Services program overtops estimate; Arkansas Medicaid’s costs up 4.7% for 2019

Gov. Asa Hutchinson and Human Services Department Director Cindy Gillespie discuss the state’s Medicaid program at a news conference Friday at the Capitol.
Gov. Asa Hutchinson and Human Services Department Director Cindy Gillespie discuss the state’s Medicaid program at a news conference Friday at the Capitol.

Spending by the Arkansas Medicaid program grew 4.7% during the fiscal year that ended June 30 as managed-care companies took responsibility for providing services to certain recipients with expensive health needs, state records show.

From March 1, when the shift to managed care occurred, to the end of the fiscal year, the payments to the companies totaled $540 million, or an average of about $135 million a month.

However, information provided by the state Department of Human Services to lawmakers last year indicates that the payments were expected to be about $79 million a month.

The new expense more than offset reductions in other types of Medicaid spending, including a drop in spending on the expanded part of the Medicaid program, known as Arkansas Works.

Overall, Arkansas' Medicaid spending increased by about $333 million, to $7.4 billion.

Gov. Asa Hutchinson said in a statement that he's "pleased with the progress we've made" toward his goal, endorsed by a legislative task force in 2015, of curbing the growth of Medicaid spending.

"In terms of controlling costs, it's meeting our expectations, although it's probably a little early for final analysis," Hutchinson said.

The governor has said he wants to slow the growth of spending in the traditional Medicaid program, which covers children from low-income families and poor people who are elderly or disabled, by enough to save $835 million from 2017-2021.

That target is based on a goal of saving the state budget $50 million a year to help pay the cost of Arkansas Works, which covers adults with incomes of up to 138% of the poverty level.

The income cutoff this year, for instance, is $17,236 for an individual, or $35,535 for a family of four.

Because the state contributes about 30% of traditional Medicaid expenses, with the rest covered by the federal government, reaching the savings goal requires reducing overall traditional Medicaid spending by about $167 million a year, or $835 million over five years.

In quarterly "score-card" reports to Hutchinson and lawmakers, the Department of Human Services calculates progress toward the goal by comparing traditional Medicaid program spending since fiscal 2017 with what the cost would have been if the program had been growing at 5% a year since fiscal 2016.

At the time that benchmark was established, the traditional part of the program's spending over the previous few years had grown less than 3% per year, including an increase of 2.5% in fiscal 2016. But state officials and a consultant said at the time that they didn't expect the slow growth to continue unless the state took steps to curb costs.

According to the score-card reports, traditional Medicaid spending grew by about 4.8% in fiscal 2017, then fell by 0.6% in 2018 before increasing 8.6%, to $5.6 million, in fiscal 2019.

Meanwhile, enrollment in fiscal 2019 remained flat, averaging about 667,000 people at the end of each month.

The percentage increase in spending in the traditional program was the biggest since fiscal 2012. According to the Department of Finance and Administration, expenditures that year grew by 6.3%.

In a July 31 letter to Hutchinson, Secretary of Human Services Cindy Gillespie said the savings from 2017-19, based on the department's benchmarks, have totaled $918 million, including $690 million that she attributed to changes the Human Services Department has made to control costs.

"While financial challenges remain, through your leadership, and with the ongoing support of the General Assembly, Medicaid is becoming more financially stable and predictable while ensuring services for those most in need remain intact," Gillespie said in the letter.

The managed-care program, one of the state's cost-control efforts, involves paying companies to provide health benefits to about 45,000 Medicaid recipients with mental illness or developmental disabilities.

The companies, known as Provider-led Arkansas Shared Savings Entities, or PASSEs, began coordinating the recipients' care in February 2018 in exchange for monthly payments of $173.33 per recipient.

In March, the companies became responsible for paying for all of the recipients' care in exchange for larger monthly payments, ranging from $998.86 to $12,671.62 per recipient.

Department of Human Services spokesman Marci Manley said in an email that the payments have been higher than projected at least in part because the companies are providing health services to more Medicaid recipients than expected.

She said the department is working with its actuarial consultant, Milliman in Seattle, to set the rates that will be paid to the companies next year and to retroactively make "modest adjustments" to the rates that the state paid the companies this year.

"We remain focused on the sustainability of the Medicaid program as a whole," Manley said. "The PASSE program certainly is an important component of sustainability and it will prove its value to beneficiaries and taxpayers."

At a meeting of service providers for the developmentally disabled earlier this month, Bryan Meldrum, an executive with one of the providers, called it "very concerning" that the Human Services Department is considering retroactively adjusting the rates.

"It's important that there's enough money to get the job done," Meldrum, vice president of network development with Arkansas Total Care, said at the meeting in Little Rock. "That affects how we all view what services should be offered, how much service should be offered, what kinds of things we're going to need to review for authorization, that kind of thing."

Whether a recipient is assigned to the program depends on the result of an assessment of the recipient's health needs conducted by Optum Government Solutions, a division of Minnesota's United Health Group.

By grouping recipients into tiers based on the severity of their needs, those assessments also determine the amount of money a managed-care company receives each month to pay for the recipient's care.

Meldrum said that more recipients than expected have been assigned high tier levels, causing the payments to be higher than expected.

Manley said retroactive rate adjustment is allowed under the department's contracts with the managed-care companies.

She said the program will reduce the amount of money Medicaid spends on paying directly for medical care and other services.

Through the state's insurance premium tax, the department also recoups 2.5% of what it pays the companies.

The state has collected about $13.5 million through the tax on payments through June 30, Manley said.

Act 775 of 2017, which authorized the managed-care program, requires at least half of that money to go toward reducing the number of Arkansans with developmental disabilities who are on a waiting list for home-based services, such as help with daily living tasks.

About 4,500 Medicaid recipients are receiving the services and 3,342 are on the waiting list, Manley said.

Manley said money from the premium tax also will be used to provide an "interim wait-list benefits package" to some of the people on the list.

Hutchinson said he knew the implementation of managed care would be a challenge, but he's "pleased with the progress" and the response from providers, which he said "exceeded our expectations."

"We're happy with the benefits of this new approach. It allows more emphasis on patients and their care," Hutchinson said. "At the same time, the delivery of services is more efficient."

According to the score-card reports, the shift coincided with a drop in spending on other parts of the traditional Medicaid program.

Spending fell 36%, to $248 million, on mental-health services and about 9.7%, to $618.4 million, on services for the developmentally disabled.

Meanwhile, a decline in enrollment caused spending on Arkansas Works to fall 5.9%, to about $1.8 billion.

Manley cited a strong economy, efforts to remove people who are no longer eligible, and the imposition of a work requirement in June 2018 as reasons enrollment in the program fell from about 309,000 at the beginning of fiscal 2018 to about 250,000 on June 30 of this year.

The work requirement caused 18,164 Arkansas Works enrollees to lose coverage before a federal judge struck it down in March. Arkansas and President Donald Trump's administration are appealing the judge's ruling.

Despite the drop in the overall cost of Arkansas Works, the cost to the state increased by about 14%, to about $119 million, because of the decrease in the federal government's contribution, the score-card report and information provided by Manley indicates.

Under the 2010 Patient Protection and Affordable Care Act, the federal government paid for 95% of the cost in calendar year 2017, 94% in 2018 and is paying for 93% this year.

The federal government's share drops to 90% for next year and beyond.

The state in January 2018 projected that the cost in fiscal 2019 would total $2 billion, with $135 million coming from the state.

Metro on 08/25/2019

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