PORTLAND, Ore. - In 2011, Oregon Gov. John Kitzhaber faced a vexing problem: The state had a $2 billion hole in its Medicaid budget and no good way to fill it.
He could cut doctors’ pay by 40 percent, but that might lead to them quitting Medicaid altogether. He could drop patients or benefits, but that would only compound costs in the long run. A former emergency room doctor, Kitzhaber remembers culling the Medicaid rolls in the 1980s, when he served as a state senator.
“When I went back home, and went back to the emergency department, I saw a couple of people who came in who lost coverage under that decision,” he said. “One of them was a guy who had had a massive stroke. These people don’t disappear.”
So Kitzhaber did something that many before him have done in desperate times. The governor who favors cowboy boots over dress shoes made a bet that Oregon could not afford to lose.
The deal Kitzhaber struck was this: The Obama administration would give the state $1.9 billion over five years, enough to patch the budget hole. The catch: To secure that, Oregon’s Medicaid program must grow at a rate that is 2 percent slower than the rest of the country, ultimately generating $11 billion savings over the next decade. If it fails, those federal dollars disappear.
Oregon is pursuing the Holy Grail in health-care policy: slower cost growth. If it succeeds, it could set a course for the rest of the country at a pivotal moment for the Affordable Care Act. Under the law, many states will expand Medicaid programs to cover everyone below 133 percent of the federal poverty line, adding 7 million Americans to the program in 2014 and leaving states looking for the most cost-effective way to cover that influx of patients.
In Oregon alone, Medicaid is expected to enroll 400,000 new patients by 2022, nearly doubling its current numbers, according to an Urban Institute analysis.
As Oregon’s population grows, the state has come to realize that Medicaid is not a bottomless bucket of money. The state’s budget cannot sustain that. Instead, it strives to deliver what health policy experts call “the triple aim”: higher-quality care that leads to better outcomes, all delivered at a lower cost.
"Oregon is trying to change the way that health care is delivered with incentives to deliver smarter, better care, instead of just imposing budget changes that cut back on health care," said Cindy Mann, director of the Center for Medicaid and State Operations. "They're doing this statewide and it’s very exciting for us."
Under the new deal, Oregon does not get a lump-sum payment. Instead, the federal government doles out the $1.9 billion over five years. If the state cannot deliver cost savings up front, while hitting certain quality metrics, it’s cut off. The money it needs to keep doctor salaries stable and patients’ benefits covered dries up.
“In terms of cost-control experiments, the likes of this are something we have never seen in health care,” said John McConnell, a health policy researcher at Oregon Health & Science University who is studying the Oregon Medicaid waiver. “The natural questions are: Is it going to work? Is the state going to fix the budget? And if they do fix the budget, how are those savings accomplished?”
As Kitzhaber sees it, failure isn’t an option. The state’s Medicaid program needs that $1.9 billion to make ends meet now, even if it means paying big dividends back to the federal government later. It’s not unlike a payday loan, with a quick influx of cash and a large obligation to follow.
“There’s no more money,” Kitzhaber said. “This is one where you really have to change how you do business in order to survive.”
The phone started ringing, Kitzhaber said, when he landed that $1.9 billion. Other states wanted to know the trick. Then he explained what he committed to.
“We got a lot of calls, things like ‘How did you get all that cash and how can we get some?’” he said. “They never called back.”
30 years and no solution
Oregon has a long history of leadership when it comes to the Medicaid program, which covers nearly 62 million low-income and disabled Americans nationwide. In the early 1990s, it was among the first to use a federal waiver to expand limited coverage to all Oregonians living below the poverty line. Oregon’s uninsured rate quickly dropped, from 18 percent in 1994 to 10 percent in 1998.
Maintaining a robust health plan, however, hasn’t been easy. The state’s tax revenue dropped during the economic downturn of the early 2000s. To keep the Medicaid program afloat, the state charged significantly higher co-pays for some: $50 for an emergency room visit and $250 for a trip to the hospital.
Medicaid enrollment shrank by 46 percent as patients affected by the changes left the program — likely relegated to the ranks of the uninsured — between February and December 2003, according to research published in the journal Health Affairs.
Separate research has found that when Medicaid premiums rise by 1 to 5 percent of an uninsured family’s income, their odds of participating drop from 57 to 18 percent.
