In a display of unprecedented cooperation and compromise, Arkansas is on the verge of creating the country's first public-private, universal payer, value-based healthcare delivery system.
Imagine you are the Democratic governor of a rural state that has struggled for decades to help provide healthcare services for all of its citizens.
This is the second part of a multi-part series on healthcare payment reform in Arkansas. Read Part I.
Out of your state's 2.9 million residents, a half million people lack health coverage.
With 100 percent financial support from the federal government, you can expand the state's Medicaid program and offer health insurance to 250,000 residents. Medicaid expansion would build on a high-risk gamble you had recently taken to create a value-based medical payment system across the state. It also would help address a $300 million Medicaid gap in the state's budget.
But almost every Republican in the state legislature views Medicaid as hopelessly broken. And you need 75 percent majorities in the GOP-controlled House and Senate to change the state's Medicaid program.
Now you know how Arkansas Gov. Mike Beebe felt heading into the legislature's key votes on Medicaid expansion in April 2013.
"The real issue was the 75 percent vote. That was the key to this whole problem," Beebe said in phone interview Tuesday, noting he had a powerful ally in his bid to expand Medicaid as part of a grand strategy to transform the financing of healthcare in Arkansas. "The logic dictates that you do it."
Medicaid expansion has become one of the fiercest fronts in the political battle over the federal Patient Protection and Affordable Care Act, with about half of the states having adopted Medicaid expansion. Many chose the relatively straightforward route through growth of existing Medicaid programs.
But Arkansas is among several states that have decided to expand Medicaid through a "private option," using the 100 percent federal expansion financing to fund private insurance policies for the poor purchased through the state's PPACA exchange, Arkansas Health Connector.
"Medicaid is the driving force here," says David Wroten, Executive VP of the Arkansas Medical Society. Two players dominate the modest commercial payer market: Arkansas Blue Cross Blue Shield at No. 1 and Humana a distant second. "The real results are confined to the Medicaid program and Blue Cross Blue Shield," he says.
'You're Hurting Your Own People'
Beebe has championed education, economic development and tax relief since becoming governor in 2007, and he is reluctant to take on the mantle of healthcare reform. "Education and economic development are still my primary focuses," he says. "They make all the other problems easier to solve."
But the former hospital board member said no public official, especially the state's chief executive, could ignore the need to enact system-wide healthcare reforms as the Medicaid funding gap raised alarm in 2011. "You've got to be a counter puncher sometimes," he says. "You can't ignore problems even if they weren't your chosen focus."
"The old fee-for-service model was broken," Beebe said. "I wanted to see where we could go to get away from fee-for-service."
Finding a way to get Medicare expansion through the legislature became a top priority. The governor said he has told leaders of other states "they are crazy to their face" for bucking Medicare expansion. "You're going to pay for it whether you take it or not," he says of the cost of providing medical care to the poor, particularly for hospitals as the federal government scales back Disproportionate Share Hospital payments for uncompensated care.
"These states that are just saying 'no' are paying for the rest of us and not getting anything in return at the expense of their people and their hospitals… You're hurting your own people."
In Arkansas, Republicans embraced an innovative approach to Medicaid expansion that broke The Natural State's political gridlock on the issue. "The approach we took is appealing to some of them," the governor said of Republican lawmakers, singling out a "pragmatic and business-friendly" GOP faction in the Arkansas legislature. "There's an ideological appeal to doing it with private insurance."
State Sen. Jonathan Dismang, (R-Beebe), says Republicans who joined with Democrats to approve private option Medicaid expansion felt compelled to act because of the Medicaid budget gap. "We felt we had to do something. Largely, it was out of necessity," he said.
Dismang says he and many of his Republican colleagues view private option Medicaid expansion as a way to fix the program. "We felt we had to something very substantial. Membership was not going to be satisfied with tweaks here and there."
Many conservative members of the Republican caucus worried about the long-term prospects of Medicaid expansion, including the program's ability to evolve with the changing healthcare landscape and the federal government's commitment to paying for expansion.
"I can understand the concerns from the other side, the concerns about sustainability," Dismang said of Republican lawmakers who opposed Medicaid expansion. But the benefits of using private insurance through the exchanges to fix Medicaid could hold promise nationwide, he noted.
"We are decreasing our existing (fee-for-service) Medicaid rolls. These (newly covered) individuals are going to have private insurance cards. They're going to have skin in the game," he says. "From my perspective, we had a broken system. … We were hundreds of millions short. We attacked traditional Medicaid and made some reforms there."
Medicaid Struggle Far From Over
In addition to enticing Republican lawmakers with the private option, the state's Medicaid expansion pact requires the program to clear the 75 percent legislative hurdle every year. In February, renewal of Medicaid expansion barely passed in the Senate, 27–8. Last month, four rounds of balloting were necessary in the House to gain passage, with a razor-thin 76–24 final vote.
And monumental work remains to control Medicaid costs, Wroten said. Physicians represent a fraction of Medicaid spending in Arkansas, with payments to individual doctors who are not hospital employees accounting for as little as 2 percent of the state's total Medicaid budget, according to the medical society leader. "We're small players in this," he said.
"Eventually, we need to do payment reform for the entire Medicaid program," Wroten says. "We all joined this effort with the expectation that this would be a system-wide change… We can cut the physician budget in half and not make a dent in the Medicaid budget."
Promising Start
Beebe, who is ineligible to run for re-election in the fall due to term limits, says anecdotal evidence and early results from Arkansas' healthcare reform efforts are positive. He cites the experience one obstetrician has had with the state's new medical payment system, which allows high-value physicians to share in cost savings but makes high-cost physicians pay some reimbursement money back.
"He was going to lose money on every baby and he was a fine doctor," the governor said. "As a matter of routine, his staff was sending every placenta to a pathologist, which was totally unnecessary and expensive. A little bit of self-examination can totally change your overall costs."
Many Arkansas leaders deserve credit for the House and Senate votes last April that cleared the way for Medicaid expansion, Beebe says, as well as for other vital reforms such as the value-based medical payment system and improved care coordination through primary care medical homes.
"We've really got to give a lot of credit to a lot of people," he says of state officials and members of the coalition who have been pushing Arkansas' healthcare reform efforts forward, including Wroten, Surgeon General Joseph Thompson, Arkansas Hospital Association President Robert "Bo" Ryall, state Medicaid Director Andy Allison, state Department of Human Services Director John Selig, and "Republican and Democratic legislators who got this done."
"This is not a one man show," he said.
Christopher Cheney is the CMO editor at HealthLeaders.