States Seek Ways to Control for Rising Medicaid Costs

With Medicaid expenditures rising at a faster pace than states can afford, many are looking to reduce health care costs and also are being forced to make cuts throughout their budgets to compensate, the Wall Street Journal reports. Overall state Medicaid costs are expected are expected to increase 8% to 12% in the fiscal year beginning in July, while "tax revenues in some states are expected to grow by only 3% to 4.5%." The "main target" for states is expected to be prescription drug costs, which are now rising more than 20% a year. Lawmakers in several states are pushing for larger rebates from pharmaceutical manufactures on Medicaid drug purchases, as well as for restrictions on prescription of "expensive brand-name drugs." And other states are weighing laws that would require local pharmacies to reduce their prices and "cut the fees druggists get for filling prescriptions." In terms of Medicaid services, states are generally "loath" to reduce "politically popular benefits" for Medicaid beneficiaries, and many are even hoping to expand benefits. To reduce costs, states are looking instead to reduce provider reimbursements, especially for nursing homes. But such reductions will only partially make up for greater Medicaid costs, forcing state budget writers to make cuts throughout state governments, the Journal reports. In Ohio, for example, Gov. Bob Taft's (R) proposed budget calls for a funding cut for 27 agencies. The Journal notes that states have other sources of revenue available to them to cover Medicaid costs, including funds from the national tobacco settlement and in some cases the still-open "Medicaid loophole," through which states bill the federal government for the maximum cost of services provided by a local- or county-owned health nursing homes and hospitals but negotiate lower rates with the facilities, pocketing the difference ( Kaiser Daily Health Policy Report, 10/6/2000). But according to Gov. John Rowland (R) of Connecticut, who plans a "hiring freeze on noncritical agencies" in the next fiscal year, Medicaid costs are only likely to become a bigger problem down the road. Marc Ryan, Connecticut budget director, said, "People will be very upset about our budget. Frankly it's not as bad as we'll see in the future if medical inflation trends continue and if revenue trends continue down" (Caffrey, Wall Street Journal, 2/7).