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Managing Medicaid Spending in the COVID-19 Era

As states manage the COVID-19 crisis and think through reopening plans, a critical budgetary consideration will be increased health costs. Declining state tax revenue will severely limit state financial resources, all while Medicaid enrollment will increase due to unemployment, creating a severe strain on finances.

According to a recent article in Politico, some states are already in this financial pincer, with Ohio announcing $210 million in Medicaid cuts over the next two months, Colorado planning a $229 million Medicaid cut and Georgia planning a 14 percent across the board cut in Medicaid payment.

Rather than just go down the road of inelegant, blanket cuts, states can maintain current benefits, all while safely reducing overall costs, with a more expansive look at the Medicaid program. They will need to address the root causes of spending, including social determinants; perverse incentives that encourage volume over value; and limited use of technologies that offer easy access to ambulatory and preventive care.

Amplify the approach to social determinants.

Figuring out ways to treat patients’ health-related social needs will be critical to any state’s response to COVID-19. According to research, approximately 40 percent of a patient’s health (and their corresponding healthcare costs) are tied to social factors such as housing, food insecurity/nutrition, isolation and more – factors likely exacerbated by the pandemic.

While managing these factors will require investment – admittedly a challenge in a tight budget cycle – these efforts are core to reducing the total cost of care over the long term. To put these efforts into action, Medicaid programs will need to partner directly with leading providers to implement programs on the ground.

When done properly, social determinant programs have been shown to dramatically reduce costs for payers, including Medicaid. For instance, Advocate Aurora implemented a comprehensive program for managing patients with malnutrition by conducting comprehensive nutrition screens, nutrition education, post-discharge instructions, follow-up calls and coupons for free vitamin supplements. The results? Healthcare costs dropped by $3,800 per patient, resulting in $4.8 million in total savings. Likewise, when the University of Illinois hospital partnered with a community housing group to identify those with housing insecurity to provide them with bridge housing and/or permanent, affordable housing placement, overall hospital costs were cut by 42 percent.

To reap these savings, it will become important for providers to screen for health-related social needs and create better pathways to share patient-level data between managed care payers and providers.

Create a more predictable cash flow with new payment and delivery models.

Stabilizing the finances of providers that have been hardest hit by COVID-19 is an integral, immediate goal for states to ensure they can meet patients’ needs. Currently, the root of those financial problems rests with volume-based, fee-for-service payments, which resulted in billions of dollars in hospital losses as a result of cancelled elective and diagnostic procedures.

These hits may be more manageable in the future if Medicaid programs were to transition to more flexible payment models that incent more appropriate utilization and reward providers for savings generated, as opposed to procedures performed.

More integrated models that allow providers the flexibility to deliver the right care, at the right time, in the right setting in a person-centered way will be key. For example, states like Massachusetts, Oregon and Washington have been able to respond to COVID-19 financial woes in a more comprehensive manner as a direct result of their head start in implementing value-based care models in Medicaid. It will be vital to gather experiences from these states to see if the more cohesive nature of these systems led to faster and less costly care.

Many providers are starting to discuss whether they would be better off under a truly capitated prospective payment system. The delivery system would be able to react more swiftly and be more agile to meet changing needs. More broadly, a fully prospective payment system would create more predictability for cash flow and allow providers to truly understand the cost and utilization trends of their patient base. It would incent providers to implement population health tools and processes, and deliver the services people need without worrying about having to perform so many face-to-face visits in order to keep business going.

Expand telehealth to advance the delivery of care.

Providers are using telehealth for patients with and without COVID-19 across the country. Telehealth allows health systems to keep healthy people at home and away from acute care settings, while providing much needed care for patients who cannot be seen in an office setting.

Coverage for telehealth was historically limited and reimbursed at a lower rate than traditional care. However, CMS waivers and amendments recently approved for state Medicaid and CHIP programs are broadening telehealth use. This includes more reimbursement for telehealth and expanded use of telehealth services to fit the needs of state COVID responses. In a Premier survey released this week, 93 percent of health systems and other providers indicated a desire to make permanent the temporary telehealth waivers that allow any provider to earn full reimbursement for virtual patient care visits provided to Medicare beneficiaries.

It is certainly in the states’ interest to expand telehealth services, and the Medicaid population can particularly benefit from the new flexibilities. For example, a network of Massachusetts-based federally qualified health centers (FQHCs) is using a million-dollar grant to expand its telehealth programs – not only to meet the challenges of the pandemic, but to improve care management when the emergency is over.

Community Care Cooperative (C3), an accountable care organization comprising 19 FQHCs, is getting $1.026 million from the McGovern Foundation to improve its connected health platform, which up until now had been focused on offering behavioral health services.

Both efforts are already working for patients, creating the structures and necessary data to prove the concept, and hopefully ensure it remains a permanent part of reimbursement.


As the country begin to move beyond the immediate crisis phase of COVID-19, the healthcare industry has a charge to quickly identify the key provisions providers need to:

  1. Escape the financial predicament,
  2. Cement flexibilities that allow for true care management, and
  3. Implement payment/reimbursement policies that give more certainty and elasticity to the people providing the care.

To do this, Premier continues advocating for favorable policy and working with our members to identify best practices, pain points, key flexibilities and funding needs to create better pathways forward for the entire healthcare system.

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