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Health care interests wary of state's cost-cutting idea for Medicaid

February 9, 2009

The Indiana Medicaid program has a plan to save up to $40 million a year.

If it doesn't get those savings, state officials say, they may have to cut payments to doctors and hospitals.

But Medicaid's plan is one that Indiana doctors, drug companies and health insurers may not like.

Indiana Medicaid wants to take over management of all its patients' prescription drugs. Some patients have their drugs handled by private health insurers Medicaid has hired to administer benefits. Making that change would allow the state to use its clout to obtain much larger rebates from drug manufacturers, like Indianapolis-based Eli Lilly and Co.

But in the 22 other states that have made similar changes, health plans have argued against the move, saying it limits their ability to coordinate care for patients with expensive chronic diseases. Poorer coordination of care could, these critics say, decrease the quality of care patients receive and increase costs to the Medicaid program.

Sen. Patricia Miller, R-Indianapolis, has filed bills in the Legislature both for and against Indiana Medicaid's plan. She intends to hold a hearing on the bills, Senate Bill 193 and Senate Bill 306, on Feb. 11, to get debate on the plan going.

"I want to be fiscally prudent, but I also want to be fair," said Miller, who expressed some concern that the plan would unfairly harm health insurers.

The health insurers that have contracts with Indiana Medicaid are Indianapolis-based MDWise Inc.; Managed Health Services, a unit of St. Louis-based Centene Corp.; and WellPoint's Indianapolis-based subsidiary, Anthem Blue Cross and Blue Shield.

Those contracts are for the Hoosier Healthwise program, which covers 73 percent of Medicaid's more than 800,000 patients.

Calls to the three companies seeking comment were not returned. Medicaid officials said they would negotiate amendments to those companies' contracts in the next month and the change would take effect July 1—if no legislation is passed to stop it.

Managing pharmaceuticals makes up about 15 percent of the companies' contracts with Medicaid, said Dr. Jeff Wells, director of the Office of Medicaid Policy and Planning, which is part of the state's Family and Social Services Administration.

Federal law mandates that drug companies give rebates to state Medicaid programs, but it doesn't mandate rebates to private health insurers.

Through that law and through its own negotiations, Indiana Medicaid gets average discounts of 35 percent on the pharmaceuticals it buys. But the private health insurers are able to negotiate discounts of 2 percent to 3 percent, according to Michael Sharp, Indiana Medicaid's director of pharmacy.

If Indiana Medicaid could get the 35-percent discount on the prescription drugs bought by the health insurers, it could save more than $30 million, Sharp and Wells figure. And if Medicaid were buying even larger volumes of drugs, it could negotiate better discounts, possibly pushing savings as high as $40 million.

"In these times, we can't turn away from or argue with the ability to save $30 [million] or $40 million," Wells said.

Gov. Mitch Daniels already has included those savings in his 2009 budget. But if they are blocked legislatively, Wells said, the Medicaid program would need to cut reimbursement for physicians, hospitals, nursing homes and other providers 5 percent.

"It's really simply a trade-off on a one-to-one level," Wells said.

Such a cut would more than reverse the 1.5-percent increase in Medicaid reimbursement that doctors and providers received at the end of 2007. That was the first Medicaid reimbursement increase since 1993.

Physicians aren't sure about Medicaid's plan, said Mike Rinebold, lobbyist for the Indiana State Medical Association.

By centralizing purchasing of prescription drugs, Medicaid would reduce the number of lists of Medicaid-preferred drugs from four to one. Doctors like that.

But it's possible doctors could take a financial hit. That's because health insurers typically have shared the small rebates they get from drugmakers with doctors, as a way to encourage physicians to join their plans.

Doctors say they lose money on Medicaid patients, and not all doctors even accept Medicaid patients.

Sen. Miller said she has talked to Lilly about the Medicaid plan. And Lilly's not a fan.

Lilly spokesman Ed Sagebiel wrote in an e-mail to IBJ: "On its face, the concept of bulk purchasing pools may appear attractive to state governments. However, evidence shows that purchasing pools jeopardize patient access and lead to increased health care costs."

But it's not clear what health insurers think about Medicaid's plan.

In 2008, Pennsylvania passed a similar plan, which is referred to as a Medicaid pharmacy "carve-out." When one health insurance lobbyist testified against the plan, she cited care coordination as her main concern.

"We strongly oppose Pennsylvania's efforts to carve prescription drugs away from the health plans and urge the commonwealth to maintain the integrity of coordinated care by ensuring that prescription drugs remain part of a holistic strategy of care management," testified Margaret A. Murray, according to a statement released by her organization, the Association for Community Affiliated Plans.

Wells acknowledged that Anthem, MDWise and Managed Health Services have expressed a similar concern. But he said they are open to making the change Medicaid wants.

"They have understandable questions about what the financial impact will be," Wells said. "They want to make sure that we can collaboratively communicate to oversee care for patients."

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