Department  of Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
COST  CONTAINMENT  FOR MEDICAID 

DISABILITY PROGRAMS 

JUNE GIBBS BROWN 
Inspector  General 
JULY  1997 
OEI-059MO4OO  OFFICE OF INSPECTOR GENERAL 
The  mission  of the  Office  of Inspector  General  (OIG),  as mandated  by Public  Law 95 
452, is to protect  the  integrity  of the  Department  of Health  and  Human  Services 
programs  as well  as the  health  and  welfare  of beneficiaries  served  by them.  This 
statutory  mission  is carried  out  through  a nationwide  program  of audits,  investigations, 
inspections,  sanctions,  and  fraud  alerts.  The  Inspector  General  informs  the  Secretary 
of program  and  management  problems  and  recommends  legislative,  regulatory,  and 
operational  approaches  to  correct  them. 
Office of Evaluationand Inspections 
The  Office  of Evaluation  and  Inspections  (OEI)  is one  of several  components  of the 

Office  of Inspector  General.  It conducts  short-term  management  and  program 

evaluations  (called  inspections)  that  focus  on  issues  of concern  to the  Department,  the 

Congress,  and  the  public.  The  inspection  reports  provide  findings  and 

recommendations  on  the  efficiency,  vulnerability,  and  effectiveness  of departmental 

programs. 

OEIs  Chicago  Regional  Office  prepared  this report  under  the  direction  of William  C. 

Moran,  Regional  Inspector  General,  and  Natalie  Coen,  Deputy  Regional  Inspector 

General.  Principal  OEI  staff  included: 

REGION  HEADQUARTERS 
Barbara  Butz,  Project  Leader  Jennifer  Antico,  Program  Analyst 

Suzanne  Johnson,  Program  Analyst  Barbara  Tedesco,  Technical  Support  Staff 

Jean  Dufresne,  Program  Analyst 

To  obtain  a copy  of this  report,  call the  Chicago  Regional  Office  at  (312)  353-4124.  Department  of Health  and Human  Services 
OFFICE  OF 
INSPECTOR  GENERAL 
COST  CONTAINMENT  FOR  MEDICAID 

DISABILITY PROGRAMS 

JUNE GIBBS BROWN 
Inspector  General 
JULY  1997 
OEI-O5-95-00400  EXECUTIVE  SUMMARY 
PURPOSE 
To  identify  trends  in the  growth  of Medicaid  disabled  beneficiaries  and  expenditures  I 
related  to  them,  and  describe  State  efforts  to contain  such  costs while  ensuring  quality 
care.  . 
BACKGROUND 
In fiscal year  1995, the  Medicaid  program  served  35 million  beneficiaries  at a cost  of 
$135 billion  to the  States  and  Federal  Government.  Almost  6 million  of these 
beneficiaries  were  blind  or otherwise  disabled,  and  they  accounted  for  $49 billion  in 
expenditures. 
Between  1993 and  1995, Medicaid  expenditures  increased  33 percent,  while  the 
national  medical  price  index  increased  only  9.6 percent.  Concerned  about  costs,  States 
have  increasingly  requested  waivers  from  the  Health  Care  Financing  Administration  to 
allow  them  greater  flexibility  in Medicaid,  including  implementing  managed  care  and 
various  waiver  programs.  There  are  a couple  of potential  ramifications  for  Medicaid 
disability  expenditures.  First,  there  is the  issue  of whether  cost  savings  initiatives 
adequately  address  that  portion  of Medicaid  expenditures  devoted  to  disability.  At  the 
same  time,  such  proposals  and  projected  funding  cuts have  led  some  to question 
whether  beneficiaries  with  disabilities  might  experience  a loss of coverage  or weaker 
benefit  packages. 
We  analyzed  national  data  about  Medicaid  expenditures  for  disabled  persons  and 
closely  examined  how five States  with very  large  Medicaid  programs  were  trying  to 
contain  costs while  providing  quality  services  for  disabled  persons. 
FINDINGS 
RAPID  GROWTH  OF MEDICAID  DISABILITY  PROGRAMS:  The  number  of 
disabled  beneficiaries  grew  17 percent  in 2 years. 
In the  2 years  from  1993 to  1995, the  number  of disabled  Medicaid  beneficiaries  grew 
from  5.0 to  5.85 million.  Expenditures  for  disabled  persons  increased  from  $38.6 to 
$49.2 billion.  In 24 States,  these  expenditures  grew 27 percent  or more;  8 States 
experienced  growth  between  45 and  123 percent. 
In  1995, disabled  beneficiaries  were  17 percent  of Medicaid  beneficiaries,  the  second 
smallest  group  (following  the  elderly),  but  accounted  for  37 percent  of expenditures, 
the  largest  proportion  of expenditures.  States  spent  from  23 to  49 percent  of all 
Medicaid  dollars  for  disabled  persons  alone.  The  average  per  capita  cost  for  this 
i  group  was $8,422 compared  to $1,777 per  adult  and  $1,046 per  child  in the  needy 
family  population. 
BROAD  STRATEGIES  NOT  TARGETED  AT  DISABLED  POPULATION: 

Sample  States  target  Medicaid  cost  containment  primarily  at the less  expensive  needy 

family  programs  rather  than  the  more  costly  disabled  programs. 

None  of the  sample  States  are  focused  strategically  on  containing  Medicaid  costs for 
disabled  beneficiaries  as a group.  They  are  turning  to managed  care  to  contain 
Medicaid  costs,  especially  through  waivers  that  allow  them  to develop  broad  managed 
care  demonstration  programs.  However,  these  demonstrations  will probably  not  result 
in cost  savings  relative  to the  disabled  population  in the  foreseeable  future.  They  are 
too  new  and  targeted  primarily  at needy  families.  The  cost  savings  projected  are 
broad,  speculative,  and  in some  cases will not  appear  for  the  first  2 or  3 years  of 
operation. 
FEW  INITIATIVES  TARGETED  AT  TOP  EXPENDITURES  FOR  DISABLED 
PERSONS  Sample  States  have  few  initiatives  to reduce  costs  for hospital  inpatient 
and  Intermediate  Care  Facilities-Mentally  Retarded  (ICFs-MR)  services,  which 
account  for the  largest  proportions  of their  spending  for the  disabled. 
We found  no  initiatives  in our  five State  study  for  reducing  hospital  inpatient  costs for 
the  disabled.  All States  have  home  and  community  based  care  waivers  for  persons 
with  mental  retardation  or developmental  disabilities  as part  of a shift  away from 
costly  institutional  placements.  However,  the  waivers  affect  a small  proportion  of 
disabled  beneficiaries  and  these  data  on cost  savings  is incomplete  and  unreliable. 
DISABILITY  lNlTIATM3  ARE  MODEST:  States  also  use  waivers  to serve  other 
relatively  small  groups  of disabled  beneficiaries.  Their  impact  on cost  containment  is 
not  clear. 
In addition  to serving  people  with  mental  retardation  or developmental  disabilities, 
States  serve  others  with  disabilities  with waivers.  However,  numbers  served  are  very 
small  and  cost  data  is incomplete. 
RECOMMENDATION 
The  Health  Care  Financing  Administration  and  the  O&e  of the Assistant  Secretary 
for Planning  and  Evaluation  should  develop  a research  agenda  aimed  at controlling 
costs  while  assuring  quality  of care for disabled  Medicaid  beneficiaries. 
We are  aware  that  there  is a lot  of Medicaid  experimentation  being  conducted  by the 
States,  primarily  through  waivers  and  managed  care.  After  examining  the  literature, 
participating  in conferences  and  discussing  both  the  waivers  and  other  plans  with 
appropriate  State  personnel,  our  findings  indicate  that  the  large  States  in our  sample 
have  not  yet  come  to grips with  the  difficult  problem  of providing  quality  care,  yet 
ii  containing  costs,  for  the  Medicaid  disability  programs.  While  these  findings  do not 
lead  to recommendations  for  quick  fixes or even  for  programmatic  changes,  we do 
believe  that  there  is a compelling  need  to better  understand  the  significant  cost  forces 
that  these  disability  programs  portend  for  the  broader  Medicaid  program  of the  future. 
The  need  then  is to develop  a research  agenda  at the  Federal,  State  and  local  levels 
that  examines  the  cost  and  quality  of health  care  for  this  population.  A starting  point 
could  be  the  Health  Care  Financing  Administrations  and  the  Assistant  Secretary  for 
Planning  and  Evaluations  research  agenda  that  focuses  on managed  care  for  people 
with  disabilities.  Efforts,  other  than  managed  care,  could  include  focusing  on  ICFs-
MR,  skilled  nursing  facilities,  and  in-patient  hospitals.  Home  and  community  based 
waivers  and  other  significant  initiatives  that  are  important  for  persons  with  disabilities 
should  also  be  studied.  We believe  that  constructing  a research  agenda  for  the  future 
now will result  in better  quality  care  and  cost  savings  in the  next  5 to  10 years. 
We  recommend  that  the  Health  Care  Financing  Administration  (HCFA)  and  the 
Office  of the  Assistant  Secretary  for  Planning  and  Evaluation  (ASPE)  jointly  develop 
such  a research  agenda. 
In response  to HCFAs  request,  we suggest,  among  others,  the  following  six studies: 
. 	 A historical  study  of the  Medicaid  treatment  received  by people  with 
disabilities.  This  study would  focus  on the  efficacy  of current  public  programs 
ability  to provide  the  myriad  health  care,  rehabilitative  and  support  services 
required  by the  Medicaid  disabled  population. 
. 	 The  development  and  evaluation  of the  efficacy  of integrated  care  models  for 
financing  acute  and  long-term  care  for people  with  disabilities. 
. 	 A comparative  evaluation  of the  Medicaid  disabled  population  served  by State 
managed  care  health  care  systems  and  fee-for-service  systems. 
. 	 A comparative  evaluation  of access,  quality  and  costs  under  selected  State 
ICFs-MR  programs. 
. 	 An  evaluation  of the  appropriateness  of various  services  and  care  settings  for 
the  Medicaid  disabled  population  based  on  their  ability  to produce  the  most 
efficient  and  effective  outcomes. 
. 	 An  evaluation  of the  appropriateness  of medical  requirements  in State 
Medicaid  programs  that  impact  people  with  disabilities.  This  study would 
examine  the  extent  to which  these  requirements  act  as barriers  to  consumer 
independence  and  if these  requirements  could  be  reduced  or eliminated  to 
effect  greater  consumer  control  and  reduce  costs without  jeopardizing  the 
health  and  safety  of consumers. 
... 
111  AGENCY  COMMENTS 
We  received  comments  from  the  Health  Care  Financing  Administration  (HCFA),  the 
Assistant  Secretary  for  Management  and  Budget  (ASMB)  and  the  Assistant  Secretary 
for  Planning  and  Evaluation  (ASPE).  All concurred  with  the  recommendation  and 
offered  suggestions  for  clarification  and  technical  comments  regarding  the  report. 
Changes  have  been  made  to the  report  based  on  these  comments  as appropriate.  The 
complete  text  of HCFAs,  ASMBs, and  ASPEs  comments  can be  found  in Appendix 
B. 
Both  HCFA  and  ASMB  raised  questions  involving  data,  some  relating  to issues which 
we ourselves  had  raised  in the  report.  A more  detailed  analysis  of these  concerns  is 
provided  in our  response  to their  comments  contained  in the  body  of the  report. 
iv  TABLE  OF  CONTENTS 
PAGE 

