Office of Performance Evaluations

Idaho's Medicaid Program: The Department of Health and Welfare Has Many Opportunities for Cost Savings

Released November 2000
Report 00-05

Full report (PDF)

The executive summary of the report is provided below. The full report with exhibits is available in PDF (see above), and a limited number of printed copies are available from the Office of Performance Evaluations (OPE). Specific questions about the report should be directed to OPE. Any general questions need to be directed to the Medicaid division of the Department of Health and Welfare.

Executive Summary

The provision of health care in America to the uninsured and underprivileged remains a critical issue to government leaders. Medicaid is the federal government's flagship program for ensuring the provision of medical care for the poor and disabled. Since its enactment in 1965, the costs of the program have continued to rise; in the last decade, due to a number of factors, costs have escalated at a much greater pace than in the past.

States deliver the Medicaid program to the beneficiaries and are required to provide state funding at prescribed participation levels. Idaho's Medicaid spending exceeded $623 million for the fiscal year 2000. The Department of Health and Welfare (DHW), the department responsible for administering the program, estimates its program costs alone will increase more than 37 percent in the upcoming year, to an all-time high of $786 million by 2002. While the federal government will bear the majority of these costs, Idaho taxpayers will fund nearly 30 percent of the total.

Idaho has experienced increases in mental health, developmental disability, nursing facilities services, and pharmaceuticals that outpace much of the rest of the country. With the trends in health care rising and limited resources available to fund the programs, the DHW and the Legislature must make difficult decisions to address Idaho's Medicaid challenges. Unless reforms are implemented and cost containment efforts are adopted and embraced at all levels of service delivery, the Medicaid budget will continue to grow.

Our review of Idaho's Medicaid program revealed several opportunities to reduce and avoid costs, increase federal reimbursements, and improve program delivery. Our report includes a variety of recommendations, some of which will generate savings of avoided costs as shown in Figure 1, while others will improve operations and services. However, these recommendations alone will not solve Idaho's budget crisis. The following highlights the more significant issues we identify:

• Instituting a statewide mandatory expansion of its Healthy Connections program the state can achieve savings ranging from $1.3 to 3.1 million annually, while providing quality care and a "medical home" to the participants.
• Obtaining Medicaid certifications for each of its three veterans homes will accrue a net savings, once fully implemented, of approximately $1.6 million each year.
• Capturing targeted case management costs and information systems efforts separate from administrative costs will allow the state to bill them at a higher federal participation level—potentially recovering from the federal government an additional $1.6 million annually.
• Reducing dispensing fees paid to participating pharmacies to reflect the regional average could generate annual state savings of $153,000. Adopting an even more progressive approach, such as a sliding scale based on volume, could accrue additional savings.
• Increasing the discount one percent on drug reimbursements to pharmacists has the potential of annual savings ranging between $125,000 and $375,000.
• Requiring beneficiaries to pay a minimal fifty-cent to one dollar co-payment for drugs could reduce spending by at least $200,000.
• Enhancing drug utilization management techniques such as pre-authorization for pharmaceuticals with generic equivalents will help control costs and minimize over utilization.
• Stronger utilization management protocols over developmental disability, mental health, case management, nursing facility and inpatient services will improve effectiveness and should reduce costs.
• Improved automated management information reporting and access will enhance users' ability to manage and conduct program activities.

While the state has many opportunities to improve its program while controlling the costs, stakeholders with varying interests and concerns accompany each initiative. The decisions are difficult but aggressive change is needed to help contain spending increases—therefore, each group, be it the state, providers, beneficiaries, or advocates, will be challenged to compromise for the good of the program overall.