Wall Street Journal, Lefties Battle Over RI

OK, policy nerds. An interesting little health care kerfuffle:

The Wall Street Journal ran an editorial today holding up Rhode Island's alternate approach to escalating Medicaid costs - driven by the so-called "global Medicaid waiver" it received from the Bush Administration - as a national model.

But the lefty Center of Budget and Policy Priorities has argued that the Rhode Island case is not nearly the model that conservatives claim.

And the equally lefty Media Matters, a media watchdog, is calling out the Journal for "dubiously" hyping the Rhody approach.

First, the Journal editorial in full:

Medicaid is the major cost driver in state budgets these days, so several Governors have proposed a deal to the White House and Congress: They'll take less money in return for the flexibility to run the program with fewer federal strings. A case study in the potential benefits is coming from liberal Rhode Island, of all unlikely places.

Here's the story: In 2008, then-Governor Don Carcieri asked Washington for a Medicaid waiver and block grant to reform a program that consumed 30% of its budget. The state encountered months of federal foot-dragging and, according to one of Mr. Carcieri's deputies, at one point a health administrator in Washington asked: "If you get this waiver, what will our job be?" In January 2009 during the final days of George W. Bush's Presidency, the feds finally gave the Ocean State a sweeping Medicaid waiver.

Rhode Island agreed to a global cap on expenditures over five years of $12.075 billion in exchange for broad reform authority. The waiver is not a pure block grant, because the state agreed not to drop coverage for anyone eligible under federal Medicaid rules and retains the federal-state cost sharing for Medicaid expenses.

The results? After 18 months, Rhode Island's Medicaid spending, which was projected to reach $3.8 billion, has declined to $2.7 billion, according to a report by Mr. Carcieri's Office of Health and Human Services. The state implemented a blizzard of reforms, including wellness programs, co-payments, audits of hospitals and nursing homes, fraud prevention, and letting seniors move from nursing homes into home and community care. The state has also saved a bundle by replacing federal "any willing provider" rules—which require that Medicaid dollars flow to any federally approved doctor or hospital regardless of cost—with competitive bidding.

Not every Rhode Island reform has worked, and some critics question whether the savings are as large as advertised. The state HHS is studying that issue now. But what almost no one challenges is the improvement in the quality of patient care.

The Providence Journal investigated the program and acknowledged last year: "To the surprise of many, everyone involved seems satisfied with the way the state's much-debated 'global Medicaid waiver' is working—at least for now."

Kathleen Connell, the head of Rhode Island AARP, says her group supports the waiver because "Seniors have absolutely benefited from being moved out of nursing homes into home and community-based care. The program is moving in the right direction for seniors."

Steven Costantino, the state's new Medicaid director and former Democratic chairman of the state's House Finance Committee, says "The trend rate of spending [in Rhode Island] has been 7.6% per year, and that's not sustainable. I do believe that the waiver offers us the flexibility to make the necessary policy changes to transform the system."

That isn't what liberal advocacy groups said when they ran ads showing Mr. Carcieri pushing seniors in wheel chairs down the stairs. The usual suspects in the poverty lobby called the waiver "radical," "ideologically driven," and setting a "dangerous precedent" by capping expenditures.

Liberals also claim that $400 million in stimulus cash saved Rhode Island Medicaid's program, not the waiver. But that ignores that the stimulus has forced Rhode Island and other states to spend more on Medicaid because of "maintenance of effort" rules that forbid states from cutting the program. The Obama Administration also insisted that Rhode Island drop its plans for medical savings accounts for Medicaid patients, which also might have saved money.

Rhode Island's experiment highlights the perverse Medicaid incentives that could be fixed with a more complete block grant. The states and the feds share the cost of Medicaid, with the federal government covering between 50% and 70% of a state's Medicaid bills. This rewards states for wasting health-care dollars, because every dollar spent brings another 50 cents or more via taxpayers from other states. Spending caps can be abused when they are used to limit care, but combined with flexibility in this case they improve care.