EXEcZUTIVESUMMARY  ..........................................  i 

INTRODUClION  .................................................  1 

FINDINGS  ......................................................  5 

Disabled  Beneficiaries  and  Expenditures  Growing  Fast  ...................  5 

 
States  Lack  Broad  Cost  Containment  Strategies  for  the  Disabled  ...........  6 

 
Few State  Efforts  to  Control  Top  Expenditures  ........................  9 

 
Impact  of Smaller  Efforts  Unclear  .................................  12 

 
RECOMMENDATION  ............................................  12 

APPENDIX  A:  BIBLIOGRAPHY  ..................................  A-l 
APPENDIX  B:  AGENCY  COMMENTS  ..............................  B-l  INTRODUCTION 
PURPOSE 
To  identify  trends  in the  growth  of Medicaid  disabled  beneficiaries  and  expenditures 
related  to them,  and  describe  State  efforts  to contain  such  costs while  ensuring  quality 
care. 
BACKGROUND 
Medicaid  (Title  XIX  of the  Social  Security  Act)  is a joint  Federal-State  means-tested 
entitlement  program,  administered  by the  Health  Care  Financing  Administration 
(HCFA).  The  Federal  Government  provides  matching  funds  to States,  which 
administer  the  program  under  Federal  guidelines  but  may  make  certain  policy  choices 
and  determine  how their  program  will be  structured.  State  Medicaid  programs  thus 
vary with  respect  to eligibility  criteria,  service  coverage,  provider  payment 
arrangements,  and  program  administration. 
In fiscal year  (FY)  1995, Medicaid  served  35 million  beneficiaries  at a cost  of $135 
billion.  Almost  6 million  of these  beneficiaries  were  blind  or otherwise  disabled,  and 
they  accounted  for  $49 billion  in expenditures.  They  included  people  receiving 
Supplemental  Security  Income  (SSI)  and  people  receiving  Medicaid  but  no  cash 
benefits  due  to  excess resources.  The  disabled  Medicaid  population  can  be  divided 
into  three  very  broad  groups  based  on primary  disability:  those  with  a physical 
disability,  those  with  a mental  illness,  or those  with  mental  retardation.  As of 
December  1994, 43 percent  of the  under-65  SSI population  was physically  disabled,  29 
percent  had  a mental  illness,  and  29 percent  had  a developmental  disability  or mental 
retardation.  A small  number  received  SSI based  on  a substance  abuse  disorder. 
Recent  changes  in Federal  guidelines  eliminate  eligibility  based  on  substance  abuse. 
The  disabled  make  up the  most  diverse  Medicaid  beneficiary  group  whose  needs  are 
equally  disparate.  Children  with  spina  bifida,  the  mentally  retarded,  persons  with 
acquired  immunodeficiency  syndrome  (AIDS),  the  chronically  mentally  ill, accident 
and  stroke  victims  and  individuals  with  such physical  disabilities  as blindness,  muscular 
dystrophy  and  rheumatoid  arthritis  are  but  a few of the  many  faces  of the  Medicaid 
disabled.  Many  disabled  Medicaid  beneficiaries  have  chronic  conditions  that  require 
ongoing  and  costly  specialty  care,  such  as end-stage  AIDS  patients,  while  others  have 
few or no  additional  costs beyond  those  of the  general  popu1ation.i 
  Medicaid Managed  Care:  Serving the Disabled  Challenges  State Programs,  United  States  General 
Accounting  Office, GAO/HHS-%-1X,  July  19%. 
1  Using  a broad  array  of acute  (i.e., inpatient  hospital),  primary  (i.e., clinic visits)  and 

long-term  (i.e., nursing  home)  care  services,  on  average,  health  care  expenditures  for 

the  disabled  are  about  5 percent  of their  expenditures  for  long-term  care.2 

Nationally,  nursing  home  care  expenditures  are  primarily  financed  through  Medicaid  at 

about  52 percent  and  the  beneficiary,  who  incurs  about  33 percent  in out-of-pocket 

expenses.3 

Long-term  care  refers  to a range  of medical,  social,  personal,  supportive  and 

specialized  housing  services  needed  by individuals  who  have  lost  some  capacity  for 

self-care  because  of a chronic  illness  or condition.  Chronic  conditions  are  the  leading 

cause  of illness,  disability  and  death  in the  United  States,  affecting  about  99 million 

people  in  1995.4  While  chronic  conditions  occur  in individuals  of all ages, their 

incidence,  especially  as they  result  in disability,  increases  with  age.  With  advances  in 

medical  technology  and  the  aging  of the  baby  boom  generation,  individuals  living with 

a chronic  condition  are  projected  to grow to  134 million  by 2020.5 

Since  1965, Medicaid  has  grown  from  a health  financing  program  for welfare 

recipients  to  a major  source  of health  care  coverage  for  low-income  families, 

supplementary  insurance  for Medicare  beneficiaries,  and  long-term  care  for  the  elderly 

and  disabled.  From  1989 to  1992, Medicaid  spending  grew twice  as fast  as total  health 

care  spending,  or an  average  annual  increase  of 20.5 percent.  Between  1993 and 

1995, expenditures  increased  from  $101.7 billion  to $134.9 billion,  or 33 percent,  while 

the  national  medical  price  index  increased  only  9.6 percent  during  that  period.  In 

1995, the  Congressional  Budget  Office  estimated  that  without  changes,  total  Medicaid 

spending  would  increase  by more  than  10 percent  annually  over  the  following  five 

years,  reaching  $262 billion  by 2002. 

Concerned  about  rising  costs,  States  have  increasingly  requested  waivers  from  HCFA 

of various  Medicaid  provisions  designed  to  allow them  greater  flexibility  in their 

programs.  Currently,  49 States  have  implemented  managed  care  programs  for  all or 

segments  of their  Medicaid  populations.  As of June  30, 1995, 11.6 million  Medicaid 

beneficiaries  were  enrolled  in managed  care  plans,  representing  32 percent  of total 

beneficiaries.  States  have  also used  waivers,  particularly  home  and  community  based 

waivers,  to  serve  certain  Medicaid  populations,  including  the  disabled,  in their  homes 

or communities  rather  than  institutions. 

