02/04/2011 01:46 pm ET | Updated May 25, 2011

Fixing the Medicaid Mess

Curbing Medicaid costs is one of the hottest topics being debated in New York's health policy circles these days as we await the recommendations of the statewide Medicaid Redesign Team.

Every health expert in New York State has looked for an easy solution to reducing state Medicaid costs quickly. Unfortunately, rate cuts or benefit cuts are likely the only solution to the state's immediate budget crisis if the budget is to be balanced based on expenditure reductions. At a panel discussion a couple of weeks ago, co-hosted by the New York State Health Foundation and the Citizens Budget Commission, all of the participants (myself included) were hard-pressed to come up with viable short-term alternatives.

In the long-term, though, the state must pursue more comprehensive reform to control costs and spending related to Medicaid. If we fail to address the problem, New York State's total health care spending (across all payers) will reach an estimated $313 billion annually by 2020 (compared to the estimated $180 billion spent in 2009).

I see four main options for fixing Medicaid, none of them easy, and only one of them good:

1. Eliminate coverage for some types of health care services to ensure less use. New York has long been a leader among states in offering generous coverage through Medicaid. Restricting benefits (an approach that is the focus of attention in states like Arizona, where coverage for some organ transplants has been restricted) would push Medicaid spending down in some areas, but could also compromise patients' health.

2. Reduce the number of Medicaid beneficiaries. Given the opportunity for half a million New Yorkers to gain coverage through Medicaid if we implement the Federal health reform law well, rolling back eligibility is not a viable option. And, the current law forbids any eligibility reductions between now and 2014 in any case.

3. Starve providers by continuing to cut rates. The continual payment rate cuts of the past few years have left most providers in a position where they clearly lose money on delivering services to Medicaid patients. Choosing further rate cuts as a long-term strategy will only drive providers from being willing to serve Medicaid patients.

4. Start to change the fundamentals of our payment and delivery approach. Getting costs under control without sacrificing health care quality will ultimately require radical changes to the health care system. We need to change how we deliver care, especially for people with chronic illnesses and the small percentage of the population that uses a majority of all health care services. Along with delivery change, we need to change how we pay for care so providers have clear incentives to be effective and efficient.

The Accountable Care Organization (ACO) model is one example of an approach for improving the health system and reducing costs, by creating incentives for providers to emphasize primary care, prevention, and adherence to evidence-based guidelines. Although much of the attention in the wake of federal health reform has focused on Medicare, ACOs should reasonably be implemented across all payers, including Medicaid. Through ACOs, health care providers have an opportunity to band together to coordinate care and share in the savings that result from improvements in the quality and efficiency of care.

Another promising idea that is gaining traction at both the state and federal levels is integrating and coordinating care for people who are eligible for both Medicare and Medicaid. Under this scenario, New York State's 650,000 "dual eligibles"--who tend to be frequent and costly users of health care--would be enrolled into capitated managed care organizations (MCOs) responsible for the entire Medicaid and Medicare benefits package for their enrolled dual eligibles. Such a model would require a partnership between the Centers for Medicare and Medicaid Services (CMS), which manages these programs at the federal level, and New York State. Under this partnership, Medicare and Medicaid funds for dual eligibles would be pooled, with the overall savings achieved split 50/50 between the Federal government and New York State.

The federal health reform law offers New York State an unprecedented opportunity to invest in our health care system and to change the way we approach the delivery and payment of health care to make a real difference for providers and for people. Doing so will require difficult decisions and trade-offs; still, I remain optimistic about New York State's chances for success. I believe we're up to the challenge, but we're all going to have to work at it, be smart about it, and do what's right for the long-term. That means focusing on changes that will improve care as well as reduce costs.