States Reduce Medicaid Costs with New Technology

Automated eligibility, electronic claims and analytics help control health spending.

by / June 2, 2008

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

that claim no later than Thursday of the following week. Providers understand that kind of cash flow is real money. It has more value because it's quick," Fogarty said.

The system also enables providers to determine instantly whether a patient is eligible for Medicaid.

"One of the most difficult things for doctors doing business with a Medicaid program is determining whether the person they served was eligible. You can submit a perfect claim, but if it's rejected because the person you treated wasn't eligible, you're really not making progress," Fogarty said.

Another problem existed. Many smaller Oklahoma medical providers didn't have intra-office patient databases, raising questions as to how they'd electronically submit records. The OHCA doesn't purchase care from health maintenance organizations (HMOs), which means many of its providers are small, less IT-savvy practices. The OHCA system means a doctor's office merely needs a computer and Internet connection. The solution proved popular with providers. Roughly 95 percent of the 3 million claims processed annually by the OHCA now go through the automated system.

Oklahoma private practices receive almost $30 per month for each Medicaid patient. Fogarty said the arrangement offers doctors predictable revenue. It can be a sizable chunk of change for doctors who treat Medicaid patients. Changes to the payment and eligibility process seemingly have made Medicaid patients more attractive to Oklahoma physicians. In 2004, the state had contracts with 23,366 providers. By 2007, that number rose to 25,647, roughly a 9.7 percent increase.

"If they've got a panel of 500 or 1,000 patients, they know how much a month they're going to get paid for that," Fogarty said. "It also is a way for us to hold the physician responsible for making sure that patient is being taken care of. We require the physicians to submit 'encounter data.'"

That information lets the OHCA track all treatment the doctor gives the patient. The OHCA notifies each practice when any of its patients visits an ER inappropriately. Naturally the agency doesn't want to pay an ER to treat a condition that it already paid a private doctor to handle.

"If a person with a sore throat goes to see their primary care doctor, we've already paid for that. If that same person goes to an ER, we've paid twice," Fogarty said.

The MMIS also gives doctors reports on their patients' ER visits compared to the patients of other doctors in their regions.


Pre-Emptive Medicine
States like Oklahoma and Kansas also have a predictive modeling IT strategy for cutting Medicaid costs and simultaneously improving citizen health. Most understand that early intervention is key to avoiding grave illnesses that are costly to treat, but human nature frequently ignores that obvious wisdom. The typical outcome is a condition that might have been treated more easily and cheaply with early intervention.

Oklahoma uses MMIS to track symptoms of potentially costly ailments before they advance to the expensive stages of care. The OHCA employs nurses who use MMIS data to monitor Medicaid patients. If a nurse notices treatments for potential symptoms of interest, he or she intervenes with the patient and doctor to check for serious conditions.

"The classic would be identifying patients with high blood pressure, diabetes and other chronic conditions that are very responsive to treatment, but that can go bad very quickly without treatment. The system generates information about those patients based on what services they utilize. We have a nurse who is actively engaged with that patient and their care provider in making sure that patient is getting the treatment they need and that they're responding to that treatment," Fogarty said.

Predictive modeling is among the most promising solutions for cutting Medicaid costs, said Paul Keckley, executive director of the Deloitte Center for Health Solutions.

But Keckley warned government officials to be careful about how they introduce predictive modeling programs to doctors wary of states meddling in treatment. He said these initiatives could be more attractive to doctors if states connected tax incentives to them, or subsidized purchases of electronic medical records systems for doctors.

Equally important is that states avoid using Medicaid tracking and management systems to publicly rate physician performance, said Keckley.

"[It's critical] that this does not become a platform for writing report cards that are in the newspaper on which doctors get the best results, that it doesn't become a basis for transparency and performance reporting," Keckley said.

He said that would likely result in doctors only choosing Medicaid patients who they thought would improve their scores.

A Step Ahead of Fraud
Medicaid fraud is lucrative. Unscrupulous providers double-bill Medicaid programs for services, which can lead to significant extra costs. Patients, for example, trick the system into giving them narcotics they can sell on the street.

California made tracking this fraud a major IT agenda in early 2000, hiring EDS to handle the details. The Golden State now heralds its per-recipient Medicaid costs as the lowest in the nation. California routinely changes its tactics to keep pace with offenders, said Stan Rosenstein, deputy director of medical care services for the California Department of Health Services (DHS).

"When you approach fraud and abuse, the people who are committing it get much more sophisticated. They change their patterns in reaction to us. They study us. They see what we're doing and change their fraud patterns to avoid what we're looking at," Rosenstein said.