2  Ashbaugh,  John  and  Smith, Gary, Beware the Managed  Health-Care  Companies,  Mental  Retardation,  June 
19%. 
3  Chronic  Care in America:  A 21st Century  Challenge,  Prepared  by The  Institute  for Health  & Aging, 
University  of California,  San Francisco  for The Robert  Wood Johnson  Foundation,  Princeton,  New Jersey, August 
19%. 
4  Ibid. 
5  Ibid. 
2  There  has been  a lot  of activity  around  these  various  waivers,  including  written 
descriptions  of what  they  are  about  and  some  evaluative  reports  that  have  explored 
their  effectiveness  or impact.  However,  with  their  continued  rapid  growth,  innovative 
nature,  and  differences  among  States,  the  waivers  have  been  difficult  to  assess  in terms 
of their  successes  and  failures. 
Proposals  for  national  Medicaid  reform  have  been  made  in recent  months  by the 
Administration,  Congress,  and  the  National  Governors  Association.  These  include 
creating  a Medicaid  block  grant,  with  an  associated  cut in spending,  and  imposing  a 5 
percent  cap,  either  on  aggregate  Medicaid  expenditures  or on  a per  capita  basis.  Such 
proposals  and  projected  funding  cuts have  led  some  to question  whether  beneficiaries 
with  disabilities  might  experience  a loss of coverage  or weaker  benefit  packages.  Of 
further  concern  are  proposals  that  would,  in effect,  repeal  certain  Federal  standards 
ensuring  coverage  and  services  for  certain  populations. 
SCOPE  AND  METHODOLOGY 
This  report  first  analyzes  recent  growth  of the  Medicaid  disabled  population  and 

associated  spending,  nationally  and  across  States.  This  analysis  is based  on  figures 

reported  by States  to HCFA  on  Form  2082 for  1993 through  1995.6  Form  2082 

summarizes  a States  combined  State  and  Federal  Medicaid  spending  by beneficiary 

group  and  service,  for  a  1 year  period, 

The  report  then  describes  how five States  which  accounted  for  a high  proportion  of 

Medicaid  expenditures  in  1995 are  approaching  cost  containment  relative  to  disabled 

beneficiaries.  Four  States  (California,  Illinois,  New York,  and  Texas)  ranked  in the 

top  five in total  1995 Medicaid  expenditures;  Massachusetts  ranked  eighth.  These 

States  represent  a geographic  and  demographic  mix.  In  1995, they  collectively 

accounted  for:  41 percent  of all Medicaid  spending;  34 percent  of all disabled 

beneficiaries;  and,  42 percent  of expenditures  for  that  population. 

The  description  of State  cost  containment  efforts  is based  on  a literature  review7 and 

discussions  with  HCFA  regional  staff  and  respondents  from  Medicaid  and  other 

agencies  in the  sample  States.  We wanted  to learn  about  cost containment  strategies 

of these  States  relative  to:  the  disabled  population  as a whole;  the  highest  categories 

of expenditures  for  the  disabled;  and  specific  disabled  populations  or services  for 

them.  We  sought  the  best,  most  complete  information  available  about  State  activities 

as of the  summer  and  fall  of  1996.  However,  some  information  in this  report 

inevitably  will be incomplete  or out  of date  by the  time  the  report  is issued.  The  topic 

is very  broad,  Medicaid  reforms  are  proceeding  very  rapidly  in these  States,  and 

6  As of May l!W6, fiscal year  1995 data was complete  with the exception  of New Hampshire. 
Articles  and  reports  by national  organizations,  budget  documents  from the States, their Medicaid  plans, waiver 
proposals  and  reports  to HCFA,  and other  program-specific  material  they sent  to us. 
3  sometimes  it was impossible  to connect  with  the  most  knowledgeable  respondents  due 
to  State  agency  reorganizations. 
We  are  aware,  through  our  literature  review  and  discussions  with various  State  officials 
and  organizations,  that  some  States  have  attempted  to  cut or  contain  expenditures  on 
behalf  of their  disabled  Medicaid  population  through  such  efforts  as:  more  intensive 
case  management,  risk  adjusted  payment  systems  for  managed  care  plans,  preventing 
unnecessary  utilization  through  gate  keeping  and  substitution  of certain  services  for 
more  costly  forms  of care.  The  scope  of this  study  is confined  to five States  that 
spend  42 percent  of all Medicaid  disabled  funds  and  thus  does  not  allow  for  a detailed 
discussion  of initiatives  in other  smaller  States. 
4 
 FINDINGS 

RAPID  GROWTH  OF MEDICAID  DISABILITY  PROGRAMS:  The  number  of 
disabled  beneficiaries  grew  17 percent  and  expenditures  grew  proportionately. 
To  examine  trends  in the  number  of disabled  beneficiaries,  expenditures,  and  services, 
we analyzed  Medicaid  data  reported  by States  to the  Health  Care  Financing 
Administration  for  fiscal years  1993, 1994, and  1995. 
Between  FYs  1993 and  1995: 
. 	 The  number  of disabled  Medicaid  beneficiaries  grew  17 percent  nationally 
(from  5.0 to 5.85 million),  significantly  outpacing  growth  of 6 percent  of total 
beneficiaries.  In 29 States,  growth  of disabled  beneficiaries  exceeded  17 
percent. 
. 	 The  proportion  of all Medicaid  beneficiaries  who  are  disabled  grew  nationally 
from  15 percent  to  16.6 percent. 
. 	 Expenditures  for  the  disabled  increased  27 percent  (from  $38.6 to $49.2 billion) 
compared  to the  medical  price  index  of 9.6 percent.  Twenty-four  States  saw 
increases  of this  proportion  or greater;  eight  States  saw increases  from  45 to 
123 percent.  Only  six States  saw a decrease. 
In  1995: 
. 	 Disabled  beneficiaries  were  17 percent  of all Medicaid  beneficiaries  nationally, 
the  second  smallest  group  (following  the  elderly),  but  accounted  for  37 percent 
of expenditures,  the  largest  proportion  of expenditures.  Figure  1 shows 
Medicaid  beneficiaries  by type,  and  expenditures  by type  of beneficiary,  for  FY 
1995. 
Medicaid Enrollees by Type in FY 1995  Medicaid Expenditures by Type in FY 1995 
(N-35.278.512)  (N - W34868.322.467) 
Low Income Children (49%) 
Figure  1 
5  . 	 States  spent  between  23 percent  and  49 percent  of all Medicaid  dollars  on  the 
disabled  alone.  Thirteen  States  spent  40 percent  or more. 
. 	 The  average  per  capita  cost was $8,422, with  a huge  range  across  the  50 States 
from  about  $1,100 in Arizona  to  almost  $19,000 in New York.  Californias  per 
capita  is roughly  $6,000, while  Illinois  is about  $10,000.  We do not  know  why 
such great  variation  exists, although  the  existence  of large  institutional  ICFs/MR 
in some  States  may be  one  factor  that  increases  the  costs.  The  national  per 
capita  cost  is four  and  a half  times  more  than  the  $1,777 cost  per  adult  and 
eight  times  more  than  the  $1,046 cost per  child  in the  needy  family  population. 
Cost  per  aged  recipient  was slightly  higher  at $8,847. 
. 	 After  adjusting  for  inflation  between  1993 and  1995, overall  per  capita  costs 
were  $8,443 in  1993, $8,114 in  1994, and  $8,422 in  1995. 
Figure  2 on  page  7 shows national  and  State  Medicaid  expenditures  for  disabled 
persons,  as a proportion  of total  Medicaid  expenditures  and  per  capita. 
BROAD  STRATEGIES  NOT  TARGETED  AT  DISABLED  POPULATION: 

Sample  States  target  Medicaid  cost  containment  primarily  at the  less  expensive  needy 

family  programs  rather  than  the more  costly disabled  programs. 

None  of the  sample  States  is focused  strategically  on containing  Medicaid  costs  for 
disabled  beneficiaries  as a group.  In general,  they  are  turning  to managed  care  to 
contain  Medicaid  costs,  especially  through  Section  1115 waivers  that  allow  them  to 
develop  broad  managed  care  demonstration  programs. 
Sectio1n1 15LkmwnstratioPnr o
grams

