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Generating Savings Through Investment, Not Divestment

Yesterday, HHS Secretary Kathleen Sebelius sent this letter to governors across the country who are looking to the Medicaid program as a place to make cuts in order to save money in dismal state budget climates.

Among others recommendations, Secretary Sebelius suggests to states that they consider eliminating various “Optional Benefits” such as dental, optometry, prescription drugs, physical therapy, and respiratory care. However, for many states, cutting those benefits simply won’t achieve the savings they need.

Some states are asking the Secretary to consider Medicaid Waivers that would allow them to adopt stricter eligibility standards that would cause some number of people to be disenrolled from Medicaid. While the Secretary did not say she would consider such Waivers, she did say that she “continue[s] to review what authority, if any, I have to waive the maintenance of effort under current law.”

Cutting Eligibility is Shortsighted

While removing hundreds of thousands of low-income Americans from the Medicaid program will surely lead to immediate budget relief, most of the savings will be temporary. These are people, like all people, who require preventive care in order to stave off more costly hospital and ER visits down the road. They need prescription drugs, therapy and other forms of care to remain healthy and productive.

Simply eliminating their coverage won’t solve states’ fiscal problems; in fact, it will likely make them worse over the long term. Without coverage, many individuals will delay seeking treatment, and when they do, their conditions will be significantly worse. They will be forced to seek care in emergency rooms, a far less economical and desirable place to receive care. What’s more, they will often be forced to miss work, and risk debt or bankruptcy if they’re not able to pay for their emergency room care.

A Better Way to Achieve Savings

In the letter, Secretary Sebelius recommends that savings can be achieved by more effectively managing care for high-cost enrollees. As she notes, 1% of Medicaid beneficiaries account for 25% of all Medicaid expenditures. “Initiatives that integrate acute and long-term care, strengthen systems for providing long-term care to people in the community, provide better primary and preventive care for children with significant health care needs, and lower the incidence of low-birth weight babies are among the ways that States have improved care and lowered costs,” she said.

This advice was eloquently echoed by Dr. Atul Gawande in last month’s issue of The New Yorker. In his article, entitled Hot Spotters: Can we lower medical costs by giving the neediest patients better care?, Dr. Gawande found that targeting chronic care management to high-utilizing patients using patient-centered medical home techniques (including multi-disciplinary teams, community-member health coaches, outcome tracking, and holistic care) achieves incredible savings.

For instance, Dr. Jeffrey Brenner of Camden Coalition of Healthcare Providers was able to increase health outcomes for some of the sickest individuals in Camden, New Jersey while decreasing ER visits and hospital stays. This approach decreased healthcare costs by a staggering 56%!

A Lesson For States

Our healthcare system is designed to provide high-quality, acute and catastrophic care where and when it’s needed; however, when it comes to chronic care management, our system is often lacking. There are many lessons to be learned from Dr. Brenner and his colleagues. Their “hot spot” theory has the potential to both improve patient health and reign in exponentially rising costs. For states, this means significant savings in their share of Medicaid expense.

The idea of investing time and resources to achieve savings may seem incongruent to some. However, when we improve the health for the highest-cost patients, the system sees real savings.

Implementing the kind of coordinated technique required will be a challenge, especially in our current system that favors disjointed, service-intense care. However, if we can achieve significant savings while avoiding dangerous — and ultimately, more costly — cuts in eligibility, it seems like a challenge worth confronting.

(Thanks to Erica Brode, our all-star health policy intern, who contributed significantly to this post).