Will the states cook up a health care fix?

Faced with budget gaps, a Medicaid squeeze, and ballooning liability premiums, state lawmakers struggle to do more with less.

Wayne J. Guglielmo
Senior Editor

With Washington lawmakers tied up with the war on terrorism, the economy, and mid-term elections, legislative experts expected any new moves on health care initiatives this year to come from the states. But there have been relatively few physician-focused initiatives at the state level either. A general preoccupation with fiscal matters—in particular the eye-popping budget deficits and cuts most states have been experiencing is the main reason for the inactivity.

Some think the lull in the action won't last for long, though. Managed care issues, Medicaid initiatives, and malpractice concerns are all drawing legislative fire. Here's a look at what's happened and what's on the horizon.

Doctors and health plans: Lingering strains

The ongoing tension in the relationship between doctors and health plans continues to fuel debate, despite this year's relative quiet on the legislative scene.

Insurer liability—the right of patients to hold plans responsible for their medical decision-making—is still a top issue. So far this year, 15 states introduced new bills addressing the issue or carried over proposals from last year. (Ten states already have legislation on the books. For a list, see "States that extend liability to HMOs"). To date, however, no 2002 bill has made it into law.

Doctors have done better in their fight to get clean claims paid in a timely manner: 46 states now have prompt-pay laws on the books, although they vary widely in their effectiveness. For this reason, lawmakers in Colorado, Hawaii, Kentucky, Maine, Mississippi, and Virginia have gone back and tinkered, adding teeth to weak provisions, clarifying muddled ones, and mandating shorter waits for claims submitted electronically.

That ongoing concern strikes some in the managed care industry as excessive. "I know there's some frustration [among providers], but, legislatively, I think this is an area that has been well covered," says Susan Laudicina, who tracks state health care policy for the Blue Cross Blue Shield Association's Washington, DC, office.

Despite this, Laudicina hails Mississippi's new law as "a good example of noncontentious prompt-pay legislation." She especially likes the law's system of graduated penalties as "more sophisticated" and "forward thinking" than the fixed penalties found in most other states.

What's happening with efforts by doctors to join forces when negotiating with health plans? In January, New Jersey Acting Gov. Donald DiFrancesco signed into law the nation's third joint-negotiation statute, following on the heels of Texas and Washington. Like those earlier statutes, the New Jersey law permits doctors or their representatives to negotiate with plans on a range of noneconomic issues, including medical necessity and coverage, clinical guidelines, and appeals.

As in Texas, New Jersey physicians have also won the right to negotiate fees, but only with the approval of the state attorney general. (Neither Washington doctors nor those in Alaska—which in mid-May passed a restricted joint negotiation bill—have this right.) No state makes health plan participation mandatory or binding.

New Jersey doctors are excited over the win. But skeptics point to poor track records in Texas and Washington. Will Garden State doctors succeed any better?

Yes, says Robert Conroy, whose firm is general counsel to the Medical Society of New Jersey. The state has "a more favorable law" than Texas—which places a cap on physician participation in fee negotiations at no more than 10 percent of a given specialty or 10 percent of all doctors in a given geographical area. The New Jersey law imposes no such restrictions.

Another plus, says Conroy, is that they'll take "small steps" at first and deal with non-economic issues that affect everybody: "Areas like referrals and pre-certs are where we can effect the most change for the most people in the least amount of time."

Squeezed by Medicaid, and squeezed again

Paltry Medicaid pay is another pocketbook issue for doctors this year, but legislatures have been slow to act.

The reason is clear. "States just don't have the revenues they did a couple of years ago," says Pat Johnson of the Health Policy Tracking Service of National Conference of State Legislatures. The loss of revenues caused by last fall's economic slowdown has translated into huge budget gaps, which states have struggled to close. As they do, Medicaid programs are under scrutiny as never before. And while a few states have raised rates selectively—Louisiana, for example—most have kept provider reimbursements flat or, in the case of Mississippi, cut back on rates.

Mississippi doctors used to receive 90 percent of Medicare levels as reimbursement for their Medicaid services. But what lawmakers giveth, lawmakers can taketh away. This spring, reimbursement was reduced to 85 percent of Medicare levels. Disturbed by the cut, many of the state's doctors nevertheless felt lucky to have dodged a bigger bullet: The initial proposal would have imposed a dollar surcharge on doctors for every patient they saw, whether or not they were covered by Medicaid.

"Compared to that, a 5 percent cut isn't a bad deal," says ophthalmologist William S. Mayo, past president of the Mississippi Osteopathic Medical Association. "But it's not great, either."

Oklahoma is another fiscally strapped state where doctors participating in Medicaid are struggling. "The budget deficits this year were the last straw, because we've been going through Medicaid difficulties for many years," says Joy Leuthard, director of health care policy and research at the Oklahoma State Medical Association. Things have gotten so bad, says Leuthard, that only a handful of pediatricians in the Tulsa metropolitan area will accept Medicaid patients. And ob/gyns are also steamed. In real dollars, they're "getting paid less today than what we fought to get in 1992," she says.

To prevent doctors from jumping ship, Oklahoma Gov. Frank Keating gave his blessing this spring to a unique physician incentive program, based on legislation passed last year. The program rewards doctors who are willing to accept Medicaid reimbursement in installments. The doctors will get certain tax benefits—and the state benefits by collecting interest on the portion of the reimbursements it hasn't paid out yet.