We  acknowledge  that  there  are  a few States  that  have  included  disabled  persons  in 
managed  care  waivers,  most  notably  Oregon  and  Tennessee.  How  those  States  will 
fare  with  that  population  and  whether  any  successes  will be  able  to be  replicated  in 
the  larger  States  are  very  open  questions  at the  current  time. 
Waiver  programs  in the  sample  States  include  those  approved  by HCFA  and 
beginning  implementation  (Illinois  and  California),  others  approved  by HCFA  but  not 
the  State  legislature,  or vice versa  (New York,  Massachusetts),  and  one  in the 
planning  stage  (Texas). 
While  we have  no  hard  evidence,  we have  some  doubt  that  these  Section  1115 
demonstrations  will result  in cost  savings  relative  to the  disabled  population,  at least  in 
*  Section  1115 of the Social Security Act permits  a State, with Federal  approval,  to waive any requirements  of 
the Medicaid  program,  including  eligibility standards,  covered  benefits,  and enrollment  in managed  care. 
6 
 FY1995MFLDICAIDSPENDINGONDlSABLEDz  asPemmtdTotdSpahgaodPaCapita  Figure  2 
state 
AR  $67o,O31,189  87399  WA= 
IL  $q755,075~54  m=  ts,~ 
MI  Sl#w31~31  =w52  f7206 
MN  s1,191,420917  75370  s15,766 
NJ  s1,750,643,859  144p29  s12J55 
RI  $3tq47oJ72  w52  S12018 
WI  s755993$38  104,745  $7217 
MA  swwa- 16oJo1  SlK227 
DC  t252419,725  23Qo1  slow 
OR  s=ww=  46J57  SllJ53 
MD  s925,q192  W=  SlOm9 
ID  s165$46J31  l&f=  s4m 
KY  ss90,7np40  1W  se-
NY  S9,670,729,780  510373  Slag41 
MT  S130,754~~  1w1  SW2 
DE  s144424B69  12642  s11,741 
SD  s136J70&521  13,486  SlO,142 
VT  s143&2w37  14&99  $9;1&) 
NE  $219574$xX3  a- $9,168 
ME  s32Os2719  31971  s10,017 
IA  s-ww=  50,057  $9,168 
CG  t(~~~  49,466  $9,177 
CA  W&-W5  742,312  tisgo2 
AL.  $594.502.617  131365  SC= 
ND  s119306$41  4m  s13&82 
NV  3141.63w27  16,181  s&753 
LA  S1,181,094~7  M&l34  S7.376 
TN  tsss#B  =A=  up11 
KS  $346,611,769  39,179  SW47 
SC  s614m,m5  %=  W@l 
WV  -793  74,645  w74 
HI  s%mf=  13,679  %l= 
MS  s533?92%616  125811  uw 
WA  f563952419  ltM.816  55l-
PA  $1,761,583,845  269,042 
NM  $306~517,118  3806  $7,700 
ur  $185,679,412  19,010  VJJG 
VA  S-JW-goo  105,733 
WY  %ww- s10&28 
GA  s1mw3J25  191,421  %431 
OH  $2J23$515,648  w21  39,133 
cr  S7J-GJV@  49315  s15*1 
M  s93w9.493  67,495  SlOJ80 
FL  s1$01,199~74  m=8  s6J30 
MO  s731s&528  97.707  s7w 
OK  sw=*aJ7  %lS  s&7= 
NC  s1,045,427,100  143974  S-h=1 
TX  s&mm  270,193  $7375 
AK  s76327.437  w=  $11,447 
AZ  $67,185,151  W-43  Sl,oa 
VI  s1,603J07  884  SW14 
PR  s14478?191  @x+ 
NH  NO REPORT  AS OF..~~................ . .. . . .. . .. . . .. . ..   .,..
s134~4457  ijj.i~~
NATIONAL  549243217m  5$X$731  s&422 
7  the  foreseeable  future.  First,  even  the  programs  being  implemented  now will not  be 
fully operational  for  2 years  or more.  Second,  most  of the  programs  are  targeted 
primarily  if not  solely  at the  needy  family  population.  Participation  by disabled 
beneficiaries  is often  voluntary,  and  even  if mandatory,  excludes  certain  groups  (those 
in institutions,  dual-eligibles,  those  served  under  special  waivers).  Third,  relatively 
expensive  specialized  services  used  by significant  numbers  of disabled  beneficiaries 
(mental  health  services,  for  example)  may be  carved  out to continue  on  a fee-for-
service  basis.  Finally,  while  cost  savings  are  projected  by the  States  for  these 
programs,  they  are  broad,  speculative,  and  in some  cases  not  expected  to  appear  for 
the  first  2 or  3 years  of operation.  Also,  cost savings  may be  one  of several  goals, 
taking  a backseat  to expanding  coverage  for  currently  uninsured  individuals. 
Sectio1n9
 15(b)Rogarns 

In addition  to statewide  programs,  all five States  have,  or are  planning,  smaller 
managed  care  programs  under  1915(b)  (freedom  of choice)  waivers,  which  allow  a 
State  to restrict  beneficiary  choice  of provider.  However,  they  target  few such 
managed  care  programs  at disabled  beneficiaries  and  in the  few cases where  data  is 
available,  these  programs  are  serving  a small  number  of disabled  beneficiaries. 
.  Programs  in New York,  Illinois  and  Texas  target  needy  families. 
. 	 In California,  participation  of disabled  beneficiaries  is voluntary,  and  according 
to the  General  Accounting  Office  (GAO),i  only  about  4 percent  of eligible 
disabled  beneficiaries  were  enrolled  in State  risk-based  managed  care  programs 
as of February  1996. 
. 	 Texas  has  four  1915(b)  applications  pending,  but  participation  by disabled 
beneficiaries  would  be voluntary  and  the  waiver  applications  project  budget 
neutrality  rather  than  savings. 
Massachusetts  stands  out  among  the  sample  States  in having  three  large  1915(b) 
programs,  one  targets  people  with  mental  illness  and  another,  called  The  Community 
Medical  Alliance,  targets  those  severely  disabled  or with  end-stage  AIDS.  A Health 
Maintenance  Organization  program  served  about  5 percent  of eligible  disabled 
beneficiaries  as of February  1996, per  GAO.  A Primary  Care  Clinician  Program,  a fee 
for  service  program  requiring  case management,  had  over  200,000 enrollees  in 
September  1996, per  a State  respondent,  53,000 of them  disabled.  A capitated  Mental 
Health/Substance  Abuse  Program  had  370,000 enrollees  as of April  1996; we were 
unable  to learn  how many  were  in the  disabled  category;  the  program  serves  fee-for-
service  and  other  recipients  whether  officially  categorized  as disabled  or not.  These 
three  programs  will be  strengthened  and  folded  into  the  planned  Section  1115 
9  Medicare  beneficiaries  who also receive Medicaid. 
lo  Medicaid  Managed  Care:  Serving the Disabled  Challenges  State Programs,  GAO/HEHS-96-136,  July 1996. 
8  demonstration,  along  with  a program  that  provides  insurance  for working  persons  with 
disabilities  and  parents  of children  with  disabilities. 
FEW  INlTlATlVES  TARGETED  AT  TOP  EXPENDITURES  FOR  DISABLED 
PERSONS:  Sample  States  have  few  initiatives  to reduce  costs  for hospital  inpatient 
and  Intermediate  Care  Facilities-Mentally  Retarded  (ICFs-MR)  services,  which 
account  for the  largest  proportions  of their  spending  for the  disabled. 
Figure  3 shows the  eight  services  that  collectively  accounted  for  almost  90 percent  of 
Medicaid 
expenditures  for 
disabled 
MEDICAID  ExPENDrmRES  FOR  DISABLED  BENEFICIARIES  BY 
beneficiaries  in  TYPE OF SERVICE:  FYs 1993 - 1995 
1995. 
FY1995ASA 
PERCENT  OF 
Spending  for  TOTAL 
inpatient  hospital 
1993  1994 
and  intermediate  :.:.:.:.:.:.:.:.. .. ..: . . . ..: .... . :. . . ..  .:... . .., ::.,.:.:,.:.:,i:.::,:.:,.:,.::,,.::.~:,.,..:: :, i..:,:.-.,i:.:.l::.~:.,:~:::::::.:.:.,.:
:j:j:j:j:j:j::j::;;ii;:; ji:::j~.:i,:j;$::i $::i:::::::::j::::: :::::::::::::::::::
care  facility-mental  :.:.:.:.:.:..:,.:.::.,:~.:,.:,,..~,~..,::..,...~:...,,:.::,::..,.:.,...::,...:.,...:,...,:..,:..,:.,..:,..:,..:,.:.:.:.:.:.:.:.:.
Sll&  ~~~~~~~~~ 
s10.2b  s11m  23% 
retardation  (ICFs- ... . . . . . . . . . . . .  .. . . . .  .. . .,..,... .:.;..:. .. :. 
MR)  services  $82  $ 7.7b 
combined  has  :.:.:. . ...:.: : .:... .:.::. . :...::;..::.:,:..,::.:.:...:..:.:. ... :.,:.. . ::... ..,::. :.>:.. ..::.:, .. :..P.,:.. ::. :. ,...,> :..i.:. .:...: ::... .~  .,.....::..... .>:. ,:..~..  . ,...:: :. :.:. .:.,. ... .\.., ::....  ....  :~..  .,.:..  ...  ,.::..  ....  ::...  ......  ..  .,::...   ..  ::..  .....  ..  ..,..::  ..  ...::  ....  .  :,::.::...,::::..:,::::.:,:::.:::.:~:::.::;~.::.;.~::~...::..~;:.~..:~~..:. ~.:.~:.:
$ 4jm  ~~::,:.::.,::..i.,:.,;:i.;-:,;:i: ~:i~~
accounted  for  over  $ 3.ob  $ 4.lb  :::ixii:i:i:!i:~:ii;......  12% 
40 percent  of  .:.::::...:: ::..:::.:.:::.:.:::..::::..:::.:.:::.:.::::..::.::.:.::.:.::..:,.::..::.,:..::..:,,.::...:,:.:,..::..,:..::...:.,:::...:.:..,.:...,.::..~..,,.::.,..:::..,.,....:.:.:..,:.,:.(..:.~:. :.~.:..,:.::~..:.:..::.~.::~..::~:~.:.:::~.:::.::. ::::.::::.:::::.:::::.::::.::::. :::.:.:.:.:.:.:.:.:.:.:.:
$ 4Bb  ~~~~~~ 
national  Medicaid  $ 3&  S 4.lb  ..:,:.:.:.:.:.):;..::..~:..:~,~.~~.~~.~~~.::..~:..~~:..~~.~: :.~~:.1:.0:%.:.:.:.:.:.
::::::::::::::::::::::::::::::::::::::::~~,~
expenditures  for  $ 45b  .&:,:::.:..I.  :.  ::I:;:;l;iiii~~~~~~~~~~ 
$ 39  $ 4.lb  .:::::::::::::::::.:.:,:.:.:.:.:.:.:.:.:.:.~.:.:.:9.%:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:
the  disabled  since 
1993, although  the 
s2ob  s22b  5% 
proportion  of 
expenditures  they  s2ob  $2lb  .,,,..,,,..   5% 
represent  dropped  ,::,:~::::,:.:.:.. . :.. :. . ::. .. . :.:. . :. :.. . .:. :. :. .. :. ..: . :.: . . :.. .: . ::. .. . ... :. ::. . .. ... :. ::. . .. ... :. :: ..... : ..::... .:..v::..::.. ..: ;.....~..::.:. :;.. .. ... .->:. .:: ..... ... :.:.:::.:... >:...:: :.....,: ::::.:..::::::.:..:::::.:..::::::.:..:::::....::::::.:..: :::...:::...:::...:::...:::....::..:.::..::..::.:...::.:~~~:~~:~:~,~,~:~
$ 2ob  j.;::il:i.~. ~~~~~~~s::i-i:i:l 
from  48 to  43  $ Mb  $ 19b  :.:..  4% 
..  i..... .  .  . .. . .    :. . .. : .....::. ..:: .: 
percent  in that  $ 39b  $ 5.lb  $6&  ~.:i..:i:i, ;.,a.,..~,.~ii~,.~i,~.,~.i~i...,.,...,...,.,.,.,.,.,.,...,.,...,1.,2.,%.,.. ............... 
time,  affected 
primarily  by a  TOTAL  s38hb  S423b  100% 
dramatic  increase  Included in the Other category are expenditures for:  mental hospitak for the aged, 
 
