A risky cut to Medicaid

Hogan's continuation of O'Malley's health care cuts could wind up costing the state far more than it saves.

Of all the major spending cuts Gov. Larry Hogan proposed in his budget, the easiest one for him politically may be the $160 million he's seeking to trim out of the Medicaid program. The reason is not just the cynical one, that Medicaid is a Democratic issue and that the people who rely on it probably didn't vote for him anyway, though there may be some truth to that. Rather, the reason Mr. Hogan isn't taking much heat for it so far is that he's merely continuing a cut former Gov. Martin O'Malley enacted through the Board of Public Works earlier this month. Even the state medical society, while opposed to the policy, is holding its fire where Mr. Hogan is concerned and pinning the blame on his predecessor.

But it's one cut that could prove penny wise, pound foolish. Recent developments in the state's health care landscape directly and indirectly as a result of the Affordable Care Act mean that the kind of spending cut Mr. O'Malley made and Mr. Hogan continued could wreak long-term havoc for the Maryland's doctors and hospitals.

The cut involves reducing physicians' reimbursement rates for Medicaid, the health insurance program for the poor, which also covers the disabled and many nursing home patients. For many years, Maryland's reimbursement rates for Medicaid were lower than those for Medicare, the health insurance program for the elderly, but in 2012, at the urging of health care advocates, Mr. O'Malley increased rates so that the two programs would be on par with each other.

Shortly thereafter, MedChi, the state medical society, conducted a survey of Maryland physicians and found that as a result of the increased reimbursements, 46 percent of doctors who had not previously accepted Medicaid patients said they were now more likely to do so, and among those who already saw Medicaid patients, 58 percent said they would likely accept more into their practices. Anecdotal evidence since Mr. O'Malley's cut and Mr. Hogan's decision to continue it suggests that the opposite may also be true: With lower reimbursements, fewer physicians will accept Medicaid patients, and those who do will make Medicaid patients a more limited part of their practices.

But if this cut is merely returning the state to the status quo before 2012, what's the big deal?

Two important things have happened since 2012. The first is that, as a result of the Medicaid expansion Maryland participated in under the Affordable Care Act, some 400,000 additional people have signed up for the state's program. But enrolling lower-income Marylanders does little good if they can't find doctors willing to see them. The supply-demand situation was strained enough as it was, and with the reimbursement cut, it could get worse.

That means many of the potential benefits of the Medicaid expansion could be lost. Giving more people access to quality primary care should help them stay healthier and better manage chronic diseases without resorting to costly emergency room visits. A landmark study in Oregon, where a previous Medicaid expansion was conducted by lottery, enabling a randomized trial of its effects, found that those who qualified for the program did report better health and greater utilization of primary care. The study's early findings did not indicate a reduction in emergency room visits, but there remains reason to think that over the long term the expansion will shift patients into lower-cost care.

That's particularly important in Maryland because of another development since 2012: the modernization of the state's Medicare waiver. The state has long had a deal with the federal government that provides hospitals with more Medicare revenue than they otherwise would get — amounting to some $1.6 billion a year — so long as it controls the growth in health care costs. But the original terms of the waiver, which was based only on the cost of inpatient admissions, were growing more difficult to meet. The O'Malley administration proposed, and the federal government approved, a new system that commits the state to an ambitious goal of holding overall hospital spending growth to no more than the rate of growth for the state's economy and to produce $330 million in Medicare savings over the next five years. If Maryland can't deliver, it risks losing the waiver and throwing the largest sector of the state's economy into chaos.

If Medicaid patients can't get access to primary care, their health will worsen and they will be more likely to end up admitted — and readmitted — to hospitals. That will make it more difficult to meet the already challenging terms of the new Medicare waiver. Compounding the impact of the cuts is the nature of Medicaid, which operates as a partnership between the states and federal government. In traditional Medicaid, Maryland and the feds split the costs 50-50. For those who are covered by the Medicaid expansion under Obamacare, the federal government is paying 100 percent of the costs initially and 90 percent later on. Thus, the savings Mr. Hogan is achieving for the state budget have a much larger impact on Maryland's health care system.

We understand that Mr. Hogan came into office with a difficult budgetary challenge, and we support his effort to solve it through genuine savings rather than fund transfers and other gimmickry. Medicaid is one of the biggest parts of the state budget, and it would be difficult to hold it completely harmless. However, he should very carefully monitor the impact of this cut and seek to limit its effect and duration so it doesn't wind up costing far more than it saves.

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