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Budget Cuts Continue to Threaten State Medicaid Programs

Budget Cuts Continue to Threaten State Medicaid Programs

Since 2001, states have faced their worst fiscal crisis in more than 50 years. And even now, as the U.S. economy shows signs of improving, state revenues continue to lag, leaving officials and lawmakers grappling with ongoing budget deficits and an unsettled financial outlook. After three years, states have exhausted their options for one-time budget fixes, leaving deeper budget cuts as an only option. Controlling Medicaid growth is at the top of the list, and mental health care funding is especially vulnerable.

Efforts to cuts costs are expected to intensify as $20 billion in one-time federal fiscal relief for Medicaid and other health care programs expired on June 30--the end of the 2004 fiscal year in most states. A survey conducted by the Kaiser Commission on Medicaid and the Uninsured has found that few states will have the financial means to make up budget gaps and aggressive cost-cutting measures are expected in fiscal year 2005.

According to the National Association of State Budget Officers, Medicaid cost-containment strategies affecting mental health care services so far include limiting access to prescription medicines through preferred drug lists; prior authorization; limits on the number of prescriptions per month that a Medicaid recipient can have; and forcing patients to use older, less expensive drugs before receiving newer ones.

States also have eliminated optional services such as psychological counseling and psychosocial rehabilitation, cut eligibility for people with incomes above the federal poverty level, established or increased co-payments, and restricted the use of case management services. Such measures have resulted in significant staff and service cuts that limit access to treatment.

"The integrity of mental health treatment in general is being denigrated here," Irvin (Sam) Muszynski, J.D., director of health care systems and financing at the American Psychiatric Association, told Psychiatric Times.

Public mental health systems have become increasingly dependent on Medicaid, and more than 60% of all public mental health care dollars now come from the Medicaid program. By contrast, in the 1980s, the majority of funding came directly through state mental health care agencies.

Systems are quickly reaching a crisis point, with an ever-widening gap between service need and the capacity to meet that need, Muszynski said. Services will become more inaccessible, case management won't be available, and the presence of people with serious mental illnesses in jails and prisons, which have become the nation's new primary mental health care system, will continue to grow.

"The systems are going to pay for this one way or another. The problem is not going to vanish because we don't treat it," he said. "In both the short and the long run, it is more efficient to treat."

According to the Kaiser report, which was issued in January, 49 states and the District of Columbia implemented or planned to implement Medicaid cost-cutting measures in fiscal year 2004 (Figure). In a statement to the press announcing the release of the report, Vernon Smith, the report's co-author and principal of Health Management Associates, said, "We know that 2003 and 2004 were two of the worst years financially for state Medicaid programs since its inception nearly forty years ago, and 2005 could be just as bad from the states' perspective."

The Kaiser report found that during fiscal year 2004:

  • 43 states had taken actions to limit prescription drug costs.
  • 17 states had made plans to limit benefits.
  • 18 states were restricting eligibility.
  • 21 states planned to initiate or increase beneficiary co-payments, including co-payments for prescription drugs.

So far, at least 32 states have implemented preferred drug lists. The APA's Committee on Managed Care has expressed concern that pharmacy benefit management (PBM) is fast becoming a new form of managed care that has little federal regulation. The committee is concerned that pharmacy benefit managers use a number of methods for limiting patient access to medications that override the judgment of the treating physician.

Pharmacy is the technology of modern psychiatric treatment, and mental health care systems need to provide both services and technology, Muszynski said. By placing limits on the medications that psychiatrists can prescribe, state Medicaid programs are limiting the technology needed to best treat patients, and the outcomes are not likely to be good.

As states seek ways to control the cost of Medicaid programs, they have looked closely at pharmaceutical costs, Joel E. Miller, acting director of the Policy Research Institute at the National Alliance for the Mentally Ill (NAMI), told PT. "They're getting pretty serious about trying to control the rate of escalation in prescription drug costs."

The problem is that psychiatric medications serve as a key lifeline for people with serious mental illness, Miller said, and NAMI opposes any move to restrict access to medications.

So far, most states have exempted psychiatric drugs from cost-cutting efforts, but that is beginning to change as states rethink those exemptions, Erica D. Malik, senior director of health care reform at the National Mental Health Association (NMHA), told PT.

Texas and Kentucky have excluded Zyprexa (olanzapine) from their preferred drug lists, and states such as West Virginia, which has no mental health care exemption, have made only a few medications available. Other states that may eliminate their mental health care exemptions include Florida, New Hampshire, Missouri and California, Malik said. Some of those changes could occur this year.

"Restricting medications for people with serious mental illnesses is a very dangerous public policy, and it interferes with the practice of medicine," Miller stated. While medications that treat other chronic illnesses might be used interchangeably, that is not the case for psychiatric disorders.

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