Florida’s Medicaid Reform Shows the Way to Improve Health, Increase Satisfaction, and Control Costs

by Tarren Bragdon, November 9, 2011, Heritage.org

Abstract: During its five years of operations, Florida’s Medicaid Reform Pilot has been a decided success. It has improved the health of enrolled patients, achieved high patient satisfaction, and kept cost increases below average, saving Florida up to $161 million annually. Since then, Florida has passed its Statewide Reform, which promises to extend these benefits throughout the state, build on the lessons learned from the pilot program, and save up to $1.9 billion annually. If Florida’s Medicaid Reform Pilot experience were replicated nationwide, Medicaid patient satisfaction would soar, health outcomes would improve, and Medicaid programs could save up to $91 billion annually.

Numerous studies have shown that the best coverage for improving patient health is private insurance. However, in today’s health care marketplace, not everyone has access to private coverage, and the social safety net of Medicaid is provided to the truly needy and those with disabilities.

There are two models of health care reform that have fundamentally different approaches. One model empowers consumers to choose from among competitive, organized health plans based on measurable results important to the consumer. The second denies such freedom of choice to the consumer and instead relies on a centralized planning model in which government determines the type and scope of available health services and how service providers are compensated. Whichever model is chosen, the basic metrics for success are the same:

1. Patient health is improved and continually improving,
2. Patient satisfaction is high, and
3. Cost increases are below average.

The goals of Florida’s Medicaid Reform Pilot, proposed in 2005 under then-Governor Jeb Bush, were the same: Improve key indicators known to coincide with good health, ensure that consumers are provided choices, achieve high consumer satisfaction, and keep cost increases below average. This paper examines how the Reform Pilot, now operating in five counties, has fared against these universal measures.

After five years, the evidence shows that Florida’s Medicaid Reform Pilot has:

• Maintained health outcomes at or above the national average for the majority of indicators and improved outcomes for recipients through financial incentives;
• Achieved patient satisfaction levels above the national averages of other state Medicaid programs and even commercial health maintenance organizations (HMOs); and
• Restrained costs, flattening the cost curve for per-person spending over the past five years.

The Reform Pilot’s fiscal impact has been significant, saving Florida Medicaid up to $161 million annually. If implemented statewide, it could reduce Medicaid spending by up to $1.9 billion annually. If Florida’s Reform Pilot experience were replicated nationwide, Medicaid patient satisfaction would soar, health outcomes would improve, and state Medicaid programs could save up to $91 billion annually.

The Florida Legislature has since passed the Statewide Reform, which would extend these Reform Pilot benefits to nearly all Florida Medicaid recipients. Implementation of the Statewide Reform is pending approval of several waivers by the federal Centers for Medicare and Medicaid Services (CMS).

A Tectonic Shift in Medicaid

Florida’s Medicaid Reform Pilot represents a fundamental shift in the state approach to Medicaid. For four decades, nearly every state has largely managed Medicaid through central planning, with states and the federal government directing which services would be provided, how those services would be delivered, and how costs would be paid. With the state at the center of the program, provider rates were dictated without regard to market conditions. This led to physician and provider shortages in specialties and failed to hold provider networks accountable for patient care. Scope of services and duration of benefits were based not on the patient’s needs, but in many cases on random budget decisions. The patient was nothing more than a passive participant. The cost of this runaway system was borne exclusively by the state and federal taxpayers.

Under Governor Bush, Florida advanced a new approach that prioritized the patient. From the outset, the Medicaid Reform Pilot was designed to be patient-centered. Patients would have a meaningful choice of multiple private plans, which offered varying sets of benefits and various provider networks. An innovative monetary rewards system would encourage and incentivize patients toward healthy, responsible behavior in managing and improving their own health. This was a tectonic shift away from central state management of individuals toward individuals managing their own care.

