Medicaid Block Grants and the Rationing of Health Care

Federal Budget
Health
Racial Equity

Medicaid is a critically important health program that serves to protect the health of millions of Americans with disabilities and children in low-income families that have nowhere else to turn for their care. It is also the place millions of our seniors turn when they need long-term care that Medicare doesn’t cover. And it’s the place where low-income working Americans turn when they don’t have the offer of health coverage by their employer, the resources to pay for health insurance on their own, or they have run through all their savings to pay for a devastating illness.

Notwithstanding a number of false and unfortunate claims to the contrary, Medicaid works.

For children with cystic fibrosis, such as 14-year old Chloe Jones, they often must spend several hours each day undergoing treatment and taking medications to fight the disease. And for many, Medicaid is a lifeline.

According to the Wall Street Journal, “One step requires [Chloe] to spend 45 minutes, three times each day in an inflatable vest that puts pressure on the chest and loosens mucus in the lungs.”

Such care is critical, as cystic fibrosis is a life-threatening disease that, according to the National Library of Medicine, “causes thick, sticky mucus to build up in the lungs, digestive tract, and other areas of the body.” However, while these treatments are critically important and life-saving, they only mitigate the symptoms of cystic fibrosis but do not stop the progression of the disease, which eventually leads to disability and death.

For over a decade, the Cystic Fibrosis Foundation, in its search for a cure of this terrible disorder, has partnered with Vertex to research and develop new therapies to attack the disease itself. Fortunately for the thousands of people with cystic fibrosis in the country, this joint research effort has led to the development of Kalydeco, which is the first drug developed that targets the underlying cause of cystic fibrosis.

In a medical research trial of this new drug, the Wall Street Journal reports,”Patients taking Kalydeco had an average lung function improvement of 10.1% after about 11 months, compared with a decline of 0.4% in patients taking placebo, according to data published in the New England Journal of Medicine in 2011.” As a result, in January 2012, the U.S. Food and Drug Administration (FDA) approved Kalydeco as an oral medication for children and young adults to fight cystic fibrosis.

For the vast majority of those with cystic fibrosis and medical insurance, including those served by the Medicaid program, this new treatment has many doctors believing that the treatment will either halt or substantially diminish lung damage caused by cystic fibrosis, and thereby, extend the lifespan of those with the disease. For Chloe Davis and patients like her across the country, Kalydeco holds out great hope for improving her health and extending her life.

Another potential benefit is that, although the drug is expensive, the drug has shown an ability to decrease the negative consequences and associated health care costs caused by the disease. For example, without the drug, Chloe Jones has been hospitalized four times over the past two years for about two weeks each time as her condition worsened. Her physician, Dr. Dennis Schellhase, points out that if Chloe had been taking Kalydeco since the drug’s approval by the FDA that “we probably would’ve avoided most of the hospitalizations, if not all of them.”

Unfortunately, despite its promise and hope, Chloe has been unable to access this new drug because the Arkansas Medicaid program has imposed a stringent prior authorization limitation on Kalydeco, despite its approval by the FDA.

Consequently, Chloe had seen her health deteriorate over the last two years while the State of Arkansas has held out as the only State in the country to impose prior authorization limitations on the drug. As Chloe said, “I feel like they don’t care about what’s wrong with me, that I’m not as important as everybody else.”

While there is a lawsuit pending to overturn the prior authorization limitation and the Arkansas’s Drug Utilization Review Board has recommended that the state eliminate such restrictions for cystic fibrosis patients, others are actively encouraging more states to undertake such forms of rationing.

For example, although American Enterprise Institute’s Chris Conover has recently criticized Medicaid because “state standards for access to care vary widely and are rarely enforced”, he has paradoxically argued more recently in Forbes that Medicaid should impose block grants upon states with accompanying limits in federal funding for the expressed purpose of forcing states to cut spending.

Conover acknowledges that such capped limits on Medicaid funding will lead to rationing and reduced access to care. In fact, he specifically advocates that states “ought to have the freedom and flexibility” to impose rationing measures like Arkansas has, even if doing so accelerates lung damage, increases hospitalizations, and diminishes the lifespan of those with cystic fibrosis.

For those of us concerned about the future of Medicaid, maybe we should thank Conover. Whereas others have argued that block granting and slashing billions of dollars out of Medicaid would somehow magically improve the program, Conover at least makes the explicit link between the imposition of Medicaid block grants upon states and the resulting rationing of care that it would cause to the millions of children, people with disabilities, and low-income senior citizens that Medicaid covers.