He said tracking fraud was relatively easy at the beginning of the EDS partnership, because the crimes were less sophisticated. For example, the agency caught "phony providers" billing for services from "offices" that turned out to be empty lots. "Sometimes they'd just have a mail drop," Rosenstein said. "As we found the easy things, they got more sophisticated and used technology to get there."

In early 2007, the DHS implemented software to search for new fraud patterns that weren't yet familiar to agency analysts.

"In the past, we had to say, 'Here's a pattern of treatment,' and we'd profile for that known pattern [in the system]. The [new software] looks for the new patterns without us having to program it to say, 'Here's what we think could be happening,'" Rosenstein said. "It asks, 'Are they getting too many services? Are they getting services from multiple physicians? What's their emergency room usage? Are they getting lots of narcotics from going into the emergency room?' It's predictive. It tries to look at the behaviors that occur or could have occurred before we've identified the pattern. It will tell us what it believes to be an emerging fraud pattern."

Using predictive analytics, the software changes the agency's detection practices as offenders change methods. The system uncovered numerous fraud innovations. For example, the software notices when doctors give tests or treatment outside of their specialty.

"We found situations where a physician would always do the same set of tests when they saw [patients]. For example, they would do nerve conduction tests. Everybody they saw got a nerve conduction test, and the doctor wasn't a specialist in the area," Rosenstein said.

The system notices when a physician bills for more prescription drugs he or she had in supply. Red flags also appear when doctors perform excessive tests unrelated to symptoms reported for the corresponding patients. Some providers double-billed for visits using different billing codes for each visit. Multiple visits to providers by patients during the same day tipped off the system about that swindle.

"We were able to put a hard edit in our system to stop it,"

Rosenstein said.

In keeping with its strategy to cut Medicaid costs, using EDS to track fraud costs the state no extra revenue. The company gets a cut from whatever savings it produces for California.

"We've got EDS on an incentive process. We don't pay them anything specifically to operate the system. For every dollar they save for us, we give them 10 cents," Rosenstein said.

The company doesn't get its cut from a fraud case until it completes corrective action against the fraudulent provider or patient, demonstrating a reduction in Medicaid payments, Rosenstein said.

For example, in 2006, EDS identified 97 cases of fraud resulting in a $1.9 million savings. EDS received $197,000, and the state kept the remaining 90 percent.

"It works incredibly well because they have a strong incentive to find cases. If it doesn't work, we don't spend anything. If it works, we get 90 percent of the savings," Rosenstein said.

TennCare, Tennessee's Medicaid program, manages its patients' prescription drugs with an "e-prescribing" IT system that enables doctors to see a patient's Medicaid prescription history. TennCare uses the solution to reduce fraud. For example, it uses software to detect when a patient visits several different doctors in a short time each for different ailments, but for prescriptions of the same drug. That patient could be overmedicating or selling the excess quantities on the street.

"When you talk about a drug like OxyContin [a prescription pain medication], a couple of years ago, the word on the street was that you could get a dollar a milligram for that drug," said David Beshara, pharmacy director of TennCare.

Sometimes Medicaid patients purchase drugs intended for overuse or street sale at pharmacies. TennCare can't detect those cases because the purchases don't involve its e-prescribing system. TennCare has a cost reduction interest in that type of fraud because the agency pays for the doctor visits enabling those fraudulent purchases.

Recently passed state legislation will require Tennessee pharmacies to submit all of the narcotic prescriptions they administer Tennesseans to a centralized database. TennCare plans to connect its e-prescribing system to that database.

The project could find instances of private prescription drug purchases connected to Medicaid-paid doctor visits.

TennCare also uses the e-prescribing system to reduce inappropriate prescriptions not resulting from fraud, but from pharmaceutical marketing campaigns, said Beshara.

He said patients often see TV ads for drugs they erroneously think they need and get doctors to write prescriptions for them. TennCare uses software to determine the most commonly misused drugs and includes them in its "prior-authorization" process. The e-prescribing system analyzes a patient's past medical treatment before letting a doctor prescribe one of those drugs. If the system rejects the prescription, the doctor can call the agency to appeal the rejection.

"We really have a prior authorization so we can make sure we're paying for things we should be paying for," Beshara said. "With marketing from the pharmaceutical companies, they spend $20-plus billion on marketing activities. They spend that money to create sales for their products, and I can't say with 100 percent certainty that their sales are based on completely justified use 100 percent of the time."

Andy Opsahl

Andy Opsahl is a former writer and features editor for Government Technology magazine.

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