“For the last 30 years, both the private and public sector have done the same things to manage health-care costs,” said Bruce Goldberg, the Oregon Health Authority director who oversees the Medicaid program. “They’ve cut people from coverage, cut payment rates or cut benefits
“It’s been 30 years of doing that, and we haven’t solved the problem.”
This time around, Oregon wanted to try something different. Instead of dropping patients, the goal is to make high-quality health care less expensive.
Goldberg says that a small experiment in Oregon last year gave the state clues about a better way to reduce health spending. It took place at St. Charles Hospital in Bend, a mountain town known for its snowboarding, white-water rafting and microbreweries.
St. Charles noted that 144 patients tended to use the emergency room the most. Taken together, they averaged 14.25 trips each over 12 months. These patients drove much of the area’s Medicaid spending.
Researchers focused on them. Despite the frequent visits to the ER, these patients tended to be disconnected from the system.
More than half did not list a primary-care doctor. Some didn’t even have a preferred hospital: 27 percent had visited multiple ERs. The majority had unmet mental health needs, even though most had Medicaid, which provides mental health coverage.
Much of that seemed to have to do with the fragmented nature of Oregon’s Medicaid program.
“In our old system, we had people who had a physical health plan, a mental health plan and a dental plan,” Goldberg said. Patients would have three insurance cards, one for each type of service.
Where health-care services tended to be siloed, providers in Bend decided to integrate. It stationed community health workers in emergency rooms, who could help assess why patients had turned up.
Behavioral health specialists were embedded in clinics that traditionally dealt only with physical issues, in order to give patients a point of contact when they walked in the door.
The program was not a complete success. Of the 144 patients in the study, only 62 percent agreed to work with a community worker on a plan for their care. The others proved difficult to track down or did not want to participate.
Still, it did significantly change how the most-expensive patients used the health-care system. Emergency department visits fell by 49 percent. On average, the program generated about $3,000 in savings per patient.
Now, the Oregon aims to bring an approach that worked with 144 patients in Bend to Medicaid’s 564,470 patients across the state.
Oregon divided the state into 15 region and gave each one a set amount to care for each patient. These regions can divvy their dollars however they please, so long as patients hit certain quality metrics, like ensuring that adolescents get well-care visits and that steps are taken to control high blood pressure.
The hope is that each of the 15 regions, known as coordinated care organizations, will invest only in the most cost-effective health care. A behavioral health worker who can prevent emergency admissions becomes a lot more valuable, the thinking goes, when Medicaid funding is limited.
In this way, the Oregon plan has some parallels to Republican ideas to “block grant” the Medicaid program, and give states a set amount to run their programs. Both rely, in part, on a fixed budget to put downward pressure on health spending.
“You can call it what Oregon calls it, a global budget, or you can call it a block grant,” said Tevi Troy, assistant Health and Human Services secretary under George W. Bush. “There’s a semantic aspect to it. At the end of the day, we’re talking about putting limits on what we’ll spend on Medicaid.”
Democrats have typically opposed block grant proposals out of fear that they could lead states to skimp on care to meet spending targets. Safeguards in the Oregon plan, like the quality metrics, however, have made the approach more palatable to liberals.
“The idea of a global budget is to try to wring those costs without actually making consumers or seniors bear the heaviest burden,” said Neera Tanden, the Center for American Progress president who has advised President Obama on health policy.
Hope in Prineville
At the Mosaic Medical clinic in Prineville, a tiny Central Oregon logging town of 9,192, Juana Martinez and Michelle Ortiz are practicing the type of medicine that Kitzhaber thinks could fix the system. They are community health workers, the ones who make sure that patients do not slip through the cracks.
“Back there, you just get patients’ vitals,” said Martinez, motioning toward the exam rooms. “Here, it’s more knowing about them and making sure you can help them.”
That’s what she and Ortiz have done with Rebecca Whitaker. The 53-year-old Medicaid patient moved to Prineville last year, after shuffling through three Arizona nursing homes in six years, while recovering from a stroke.
Doctors had prescribed her 28 medications. Her social anxiety would get so bad that, sometimes, she rubbed her hands raw. By the time Whitaker got to Prineville to live with her cousin, she had given up on the health-care system.
