Medicaid And Quest Provider Payment And Reimbursement Rates - FACT SHEET

 

Highlights

The critical financial condition of hospitals, long term care facilities, and other health care providers has been of growing concern to the Legislature and the public. Under the Medicaid and QUEST programs, the State pays for a considerable amount of health care and also controls certain types of payments made to providers for health care. Specifically, health care facilities and providers have been under increased financial and infrastructural pressure due in part to the following:

  1. Patient demand for diagnosis and treatment with the latest technology, which can be very expensive;
  2. The growing need for expensive institutionalized long term care as the baby boom generation ages;
  3. Health care facilities have incurred high costs related to hardening their facilities and updating their security protocols to mitigate potential terrorist threats and other emergencies;
  4. Providers are often receiving insufficient payments for health care from government payers, private insurance payers, and patients who do not have insurance; and
  5. Hawaii's hospitals have incurred more than $500,000,000 in losses due to bad debt and charity care since 2000.

As the State is a substantial payor in the provision of health care for the poor, elderly, and disabled, it is in the public's interest to ensure that health care payments made with state funds or controlled by the State are sufficient to cover costs of care.

Hawaii's Medicaid program has been in effect since January 1966. In August 1994, Hawaii's Medicaid program separated into two distinct methods of providing services for the two major groups of qualified recipients Medicaid fee-for-service and QUEST recipients. Under the Medicaid fee-for-service program, providers bill Medicaid directly to be reimbursed for services provided to Medicaid-eligible recipients. The fee-for-service program currently services the State's aged, blind, and disabled population who meet Medicaid qualification requirements. The remaining group of beneficiaries (essentially persons under the age of sixty-five who are not blind or disabled but who otherwise qualify for Medicaid) have health care services provided through managed care health plans that are contracted by the Department of Human Services, Med-QUEST Division. This program is commonly known as the QUEST program. In addition to the two major groups of qualified recipients, the Department of Human Services, Med-QUEST Division, also provides medical assistance through smaller Medicaid-funded programs called QUEST-Net and QUEST Spenddown.

Hawaii's Medicaid program is funded through federal and state funds. Under federal law, although each state's Medicaid program is entitled to a minimum of fifty percent of federal reimbursement funds for qualifying Medicaid program-related costs, states have different federal matching rates to fund the services provided under their respective Medicaid programs. The percentage received from the federal government is known as the Federal Medical Assistance Percentage, or FMAP. From year-to-year, each state's Federal Medical Assistance Percentage rate is reviewed by the federal government and adjusted based upon a number of financial factors. For example, Alabama's Federal Medical Assistance Percentage for fiscal years 2005 and 2006 was 70.83% and 69.51%, respectively. For Hawaii, the federal matching funding rate for fiscal years 2005 and 2006 was just under sixty percent (58.47% and 58.81%, respectively).

In 2003, the estimated national average for Medicaid spending per child was $1,410, compared to $11,659 per disabled enrollee and $10,147 per elderly enrollee. These higher per capita expenditures for disabled and elderly beneficiaries reflect the intensive use of costly acute and long-term care services. In comparison, in state fiscal year 2004, Hawaii ranked fortieth among states with regard to state general fund expenditures ($322 million), and, when using total Medicaid payments made per enrollee as a measure (both federal and state payments under Medicaid, excluding disproportionate share hospital payments (DSH)), in 2003, Hawaii ranked thirty-eighth among states and the District of Columbia, spending an average of $1,413 on children, $2,163 on adults, $10,102 on the elderly, and $9,835 for the blind and disabled (average expenditure per enrollee $3,462).

Generally speaking, the Medicaid fee-for-service reimbursement rates for the State of Hawaii are based on the federal Medicare Resource Based Relative Value Scale (MRBRVS) physician fee schedule, which is maintained by the U.S. Centers for Medicare and Medicaid Services. The current MRBRVS physician fee schedule is derived from the "relative value" of services provided and based on the resources they consume. The relative value of each service is quantifiable and is based on the concept that there are three components of each service: the amount of physician work that goes into the service, the practice expense associated with the service, and the professional liability expense for the provision of the service. The relative value of each service is multiplied by Geographic Practice Cost Indices (GPCIs) for each Medicare locality and then translated into a dollar amount by an annually adjusted conversion factor. The dollar amount derived from this calculation, with adjustments under certain circumstances, is the reimbursement a physician receives for the provision of a particular service.

