Medicaid spending to outpace rate of growth in economy

December 4, 2008
Tracey Walker

She is senior editor of Managed Healthcare Executive.

A CMS report predicts that Medicaid benefits spending will increase 7.3% from 2007 to 2008, reaching $339 billion and grow at an annual average rate of 7.9% over the next 10 years, reaching $674 billion by 2017.

Medicaid is expected to substantially outpace the rate of growth in the U.S. economy over the next decade, according to a report by the Centers for Medicare & Medicaid Services (CMS).

The report projects that Medicaid benefits spending will increase 7.3% from 2007 to 2008, reaching $339 billion, and will grow at an annual average rate of 7.9% over the next 10 years, reaching $674 billion by 2017. That compares with a projected rate of growth of 4.8% in the general economy.

“Growth patterns are not just unique to Medicaid. Our nation’s entire healthcare system is facing complex financial challenges,” says Paul Laki, RPh, senior vice president of government programs at Access Communications, parent company of MedAccess. “Costs for almost every form of healthcare coverage, both in the public and private sectors have increased significantly over the past several years, reflecting a continued growth in the number of insured people.”

Additionally, inflation, higher utilization, and the availability of new, complex medical services have a direct financial impact on our nation’s healthcare system, Laki says.

“Together these cost increases are increasing at a faster rate than general inflation and the productivity of our economic growth,” he says.

To that end, Laki believes that the current downward spiral of the economy at the federal and state levels, and the Budget Deficit Reduction Act, which mandates that CMS reduce spending, will continue to have a direct impact on the Medicaid system and the healthcare that will be afforded to the nation’s most needy citizens.

“Since Medicaid is funded by both federal and state dollars, we can see a dual effect that will be prompted by either Congress, and/or state legislatures,” Laki says. “With past history, Medicaid programs have tried to mirror cost containment measures instituted by those in the private healthcare sector that focuses on controlling finances and utilization by imposing premiums, coinsurance, copays and deductible requirements, however, these measures are limited in Medicaid by law. So the traditional private healthcare tactics for controlling costs have limitations, thereby presenting continued challenges for our nation’s legislators. Efforts to slow the growth of our nation’s Medicaid spending would likely require other measures and changes in both federal and state law.”

According to Laki, cost containment will likely be driven from these areas:

• It is likely that CMS will attempt to increase pharmaceutical manufacturer rebates to the states. One potential area for increased rebates is the Basic Rebate, which has been 15.1% of Average Manufacturers Price (AMP), or AMP minus Best Price (BP), whichever is greater. “Some industry experts have speculated that the basic percentage could increase to 20%,” Laki says.

• Advancing the use of bioequivalent generic utilization, as well as increasing the use of therapeutic alternatives.

• Instituting greater step edits, generics first and harsher prior approval processes.

• Requiring more fee-for-service Medicaid recipients join a Medicaid managed care system where the state typically has a capitated arrangement with the managed care plan and providers.

• Instituting more stringent prescription quantity limits per month with a more cumbersome prior approval process to gain approval beyond the set limit.

• States could potentially try to increase current, or create new statutory requirements on supplemental rebates in order to gain preferred drug listing.

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