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					                                                                          401-HHS-003-Medical Services


          Iowa Department of Human Services
  Offer #401-HHS-003: Medical Assistance, Contracts,
                IowaCare and HIPP
        Contact Information: Eugene I. Gessow, Egessow@dhs.state.ia.us. (515) 725-1121
This offer is for: (choose one)        This offer includes the following appropriations:
      New activity                     Medical Assistance, Medical Contracts, IowaCare,
      Status quo existing activity     HIPP, General Administration, Field Operations
 X Improved existing activity          F


 Result(s) Addressed:
 Primary Results
     Improve Iowans’ Health
         All Iowans Have Access to Quality Care including:
                Preventive Care
                Primary Care
                Acute/Emergency Care
                Continuity of Care

 Program Description:
 The Medicaid Program provides health care to Iowa’s most vulnerable populations: low-income
 children, frail elderly, disabled persons, pregnant women and very low-income parents. This
 includes women who have been screened and diagnosed by the Breast and Cervical Cancer Early
 Detection Program (BCCEDP) and women participating in the Iowa Family Planning Network. It
 provides these services very cost-effectively.

 The Medicaid program is a partnership between the state and the federal government, with program
 expenditures of more than $3 billion. The program is financed by state and federal matching funds.
 For every $1 Iowa spends, the federal government matches about $2 (Federal match rate 61.79% in
 FY 2008). The majority of the state match comes from appropriations from the State General Fund
 -- $731 million. The remaining state funds include $135 million from Tobacco funds, $65 million
 from Senior Living Trust Fund, $161.6 million from County Funds, and $204 million from all other
 revenues such as recoveries, drug rebates, and payments from Glenwood and Woodward. Other
 appropriations within the DHS budget are made to the counties that they can use to offset their
 Medicaid state match costs. Medicaid is an entitlement program, so states generally can only
 control expenditures by either changing the eligibility requirements, the services covered, or the
 reimbursement rates to providers.

 In order to be eligible for Medicaid, individuals must not only be low-income, they must meet one
 of the criteria listed above. This leaves many single and childless couples ineligible for Medicaid,
 even if they have no income. The IowaCare program was started in 2005 to provide a limited health

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care benefit for low-income individuals who are not eligible for traditional Medicaid or who did not
meet federally prescribed guidelines for categorically or medically needy individuals.

Iowa has undertaken innovative approaches to managing these programs and improving the quality
of services. Iowa seeks to not simply be a payor of health services, but to manage high quality and
cost-effective health care. The Iowa Medicaid Enterprise operates the Medicaid and IowaCare
programs by integrating “best in breed” private contractors to efficiently process medical claims,
work with providers and members, and aggressively pursue cost recovery. The Health Insurance
Premium Program (HIPP) purchases private health insurance for members if cost-effective. In
addition, Iowa has adopted many new and innovative programs to achieve these goals, including
disease management programs, smoking cessation coverage, an electronic health record, preventive
medical exams, multi-state drug purchasing pool, Preferred Drug List and premiums.

Who:
The Medicaid program will have more than 466,000 unduplicated Iowans enrolled over the course
of FY 2009. This program provides health care coverage for almost 16% of Iowa’s population at
some point during the year. Medicaid will provide health care coverage for 230,670 (49%)
children, 100,588 (22%) adults, 90,870 (20%) disabled, and 42,872 (9%) elderly.

These enrollment figures include 17,287 adults in
the IowaCare program and 22,460 women in the                     Medicaid Enrollment
family planning waiver. The IowaCare program                          SFY 2009
is limited to inpatient and outpatient hospital                                  Disabled
services, physician services, and limited dental                                   20%
and transportation services. The program also
has expenditure caps and provider network caps.        Children
Women in the Family Planning Waiver receive              49%
only family planning services and no other health                                   Adults
care services. Since the IowaCare and Family                                         22%
Planning Waiver programs have much more                                         Elderly
limited benefit packages than the regular                                         9%
Medicaid program, they are often discussed
separately from the regular full benefit Medicaid program. Enrollment in the regular, full-benefit
Medicaid program at any given point in time is estimated to be 312,176 for SFY 2009.


What:
Iowa Medicaid pays for medically necessary health care services, including acute care services
typically covered in any health insurance program. These include hospitalization, physician and
advanced registered nurse practitioner (ARNP) services, dental care, emergency transportation by
ambulance, laboratory, x-ray, etc. Medicaid has become the largest single federal funding source to
states and has a significant impact on Iowa’s economy. The Medicaid program has a panel of
36,000 dedicated providers including all 116 of Iowa’s hospitals, over 9,000 physician providers,
and providers of medical equipment, pharmacies and many other health care providers of all types.