According to Conover, “By having a fixed amount of federal matching funds to spend each year, states would have an incentive to be far more judicious in how they allocate Medicaid resources across eligibility groups and medical services.” When Conover describes block grants as a “fixed amount of federal funds,” those works highlight exactly the problem with block granting Medicaid.

In fact, unlike the current Medicaid financing structure, which automatically adjusts and follows changes in Medicaid coverage levels and costs, a federally-imposed block grant is set arbitrarily and fails to adjust for need. Under a block grant, if our nation found a cure for cancer, a therapy that stopped the progression of Alzheimer’s, or this new drug to improve the lives of people with cystic fibrosis or other chronic illnesses, federal funding would not increase along with the need to cover these health-improving and life-saving therapies. Compounding this problem is that block grants also fail to adjust for population changes, recessions, natural disasters, or other changes in need.

But, according to Conover, it would be a good thing to put 100 percent of any future health care costs upon the states. As he acknowledges, “At the margin, every new treatment covered would be borne by that state’s taxpayers.” The federal-state financing partnership would effectively end and states would be forced to bear the entire burden of either cutting coverage, reducing benefits, limiting access to care, or raising taxes in order to pay for new cystic fibrosis, cancer, or Alzheimer’s treatments, population increases, any future recession, or a natural disaster.

Of course, once that has happened and the federal government has largely abandoned its partnership and oversight role in protecting the health and well-being of low-income children, people with disabilities, and senior citizens, supporters of block granting Medicaid can then complain that Medicaid is not working well because the states are “rationing care.”

This is not to suggest that we should not strive to ensure that Medicaid is cost effective in its mission to provide health coverage to the millions in need of its services. In fact, rather than having the federal government block grant and walk away from its partnership with states in Medicaid, I would argue that the current federal-state financing partnership often works well.

As an example, the Medicaid Drug Rebate Program has, over the last 25 years, delivered on guaranteeing access to prescription drugs to low-income children, people with disabilities, and adults at a reasonable and cost-effective price. That program, which began in 1990, requires drug manufacturers that want their drugs to be covered to sign a rebate agreement with the Medicaid program in exchange for Medicaid officials agreeing to provide coverage and reimbursement for all covered outpatient drug products by the manufacturer.

This deal gives Medicaid beneficiaries access to important FDA-approved drug therapies, allows drug manufacturers to have their products covered, and provides states and the federal government with significant drug rebates in exchange. The State of Arkansas, for example, received a reported $143 million in drug rebates in 2013.

There are two visions for Medicaid going forward. On the one hand, we can choose to build upon and improve the Medicaid state-federal partnership, such as clarifying that the definition of “medical necessity” ensures that all low-income people served by Medicaid receive the care they need and to work on addressing other barriers of access to care. Such a vision would strive to assure that the program serves beneficiaries in a manner that they always feel that they are treated as being just “as important as everyone else” in the health care system.

Fortunately, the American people are in strong support of protecting Medicaid from being slashed. According to an American Viewpoint poll of voters a year ago, although 91 percent of Americans believed it is important to reduce the federal deficit, voters opposed cutting the Medicaid program in order to reduce the federal budget deficit by a 71-26 percent margin (85-14 percent among Democrats, 63-34 percent among Republicans, and 66-29 percent among Independents).

The negative, alternative vision would be to ignore the American people and to choose, instead, to block grant, cap, and cut Medicaid in a manner where prior authorization limits, benefit exclusions, and access to care barriers would be an increasing and expected norm. Although such a financing scheme would certainly save the federal government some money, it would leave states on their own to address fiscal challenges such as population growth, recessions, natural disasters, and medical innovation and force them to make significant cuts to health care services for the poor and to pit populations and diseases against one another for prioritization.

As former Republican Governor and Senator John Chafee of Rhode Island said in opposition to a Medicaid block grant proposal made by House Speaker Newt Gingrich in 1995:

As states are forced to ration finite resources under a block grant, governors and legislators would be forced to choose among three very compelling groups of beneficiaries.
Who are they? Children, the elderly, and the disabled. They are the groups that primarily they would have to choose amongst. Unfortunately, I suspect that children would be the ones that would lose out.

In response to the Medicaid block grant proposal from House Budget Committee Chairman Paul Ryan in 2011, a group of 190 health policy experts and economists wrote, “We write this letter to oppose plans to convert Medicaid to a block grant and to cut Medicaid benefits. These changes would do nothing to improve quality but would ration care to millions of America’s most vulnerable citizens.”

