Seven Problems With Florida's Medicaid Managed Care Reform

In my last column, I described Florida’s new Medicaid managed care and previewed a few of its implications.

In this column, I look closely at seven problems in the law.  

First, Medicaid recipients will be asked to pay $10 per month to participate in the program, and $100 for each non-emergency use of a hospital emergency room. 

This will increase Medicaid costs, not lower them.  Charging even $10 a month for Medicaid encourages people to avoid enrolling in the program until they get sick. What they don’t get is preventive care, so their care costs more. 

Half of all emergency room visits are “non-emergency,” but the patient doesn’t know this until after he or she gets the diagnosis.  For example, chest pain is sometimes indigestion, but other times, a heart attack. You don’t want someone who might be having a health crisis to delay receiving care because they don’t have $100.  If they do and guess wrong, their care will only cost the state more.

Second, Medicaid recipients will be required to share their complete medical records with the government. 

There is no reason for this, and this kind of privacy invasion isn’t popular with anyone.  We may not care when it happens to someone we don’t know, but watch how we react when it happens to mom in the nursing home. 

Third, Florida has created a Medicaid profit-sharing plan which encourages managed care companies to drive up costs in the first year and take them back in profits the second year. 

The law allows plans losing money in the first year to recoup those losses in the second year.

This creates a perverse incentive for organizations.  Because they don’t have to worry about first-year losses, they have an incentive to enroll the highest cost patients possible in order to maximize their payment rates.  If they then crack down on utilization in the second year, they can maximize their profit potential at little or no risk. 

Fourth, Florida’s plan creates a really perverse economic incentive for the state. 

The higher the profit made by a managed care company, the more the state gets back as a rebate. 

If the state has a future budget crisis, it could be tempted to manage that crisis by pressuring its managed care partners to deny or delay care to recipients – especially in the latter part of a fiscal year – to increase the amount of the rebate the state will receive.

Fifth, each plan must offer smoking cessation, substance abuse treatment, and “medically directed weight loss” programs. 

Personally, I support this.  However, when “the government starts telling us what we can and cannot eat,” a lot of small-government advocates (including some Florida legislators) claim they draw the line.

Sixth, Medicaid recipients who are found judicially or administratively to have engaged in Medicaid fraud will forfeit their Medicaid eligibility for ten years. 

This sounds fine, but what happens when an addict is found “administratively” to have engaged in fraud by pill shopping among providers?  Or when a person with mental illness is found “administratively” to have engaged in fraud by claiming phantom physical complaints?  Do we really intend to discriminate against certain people for their medical conditions?

Also, what happens when someone found to have engaged in fraud develops a high-cost condition, such as cancer, several years later?  Does this “one-strike-and-you’re-out” policy mean the state expects providers to cover the future cost of care without any reimbursement?

Seventh, Florida’s Medicaid reform re-introduces hospital rate setting. 

A generation ago, in a far more “big government-friendly” era, Medicare adopted a prospective payment system to set hospital rates.  It used “diagnosis-related groups,” or DRGs to do this, and several states used DRGs to establish hospital rate-setting systems.  While Medicare has retained and adjusted its DRG system, most other DRG-based rate setting vanished years ago.

DRGs, however, will re-appear in Florida in 2013. The legislature has directed AHCA to develop a DRG system for Medicaid.    

Here are two reasons why this won’t work as intended.  The first is that Medicaid patients are a far more diverse group that the Medicare population.  Forcing hospitals to work within pre-set DRG rates can be extraordinarily unfair to the hospitals serving the neediest and most complex of patients.

The second is that the only way hospitals can guard against DRG harm is to engage in the legal practice of “DRG creep.”  Hospitals have a financial incentive to assign the highest-paying diagnosis code possible to every patient they see.  The result?  Rates may come down, but costs will go up.

Florida’s Medicaid reform has been called transformational.  Life is full of transformations. Some last, but others fade quickly.  The new Florida law may seem like big change, but its promised benefits may soon be regarded as something of a mirage.

The Florida Medicaid Reform Law is the result of the passage of two separate bills, HB 7107 and HB 7109. Information referenced in this column can be found in the text of one of the two bills.  If you have a question about the specific location of any text, please contact the author at gionfriddopaul@gmail.com.