According to the Department of Human Services, Hawaii's Medicaid reimbursement rate is approximately seventy-two percent of MRBRVS 2000 rates for Hawaii (sixty-eight percent + four percent for the State's general excise tax). In other words, if the MRBRVS 2000 establishes $100 as the reimbursement rate for a treatment code, the State of Hawaii would pay a health care provider $72 for the same treatment under its Medicaid program. Of that $72 amount, in 2006, the federal government would pay 58.81%, and the State would pay the remaining 41.19%. For Medicare Fee Schedule treatment codes established after the publication of MRBRVS 2000, the reimbursement rates for these treatments approximate seventy percent of MRBRVS 2006 for Hawaii.

QUEST reimbursement rates, unlike Medicaid fee-for-service reimbursement rates, are negotiated on a contracted plan basis in a managed care environment. However, dental services for QUEST beneficiaries are provided under the Medicaid fee-for-service program. The Department of Human Services contracts with medical health plans selected through a competitive bidding process. Historically, QUEST providers have accepted Medicaid reimbursement rates and methodology when negotiating their contracts. Recipients who are eligible for QUEST are able to select a medical plan. The plans are responsible to ensure recipients receive medically necessary services that are a covered benefit, within their contracted network of qualified providers. The Department of Human Services, in turn, pays a monthly capitated amount to the medical plan for each member enrolled in its plan. The Department of Human Services pays a plan no more than the capitated amount, regardless of how many times a recipient seeks services within a plan or the type of service a recipient receives.

According to various health care providers, the system utilized by the Department of Human Services to calculate reimbursement rates to health care institutions and providers does not seem to be flawed, but is in need of timely rate adjustments to accurately reflect the cost of health care.

Since 2004, the Department of Human Services has been pursuing a program of enhancing federal financial participation (FFP) in the State's Medicaid program. The Department's program is intended to generate more federal dollars (matching funds) for reinvestment in improving Hawaii's health care system. The program involves amending the Medicaid State Plan through the process of obtaining federal approval of a State Plan Amendment and amending the Medicaid QUEST 1115 waiver (managed care demonstration project).

Currently, there is no means by which to accurately determine whether individual health care providers are being adequately reimbursed for the services they provide under Medicaid or QUEST.

According to an issue brief written for Thomson West's Health Policy Tracking Service in October 2006, beginning from 2004, eighteen states increased Medicaid provider reimbursement rates. By 2005, more states were increasing reimbursement rates. With the recovery of the national economy and revenue beginning to fill state treasuries, legislatures in the following nineteen states increased Medicaid provider reimbursement rates: Arizona, Arkansas, Florida, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Missouri, New Hampshire, North Carolina, Oklahoma, Tennessee, Utah, Virginia, and Washington. During 2006, fifteen states California, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Hampshire, New Mexico, Oklahoma, Utah, Vermont, Washington, Wisconsin, and Wyoming have passed legislation to increase or further increase the reimbursement rates to Medicaid providers and services in the areas of long-term care providers, hospitals, physicians, personal care services, dental services, mental health services, and wheelchair van services.

In order to improve reimbursements to individual health care providers to better cover the costs of providing services, the Bureau recommends that the Medicaid Fee Schedule be adjusted to cover such costs.

In order to bring hospitals up to the "break even point," the Hawaii Health Systems Corporation (HHSC) estimated that, for its facilities, it would cost the State approximately $21.8 million ($15.3 million (29% rate increase) for Medicaid, and $6.5 million (41% rate increase) for QUEST) just to cover costs for their Medicaid and QUEST populations for 2006. The Hawaii Health Information Corporation reported that, in order for the fourteen private hospitals that it keeps records on to break even for the Medicaid services provided, an appropriation of approximately $56.5 million (23.5% rate increase) would be required to offset losses incurred in fiscal year 2005-2006. The total amount for both HHSC and private hospitals would equal approximately $78.3 million. This $78.3 million only represents the amount needed by the hospitals to recover the costs incurred during the 2005-2006 fiscal year and does not represent previous fiscal year losses or the additional funding that would be necessary in subsequent fiscal years to allow the hospitals to keep pace with health care cost inflation.

Frequently Asked Questions

  • Are all Medicaid reimbursement rates determined in the same way?
    • No, when discussing Medicaid reimbursement rates, it is important to note that the Department of Human Services utilizes different reimbursement methodologies for different types of health care services. Section 346-59, Hawaii Revised Statutes, establishes the Medicaid Fee Schedule for non-institutional health care services, such as physician services, dental care, laboratory services, and medical equipment and supplies. However services provided in inpatient acute hospitals, federally qualified health centers, and rural health centers, and to a certain extent skilled nursing facilities (SNFs) and intermediate care facilities (ICFs), are reimbursed through the Prospective Payment System (PPS). Furthermore, subacute nursing facilities are paid reimbursement rates that are negotiated by the Department of Human Services; and hospices and home health care agencies are reimbursed at Medicare rates. Prescription drugs are reimbursed at 10.5% below the average wholesale price plus a $4.67 dispensing fee and are not addressed by the Medicaid Fee Schedule established under section 346-59, Hawaii Revised Statutes. According to the Department of Human Services, the Medicaid Fee Schedule and the Proposed Payment System are the main methodologies used for reimbursement.