of 93 percent  in  SNF/ICF for the a&  psychiatric facilities for agei 21 and under, all other ICFs, denta&other 
placti- family pIrIMing laboratoly and x-ray, early and periodic screenin& rural health 
home  health 
diniqamlothermisix~serviceg
expenditures. 
Figure 3 
I1  In a non-waiver  program,  Massachusetts  also provides  in-home  services to persons  with severe  physical 
disabilities  or HIV/AIDS  through  two special providers.  However,  the thrust  of this program  is to enhance  access 
and  quality of care rather  than  cost containment. 
9  In developing  cost  containment  strategies,  we assumed  that  the  sample  States  might 
target  the  services  costing  them  the  most  money.  As Figure  4 on  the  next  page  shows, 
in  1995 those  services  were  most  often  inpatient  hospital  and  ICFs-MR.  Home  Health 
represented  the  highest  services  in Massachusetts. 
We  found  no  initiatives  in these  States,  managed  care  or otherwise,  targeted  at 
hospital  inpatient  costs  for  the  disabled. l2  Nor  do the  managed  care  programs  in 
these  States  specifically  target  ICFs-MR  costs.  However,  every  State  serves  some 
beneficiaries  with  mental  retardation  or developmental  disabilities  through  a 1915(c), 
or home  and  community  based  care,  waiver.  These  waivers  are  part  of the  States 
gradual  but  strategic  shift  away from  costly  placements  in institutions  such  as nursing 
homes  and  ICFs-MR.  The  waivers  are  serving  from  3,600 in Illinois  to  over  30,000 in 
California,  many  more  than  other  1915(c) waivers  in these  States  but  still a small 
proportion  of total  disabled  beneficiaries  there. 
States  are  required  to submit  a Form  372 to HCFA  annually  for  each  1915(c) waiver 
reporting  the  number  served  and  budget  figures,  including  any  cost  savings.  For  these 
mentally  retarded/developmentally  disabled  waivers,  the  sample  States  reported  per 
capita  cost  savings  ranging  from  $3,900 to over  $100,000  (projection  for  1999). 
However,  we are  not  convinced  that  these  figures  are  reliable.  For  example,  some  of 
the  Form  372s were  submitted  2 or more  years  late,  or not  at all and  these  data 
provided  was sometimes  missing  or projected  rather  than  actual.  For  particular 
waivers  (especial  model  waivers  and  waivers  targeted  to individuals  with 
developmental  disabilities  who were  deinstitutionalized  as a result  of the  PASARR 
programs),  the  States  are  not  required  to  complete  an  entire  372 form.  Therefore, 
even  though  State  respondents  believe  in the  value  of the  waivers  in terms  of saving 
costs  (as well  as enhancing  access  and  quality  of services),  we cannot  come  to any hard 
and  fast  conclusions  on  the  question  of how much  they  save,  for how many. 
On  a related  note,  Massachusetts  and  New York  respondents  credited  these  waivers 
with  enabling  them  to  move  or divert  thousands  from  institutional  placements. 
However,  it has  not  been  easy  to close  those  institutions  completely.  The  relatively 
low number  of placements  in the  remaining  large  ICFs-MR  translated  into  a very  high 
per  capita  ICFs-MR  Medicaid  expenditure  for  1995:  $161,000 in Massachusetts  and 
$160,000 in New York. 
In the  two sample  States  where  services  other  than  inpatient  hospital  or ICFs-MR 
were  highest  in expenditures,  we found  no  cost containment  strategies  targeted  at 
them. 
I2  Cost containment  has been  a strong  focus in the California  Medicaid  program  for many years, resulting  in one 
of the lowest per capita Medicaid  cats  in the country.  For example,  the State has a special commission  which 
negotiates  provider  reimbursement  rates, including  hospital  rates.  It has freedom  of choice waivers limiting  the 
providers  from which beneficiaries  can obtain  hospital  inpatient,  and inpatient  psychiatric, services.  However,  these 
measures  cut across all populations  rather  than  targeting  expenditures  for the disabled,  specifically. 
10  TOP CATEGORIES  OFMEDICAJD  EXPENDITURES  FOR DISABLED 
BY TYPE OF SERVICE:  FY 1995 
%-mP  SECOND  %  % 
TOTAL  SERVICE  SECOND  TOTAL 
s  s  TOTAL S  SERVICES 
.,.. . .  
i:~~.:~~:~:x:~:i:~:~:i:~:~:#:i:i:I:i:I:i:I:I:I:i:i:::~:~, SNFimd 
.,.,.i,...,.,._.j,...i,._).>i.i,...,..,.,.,.,.,.,.,.,.,.,.,.
:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.  Preserihed 
27%  -w  54% 
S1.2b 
(-bi=d) 
Inpatient 
26%  Hospital  23%  49% 
s22b 
36%  ICF-MR  18%  54% 
S05b 
30%  ICF-MR  28%  58% 
$055b 
ICF-MR and 
Inpatient 
Massacbusetss  22%  HCl6pitiXl  33%  55% 
... .  _,.,.
:~:3i:~:~.~:~#:~~:~:1:8:~:~.~:~~~:~~:~:~:~~:~:~:~
:.:.:::::j::::j::::::::::jj:::::::::j:i:j:i:j::::::::::: em-1 
:::..i::...i... .:.  ...%..../... :.,.~..,.:..~.....:......:~ . ....  ..X.: .. ....  .:..:.  ...:..: .. :.....  ., .:. : .~. ::.:::.~::.:::.::~.::.::..::.:::.:::.:::.::.:::.:::.:::.::.:::.::::::: 
28%  s5.ob  24%  52% 
ICF-MR 
23%  $9.7b  20%  43% 
Figure 4 
. 	 California,  where  prescription  drug  and  skilled  nursing  facility  expenditures 
share  second  place,  has  taken  some  steps,  and  proposes  others,  to  reduce  costs 
across  the  entire  Medicaid  population  but  not  specifically  the  disabled.  For 
example,  the  State  limits  prescriptions  to  six per  month  per  Medicaid  enrollee, 
which  undoubtedly  affects  beneficiaries  with  chronic  illnesses  or disabilities  the 
most.  A special  State  drug  rebate  program  negotiates  with  manufacturers  for 
savings  of $20 to $30 million  over  savings from  a Federal  program. 
. 	 In Massachusetts,  home  health  expenditures,  the  top  category  of service  at 21 
percent  of all expenditures,  are  high  to a great  extent  due  to the  States 
deliberate  expansion  of a 1915(c) ICFs-MR  waiver,  which  accounts  for  half  of 
all the  expenditures  in this  category.  As for  the  other  services  under  home 
health,  we found  no  plan  to contain  them. 
11  DISABILITY  INITIATIVES  ARE  MODEST  States  also  use  waivers  to serve  other 
relatively  small  groups  of disabled  beneficiaries.  Their  impact  on cost  containment  is 
not  clear. 
All States  in our  sample  have  1915(c) waivers  that  serve  various  disabled  populations. 
Massachusetts  has  one  waiver  (the  one  previously  mentioned  that  serves  persons  with 
mental  retardation  and  developmental  disabilities).  The  other  States  reviewed  have 
four  or more.  Texas  has  had  preliminary  discussions  with  HCFA  about  a potential 
1915(c)  to integrate  acute  and  long-term  care  services  for  elderly  or disabled  people, 
whose  participation  would  be voluntary. 
As previously  noted,  all five States  serve  thousands  of recipients  with  mental 
retardation  or developmental  disabilities.  Illinois  has  a waiver  serving  13,381 persons 
with  physical  disabilities.  Illinois,  New York  and  California  serve  persons  with 
AIDS/HIV.  Other  1915(c) waivers  in these  States  almost  all serve  very  small  numbers 
of severely  disabled  persons,  including  children.  New York,  for  example,  has  five 
Care  At  Home  waivers  for  children  with various  disabilities  and  service  needs,  each 
serving  approximately  100-200 children  in  1994 or  1995. 
While  these  waivers  may well be  improving  access  and  quality  of care,  it is difficult  to 
conclude  they  are  resulting  in significant  cost  savings  relative  to all expenditures  for 
