Commissioner Gary Redding, from the Department of Community Health ("DCH" or "Department"), addressed the Committee to provide background information on the State’s Medicaid program. Commissioner Redding explained reimbursement methodologies to the Committee. 72% of the Department of Community Health’s Budget is spent on the Medicaid and PeachCare programs. Georgia also receives federal dollars to fund its Medicaid and PeachCare programs. The federal matching rate for Medicaid is 59.2%; for PeachCare it is 71.4%.

In 2002, DCH had 20.3% of its expenditures on inpatient hospitalizations (for both Medicaid and PeachCare), which was approximately $98.8 million. In the year 2001, there were 150,000 admissions through these State-funded programs.

Commissioner Redding explained the DRG (Diagnosis Related Group) payment methodology is based on 2001 data which is then inflated forward for two years. There is also an operating component. There are three peer groups for the 160 hospitals in the State: 1) statewide, which is the group where most hospitals fall, and these are paid on an average $3,700 base rate adjusted by the case weight for each diagnosis; 2) pediatric, which are for the three free-standing pediatric hospitals in Georgia (Egleston, Scottish-Rite, and Hughes Spalding), and which receive a $4,200 base rate; and 3) specialty hospitals, which are Walton Rehab, Shepherd Spinal Hospital, Wesley Woods; Kindred (formerly Vencor), and Warm Springs, which receive an average $7,800 base rate. The base is multiplied by the relative weight for each DRG to arrive at the operating component. A capital component is also calculated for each hospital (this would address in major hospital additions being made). There are also 21 hospitals which receive a medical education component. Exceptional cases get more reimbursement – these are the outlier cases.

On outpatient reimbursements, hospitals receive 90% of costs for services with certain exceptions made for Critical Access Hospitals, minority-owned hospitals, and State-owned facilities. These exceptions are paid at 100% of costs for outpatient services.

In 2002, nursing homes received 15.7% of the Department’s total expenditures or approximately $73 million and made up 81% of all patient days in facilities. Currently, DCH uses the 2001 Medicaid cost reports for nursing homes with a two-year inflation added. There are five costs centers which make up each nursing home’s rate of reimbursement with some limits imposed. One limit cited was the 90^tth percentile of cost for routine dietary care. Commissioner Redding also noted that there were incentive payments paid as well. Presently, DCH is moving towards a case mix payment methodology for nursing homes.

In FY 2002, physicians received approximately $517 million. Physicians are paid at 90% of the RBRVS (as are physician’s assistants, nurse anesthetists, and nurse practitioners).

Pharmacy expenditures in FY 2002 were 16.1 % of the DCH budget or $791 million. This was prior to pharmacy rebates. In FY 2002, DCH received $135 million in rebates. The rates for drugs are the average wholesale price minus 10% plus a dispensing fee of either $4.63 or $4.33, and if generics are used, there is an additional $.50. DCH uses usual and customary charges or the lowest price that a pharmacy would receive from a third-party payor.

DCH has other programs which it funds such as home health (based on cost reports with a trend forward for inflation based on visits made); community care services program waiver; independent care waiver; and Mental Retardation Waiver.

Sen. Stokes asked for more information on Medicaid and PeachCare budgets so that she can track what is expended.

Sen. Price indicated he received calls from providers who have been excluded from participation in the Medicaid program. Commissioner Redding stated that this must not be Medicaid but rather the State Health Benefit Plan’s PPO network. DCH is using a network owned by 1^st Medical Network, and this Joint Venture composes the PPO network and addresses access issues. DCH would intervene in areas where there were access issues. Commissioner Redding further explained that a provider’s participation in the Medicaid participation was an ‘any willing provider’ arrangement.

Sen. Price also inquired if hospitals were getting a disincentive for providing care through outpatient means when they only receive 90% of costs. Commissioner Redding basically agreed that this was not an advantageous position – but reimbursement is made on the admitting diagnosis versus the discharge diagnosis. Commissioner Redding also noted that the more which is spent, the more facilities were reimbursed.

A presentation was also made by Constantinos Miskas from CMS on Medicare issues. Mr. Miskas explained some of CMS’s goals moving forward included prescription drug benefits for senior citizens. Additionally, CMS is interested in new drugs being developed. CMS would also like to see more for coverage of wellness and preventive benefits. Sec. Thompson is committed to strengthening the soundness of the Medicare program and to provide better quality healthcare. In the FY 2003 federal Budget, there is $8 billion for states’ Medicaid programs to provide drugs.

Rick Jones from the regional CMS office spoke about the Medicare program and increasing Medicaid expenditures. He cited that there were problems with lack of coordination in the provision of healthcare. An example given was disease management. In California, he explained that Kaiser Permanente has been successful with a cholesterol program showing that approximately 30% of those participating were less likely at risk of dying from heart disease while participating in the program. He also explained that 12% of the recipients under Medicaid receive 70% of the benefits paid. CMS is very interested in patient safety and is working on a quality campaign. The campaign will commence with nursing homes later this fall. There has been a pilot project conducted which looked at six quality areas. The nursing homes’ evaluations will be published in local newspapers. Additionally, he pointed out that the Leapfrog Group was working on patient safety initiatives.

Peter Basler from Wesley Woods gave some brief remarks on nursing homes and assisted living facilities. The Wesley Woods program has both types of facilities. Additionally, it utilizes the SOURCE program which assists with case management and provides a connecting primary care component. There are 352 persons enrolled in the SOURCE program presently. Mr. Basler explained that Wesley Woods’ financial survival hinged upon its purchase by Emory University. It is a 100-bed facility with rehab and psychiatry programs. The average length of stay for persons in its medical unit is six days. Wesley Woods also has transportation and pharmacy costs. Wesley Woods long-term acute care and outpatient units try to limit the numbers of prescription drugs which patients take. On average, 12 prescriptions are being taken by the elderly. Decreasing the number of drugs taken by patients could vastly improve and control pharmaceutical costs. He cited that the higher the number of Medicaid cases, the greater his facility’s losses would be. Mr. Basler indicated, if more persons were in SOURCE program, there would be fewer persons in assisted living and nursing home facilities. Wesley Woods operates on a $50 million annual budget. The outpatient healthcare center covers its costs as does Wesley Woods Towers. Basler indicated that HUD was his facility’s best payor. The hospital is the biggest portion of his budget and where the losses occur.

Mr. Basler responded to Sen. Price’s question on what the State could do to help by stating that there was too much regulation. He also stated that Georgia should let the market place regulate. The surveying process undertaken tries to answer hundreds of questions and is burdensome. Mr. Basler believes that Georgia should focus on outcomes rather than processes. Further, he cited that long-term care insurance would be a help. He also stated that it would be beneficial to all facilities if the Legislature would address workforce issues (getting enough healthcare workers such as nurses, etc.). In nursing homes, there is an average of 85% annual turnover in staffing; at Wesley Woods he has experienced an 18% turnover in the last year.