“I tried to make it on my own for three months,” she said. “I was a diabetic without insulin. I wore a size zero pants. I tried suicide twice. I swore I’d never see another doctor.”
At Mosaic Medical, Whitaker received care for her diabetes and blood pressure. She also began seeing the clinic’s behavioral health specialist every week, who helped tend to her anxiety and depression.
Community health workers aided in other ways. They helped to ease her social anxiety by attending bingo night together. When Whitaker expressed an interest in moving out of her cousin’s house, Martinez helped her find an apartment.
“They have been the most moral support I’ve ever had in my life,” Whitaker said. “They cared, and that made me want to care. Little by little, when things got too frustrating in life, I’d see one of them. They changed my whole life.”
Worry in Portland
The governor’s gamble looms large for those who have to execute his plan: When you have a fixed number of health-care dollars, who gets the biggest slice of the spending?
The question weighs heavily on the doctors at Richmond Clinic in Portland, a federally qualified health center that is run by Oregon Health and Science University and sees a large load of Medicaid patients. Doctors there are pleased about the opportunity to be paid for some of the services they wouldn’t now, like having a long talk with a patient about diabetes management.
“What we’re excited about, with this whole transformation process, is having the mental space and time to address our patients’ needs,” said Nick Gideonse, the clinic’s medical director. “If we can get off the reimbursement system that is totally dependent on face-to-face visits, we might have more space to anticipate our patients need, rather than respond to them as they happen.”
The Richmond clinic recently added a behavioral health specialist to its staff. Rather than have the patient schedule a separate appointment at a different location, the specialist can pop in for a visit where a doctor notices unmet mental health needs.
“Almost every day, whoever is on for mental health will come down to the doctor’s pod and say, ‘Hey, does anyone have someone on their schedule we should talk about?’ ” Gideonse said. “They’ll literally go through every provider’s schedule and see who will benefit from a mental health touch.”
At the same time, others at the Richmond Clinic worry about how big their share of the lump-sum payment will be.
“I’m reassured by people talking about the role primary care providers need to play,” said Ern Teuber, the clinic’s executive director. “Still, when we start talking specific dollars, the perception is there isn’t enough money to go around and that somebody has to lose.”
The worry is especially acute for the hospitals that tend to deliver more expensive types of medicine. Their business model has traditionally relied on keeping beds full, as each patient brought in new payments.
“If we can’t reduce the cost of hospital care, we become a cost center rather than revenue generator,” said Greg Van Pelt, chief executive of Providence Health. “If Medicaid is going to grow slower, you have to figure out a way to get it to cost less.”
That process isn’t always easy: Van Pelt notes that he has had to oversee workforce reductions, as the hospital has become more efficient. His providers, for example, started a program to reduce elective Caesarean-section births before 39 weeks, which can lead to costly medical complications. Fewer babies ended up in neonatal care and, suddenly, a smaller neonatal staff was needed.
“There’s some tension since we haven’t figured out how the funding breaks down yet,” Van Pelt said. “Everyone is a little anxious.”
To alleviate some of that worry, Kitzhaber is looking at creating an innovation fund for the state’s hospital, one that rewards steps taken to reduce the care it provides.
“It’s a huge issue, and there’s no doubt that hospital business models are going to have to change,” Goldberg said. “We’ve started an open, frank conversation about that fact.”
Van Pelt thinks the potential rewards make the risks worthwhile.
“The first few years are going to be very difficult financially, politically and culturally,” he said. “It’ll be about hanging in there. We know this is the right thing for us to do. We all complain about health-care spending, but nobody does anything about it. Now, that’s changing.”
For Kitzhaber, the Medicaid experiment is just a beginning. If the state can achieve savings with this population, he could see using global budgets in the health plans that cover state workers and teachers. The private sector might get on board, too, if it sees proof that quality health care does not have to bankrupt employers.
Kitzhaber estimates that, if every state cut its Medicaid costs as Oregon plans to, the federal government would save $1.5 trillion.
“Medicaid by itself isn’t enough to change things,” he said. “For a lot of hospitals, it’s maybe 7 percent of their business. We have another 600,000 people the state covers. If their health-care costs grow slower, it’s just a game changer for state budgets.”
It’s too early in the game to know whether this bet will pay off.