disabled  beneficiaries.  Most  are  serving  a small  number  of people.  Second,  as 
mentioned  previously,  cost  data  reported  for  1915(c) waivers  is not  always  available, 
timely,  or  complete. 
RECOMMENDATION 
The  Health  Care  Financing  Administration  and  the  Office  of the Assistant  Secretary 
for Planning  and  Evaluation  should  develop  a research  agenda  aimed  at controlling 
costs  while  assuring  quality  of care for disabled  Medicaid  beneficiaries. 
We  are  aware  that  there  is a lot  of Medicaid  experimentation  being  conducted  by the 
States,  primarily  through  waivers  and  managed  care.  After  examining  the  literature, 
participating  in conferences  and  discussing  both  the  waivers  and  other  plans  with 
appropriate  State  personnel,  our  findings  indicate  that  the  large  States  in our  sample 
have  not  yet  come  to grips with  the  difficult  problem  of providing  quality  care,  yet 
containing  costs, for  the  Medicaid  disability  programs.  While  these  findings  do not 
lead  to recommendations  for  quick  fixes or even  for  programmatic  changes,  we do 
believe  that  there  is a compelling  need  to better  understand  the  significant  cost  forces 
that  these  disability  programs  portend  for  the  broader  Medicaid  program  of the  future. 
The  need  then  is to  develop  a research  agenda  at the  Federal,  State  and  local  levels 
that  examines  the  cost  and  quality  of health  care  for  this  population.  A starting  point 
could  be  the  Health  Care  Financing  Administrations  and  the  Assistant  Secretary  for 
12 
 Planning  and  Evaluations  research  agenda  that  focuses  on  managed  care  for  people 
with  disabilities.  Efforts,  other  than  managed  care,  could  include  focusing  on 
ICFs-MR,  skilled  nursing  facilities,  and  in-patient  hospitals.  Home  and  community 
based  waivers  and  other  significant  initiatives  that  are  important  for  persons  with 
disabilities  should  also be  studied.  We believe  that  constructing  a research  agenda  for 
the  future  now will result  in better  quality  care  and  cost  savings  in the  next  5 to  10 
years. 
We  recommend  that  the  Health  Care  Financing  Administration  and  the  Office  of the 
Assistant  Secretary  for  Planning  and  Evaluation  jointly  develop  such  a research 
agenda. 
In response  to HCFAs  request,  we suggest,  among  others,  the  following  six studies: 
. 	 A historical  study  of the  Medicaid  treatment  received  by people  with 
disabilities.  This  study would  focus  on the  efficacy  of current  public  programs 
ability  to provide  the  myriad  health  care,  rehabilitative  and  support  services 
required  by the  Medicaid  disabled  population. 
. 	 The  development  and  evaluation  of the  efficacy  of integrated  care  models  for 
financing  acute  and  long-term  care  for  people  with  disabilities. 
. 	 A comparative  evaluation  of the  Medicaid  disabled  population  served  by State 
managed  care  health  care  systems  and  fee-for-service  systems. 
. 	 A comparative  evaluation  of access,  quality  and  costs under  selected  State 
ICFs-MR  programs. 
. 	 An  evaluation  of the  appropriateness  of various  services  and  care  settings  for 
the  Medicaid  disabled  population  based  on their  ability  to produce  the  most 
efficient  and  effective  outcomes. 
. 	 An  evaluation  of the  appropriateness  of medical  requirements  in State 
Medicaid  programs  that  impact  people  with  disabilities.  This  study would 
examine  the  extent  to which  these  requirements  act  as barriers  to  consumer 
independence  and  if these  requirements  could  be  reduced  or eliminated  to 
effect  greater  consumer  control  and  reduce  costs without  jeopardizing  the 
health  and  safety  of consumers. 
AGENCY  COIvfMENTS 
We  received  comments  from  the  Health  Care  Financing  Administration  (HCFA),  the 
Assistant  Secretary  for  Management  and  Budget  (ASMB)  and  the  Assistant  Secretary 
for  Planning  and  Evaluation  (ASPE).  All concurred  with  the  recommendation  and 
offered  suggestions  for  clarifications  and  technical  comments  regarding  the  report. 
13  Changes  have  been  made  to the  report  based  on  these  comments  as appropriate.  The 
complete  text  of HCFAs,  ASMBs, and  ASPEs  comments  can be  found  in Appendix 
B. 
We would  like  to  specifically  address  two issues,  one  raised  by ASMB  and  the  other  by 
HCFA.  The  ASMB  commented  that  our  data  on Medicaid  disability  costs  did not 
agree  with  the  HCFA  actuary  data.  The  Medicaid  expenditure  data  to which  ASMB 
refers  are  figures  HCFAs  Office  of the  Actuary  derive  from  two forms,  HCFA-64  and 
HCFA-2082.  As a result,  these  numbers  differ  somewhat  from  the  numbers  contained 
in Figure  2 of our  report.  We  extracted  our  data  from  the  HCFA-2082  only,  because 
we needed  expenditures  by type  of service  for  the  disabled  and  the  HCFA-64  did not 
include  this  specificity.  Our  expenditure  data  do match  closely  to data  reported  in 
HCFAs  1995 Medicaid  Statistics  publication. 
The  other  issue,  raised  by HCFA,  concerned  the  HCFA-372  reporting  forms.  The 
HCFA  disagreed  with  our  determination  that  the  reliability  of data  contained  on  the 
HCFA-372  reporting  forms  was questionable  due  to the  fact  that  we found  these  data 
to be  not  always  available,  timely,  or complete.  The  HCFA  states  that  some  States 
are  not  required  to complete  the  entire  form,  particularly  model  waivers  and  waivers 
targeted  to individuals  with  developmental  disabilities  who were  deinstitutionalized  as 
a result  of the  PASARR  programs.  Moreover,  HCFA  states  that  these  data  are  to 
reflect  actual  expenditures  (recorded  by date  of service)  for  Medicaid  services 
furnished  to individuals  participating  in the  waiver  program,  as well as for  individuals 
at  a comparable  level  of care  receiving  services  in institutions.  These  data  are  to be 
submitted  each  year,  with  a lag report  submitted  a year  later,  to correct  incomplete 
data  that  may  have  resulted  from  late  billings,  insurance  adjustments,  etc.  The  HCFA 
says they  are  aware  that  some  forms  have  been  submitted  after  the  specified 
deadlines,  but,  they  are  not  aware  of generalized  deficiencies  in the  data. 
Having  reviewed  the  HCFA-372  data  for  our  five sampled  States,  we are  not  certain 
that  these  data  are  accurately  reported.  Perhaps  HCFA  should  look  further  at these 
data  and  test  for  reliability.  Our  concerns  are  bolstered  by one  State  respondent  who 
admitted  having  difficulty  in trying  to gather  comparable  costs  for  institutionalized 
patients.  The  respondent  stated  that  many  other  States  were  experiencing  this  same 
problem  because,  having  removed  all of their  target  group  members  from  the 
institution,  they  have  no  equivalent  inpatient  cost and  thus  must  construct  the  right 
side  of the  formula  just  for  the  report.  One  HCFA  official  stated  that  one  State  in 
their  region  seldom  submits  the  HCFA-372  reports.  This  problem  exists because, 
except  for  the  childrens  waivers,  the  home  and  community  based  services  waivers  are 
scattered  organizationally  throughout  various  State  offices.  No  one  individual  is 
responsible  for  gathering  the  data  requested  on the  form. 
14 
 APPENDIX  A 