     
  • Why didn't the study include a listing of the ten most frequently used Medicaid and QUEST health procedures?
    • The Bureau found that, within the State of Hawaii, utilizing the basic parameter of "the ten most frequently used treatments" resulted in some Medicaid treatment codes that were anomalous and not representative of the study's purpose. For instance, one of the codes provided by the Department of Human Services as one of its most frequently utilized codes was A0425 Ground Mileage per Statute Mile (sixth most frequent). Instead, the Department of Human Services Med-QUEST Division provided a list of Current Procedural Terminology (CPT) codes that would be more typically used by health care providers in evaluating and treating patients. Although these codes may or may not qualify as some of the "ten most frequently used treatment codes" as requested under the concurrent resolution, the CPT codes used in the study are a more indicative sample of the spirit of the concurrent resolution's intent.

     
  • How does Hawaii compare to other jurisdictions regarding provider payments and reimbursements for the ten most frequently used Medicaid and QUEST health procedures?
    • After contacting a number of agencies and conducting an internet search of various websites to determine whether any interstate comparative cost information was available, the Bureau was only able to find surveys conducted by the American Academy of Pediatrics that provided Medicaid reimbursement rates for commonly used pediatric services. Unfortunately, although the surveys provided comparative information between states' Medicaid reimbursement rates and what Medicare reimburses, the surveys did not provide any information on actual cost to a provider to provide the specific treatment. Thus there was no way to say whether the reimbursement rates were adequate.

     
  • What have other states done to address the problem of low reimbursement rates to Medicaid providers?
    • In 2005 and 2006, the vast majority of legislation passed in 2005 and 2006 that positively affected Medicaid reimbursement rates simply increased appropriations or reimbursement formulas for providers. For a more comprehensive digest of each state's legislation that increase Medicaid provider rates.

     
  • Has the State done anything recently to ensure that hospitals and providers are getting the most out of federal matching funding?
    • Since 2004, the Department of Human Services has been pursuing a program of enhancing federal financial participation (FFP) in the State's Medicaid program. The Department's program is intended to generate more federal dollars (matching funds) for reinvestment in improving Hawaii's health care system. The program involves:
      1. Amending the Medicaid State Plan through the process of obtaining federal approval of a State Plan Amendment; and
         
      2. Amending the Medicaid QUEST 1115 waiver (managed care demonstration project).

     
  • How can the State ensure that health care providers are adequately or at least better reimbursed for services provided to Medicaid and QUEST recipients?
    • The Legislature has a number of options at its disposal to periodically update reimbursements and payments to health care providers. One such option would be to establish a statutory requirement that the Department of Human Services biennially review Medicaid and QUEST reimbursement rates and submit reimbursement rate increase cost information and appropriation requirements to the Legislature for its review and appropriation of funds. Another option could include the establishment of a Medicaid Reimbursement Rate Review Commission whose specific charge would be to gather relevant information and submit biennial rate adjustment recommendations to the Legislature for its review and possible implementation.

      The Legislature could also establish a statutory requirement that reimbursement rates track a percentage (possibly ninety-five percent, or even one hundred percent) of the Medicare Resource Based Relative Value Scale (MRBRVS) as it applies to Hawaii, as it does for health care services provided and compensated under the State's Workers' Compensation Law (see section 386-21(c), Hawaii Revised Statutes), except that, in accordance with federal requirements, Medicaid and QUEST reimbursement rates cannot exceed Medicare reimbursement rates. Thus, any amount paid as reimbursement in excess of a Medicare rate would be borne solely by the State.

  • Should adjustments be made to the State's Medicaid Fee Schedule? If so, by how much?
    • In order to ensure that health care providers are at least reimbursed to cover the costs of providing services, the Medicaid Fee Schedule should be adjusted to cover such costs. Unfortunately, because cost data on individual health care providers was not available, the Bureau must base its rate increase recommendation on what is provided under the Medicare Resource Based Relative Value Scale (MRBRVS) as it applies to Hawaii, the justification being that the federal government bases its Medicare reimbursement rates on the data it acquires from health care providers and adjusts it for Hawaii's economic circumstances. The Bureau recommends that the Legislature revise the Medicaid Fee Schedule up to, but not exceeding one hundred percent of, the MRBRVS for Hawaii rates, in order to ensure that the State does not have to solely cover the costs of any amounts that exceed the MRBRVS for a particular treatment code.

