Medicaid spending growth up as enrollment surge slows

National growth in Medicaid enrollment and total Medicaid spending slowed substantially in fiscal year (FY) 2016 and are projected to continue to slow, despite record increases in FY 2015. The decline occurs as the initial enrollment surge under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) coverage expansions tapers off and prices for high-cost and specialty drugs rise, according to the Kaiser Family Foundation’s annual 50-state Medicaid Budget Survey.

Medicaid spending on the rise

The survey projects an increase in state Medicaid spending growth in FY 2017 related to the requirement that Medicaid expansion states begin paying a five percent share of expansion costs on January 1, 2017. Before this date, the federal government committed to paying 100 percent of expansion costs. In expansion states, the median growth in Medicaid spending is estimated to be 5.9 percent in FY 2017, up from 1.9 percent in FY 2016. In non-expansion states, state Medicaid spending is projected to increase by 4 percent in FY 2017, compared to 3.9 percent in FY 2016. Thus, the differential in rates across expansion and non-expansion states is narrowing continually. As growth in overall state revenues slows or declines, pressure to control Medicaid spending increases.

Continued delivery system reforms 

The survey also found that the majority of states are refining their pharmacy programs to control costs and are adopting or expanding strategies to deal with the opioid crisis. States are increasing reliance on managed care, with at least 75 percent of Medicaid beneficiaries enrolled in risk-based managed care organizations (MCOs) in the majority of states that contract with MCOs. Additionally, 29 states are adopting or expanding delivery system reforms, such as patient-centered medical homes and accountable care organizations (ACOs). Nearly every state reported actions to expand the number of people served in community settings.

AHA’s motion calls for end of appeals backlog litigation

The American Hospital Association filed on October 14, 2016, a motion for summary judgment formally requesting mandamus relief instructing the Secretary of HHS to comply with mandatory statutory deadlines and clear the backlog of pending Medicare claims appeals. In the motion, the AHA agrees that the backlog cannot be cured overnight, but that “the Secretary has treated difficulty as an excuse for inaction.”

Motion for summary judgment

The AHA requests that that court order the Secretary to implement three sets of solutions for the backlog: (1) offer reasonable settlements to broad groups of Medicare providers and suppliers; (2) delay repayment of at least some subset of disputed Medicare claims and toll the accrual of interest on those claims for waiting times beyond the statutory maximums; and (3) impose financial penalties on recovery audit contractors (RACs) for poor outcomes at the administrative law judge (ALJ) level. The AHA claims that the Secretary has the authority to implement each reform to target the existing backlog of appeals and reduce the number of future appeals. The motion also gives the option for the Secretary to offer and implement proposals of her own that would have at least a significant effect on reducing the backlog and minimizing its impact in the interim.

Procedural history

The AHA, Baxter Regional Medical Center, Covenant Health, and Rutland Regional Medical Center (Medicare providers) asked the court to issue a writ of mandamus to compel HHS to process their long-pending Medicare claim-reimbursement appeals in accordance with statutory timelines. In December 2014, the D.C. district court declined to intervene to resolve the backlog of Medicare reimbursement appeals, stating that “the waiting game must go on.” Although the court agreed that HHS had violated its statutory obligations and reasoned that Recovery Audit Contractors (RAC) audits may have been worsening the problem, the court determined that it was not in a position to address the massive and growing administrative backlog because the problem required cooperation between Congress and HHS.

In February 2016, however, the D.C Court of Appeals revived the case and sent it back to the district court because the backlog of delays had gotten worse. At that time, the Court of Appeals instructed the district court that “in all likelihood,” it should order HHS to comply with the appeals deadlines if HHS or Congress failed to make meaningful progress toward solving the problem within a reasonable period of time. The court pointed to the close of the next appropriations cycle (September 30, 2016) as the deadline for resolution. In response, the Secretary asked the district court to stay the proceedings until September 30, 2017, to allow HHS to move forward on various efforts designed to tackle the backlog of reimbursement appeals. The D.C. district court denied HHS’ request to delay further proceedings in the case, holding that the Secretary’s proposals to reduce the claims review backlog and comply with statutory review deadlines would not result in meaningful progress.