Will the program work? Leuthard is skeptical: "Our doctors are so angry at Medicaid, I'm not sure it will make much of a difference."

Other states—Indiana, Maine, and Utah, among others—have taken a different tack: Given the shaky economy, officials there have decided to increase provider reimbursements only after studying ways to fund the hikes. Doctors in these states aren't holding their breaths.

A malpractice meltdown, and physician flight

States have also found themselves trying to calm the waters of an escalating liability-insurance crisis—especially problematic in Florida, Nevada, Mississippi, Pennsylvania, Texas, Washington, and West Virginia. Mississippi lawmakers rolled out a dozen proposals this session aimed at addressing the problem—but none made it out of committee.

In Pennsylvania, the meltdown began as "an affordability crisis, with rates going up for a couple of years by as much as 60 percent, especially for the high-risk folks," says Roger Mecum, executive vice president of the Pennsylvania Medical Society. "That mushroomed into an availability crisis at the same time, with almost no one writing policies."

The society launched an aggressive campaign "to save Pennsylvania medicine." Among the tactics: a call for members to spend "Tuesdays in Harrisburg" to demonstrate their concern. "Our presence was felt very strongly in the capital during that two-and-a-half month period," says Mecum. Last June, the society and its allies in the hospital community managed to get a bill introduced. In March, GOP Gov. Mark Schweiker signed the multipart bill into law.

The new law contains at least some of what doctors had pushed for: modification of the "collateral source rule" (from now on, claimants may not recover damages for past losses already covered by private health or disability insurance); periodic rather than lump-sum payments of future medical expenses; and stricter expert-witness qualifications.

Conspicuously absent from the law is a cap on noneconomic damages. "It's obviously a reform we want desperately," says Mecum, "but the Pennsylvania constitution prohibits caps, and any attempt to create one would likely be thrown out by the court." The society will campaign to amend that constitutional prohibition.

The new law also contains provisions doctors hadn't bargained for—but were able to live with to get what they wanted. Key among those are new error reporting requirements, part of a larger package of patient safety, medical records, and physician-licensure requirements. Doctors had proposed a voluntary, nonpunitive, and anonymous system. Instead, they got a mandatory system that's only partially anonymous and carries significant penalties for noncompliance. In fact, this part of the law applies only to physician offices considered ambulatory surgical facilities, but the cumulative effect of all the patient-safety and other mandates will have an across-the-board impact.

To some, the pairing of patient safety and liability reform isn't surprising. "Any state attempting tort reform will have to include provisions that help to minimize the compensable events in the first place," says Connie Barron, associate director of legislative affairs of the Texas Medical Association.

That will almost certainly be the trade-off proposed to Nevada doctors next session when the state confronts its own liability crisis, says Larry Matheis, executive director of the Nevada State Medical Association.

While among the hardest hit states, Nevada hasn't been affected uniformly. "The crisis is primarily centered in the Las Vegas area," says Matheis. "Four out of the 11 carriers we had are gone, including The St. Paul. And of those left, only two are writing new policies in southern Nevada, and only one of those is writing policies for ob/gyns. Right now, in Las Vegas, newly pregnant women may have to go out of state to deliver their babies."

The crisis has also taken its toll on doctors. "So far, we have been able to track up to 80 physicians who have closed their practices altogether, retired early, are in the process of closing, or who are considering options out of state," Matheis says. "Trying to mitigate the crisis and keep doctors from giving up is becoming a very frustrating challenge."

Nevada doctors want a California-like $250,000 cap on noneconomic damages, a mandatory periodic payment schedule (at present, it's voluntary), and limits on contingency fees. But even these reforms, Matheis acknowledges, won't solve the long-term problem. For that, he says, "we're looking at a patient compensation fund for high-risk procedures and for trauma and emergency-related surgical services."

The remedy may be different in Mississippi, also hard hit. "The reason carriers have left the state or are no longer covering high-risk specialties or writing individual policies has to do with the venue shopping and runaway juries we've encountered," says Jeffrey LeBoeuf, executive director of the Mississippi Osteopathic Medical Association. Savvy trial lawyers, LeBoeuf argues, seek venues in the poorest parts of the state where they can "mold and massage" jurors to get plaintiff-friendly verdicts and awards. The state's DOs have joined their MD colleagues in calling for lawmakers to enact stricter venue guidelines.

Such battles may be hard for doctors to win. But in fighting them, they might be surprised to discover who's lining up on their side. "I think the most important issue for providers is tort reform," says Blue Cross Blue Shield's Susan Laudicina. "It's an issue everyone can get behind." To date, 15 states have enacted 24 laws on Medicaid malpractice.

To be sure, statehouses have addressed other physician issues so far this year—passing dozens of measures dealing with report cards, provider profiles, scope of practice and prescriptive authority, generic/therapeutic substitution, drug formularies, and Rx cost-control.

Even in a quirky political year, such vital issues for physicians often end up being debated—and worked out—in statehouses before they ever make it to Capitol Hill.

States that extend liability to HMOs

Arizona
California
Georgia
Maine
New Jersey
North Carolina
Oklahoma
Texas
Washington
West Virginia

Source: Health Policy Tracking Service at National Conference of State Legislatures, April 2002

Wayne Guglielmo. Will the states cook up a health care fix?.

Medical Economics

2002;13:38.