     
  • Would it be difficult to change the reimbursement rates contained in the Medicaid Fee Schedule?
    • The Director of Human Services noted that if the Legislature wanted to increase the payment amounts to providers under the Hawaii Medicaid Fee Schedule, all it would have to do is increase the amounts appropriated under program ID HMS 230 in the State Budget.

     
  • Would adjustments to the Medicaid Fee Schedule augment reimbursement for QUEST Services?
    • Yes, since QUEST service contracts are based on rates provided in the Medicaid Fee Schedule, if the fee schedule rates are increased, QUEST providers will similarly benefit from the increases.

     
  • Is the prospective payment system methodology flawed?
    • Generally speaking, the answer seems to be no. According to testimony submitted by the Director of Human Services on S.C.R. No. 77, S.D. 2, to the House Committees on Human Services and Health, the Prospective Payment System (PPS) methodology is defined in federal law, as well as in the Hawaii Administrative Rules, and is based on the actual costs of the provider to provide the service. In order to change these payment amounts for inpatient hospital services or skilled nursing facilities, the reimbursement rates for these facilities under the PPS system would need to rebased. The other option is to move to a different reimbursement methodology.

      Hawaii Pacific Health commented that its member hospitals did not believe that the reimbursement methodology used by the Department of Human Services was flawed, but that it simply was not adequately adjusted to take into account that health care inflation is moving at a much more rapid pace than the consumer price index and, although all providers that are reimbursed under the PPS methodology get either a Consumer Price Index or Medicare Economic Index increase each year, these increases are far less than the actual increases in the cost of care.

      Hawaii Pacific Health recommended that the Department of Human Services rebase all Medicaid and QUEST reimbursements based upon actual current costs for Hawaii hospitals. This would require a considerable one-time increase as a market adjustment to bring hospitals up to par. Once the market adjustment increases are in place, the Department of Human Services would have to then make annual adjustments based upon the Hospital Producer Price Index.

  • Would the rebasing of reimbursement rates be a difficult task to accomplish?
    • Hawaii Pacific Health stated that the Department of Human Services already has a process to conduct this market adjustment, as it has done it in the past, and that the Hawaii Health information Corporation has the hospital cost data to assist the Department of Human Services in rebasing its reimbursement rates.

     
  • How much would it cost to get hospitals to the "break even point?"
    • In order to bring hospitals up to the "break even point," the Hawaii Health Systems Corporation (HHSC) estimated that, for its facilities, it would cost the State approximately $21.8 million ($15.3 million (29% rate increase) for Medicaid, and $6.5 million (41% rate increase) for QUEST) just to cover costs for their Medicaid and QUEST populations for 2006. The Hawaii Health Information Corporation reported that, in order for the fourteen private hospitals that it keeps records on to break even for the Medicaid services provided, an appropriation of approximately $56.5 million (23.5% rate increase) would be required to offset losses in fiscal year 2005-2006. The total amount for both HHSC and private hospitals would equal approximately $78.3 million. This $78.3 million only represents the amount needed by the hospitals to recover the costs incurred during the 2005-2006 fiscal year and does not represent previous fiscal year losses or the additional funding that would be necessary in subsequent fiscal years to allow the hospitals to keep pace with health care cost inflation.

     
  • Can the State adjust reimbursement rates for federally qualified health centers (FQHCs) and rural health clinics (RHCs)
    • For FQHCs and RHCs, the Director of Human Services previously stated that payment of the PPS rate is mandated by federal law. Therefore, there can be no increase of reimbursement to FQHCs and RHCs because the federal law does not allow for rebasing of the rates.

     
  • Should the State enact a law that automatically adjusts Medicaid reimbursement rates to health care providers?
    • Any change in public policy to include regular adjustments to reimbursement rates adjustment to offset inflationary costs must be met with careful fiscal scrutiny. Deferring the discretion to implement or not implement a Medicaid Fee Schedule rate increase to an annual, biennial, or any other formula or mechanism that does not provide the Legislature with the ability to approve or disapprove of an increase in reimbursement rates could potentially pose a significant detrimental impact on the long term fiscal well being of the State's finances.

      However, if health care providers and facilities are to continue to provide health care services to the neediest persons in the State, they must be adequately compensated for their services and not be required to provide such services at a financial loss. To the extent the state and federal government are financially able, each government should strive to mitigate the financial losses being incurred by health care providers and facilities that provide services under Medicaid.

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