I’ve had Medicaid on the mind for much of the past month.

A recent study by the Urban Institute revealed that Medicaid physician fees rose 15.1 percent between 2003 and 2008, partially closing the gap with Medicare payment rates for physicians.

That’s good news. It’s about time Medicaid payment rates saw some improvement, for – as the study’s lead author Stephen Zuckerman notes – Medicaid “has historically paid physicians less than both private insurers and Medicare for the same services.” Those skewed payment rates contribute, of course, to reduced physician participation in Medicaid in some areas of the United States.

Zuckerman’s study is based only on Medicaid fee-for-service reimbursement, but that’s where almost two-thirds of the program’s spending occurs. Medicaid fees in the FFS setting grew at an annual rate of 2.6 percent nationally in the five years studied, which still lagged behind the medical services component of the Consumer Price Index, which grew at a rate of 4.6 annually.

Thus, while Medicaid payment rates rose, they did not keep pace with inflation.

And although all but two states increased their Medicaid physician fees between 2003-08, these fees still lag behind fees paid by the Medicare program. In 2008, for instance, Medicaid physician fees were 72 percent of Medicare fees.

The comparatively poor Medicaid fees paid to physicians by most states are ridiculous, and do not “acknowledge the importance of providers.” That last phrase is from Dave Miller, chief financial officer at Children’s Medical Center of Dayton, Ohio.

I recently spoke with Miller about the recession’s impact on his hospital, and he indicated that Medicaid payment rates were likely his top concern.

As the U.S. economy has deteriorated, Dayton Children’s has seen a “significant and rapid shift” in its payer mix toward Medicaid, Miller says. Almost 50 percent of patients at Dayton Children’s are Medicaid patients.

While a larger percentage of Medicaid patients is common in the community of children’s hospitals, the increase in Medicaid patients that Dayton Children’s experienced in late 2008 was “historic,” Miller noted.

“Medicaid pays only 76 percent of our costs,” said Miller. “Every 1 percent increase in Medicaid patients costs us about $1.2 million. We had a net revenue problem develop very rapidly. You just can’t run a hospital on Medicaid alone.”

Miller believes that the federal government and the states need to put more money into the Medicaid system and increase payments to providers.

“There must be a more generous reimbursement scheme for people on Medicaid,” Miller said. “And this becomes an access problem as many providers won’t accept more Medicaid patients. Legislators need to understand that just giving someone a Medicaid card doesn’t guarantee access.”

The economic problems experienced in southwestern Ohio are not unique, as hospital executives around the country know all too well. Declines in state revenue during the current recession are leading many states to attempt reductions in Medicaid spending growth through provider payment cuts.

In California, for instance, the state Medicaid program, Medi-Cal, consumes about one-fifth of the state’s budget. Chris Perrone, senior program officer at the California HealthCare Foundation, says the challenge facing the Medicaid program in his state is a $6 billion state budget gap in the next fiscal year, which could double to $12 billion.

Sadly, “you can’t make deep cuts in state spending without addressing the Medi-Cal program,” says Perrone.
An unfortunate truth, from Ohio to California, and everywhere in-between.