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. 

OEI’s 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 Administration’s and the Assistant Secretary for 

Planning and Evaluation’s research agenda that focuses on managed care for people 

with disabilities. Efforts, other than managed care, could include focusing on ICFsMR, 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 HCFA’s 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 HCFA’s, ASMB’s, and ASPE’s 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 State’s 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. California’s 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.’ 

Section 1115Lkmwnstration Programs

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 

state 

AR $67o,O31,189 87399 

IL $q755,075~54 m= 

MI Sl#w31~31 =w52 

MN s1,191,420917 75370 

NJ s1,750,643,859 144p29 

RI $3tq47oJ72 w52 

WI s755993$38 104,745 

MA swwa- 16oJo1 

DC t252419,725 23Qo1 

OR s=ww= 46J57 

MD s925,q192 W= 

ID s165$46J31 l&f= 

KY ss90,7np40 1W 

NY S9,670,729,780 510373 

MT S130,754~~ 1w1 

DE s144424B69 12642 

SD s136J70&521 13,486 

VT s143&2w37 14&99 

NE $219574$xX3 aME s32Os2719 31971 

IA s-ww= 50,057 

CG t(~~~ 49,466 

CA W&-W5 742,312 

AL. $594.502.617 131365 

ND s119306$41 4m 

NV 3141.63w27 16,181 

LA S1,181,094~7 M&l34 

TN tsss#B =A= 

KS $346,611,769 39,179 

SC s614m,m5 %= 

WV -793 74,645 

HI s%mf= 13,679 

MS s533?92%616 125811 

WA f563952419 ltM.816 

PA $1,761,583,845 269,042 

NM $306~517,118 3806 

ur $185,679,412 19,010 

VA S-JW-goo 105,733 

WY %wwGA s1mw3J25 191,421 

OH $2J23$515,648 w21 

cr S7J-GJV@ 49315 

M s93w9.493 67,495 

FL s1$01,199~74 m=8 

MO s731s&528 97.707 

OK sw=*aJ7 %lS 

NC s1,045,427,100 143974 

TX s&mm 270,193 

AK s76327.437 w= 

AZ $67,185,151 W-4’3 

VI s1,603J07 884 

PR s14478?191 @x+ 

NH NO REPORT AS OF..~~...................,.. s134~4457 ij’j.i~~ NATIONAL 549243217m 5$X$731 

Figure 2 

WA= 

ts,~ 

f7206 

s15,766 

s12J55 

S12018 

$7217 

SlK227 

slow 

SllJ53 

SlOm9 

s4m 

seSlag41 

SW2 

s11,741 

SlO,142 

$9;1&) 

$9,168 

s10,017 

$9,168 

$9,177 

tisgo2 

SC= 

s13&82 

s&753 

S7.376 

up11 

SW47 

W@l 

w74 

%l= 

uw 

55l-

$7,700 

VJJG 

s10&28 

%431 

39,133 

s15*1 

SlOJ80 

s6J30 

s7w 

s&7= 

S-h=1 

$7375 

$11,447 

Sl,oa 

SW14 

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-forservice 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. 

Section1915(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-forservice 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 
. . . . . . . . . . . . . . . .,.,.,.,:.:,:.: :j:j:j:j:j:j:j:i:j:j::$$:::::j:: 

. . . . . . . . . . . . . . . . . . . . ..,.. 

. . . . . . . . . . . . . . . . . . . . . . . . 

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ~~,::,:.‘,‘,:.-,:’ 

.,.,.,.,...,.,.,~,~.~.~.~. .,.,.,.,. 

..:,:.:.:.:.:.):.:.~.~.~.~.~.:.~.~.~.: 

. . . 

,. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 

. . . . . . . . . . . :...: ..:.: 

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 . ... ...::‘:i:,,::,:i:-i:l:~,~::: and intermediate :.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:::::.:.:.,.: ;i;i:~,;: :,:.,.,.,.,.,. ~ ::;; :.ij:i:i::::::::::::::::::::::::::: :.:.:.:.:.:.:,:.:,~,:,~.:.~.:::.’.:...’. .,.,.,.,...,.,.,.,.,.,.,.,.,.,.,.,.,., .‘.‘:.:.:‘.~:..:‘,::.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:. care facility-mental s10.2b s11m Sll& ~~~~~~~~~ ..... :. 23% 

retardation (ICFs- . .. .,...:.;: 

