States Reduce Medicaid Costs with New Technology

The chokehold of Medicaid is tightening on state budgets. The joint federal/state program, which serves as health insurer of last resort for almost 60 million low-income citizens, accounts for 22 percent of total state spending, according to the National Governors Association (NGA).

As baby boomers approach retirement and the national economy nears a possible recession, pressure is mounting. Medicaid spending was projected to grow by more than 7 percent in 2007, the NGA said, driven largely by recent changes in prescription drug coverage. And health-care costs will continue rising at an average annual rate of about 8 percent over the next 10 years, according to Congressional Budget Office projections.

"[Medicaid] is the largest budget item in just about every state. It's now a massive insurance program, and states are increasingly running up against shortfalls," said Ray Hanley, former director of Arkansas Medicaid and now client executive of Electronic Data Systems (EDS).

"Medicaid is the last bastion of the otherwise uninsurable. About 50 percent of all deliveries in every state are funded by Medicaid. They get the frail, blind, lame, high-risk and handicapped infants," he added. "Medicaid supports the long-term care industry. In every state, from 75 to 80 percent of nursing home recipients are on Medicaid. Medicaid supports the majority of the mental health industry."

Emerging state IT projects show how agencies can use technology to cut Medicaid costs, and quantifying the various cost drivers is often the first step. That measurement process is helping states identify and remedy the inappropriate service usage, late diagnoses and fraud partially responsible for surging Medicaid expenses.

Unburdening ER
People often think of hospital emergency rooms (ER) as default destinations for treating ailments better suited for personal doctors' offices, said Mike Fogarty, CEO of the Oklahoma Health Care Authority (OHCA). Most states identify inappropriate ER visits as a primary factor driving up Medicaid costs. Oklahoma devised an IT strategy that cut ER visits by 42 percent, resulting in $8.3 million in Medicaid savings to date.

The OHCA tracked Medicaid patients' ER visits and flagged inappropriate visits for corrective intervention. That meant contacting those patients after the visits to clarify proper ER use. However, often those patients didn't have private practice doctors, which led to the other goal of the project: to get more Medicaid patients into the care of private practice doctors. Once that happened, the OHCA could use IT to hold those doctors responsible when their Medicaid patients visited ERs inappropriately.

But there was another obstacle. Many private doctors didn't want Medicaid patients, said Fogarty. The program's bureaucracy made those patients a burden to serve. Could IT fix that? The OHCA started by targeting the hassle of serving Medicaid patients.

In 2003, the OHCA implemented its EDS-supported Medicaid Management Information System (MMIS) to connect medical providers and Medicaid patients to a centralized statewide database. The MMIS offered doctors a quick way to submit Medicaid claims for patients that eliminated the busy work of the old process.

"They no longer deal with paper claim forms that get either mishandled at the provider or state level. You eliminate the state input person who takes a paper form and tries to interpret it. The provider literally puts in a claim, enters that claim on a Web-based system that edits it, and it immediately tells the provider if they're leaving out a required element of that claim," Fogarty said.

In the past, providers mailed paper claims and could find out weeks later that a claim was missing information. Doctors had to correct those mistakes before receiving payment. By skipping that process, the electronic system enabled the OHCA to accelerate payments to doctors.

"Our system actually generates an electronic deposit to the provider's account. If the claim comes in by midday Wednesday, there will be an electronic deposit processed and payment of