of $637 million on state funds from fiscal year 2017 to 2021. Its costs have been less than expected. Together, it and traditional Medicaid will cost $7.1 billion in 2017 and $41.4 billion between 2018-22. Across both programs, the report found the state does not emphasize health care value, outcomes, or improved health. Instead, it focuses on large claims processing.

Hutchinson asked for $835 million to offset the state’s share of Arkansas Works, which has been funded entirely by the federal government but for which the state begins paying 5% in 2017, a number that rises to 10% by 2020.

Instead, the report envisions $959 million that would come from improvements in case management, better coordination, and a reduction of duplication and unnecessary services that are already being implemented or planned, partly as a result of the work of the task force and The Stephen Group. Much of the changes are coming through rules changes or best practices, though some legislation could be created as a result of the task force’s work.

More specifically, those reforms include:
• Changes to behavioral health programs that are projected to save $215 million in fiscal years 2018-22;

• Changes to developmental disability services that would save $215 million over that time period;

• A memorandum of understanding signed May 20 by Hutchinson with the Arkansas Health Care Association, which represents the long-term care industry, to reduce costs by $250 million over five years;

• $41 million in savings by using managed care for dental services. In managed care, a private company administers the program with financial incentives to reduce costs; and

• $250 million over five years in pharmacy savings through a variety of initiatives.

The Stephen Group envisions bigger savings of $1.154 billion if the state adopts a model where the Department of Human Services works with private behavioral health and developmental disability providers to develop regional cooperative groups managed by a coordinating entity owned by those providers. The plan envisions $1.28 billion in savings if the state adopts a managed care model for developmental disability and behavioral health services.

Over the course of two years, The Stephen Group argued for a more extensive commitment to managed care, but some legislators balked, and the task force split on the issue, never coming to a conclusion. The report raises the issue but does not draw a conclusion.

The report says the private option population is younger than other Arkansans buying insurance individually and that its members have access to more providers than traditional Medicaid recipients. However, despite being younger and healthier, they utilize the emergency room at greater rates than the general population – the apparent result of a lack of understanding of how to use the system properly, or a lack of incentives. It found that 40% of recipients have zero annual income. It found that hospitals saw a steep drop in uninsured patients as a result of the program.

The Stephen Group also found serious problems with the Department of Human Services’ enrollment eligibility system. Last October, it reported that 42,891 Medicaid and private option recipients had best addresses that were out of state, while hundreds were deceased prior to being authorized. DHS has since worked to remedy the eligibility system.

The report expresses hope that the incoming Donald Trump administration will fund state Medicaid programs through a flexible block grant, allowing the state to implement changes in Arkansas Works such as work requirements for eligibility for able-bodied adults.