MR) services $82 $ 7.7b .,,..,..:,:,:.:.:.:.:.:.:.:.:.:.:.:.:. :::::::::::::::::::::,....:.. . ......\........... :.:.:.:.:,:.:,:,:.:,:.:.:,:,:,:,:,:,:,:,:,:::::~.~...~...~...~.:.~:.: .Pi.... combined has ........,........>,.:.:.>: ....... ..:..::..... :.:.:.;:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.: >~~:.~:.:.:::::::::~:;:;:~:;:~:~: 

accounted for over $ 3.ob $ 4.lb $ 4jm ””::.:.:.i.:.;i;:;i:~:i~~ :::ixii:i:i:!i:~:ii;...... 12% 

.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.: .,.,.,.,.....,.,...(.. ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::.:.:.:.:.:.:.:.:.:.:

:......... 40 percent of .:. :.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.... :.:.:.:.:.:.:.:.~:.:.~:.:.~~::::::::::::: $ 4Bb ~~~~~~ national Medicaid $ 3& S 4.lb ;.:.:.:,~~~~~:.:.~:.~~:.~~:.:.:.:.:.:.:.:. 10%

::::::::::::::::::::::::::::::::::::::::~~,~ $ 45b &:::: . .:,:.I:I:;:;l;iiii~~~~~~~~~~ expenditures for $ 39 $ 4.lb .:::::::::::::::::.:.:,:.:.:.:.:.:.:.:.:.:.~.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:

9%

the disabled since 

1993, although the s2ob s22b 5% 

proportion of 

expenditures they s2ob $2lb .,,.,.,,. 5% 

.. . ..;>::.:::::::::.::: ,::::::::::::::.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:..: .v..... .. .. ..:...... ‘,~:,:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:: :.::;:-..:>,:::::::::: 

.;::.. 

from 48 to 43 :.:.. . i.. . . : .. ..:.: 

percent in that $ 39b $ 5.lb $6’& ~i:i;a.~~~~~~~

.:.: 12% 

time, affected 

represent dropped :‘:‘:.:.:.:.:‘:.:.:.:.:.:.~:.:.:.:.:.:.:.:.:.:.:.:.:.:...:.:.:.:...::.:~~~:~~:~:

$ Mb $ 19b $ 2ob j:ili~~~~~~~~s::i-i:i:l 4% 

.i,.,.,.,.ii,.i,.,.ii...,.,...,...,.,.,.,.,.,.,...,.,...,.,.,.,................. 

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 

home health placti- family pIrIMing laboratoly and x-ray, early and periodic screenin& rural 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 

TOTAL 

s 

., . i:~~.:~~:~:x:~:i:~:~:i:~:~:#:i:i:I:i:I:i:I:I:I:i:i:::~:~, .,.,.i,...,.,._.j,...i,._.ii.,.,.,.,.,.,.,.,.,.,.,.,. )>... ., :.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:. 

27% 

26% 

36% 

30% 

22% ._,.,. :~:3i:~:~.~:~#:~~:~:1:8:~:~.~:~~~:~~:~:~:~~:~:~:~ :.:.:::::j::::j::::::::::jj:::::::::j:i:j:i:j::::::::::: :.:........../..,.,.............. .... ... . ‘.“.“.‘.“.......:.:.:.:.:.:.:.~.:.:.:.:.:.:.:.:.:.:.:.:.:.:. ::i:i:%:~:~:~X::::~::::::::~::.:::::::::::::::::::::::: .,. 

28% 

23% 

SECOND % % 

SERVICE SECOND TOTAL 

s TOTAL S SERVICES 

SNFimd 

Preserihed 

-w 54% 

S1.2b 

(-bi=d) 

Inpatient 

Hospital 23% 49% 

s22b 

ICF-MR 18% 54% 

S05b 

ICF-MR 28% 58% 

$055b 

ICF-MR and 

Inpatient 

HCl6pitiXl 33% 55% 

em-1 

s5.ob 24% 52% 

ICF-MR 

$9.7b 20% 43% 

Massacbusetss 

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 State’s 

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 Administration’s and the Assistant Secretary for 

12 
Planning and Evaluation’s 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 HCFA’s 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 HCFA’s, ASMB’s, and ASPE’s 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 HCFA’s 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 

HCFA’s 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 children’s 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. 

“Medicaid’s 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: Tennessee’s 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 Father’s 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 Poverty’s 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 

cariz and the potential for loss of access to needed specialized services and continuity of 

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 

MAR 2 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.” 

AlsoA 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 OIG’s 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