Unit prices for drugs rising rapidly; more competition needed

Drug costs for hospital inpatients increased more than 38 percent per admission between 2013 and 2015, with unit pricing increasing both low- and high-volume branded and generic drugs, according to a report by the University of Chicago commissioned by the American Hospital Association (AHA) and the Federation of American Hospitals (FAH). Almost half of the drugs evaluated for the study had no generic competition.

The researchers conducted a survey of all U.S. community hospitals and analyzed the results of 712 that responded. Additionally, two group purchasing organization (GPOs) representing more than 1,400 community hospital contributed price and spending data on a subset of drugs to the study. Of the drugs sampled, many were high-volume drugs, and in most cases the drugs were not new entrants into the market.

Increases in unit prices outpace Medicare reimbursement

Between fiscal years 2013 and 2015, annual inpatient drug spending saw an increase of 23.4 percent on average—a per-admission increase of 38.7 percent. More than 90 percent of the hospitals involved in the study reported that the price increases had a moderate or severe effect on the ability to manage the cost of patient care overall; one-third reported that the effect was severe. Growth of the unit prices for drugs, and not volume, was the primary cause of the increase in drug spending. The report noted that, because of delays in updating the pharmaceutical index, Medicare reimbursement cannot keep up with the rapid rise in drug prices, and the method of reimbursement for hospitals—based on a single prospective amount for all non-physician services—compounds the impact of rising drug costs. In these cases, hospitals must absorb the excess costs.

AHA’s recommendations

To address these issues, the AHA recommends an increase in generic competition, improved transparency, the adoption of a value-based payment model for drug purchasing, increased access to needed drugs, and the alignment of incentives toward high value. With the goal of increasing generic competition, the federal government should appropriate additional resources to the FDA to process new drug applications and consider fast-tracking generic applications when no or limited generic competition exists. The AHA also recommends deeming pay-for-delay tactics presumptively illegal. Additionally, the lack of information available regarding drug pricing challenges payers’ abilities to make decisions regarding coverage and pricing. To address the issue, the AHA suggests increasing disclosure requirements related to drug pricing, research, and development at the time of application. Consumer- and provider-facing reports on drug pricing would help providers and consumers to make informed decisions.

The AHA argues that a value-based payment model for drug purchasing, under which payment varies for a drug based on clinical effectiveness for the indications for which it has been approved, would help drugs become more affordable for patients and providers. Thus, a comparative effectiveness evidence base would be critical to supporting providers in making care decisions. To improve access to needed drugs, the AHA recommends that the government allow providers and patients to reimport drugs that were manufactured in the U.S. and sent to other countries for sale and distribution and require mandatory, inflation-based rebates for Medicare drugs. Finally, the AHA argues aligning incentives toward high value by implementing stricter requirements on direct-to-consumer advertising, removing tax incentives for drug promotion activities, and developing prescriber education and clinical decision support tools.

Medicare Advantage, Part D premiums remain relatively stable for 2017

In 2017, Medicare Advantage (MA) premiums will remain stable, and enrollment is projected to increase to an all-time high, according to CMS. Additionally, as a result of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), millions of seniors and people with disabilities enrolled in Medicare will continue to benefit from prescription drug discounts and affordable benefits.

Growth of Medicare Advantage

The MA monthly premium will decrease by $1.19 in 2017, from an average of $32.59 to $31.40. The lower premium is 13 percent less than the average MA premium prior to the passage of the ACA. For 67 percent of MA enrollees, premiums will not increase, and more than 94 percent of Medicare beneficiaries will have access to a $0 premium MA plan. MA plans will also offer enrollees more supplemental benefits, such as dental, vision, and hearing. MA enrollment will increase by more than 60 percent, for a record high of 18.5 million beneficiaries, representing 32 percent of Medicare beneficiaries. Access to the MA will remain nearly universal, with 99 percent of Medicare beneficiaries having access to an MA health plan in their area.

Part D access

The Medicare Part D prescription drug benefit will continue to provide beneficiaries to affordable drug coverage, with the average premium for 2017 remaining relatively stable at an average of $34 per month. This represents an increase of approximately $1.50 from the average Part D premium for 2016. From the enactment of the ACA through July 2016, more abilities benefitted from savings and discounts in the coverage gap, or donut hole, of more than $23.5 billion on prescription drugs—an average of $2,127 per beneficiary.