At least a half a dozen Governors are now asking Washington for a Rhode Island-style waiver, including Haley Barbour of Mississippi, Tom Corbett of Pennsylvania and Rick Scott of Florida. Waivers like this are how Governors like Tommy Thompson of Wisconsin and John Engler of Michigan led the way in reforming welfare in the 1990s. If Congress and the White House are serious about reducing the cost of entitlements, they'll grant a Rhode Island-style waiver to any state that requests one.

Now, from the CBPP report:

In recent months, proponents of converting Medicaid into a block grant have cited a Medicaid waiver demonstration project in Rhode Island as evidence that a block grant would produce substantial federal and state savings while giving states greater flexibility over their Medicaid programs. These claims, however, are off the mark.  The Rhode Island waiver was a “sweetheart deal” between the Bush Administration — in its final week of office — and the Republican governor of Rhode Island, in which the federal government effectively unloaded additional federal money on the state and gave Rhode Island federal funds beyond what it would receive under the regular Medicaid program, in return for the state accepting a cap on its Medicaid expenditures at an inflated level that it never expected to reach anyway.  Such a deal would be impossible to replicate under proposals to convert the Medicaid program to a block grant; such proposals are designed to cut federal Medicaid funding by tens or hundreds of billions of dollars, the opposite of what happened in Rhode Island.

Those who tout the Rhode Island waiver as a model for other states have also exaggerated the state savings that Rhode Island secured under the waiver.  First, they have misleadingly counted savings to the state that resulted from the infusion of added federal Medicaid funding under the Recovery Act as though those savings were due to the Rhode Island waiver.  Second, they have failed to acknowledge that the cost-containment measures which the state instituted under the waiver could have been instituted without capping Medicaid funding; other states can — and many have — instituted similar measures without a “global waiver” like Rhode Island’s.

The Rhode Island Deal

The Bush Administration approved Rhode Island’s project, commonly referred to as a “global waiver,” on January 16, 2009, four days before President Bush left office.  The state agreed to accept a cap on the amount of federal Medicaid funding it could receive for the next five years (and a cap on total federal and state Medicaid expenditures combined), set at levels well above what the federal government otherwise was expected to spend.  The state received increased flexibility over such matters as how it contracts for covered Medicaid services and provides long-term care.  Of particular importance, the global waiver also allowed Rhode Island to receive federal Medicaid funding to help pay for certain health services for adults who are not eligible for Medicaid under federal law; these were costs the state previously covered entirely at its own expense.  The global waiver thereby allowed the state to shift some of these costs from itself to the federal government. 

Those who claim that the Rhode Island global waiver is a model for other states and for the Medicaid program generally have made a number of claims about the Rhode Island experience and its applicability elsewhere.  Close examination reveals, however, that these claims generally do not withstand scrutiny.

  • The federal-state spending cap that the global waiver placed on Rhode Island’s Medicaid program was set at a level far above what the state projected it would spend on Medicaid in the absence of the waiver.  Moreover, because the state was allowed to claim additional federal Medicaid funds for services that the state previously covered on its own, federal costs increased.  In contrast, any block grant proposals that Congress is likely to consider would provide states with substantially less federal funding than they otherwise would get; such proposals would be designed to produce sizeable federal savings.
  • Rhode Island’s Medicaid director has questioned the accuracy of claims made by the former state political appointee who has been promoting the global waiver as a model and claiming it has saved Rhode Island over $100 million, and whose statements and paper are the basis for the recent swell of interest in the global waiver.  Referring to a report written by this former Rhode Island official for a conservative policy organization that has long advocated block-granting Medicaid, the current Rhode Island Medicaid director has said there is little in the report that is accurate.    
  • Rhode Island could have instituted the cost containment measures authorized under its global waiver — such as adopting competitive contracting for various goods and services reimbursed by Medicaid and shifting more people who need long-term services and supports from costly nursing homes to community-based care — under current Medicaid rules and more limited waivers, without a global Medicaid expenditure cap.  States do not need to agree to a global cap to get the flexibility to institute these measures.

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