As they explain:

During economic downturns it would expose states to the full costs of increasing enrollments just when their revenues are falling. The inevitable result would be curtailed services, reduced eligibility, and increased charges that many low-income patients would be unable to pay, forcing them to forego care or placing burdens for uncompensated care on hospitals and physicians.

One of the oddest arguments that Conover makes in favor of block grants and rationing of Medicaid is that, although Medicaid has always lived up to its matching rate requirements since its establishment 49 years ago, he is skeptical that the federal government will continue to live up to the “Obamacare promise that the feds will bankroll 90% of the Medicaid expansion in perpetuity.”

What he fails to note is that the fastest and most immediate way for the federal government to renege on its end of the bargain with states would be to do exactly what he is proposing, as block granting Medicaid would result in an immediate and outright abandonment of federal matching payments to states.

Conover also argues for state Medicaid programs to consider adopting World Health Organization (WHO) criteria and standards for denying and rationing medical services. While it is inevitable that there are forms of rationing in our health system, there are a number of important concerns with having the federal government ramp up incentives for states to apply cost effectiveness criteria and other rationing and exclusion techniques in Medicaid. Chief among those would be the moral, ethical, equitable, and justice dilemmas and problems that arise out of denying treatment and health services to groups that are disproportionately enrolled in Medicaid, including children, people with disabilities, African-Americans, Hispanics, and low-income and vulnerable populations more generally when the same standards are not applied to wealthier populations in society, including older and whiter citizens covered by Medicare.

Unlike middle- to upper-class families and individuals, the parents of a poor child or a child in foster care, who are enrolled in Medicaid after suffering child abuse and neglect and therefore are cared for by the state or foster parents, do not have the option to come up with the resources to pay for any treatments denied by their health coverage. For low-income children, a denial or restriction eliminates all access to the treatment, even if it would improve the health and extend the life of the child.

Beyond those ethical and moral issues, there are a number of other challenges and ethical dilemmas associated with using cost effectiveness criteria in rationing health care. These should all be carefully considered long before taking such a path. Dan Brock outlines many of them in a paper entitled “Ethical Issues in the Use of Cost Effectiveness Analysis for the Prioritization of Health Care Resources” that he wrote for WHO.

To cite a few practical problems with this approach, many states do not have the capacity to do effective and fair cost effectiveness analysis on various therapies. For example, cost effectiveness criteria is often assessed against only a single variable, such as life expectancy or infant mortality. In this case, although a number of doctors and researchers would argue that the drug will expand life expectancy, the drug has not been around long enough to determine the extent to which it will extend the average cystic fibrosis patient’s life.

In addition, for some drugs, the denial of prescription drugs increases health care costs in other areas dramatically. In the case of Kalydeco, Dr. Schellhase argues that a number of expensive hospitalizations would have been avoided and lung function maintained if his patient had accessed the drug. While Arkansas Medicaid was focused entirely on the annual cost of the drug itself, cost savings attributable to the treatment were less understood and apparently ignored.

Cost effectiveness criteria also often fails to give us information or data on other important aims of health interventions and treatments, such as the ability to improve the quality of life of patients by preventing health deterioration, suffering, and disability. These things are very difficult to quantify but are critical, as many people would rather maximize their quality of life, if possible, over the length of life.

For some treatments, particularly for children, the cost savings and life extension of a particular therapy may result in long-term health and well-being benefits that are often unknown at the present time, and therefore, may receive a lower priority than an alternative health program that produces substantially less overall improvements in health and well-being, but has more known (an older drug, for example) or shorter-term benefits. This will stifle innovation and the development of life-saving, longer-term therapies. And, since Medicaid really is a transitional and temporary insurance program, state programs are less likely to be concerned with anything other than shorter-term savings.

And last, there are the problem with cost effectiveness research for those with rare diseases, as the criteria often places a priority for treatments that result in small benefits to a large number of people than those providing greater benefits to a smaller number of people, such as those with rare diseases. If drug manufacturers believe that they will be unable to get drugs covered for rare conditions, such as cystic fibrosis, the incentive for conducting medical research and developing new therapies would be radically diminished for everybody with the condition and not just those on Medicaid.

As Americans, we support Medicaid for a number of reasons. Half of us have a very personal reason to support it, having gotten coverage for our kids during tough times, received or had someone we care about receive care for a disability, or seen Medicaid provide nursing home support for our ailing parents or grandparents. And, the vast majority of Americans oppose Medicaid cuts and increased rationing because we understand that people we know and love may someday need that care.