Homer Alaska - Business

Story last updated at 5:54 PM on Wednesday, April 18, 2012

State examines options for cutting health care costs



By Tim Bradner
Morris News Service - Alaska

Like all employers, state officials are grappling with how to control rapidly rising health care costs.

Unlike the others, however, the sheer size of state medical care spending, through all its programs, gives it huge potential leverage in the market.

State Health and Social Services Commissioner Bill Streur figures the state is directly responsible for about $2 billion a year in spending on health care, including the federal share of funding for Medicaid. That amounts to about 25 percent of all health care spending in the state, Streur said.

If the state can figure out a way to bend the curve on rising costs, it may chart a path for private-sector employers as well.

One idea being explored is to make it easier for Alaskans under state health programs to travel out of state for care, where costs are lower. Streur and Commissioner of Administration Becky Hultberg this spring have been briefing legislative committees on the scope of the state's problem, and it isn't a pretty picture.

The state administers health care for 16,346 government employees and their dependents, spending $83.4 million in fiscal year 2011. The state also covers 63,034 retirees and dependents, with $413.5 million paid that year, and 135,246 lower-income Alaskans covered under Medicaid with spending reaching $1.2 billion.

"Medicaid is now the largest single component of the state budget," Streur told the House Health and Social Services Committee in one recent briefing.

In addition, the state covers medical care costs for prison inmates, state employees who are members of union health trusts, and for state workers' compensation claims, Streur and Hultberg told the House committee.

Medical costs for the state have been rising an average of 9 percent a year between 2001 and 2010. The increase slowed in 2011, however, which dropped the average including that year to 7.9 percent annually, Hultberg said.

The 2011 drop may be a blip. Breaking it down, Streur said there was a 4.3 percent drop in utilization of health services but also that payments to medical providers was up 10 percent. The drop in utilization brought the overall spending down for the year.

In 2011 the average provider charge per event, in terms of unit pricing, was $362.52 compared to an average of $329.51 for 2010, according to data presented to legislators by Streur and Hultberg,

Utilization in 2011 was 1.1 medical events per member-month compared to 1.15 in 2010, a 4.3 percent decrease.

There's no clear explanation for the utilization drop other than there seems to be cycles, Streur told the committee, with utilization of health care dropping for a few years and then rising for reasons not well understood.

However, the 10 percent increase in providers' costs is consistent with the long-term trend, the commissioner said.

Unknown costs with reform

Still, if the long-term trend holds, the state's health care spending will increase to $4 billion a year by 2020, which seems unsustainable given declining oil production and the likely tightening of future state budgets, to say nothing of cuts in federal programs, Streur said.

"That is just a straight-line projection. It does not include any Medicaid cost increase," due to the predicted influx of new Medicaid enrollees in 2014 under the federal health care reform law, Streur said.

Medicaid now covers certain low-income families and disabled Alaskans. Under the federal law, low-income single men and some others not currently insured will be covered. That poses a big unknown that could upset the cost calculation, Streur said. The 135,000 Alaskans now covered by Medicaid are expected to increase by about 35,000 in 2014 due to the federal health care requirement, he said.

The additional medical costs will be totally covered by the federal government for a few years following the implementation of the bill, and for 90 percent into 2020. However, the state will incur costs for administration and management of the additional health care claims and payments, the commissioner said.

What is unknown is the medical profile of the incoming Medicaid population. Having coverage may unleash a burst of utilization of services — some with serious medical issues — adding to the overall costs.

There are some health programs for which the state is on the tab for costs, but for which there is no control. An example is a member of a public employee union where health care is provided by health care trusts administered by the unions, not the state.

Also, the state has no influence over the management of health plans by municipalities and school districts, "although we inherit them as retirees," under the largely state-funded public employee and teachers' pension programs, Hultberg said.

Thus, the state has limited or no ability to encourage these independently managed programs to adopt wellness or other programs.

Medicaid reimbursements as a percentage of the health provider's costs are higher in Alaska than in most other states but that is to encourage physicians and other providers to take on Medicaid patients. In many other states where reimbursements are low, people on Medicaid have trouble getting care.

That's true in Alaska for Medicare, the health program for senior citizens, but the federal government controls Medicare and sets the reimbursements. With Medicaid the state sets the rules and also pays for about half the costs.

It's important to keep providers happy with Medicaid for other reasons, Streur said.

"Medicaid clients can be difficult. There are missed appointments and patients don't always follow the doctors' orders. But because the payments are higher, we can keep the docs on board," Streur said.

Treatments for increases?

As to what can be done to dampen the cost increases, there are some options, Streur and Hultberg said. One change to be implemented soon is to cover more preventative measures and screenings for retirees, Hultberg said, the idea being that catching problems early will improve health outcomes and lower costs.

Another idea is to promote wellness programs that are now common with private employers and other public institutions, but have not been done in the state system.

Wellness programs at the most basic level encourage people to have regular checkups and in more advanced forms encourage exercise and awareness of healthy diets.

Most such programs are voluntary, and some have special incentives. Hultberg said building such programs into retirees' coverage can be tricky because public employee retirement benefits are constitutionally protected in Alaska. That means any change to the plans for retirees must be analyzed by the Department of Law as to how it could affect, either way, the benefits guaranteed to the retiree.

"This is a special challenge. It can be difficult, and it can limit our options," Hultberg told legislators. "Some other plans (other than the state) actually pay people to go to primary care. Even if health care is free, people often won't go to see the doctor."

The options for controlling health care cost growth is limited. Better use of technology, like electronic medical records, is on the list and has real potential, but it's going to be a slow process, Streur said.

Experience from other states is showing limited acceptance of new technology like electronic records among physicians with independent practices.

"Technology is going to be a long slug, but there are great opportunities," the commissioner said.

Ideas that work

What has more promise in the near term are innovations in how health care is delivered. In this, the Alaska Tribal Health Consortium and its partners are establishing systems that should be copied throughout the state, Streur said.

Instead of every patient seeing a physician right away, the initial contact for patients is with a health aide, then a nurse and then up the chain as needs dictate.

"Our system puts too much emphasis on seeing a physician. I see some of the best care being delivered by nurse practitioners," and physician assistants, the commissioner said.

Not having to see a physician if a good nurse will do is more important in a region with a chronic shortage of primary care physicians, which is the case in Alaska.

However, it takes an effort to educate the community, Streur acknowledged.

"Again, the tribal health consortiums have done a phenomenal job of educating their clients that it's OK to see a physician's assistant," he said. "We're not doing a good job with our own population that it's OK to see a PA."

Rep. Charisse Millet, a member of the House committee, understands how this will make a cultural change. "It's hard to tell a young mother with a newborn who has a 101-degree temperature to see a nurse, particularly when she has an insurance policy that entitles her to see a physician."

The next step in innovation is a "medical home" system, where a patient's care is coordinated by a physician on a regular basis in lieu of the current system of essentially uncoordinated care, where patients make appointments when they feel they need it, and too many rely on visits to hospital emergency rooms.

Streur said the state Department of Health and Social Services will experiment with coordinated care later this year when requests for proposals for pilot programs will be issued.

Not only will coordination result in better care but it will save money, particularly if emergency room visits are reduced.

Rep. Paul Seaton, another committee member, expressed concerned that occupational licensing issues may be reducing the flexibility for providers, for example to have para-professionals perform certain duties rather than medical professionals.

"Are we now the prisoner of the system we have created?" Seaton asked.

Streur said something has to be done.

"The status quo is not acceptable. We have to change the way we do business," the commissioner said.

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