BIBLIOGRAPHY 

A-l  Ashbaugh,  John  and  Smith,  Gary,  Beware  the  Managed  Health-Care  Companies, 
Mental  Retardation,  June  1996. 
Chronic  Care  in America:  A 21st Century  Challenge,  Prepared  by The  Institute  for 
Health  & Aging,  University  of California,  San  Francisco  for  The  Robert  Wood 
Johnson  Foundation,  Princeton,  New Jersey,  August  1996. 
Croze,  Colette.  Medicaid  Managed  Mental  Healthcare,  The  Center  For  Vulnerable 
Ponulations,  November  1995. 
Health  Care  Financing  Review:  Medicare  and  Medicaid  Statistical  Supplement, 
DHHS/Health  Care  Financing  Administration,  September  1995. 
Health  Needs  And  Medicaid  Financing:  State  Facts,  The  Kaiser  Commission  on the 
Future  of Medicaid,  Washington  D.C., April  1995. 
Holahan,  John,  et  al.  Insuring  The  Poor  Through  Section  1115 Medicaid  Waivers, 
Health  Affairs,  Spring  1995. 
Holahan,  John,  et al.  Cutting  Medicaid  Spending  In Response  To  Budget  Caps, 
The  Urban  Institute,  Washington,  D.C.,  September  1995. 
Holahan,  John,  and  Liska,  David.  Expenditure  Caps  and  The  Distribution  Of Federal 
Medicaid  Payments,  The  Urban  Institute,  Washington,  D.C.,  September  1995. 
Holahan,  John,  and  Liska,  David.  The  Impact  Of The  Medigrant  Plan  On  Federal 
Payments  To  States,  The  Urban  Institute,  Washington,  D.C., December  1995. 
Iglehart,  John  K.  Health  Policy  Report:  Medicaid  and  Managed  Care,  The  New 
England  Journal  Of Medicine,  Vol.  332, No. 25, June  22, 1995. 
Long-Term  Care:  Diverse,  Growing  Population  Includes  Millions  of Americans  of All 
Ages,  United  States  General  Accounting  Office,  GAO/HEHS-95-26,  November  1994. 
Medicaid  and  Federal,  State,  and  Local  Budgets,  The  Kaiser  Commission  on the 
Future  of Medicaid,  Washington  D.C., March  1995. 
Medicaid  at the  Crossroads,  The  Kaiser  Commission  on  the  Future  of Medicaid, 
Washington  D.C.,  November  1992. 
Medicaid  In California:  The  Impact  of Congressional  Medicaid  Changes,  The  Kaiser 
Commission  on  the  Future  of Medicaid,  Washington  D.C.,  October  1995. 
A-2 
 Medicaid  In Transition,  The  Kaiser  Commission  on the  Future  of Medicaid, 
Washington  D.C.,  October  1995. 
Medicaid:  Long-Term  Care:  Successful  State  Efforts  to Expand  Home  Services 
While  Limiting  Costs,  United  States  General  Accounting  Office,  GAO/HEHS-94-167, 
August  1994. 
Medicaid  Managed  Care:  Serving  the  Disabled  Challenges  State  Programs,  United 
States  General  Accounting  Office,  GAO/HEHS-96-136,  July  1996. 
Medicaids  Role  For  Persons  With  Disabilities,  The  Kaiser  Commission  on  the 
Future  of Medicaid,  Washington  D.C. 
Medicaid:  Spending  Pressures  Drive  State  Toward  Program  Reinvention,  United 
States  General  Accounting  Office,  GAOHEHS-95-122,  April  1995. 
Medicaid:  States  Turn  to Managed  Care  to  Improve  Access  and  Control  Costs, 
United  States  General  Accounting  Office,  GAO/HRD-93-46,  March  1993. 
Medicaid  Statistics:  Program  and  Financial  Statistics  Fiscal  Year  1993, 
DHHS/Health  Care  Financing  Administration,  October  1994. 
Medicaid  Statistics:  Program  and  Financial  Statistics  Fiscal  Year  1994, 
DHHS/Health  Care  Financing  Administration,  October  1996. 
Medicaid:  Tennessees  Program  Broadens  Coverage  but  Faces  Uncertain  Future, 
United  States  General  Accounting  Office,  GAO/HEHS-95-186,  September  1995. 
Reducing  the  Deficit:  Spending  and  Revenue  Options,  United  States  Congressional 
Budget  Office,  August  1996. 
Residential  Services  for  Persons  with  Developmental  Disabilities:  Status  and  Trends 
Through  1995, Research  and  Training  Center  on  Community  Living,  University  of 
Minnesota,  Minneapolis,  MN, Report  #48,  May  1996. 
Saucier,  Paul,  and  Riley,  Trish.  Managing  Care  for  Older  Beneficiaries  of Medicaid 
and  Medicare:  Prospects  and  Pitfalls,  National  Academv  for  State  Health  Policv, 
September  1994. 
Saucier,  Paul.  Federal  Barriers  to Managed  Care  for  Dually  Eligible  Persons, 
National  Academv  for  State  Health  Policv, August  1995. 
Saucier,  Paul,  and  J. Elizabeth  Mitchell.  Directory  of Risk-Based  Medicaid  managed 
Care  Programs  Enrolling  Elderly  Persons  or Persons  with  Disabilities,  The  Center  for 
Vulnerable  Populations,  September  1995. 
A-3 
 Saucier,  Paul.  Public  Managed  Care  for  Older  Persons  and  Persons  with  Disabilities: 
Major  Issues  and  Selected  Initiatives,  The  Center  for  Vulnerable  Populations, 
November  1995. 
Serafini,  Marilyn  Werber.  Not Your  Fathers  HMO,  National  Journal,  Vol.  27, No. 
42, October  21, 1995. 
Snow, Kimberly  Irvin.  State  Long  Term  Care  Programs  At A Glance,  The  Center 
for  Vulnerable  Ponulations,  December  1995. 
State  Initiatives  In Health  Care  Reform,  The  Robert  Wood  Johnson  Foundation,  No. 
15, November/December  1995. 
State  Initiatives  In Health  Care  Reform,  The  Robert  Wood  Johnson  Foundation,  No. 
16, March/April  1996. 
State  Variations  In Medicaid:  Implications  For  Block  Grants  And  Expenditure 
Growth  Caps, The  Kaiser  Commission  on  the  Future  of Medicaid,  Washington  D.C., 
March  1995. 
Strengthening  Partnerships  Between  State  Programs  For  Children  With  Special 
Health  Needs  And  Managed  Care  Organizations,  Maternal  and  Child  Health  Policy 
Research  Center,  Washington,  D.C., March  1996. 
Tanenbaum,  Sandra  J., and  Hurley,  Robert  E.  Disability  and  the  Managed  Care 
Frenzy:  A Cautionary  Note,  Health  Affairs,  Vol.  14, No. 4, February  1996. 
The  Twentieth  Century  Fund,  Medicaid  Reform:  A Twentieth  Century  Fund  Guide 
to the  Issues, Twentieth  Century  Fund  Press,  New York,  NY,  1995. 
The  University  of Wisconsin-Madison  Institute  for  Research  on Povertys  Focus 
newsletter,  Vol.  17, No.  3, Spring  1996. 
A-4 
 APPENDIX  B 

AGENCY  COMMENTS 

B-l  DEPARTMENT  OF HEALTH  t?aHUMAN  SERVICES  Health  Care  Financing  Administration 
The  Administrator 
Washington,  D.C.  20201 
JUN - 7 1997 
DATE: 
TO: 	 June Gibbs Brown 
inspector General 
FROM: 	 Bruce C. Vlad 
Administrator 
SUBJECT: 	 Off&e of Inspector General (OIG) Draft Report: Cost Containment  for 
Medicaid Disability,  (OEI-05-95-00400) 
We reviewed the above-referenced  report that identifies  trends in the growing number of 
disabled Medicaid beneficiaries  and expenditures  related to them. 
Our detailed comments on the report recommendations  are attached for your 
consideration.  Thank you for the opportunity  to review and comment on this report. 
Attachment 
B-2 
 Comments  of the Health Care Financing Administration  (HCFA) on the 

Offke  of Inspector General  (OIG) Draft Report: 

Cost Containment for Medicaid  Disabilitv,  (OEI-05-95-00400) 