In addition, the Reform Pilot shifts risk. Taxpayers would no longer bear the financial risk of fraud and abuse or overutilization driven by unscrupulous providers. In the old system, the state simply paid claims, leaving taxpayers to pay hundreds of millions of dollars per year in fraud and abuse. Under the Bush plan, the private marketplace would absorb this risk as the state shifted to paying premiums rather than using the open-checkbook model of the fee-for-service system.

The premise was relatively simple. If the plans provided care management, limited provider network options to providers with the appropriate skills and reputations, and ensured that patients with chronic conditions received the tools to prevent the need for acute interventions, they would succeed financially. In terms of accountability, if plans provided unsatisfactory access to providers or in any other way did not meet the test for success, the consumer could switch plans, and the market would punish the plan.

In the Reform Pilot model, the state’s role would shift from being an active participant in the market to focusing more on ensuring that the market was working, regulating the plans, and measuring the outcomes of the system.

Under traditional Medicaid, patients have one alternative to becoming uninsured: Medicaid. Under the Medicaid Reform Pilot, the patient has the freedom and power to choose among many meaningful options. The patient, not politicians or bureaucrats, controls the money and chooses which plan, based on his or her needs and desires, receive the taxpayer dollars.

Florida’s Medicaid Reform Pilot tests four straightforward strategies to realize this patient-centered program for the low-income, disabled, and elderly populations:

• Give enrollees meaningful choices of customized managed care plans that can add benefits, limit certain optional services, vary copays (within federal limits) to promote consumer engagement in their care, limit or expand provider networks, customize drug formularies, and reward certain behaviors that lead to better health outcomes;
• Aggressively monitor patient health outcomes and satisfaction;
• Adjust managed care capitated rates through a risk-adjustment process based on health status to encourage appropriate care management; and
• Reward individuals with financial incentives to encourage responsible, healthy behavior.

The idea was that by implementing these four strategies, Florida’s Medicaid program would realize universal success in improved health outcomes and patient satisfaction for Medicaid enrollees and limit increases in Medicaid spending per enrollee for state taxpayers.

The idea sparked controversy because some opposed such extensive involvement by private managed care companies. Philosophically, these opponents prefer a one-size-fits-all government-run system even if it must work with private providers. Opponents did not believe that private managed care companies should be allowed to add or limit benefits, expand provider networks, revise drug formularies, or incentivize certain behavior. They thought this would be a backdoor to limiting services as a direct result of capping per-person payments to managed care plans.

In addition, many of these opponents draw political power from their ability to influence state Medicaid contracting and benefits. To surrender that authority to patients would be to cede their own political power.

Florida’s Medicaid Reform Pilot

The original legislation for the Reform Pilot passed with large bipartisan majorities of 39 to 1 in the Florida Senate and 88 to 24 in the Florida House.[1] The five-county pilot program covered the urban counties of Broward and Duval beginning in 2006 and rural counties of Baker, Clay, and Nassau, which surrounds Duval county, beginning in 2007. Participation was mandatory for low-income families and children and for those eligible for Medicaid who were receiving Supplemental Security Income (the elderly and those with disabilities). Enrollment was voluntary for other populations.

A Comprehensive, Diverse Pilot. These five counties have a diverse population of 2.93 million Floridians, a population greater than the population of 21 other states. Broward County, which includes Fort Lauderdale, has the same population as West Virginia. Today, 290,000 Medicaid recipients are part of the five-county Reform Pilot[2]—more individuals than the state Medicaid program in 17 states[3] and more than the entire Medicaid managed care populations in 28 states, including the 17 states with no comprehensive Medicaid managed care programs.[4]

The Reform Pilot has five stated objectives:

1. To increase the number of plans and enhance individual choice, including offering different types of plans;
2. To ensure access to services not previously covered and improve access to specialists;
3. To improve enrollee health outcomes;
4. To enable individuals to opt out and obtain private coverage; and
5. To increase patient satisfaction.[5]

This paper examines the actual outcomes for each of these five stated objectives, as well a desirable sixth objective:

6. To increase Medicaid efficiency and stabilize costs over time.

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