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March 2011 St@teside

States Continue to Look for Cuts in Medicaid Spending

As governors across the country look for solutions to close budget deficits, decreasing Medicaid spending remains one of the most prevalent strategies. Their approaches vary from significant restructuring of the Medicaid program, increasing cost-sharing, and reducing reimbursement rates for providers, to requests for waivers of federal maintenance of effort (MOE) requirements.

On March 16, the legislature in California approved many of the cuts to the state’s Medicaid program (Medi-Cal) proposed by Governor Jerry Brown.1 The legislation calls for limiting the number of doctor visits to seven per year, unless certified for medical necessity by a physician; a 10 percent reduction in provider reimbursements; and beneficiary cost-sharing including:

  • $5 copayment for physician and dentist visits, and pharmacy services;
  • $50 for emergency room visits; and
  • $100 copayments for hospital admissions.

The legislation did not include some steeper cuts included in the governor’s proposal including a more stringent limit on the number of physician visits capping the amount Medi-Cal would pay for medical supplies and the elimination of vision coverage in the state’s Children’s Health Insurance Program (CHIP).

Many states have tried to avoid implementing more restrictive eligibility rules or reducing services by cutting reimbursement rates for providers. Pennsylvania Governor Tom Corbett proposed a $333.3 million reduction in payments for obstetrics and neonatal services, medical and health professional education, trauma care, burn care, small hospitals, and many Disproportionate Share Hospitals.2 Ohio’s Governor John Kasich also proposed cuts to reimbursement rates to nursing homes and hospitals totaling $905 million over a two-year period. Kasich proposed shifting money from nursing homes to home-based care options. Furthermore, with support from the state’s hospital association, the proposal would also temporarily extend the state’s hospital franchise fee, allowing the state to use the proceeds from the fee and related federal matching funds to extend a temporary five percent hospital rate increase that was scheduled to expire June 30.3 Additionally, the state would also cut payments to Medicaid managed care companies and reduce Medicaid’s reimbursement levels for all services to 100 percent of the Medicare rate by making changes to physician code payments.

Arizona has been considering severe cuts for some time.4 On March 15, Governor Jan Brewer unveiled a plan to cut payments to health care providers by 5 percent, beginning on October 1. This cut is in addition to another 5 percent cut slated to take effect on April 1.

While the legislative budget proposals of New York’s Assembly are still under negotiation, they include many of Governor Andrew Cuomo’s proposals for Medicaid reforms. The governor’s proposals are based on his Medicaid Redesign Team’s recommendations, which include an overall cap on state Medicaid expenditures, reductions in reimbursement rates for hospitals, nursing homes and other providers, and medical malpractice reform.5,6

Other states are looking at Medicaid waivers to allow them to change the payment structure of the program or adjust eligibility requirements. In Utah, the state Senate passed a bill requiring the state to apply for a waiver to replace the state’s fee-for-service approach with a capitated risk-based system. Under the new approach, beneficiaries would be assigned to a managed care environment such as a medical home, and providers would be paid for bundles of services delivered over entire episodes of illness rather than for individual services delivered during each patient encounter.7 In addition, the state is seeking to start a pilot program requiring up to 100 Medicaid recipients to perform community service in exchange for receiving health care benefits.8

Wisconsin Governor Scott Walker’s health and human services budget proposes a $500 million Medicaid cut and seeks a waiver to adjust Medicaid eligibility requirements. According to the governor, without the waiver, the state would have to eliminate coverage for nondisabled, nonpregnant adults with family incomes above 133 percent of the federal poverty level, which is permissible under the MOE requirements. The details of the reform proposal have not been released.

Kansas Governor Sam Brownback is seeking a MOE waiver and requesting that federal government funding be provided in the form of a block grant.9 In recent months, Republican governors have been pushing to transform the Medicaid program into block grants.

North Carolina has begun implementing two new initiatives, one aimed at better managing the utilization of prescription pain relievers and other narcotics and the other aimed at streamlining the purchasing of incontinence supplies. The first initiative was launched in October 2010 and requires that Medicaid recipients who require powerful drugs are “locked into” using a single prescriber and a single pharmacy.  The second initiative requires that providers purchase incontinence supplies from a single supplier.10 Similar to Ohio, the North Carolina legislature passed legislation in March that will levy two types of assessments on hospitals, which would leverage additional federal funding and address the disparity in Medicaid payments to public and nonpublic hospitals. The assessments would also provide the state Medicaid program with $43 million in additional annual revenue.

1Rizo, C. (2011, March 21). Lawmakers Approve Budget Bill With Significant Cuts to Medi-Cal.  BNA’s Health Care Policy Report (Subscription only). Retrieved March 24, 2011, from

2Cohen, S.I. (2011, March 14). Governor Proposes Medicaid Pay Cut To Hospitals as Part of Budget, Analysis Says. BNA’s Health Care Policy Report (Subscription only). Retrieved March 24, 2011, from

3Raupe, B. (2011, March 21).  Budget Seeks Medicaid Spending Cuts Of $1.4 Billion; Eligibility Not Affected. BNA’s Health Care Policy Report (Subscription only). Retrieved March 24, 2011, from

4See AcademyHealth’s February 2011 St@teside Newsletter. States Use Medicaid Cuts To Fix State Budget Gaps.  Retrieved March 25, 2011 from

5Silverman, G.B. (2011, February 28). State Medicaid Panel Approves Recommendations for Trimming Costs. BNA’s Health Care Policy Report (Subscription only). Retrieved March 24, 2011,

6Silverman, G.B. (2011, March 21). Lawmakers Pass Different Budget Plans; Joint Panel Working Out Medicaid Reforms.  BNA’s Health Care Policy Report (Subscription only). Retrieved March 24, 2011, from

7Baltz, T. (2011, February 28). Senate Passes Bill to Transform Medicaid From FFS to Capitated Risk-Based System.  BNA’s Health Care Policy Report (Subscription only). Retrieved March 24, 2011, from

8Baltz, T. (2011, February 28). Bill to Create Community Service Pilot For Some on Medicaid Heads to Governor.  BNA’s Health Care Policy Report (Subscription only). Retrieved March 24, 2011, from

9Brown, C. (2011, March 21).  State Asks for Complete Waiver From Medicaid MOE Requirements. BNA’s Health Care Policy Report (Subscription only). Retrieved March 24, 2011, from

10Ballard, A.M. (2011, March 14).  State Medicaid Program Sees Savings Through Rx Drug Limits, Supplier Changes. BNA’s Health Care Policy Report (Subscription only). Retrieved March 24, 2011, from