OIG Recommendation 
The Health Care Financing Administration  and the Office of the Assistant  Secretary for 
Planning and Evaluation  should develop research  agenda aimed at controlling  costs while 
assuring quality  of care for disabled Medicaid  beneficiaries. 
HCFA Response 
We concur.  HCFA would like the OIG to include ideas for more specific research 
projects.  We have comments on the fmdings as follows: 
Finding 1: Rapid Growth of Medicaid Disabilitv  Programs.  Between  1993 and 1995, 
the number of disabled beneficiaries  grew 17 percent  and related expenditures  grew 
27 percent.  In 1995, Medicaid  expenditures  for disabled persons were more than double 
the proportion  of the Medicaid  disabled population. 
HCFA Response 
We concur. 
Finding 2: Broad Strategies  Not Targeted  at Disabled Population.  Sample states 
target Medicaid  cost containment  primarily  at the less expensive needy family programs 
rather than the more costly disabled programs. 
HCFA Response 
We suggest the conclusion relating to the section  1115 demonstration  programs be 
omitted.  The discussion  draws a conclusion  that the demonstrations  will not result in cost 
savings for the disabled population  and postulates  a number of reasons for this 
conclusion.  The report, however,  does not provide evidence to support this conclusion. 
Only two of the five sample states implemented  a section  1115 demonstration  program. 
Beneficiaries  with disabilities  continue to express concerns about the shift to managed 
and the potential  for loss of access to needed specialized  services and continuity  of 
cariz 
care.  Extending  managed care coverage to individuals  with disabilities  poses great 
potential  to improve  care but also challenges us to ensure the care delivered in a managed 
care environment  is appropriate,  accessible,  and sensitive to the needs of individuals  with 
disabilities.  Potential  benefits of providing  Medicaid  services to individuals  with 
B-3  Page 2 
disabilities  in a managed care environment include: enhanced coordination  of care, 
convenience,  emphasis on preventive  services and community-based  care, and flexibility 
of benefits. 
Currently,  the Office of Managed Care, Medicaid Managed Care Team, is providing 
technical  assistance to several states developing section 1915(b) waivers to serve persons 
with disabilities,  and to safeguard options that promote meaningful  quality  of life, 
maximum dignity, and respect.  In addition, the team hopes to ensure participation  in care 
decisions,  independent  living in community  settings, preservation  and support of natural 
support systems,  and cost effectiveness. 
FindinP 3: Few Initiatives Tarpeted at Top Expenditures for Disabled.  Sample states 
have few initiatives  to reduce costs for hospital inpatient and intermediate  care facilities 
for the mentally  retarded (ICFs/MR) services, which account for the largest proportions 
of spending for the disabled. 
HCFA Response 
The report states, Every State except Texas serves some beneficiaries  with mental 
retardation  or developmental  disabilities through a 1915(c)...waiver.  Texas has four 
different home and community-based  services (HCBS) waiver programs targeted 
specifically  to the needs of people with mental retardation or developmental  disabilities. 
These waivers are listed under the following control numbers: 0110.90.R1,  0221.90, 
0240, and 028 1. 
The longest numiug of these (0110.9O.R.I)is targeted toward individuals  with mental 
retardation  or developmental  disabilities,  and has been in operation since the mid-1980s. 
The latest, 0281, has been in operation since March 1, 1995, and is targeted specifically 
towards individuals  age 18 or over with developmental disabilities  and concurrent 
diagnoses of deafness and blindness.  We can provide details on these waiver programs 
should the OIG require this information. 
Also, the report states that data on the 372 forms (the annual form states must submit to 
document the spending, health, and welfare of waiver beneficiaries)  are projected,  rather 
than actual, and that some data were missing.  For particular waivers (especially  model 
waivers. and waivers targeted to individuals with developmental disabilities  who were 
deinstitutionalized  as a result of PASARR programs), the states are not required  to 
complete  an entire 372 form.  Moreover, the data that are supplied are to reflect  actual 
expenditures  (recorded bydate  of service) for Medicaid services furnished  to individuals 
participating  in the waiver program, as well as for individuals at a comparable  level of 
B-4  Page 3 
care receiving  services in institutions.  These data are to be submitted each year, with a 
lag report submitted a year later, to correct incomplete data that may have resulted  from 
late billings, insurance adjustments,  etc.  Although we are aware that some 372 forms 
have been submitted after the specified deadlines, we are not aware of generalized 
deficiencies  in the data. 
The report also questioned the large amount of savings-reported on the 372 forms.  Since 
HCBS waivers serve as alternatives  to expensive institutional  care, it is not surprising  the 
savings reported  are large.  We are aware of the very high cost of ICFs/MR care, 
particularly  when that care takes place in aging institutions with extremely high fured 
costs.  Although  states have made great strides towards community placement  and 
downsizing of these institutions,  their abrupt closing has often been infeasible,  since the 
impact would be not only on the Medicaid population being served, but the economy  of 
entire areas of the state.  We are supportive of state efforts to phase out the use of these 
institutions,  and note the HCBS waiver program has been used by states as an effective 
alternative to the continued use of these very high cost facilities. 
Finding 4: Disabilitv  Initiatives  are Small:  States also use waivers to serve other 
relatively  small groups of disabled beneficiaries.  Their impact on cost containment  is not 
clear. 
HCFA Response: 
We suggest the OIG clarify the heading for this finding.  We suggest disability  initiatives 
serve small segments of the disabled population. 
In addition, we suggest the conclusion relating to section 1915(c), be deleted.  The report 
concludes the section  1915(c) waivers do not result in significant cost savings relative  to 
all expenditures  for disabled beneficiaries.  The report contains no evidence to support 
this statement.  In fact, the report states that cost data are not always available, timely, 
complete or reliable. 
Technical Comments: 
We suggest the OIG limit the findings section to findings only.  For clarity, we would like 
to see conclusions  in a separate section. 
B-5 
 DEPARTMENT  OF HEALTH  & HUMAN  SERVICES  office of the Secretary 
Washington, D.C.  20201 
2 
MAR  I  1997 
NOTE TO:  George Grob 
THROUGH: 	 LaVame Burton 
Deputy Assistant Secretary for Policy Initiatives 
FROM: 	 Ashley Filem 
Peter Harbag&y 
RE: 	 Review of IG Report Cost Containment  for Medicaid Disability 
Programs 
In response to your memorandum of January 29, 1997, please find our comments regarding a draft 
report from the Office of the Inspector  General titled Cost-Containment  for Medicaid Disability 
Programs, m  0@?5-m440 
Please note that the most critical objection occurs on page 7 regarding a chart that displays FY 1995 
Medicaid spending on the disabled.  According to HCFA actuaries, this information  does not 
correspond  to HCFA data on this topic.  We strongly recommend that this discrepancy be resolved 
before the report is made public. 
If you have any questions, please feel free to contact Peter Harbage or Ashley Files at 202-690-6553. 
Page I 
Although the purpose states that the report will discuss quality control, there is almost no mention of 
quality control  efforts in the report. 
Page 2  - 3rd Paragraph 
What was total Medicaid spending adjusted for inflation from 1993 to  1995? 
Page 4 - First Paragraph 
It would be helpful if there was a longer discussion of States that have cost containment  efforts.  The 
report never makes it clear that there are effective cost containment  ideas that States could implement 
regrading Medicaid Disability.  Although managed care is discussed later in the report, it would be 
helpful to know the other cost containment  strategies beyond managed care. 
Also, the report states that there is very little activity in terms of cost containment  taking place.  It 
would be helpful to know if the five focus States have ever initiated any cost containment  efforts with 
regard to Medicaid disability programs.  If States have, why were the initiatives terminated? 
B-6 
 Page 5 - 1st and 3rd Bullet 
It would be helpful to have a chart showing each States trends in Medicaid disability expenditures and 
the growth in beneficiaries over the three year study period. 
Page 5 and Throughout  the Report 
The report indicates that the number of disabled Medicaid beneficiaries grew from 5 to 5.8 million or 
17% from 1993 to 1995.  However, the growth rate from 5 to 5.8 is EX2 not 17%. 
Growth = (5.8 - 5)/5  = .16 
Page 6 - 2nd Bullet 
A brief discussion of why there is such wide variation in the per capita expenditures in each State 
would be helpful. 
Page 6 - 3rd Bullet 
The analysis shows that the per capita expenditures on Medicaid disability beneficiaries adjusted for 
inflation is flat during the three year study period.  In fact, it decreased from 1993 to 1994.  This may 
lead some to conclude that cost containment  initiatives are not needed, especially given the high 
expenditure growth rates in other parts of Medicaid.  Given the flat per capita growth,  there needs to 
be a discussion of why cost containment  is still important.  It could be the case that States do not feel 
cost containment  is an issue given this flat growth.  It would also be helpful to know the per capita 
spending stream for all of the States. 
Page 6 
The report provides the per capita growth adjusted for inflation but not the overall growth of 
Medicaid disability expenditures adjusted for inflation.  What is the overall growth rate adjusted for 
inflation?  Is the overall growth flat as well? 
Page 7 - Chart 
According to HCFA actuaries, the chart given on page 7 does not correspond  to their data on 

Medicaid disability expenditures.  Before the report is released, we feel that it is critical that this 

discrepancy be resolved. 

Page 9 - Chart 

The other category  of setvice grows at 59%, the third highest growth rate given on the chart.  It 

would be helpful to discuss the services provided in this category  and why the growth rate is so high. 

Page 13 - 1st Paragraph - Last Line 
Use cost savings instead of cost dividends. 
Also-
A chart showing what disability services are provided by each State would be helpful. 
It would be interesting to see the per capita growth in cost for the services listed in the chart on page 
9. 
It would be interesting to see a comparison of growth rates in expenditures  for similar disability 
services covered by private sector insurance companies.  Is Medicaid spending on these services 
growing faster or slower than in the private sector? 
B-7  DEPARTMENT  OF HEALTH  &HUMAN  SERVICES 	 Office of the Secretary 
Washington,  O.C.  20201 
TO: 	 June Gibbs Brown 
Inspector  General 
FROM:  David  F, Garrison 
Principal  Deputy  Assistant  Secretary 
for Planning  and Evaluation 
SUBJECT: 	 OIG Report  on Cost Containment  for Medicaid  Disability  Programs-
CONCUR  WITH  COMMENTS 
We greatly  appreciate  the OIGs efforts to involve  OASPE staff during  the preparation  of this 
report,  and we concur  with their recommendation  that OASPE and HCFA jointly  deveIop  a 
research  agenda. 
However,  upon  reading  the report  we have a few suggestions: 
. 	 You might  want to mention  that there is no evidence  presented  in this report  that 
Medicaid  expenditures  for persons  with disabilities  are inappropriate.  Although  cost 
containment  is important,  there are other goals in administering  state Medicaid  programs, 
especially  improving  service delivery  systems  and quality  of care for persons  with 
disabilities. 
. 	 It would  be useti  to describe  more detailed state program  efforts  to care for persons  with 
disabilities.  For example,  much  of the effort toward d&institutionalization  has taken 
place to improve  quality  of care and quality of life,  One consequence  has been  rapid 
increase  in expenditures  for home  and community-based  services.  Perhaps  New  York 
until recently  has had a more  generous  home and community-based  services  program 
than can be justified,  but the increase in such services  are generally  viewed  as su~c~sscs. 
Similarly,  state managed  care efforts have several objectives,  Cost containment  is 
certainly  one of them,  but improviag  access to care, improving  emollees  satisfaction,  and 
improving  continuity  and quality of care are also important  objectives. 
.  Please clarifl  the first sentence  on page 5, 
B-8