In addition, Medicaid provides coverage for long-term care services, such as nursing home care,
Intermediate Care Facilities for the Mentally Retarded (ICF/MR), and home and community based
care that allows individuals to stay in their own homes or other small congregate settings. Long-
term care services provided at home, such as home health, assistance with personal care,

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homemaking, and respite care are very cost effective in that they allow individuals to delay much
more expensive institutional care.

As mentioned above, the IowaCare program has a much more limited benefit package than the
regular Medicaid program, including inpatient and outpatient hospital, dental, physician, and
transportation services. In addition, the IowaCare provider network is limited to two designated
medical centers and the four State mental health institutes for inpatient psychiatric care.

                                                  The cost of medical care for different Medicaid
             Medicaid Expenditures                populations varies significantly. The average
                   SFY 2009                       cost for each child in Medicaid is much lower
           Children                               than the average cost for each disabled or elderly
             17%                                  person, since elderly and disabled individuals
                                                  utilize more long-term, institutional services. As
                                     Disabled     shown in the chart below, although children make
                                       48%
                                                  up nearly half of the Medicaid population, they
        Elderly
         25%
                                                  account for only 17% of expenditures while the
                                                  Elderly and Disabled populations make up 29%
                                                  of the Medicaid enrollment, but account for 73%
                  Adults
                                                  of expenditures. This difference is true nationally
                   10%
                                                  as well.


How:
Medicaid is a payor of health care services, rather than a provider. This includes all of the same
responsibilities as any Third Party payor paying providers’ claims for services rendered but also has
the responsibilities for monitoring long-term care services. The Health Insurance Premium
Payment program determines if it is more cost effective to pay for employer sponsored insurance or
provide medical benefits under general Medicaid. This activity is generally looked upon as a cost
avoidance measure for the program.

The Iowa Medicaid Program is administered by the Iowa Medicaid Enterprise (IME), which is
composed of nine performance-based contractors whose activities are overseen and directed by staff
from the Department of Human Services. The goal of the IME is to make Iowa Medicaid a well-run
managed care organization, placing an emphasis on achieving and maintaining a high overall level
of health status.

Staff in other areas of DHS, including Field Operations, General Administration personnel also
support the operations of the Medicaid Program. Field operations staff process Medicaid
applications and determine Medicaid eligibility for all Medicaid eligibility categories and programs.
General Administration provides financial and accounting services, personnel services,
procurement, information technology support, etc. Staff in the Division of FHWS develop the
policy guidelines under which applicants may qualify for the programs.




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                                                                          401-HHS-003-Medical Services


Offer Description:

Today’s Activities and Results:
This offer maintains the current eligibility levels and services covered for participation in Iowa
Medicaid and the IowaCare Program. The offer includes the Medicaid Program, Health Insurance
Premium Program, IowaCare, and the Iowa Medicaid Enterprise (Medical Contracts). In addition,
the offer includes initiatives that will improve the results of the Medical Services Programs.

Under Federal regulations, state Medicaid programs are required to provide specific services, for
specific populations. These are referred to as “mandatory” services. There are additional services
that may be provided, at the State’s option, called “optional” services. “Optional” is really just a
regulatory distinction as these services are not “optional” from the perspective of providing
appropriate health care services. This offer continues both the mandatory and optional services
Iowa provides. This offer assumes all rates are frozen at FY 2008 levels, except rate adjustments
currently required by Iowa statute or regulation.

Overall, this offer includes an increase in General Fund support of $45,706,828 for SFY 2009. The
majority of this increase is the result of the following:

      $61,564,549 million for current Service level increases due to replacing one-time funds,
       enrollment, utilization and changes in the federal match rate:
           o $10,785,675 to continue the Nursing Facility reimbursement rate rebasing. This was
              funded in FY 2008 with one-time funds.
           o $1,338,823 due to the state match increasing from 38.21% in SFY 2008 to 38.29% in
              SFY 2009.
           o $5,392,604 increase due to an increase in enrollment of 1.24% in SFY 2009 over the
              SFY 2008 estimated increase of 3.0%. Actual enrollment for SFY 2007 increased by
              less than 1%.
           o $10,128,591 fee for service increase due to growth in utilization in services such as
              inpatient, outpatient, physician, home health, dental, and supplies.
           o $3,413,847 increase in home and community-based waiver services due to
              enrollment growth in the Elderly waiver and reimbursement growth resulting from
              the increase in the minimum wage.
           o $10,017,594 increase in payments to the federal government, including $3.9 million
              in Medicare Part D payments, and $6.1 million in payments for Medicare premiums
              for the buy-in program.
           o $1,224,031 for other increases such as the Money Follows the Person Grant.
           o $15,987,630 for the IowaCare program to replace federal funding at the MHIs, which
              is phased-down per the federal Terms and Conditions of the 1115 waiver, as well as
              increased enrollment and utilization, and replacing one-time funds from the Health
              Care Transformation Account.
           o $1,392,755 for increases in Field staff related to the enrollment growth.
           o $1,948,825 for increases in Medical Contract costs, including $1,323,833 million to
              replace one-time funding from the Pharmaceutical Settlement Account.
      ($4,328,615) in savings from reprioritized budget items (see below).
      ($558,331) in savings for Improved Results activities (see below).


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                                                                         401-HHS-003-Medical Services
Reprioritization
This offer includes a decrease of ($4,328,615) due to a reprioritization of program expenditures. These
savings initiatives include:

      A decrease of ($863,115) to implement a $1.50 surcharge for each claim submitted on paper rather
       than filing electronically. The surcharge would not apply to claims where electronic filing is not
       available. This would offset the higher cost to the State of processing paper claims. Electronic
       filing is not only less expensive to the state, but has tremendous benefits to providers. These
       benefits include faster claims payment (and average of 5.4 days electronically versus 13.0 days
       paper), and fewer claims processing errors. Furthermore, providers tell us, through the IME
       provider satisfaction surveys, that providers who file electronically are more satisfied than those
       who file on paper. While there is evidence to support providers using electronic filing, 23% of
       claims (excluding pharmacy) are still filed on paper. This initiative would reduce that number over
       time.
      A decrease of ($1,700,000) to include behavioral health drugs on the Preferred Drug List. This
       would allow the state to increase the collection of supplemental rebates. Behavioral health drug
       expenditures totaled $102,060,433 in state funds in FY 2007, which is 42.1% of the Medicaid drug
       budget. Although they are nearly half of the budget, Medicaid is currently prevented by state law
       from including them on the PDL. Behavioral health drugs are also very prone to “off-label” usage,
       which means being prescribed for a diagnosis that is not indicated for that drug, per the Federal
       Drug Administration. This package would also include new medically appropriate prior
       authorization standards to manage off-label usage. All medical criteria are determined by our Drug
       Utilization Review Committee, which is made up of community physicians and pharmacists.
      A decrease of ($425,500) to establish a process to collect supplemental rebates on diabetic supplies.
      A decrease of ($100,000) to reduce reimbursement for the drug product when that drug is
       administered in the physician’s office from Average Wholesale Price (AWP) minus 10% to AWP
       minus 12%. This would match physician reimbursement to the current reimbursement to
       pharmacists for the same products.
      A decrease of ($1,000,000) to bring reimbursement rates to Anesthesiologists to 100% of Medicare
       reimbursement rates. Currently, all other physicians are reimbursed at or below Medicare
       reimbursement rates, while Anesthesiologists are currently significantly above that level.
      A decrease of ($240,000) to create a new lower level of Targeted Case Management service for
       individuals when only one service is being coordinated.




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                                                                          401-HHS-003-Medical Services
Improved Results Activities
The Medical Services offer will improve the following results:
    Reduce expenditures in the area of pharmacy costs – ($3,800,000).
    Increase access to coverage by enrolling additional uninsured children - $3,241,669.

   Revise Pharmacy Operations to Introduce Cost Savings – savings ($3,800,000) – The IME
    currently has an active and engaging process for assuring that costs are controlled in the
    provision of prescription drugs. This process includes the participation of a Drug Utilization
    Review organization and a Pharmacy & Therapeutics Committee. These two organizations
    operate generally independent of the IME but with the focus on providing information to the
    Department that will allow Medicaid to provide pharmacy services that will meet the medical
    needs of members in the most cost effective manner. The IME proposes to change some of the
    pharmacy operational requirements so as to continue meeting medical necessity but to do so in
    the most cost conscience manner possible. The primary driver of the savings in this area is
    revisions to the State Maximum Allowable Cost (SMAC) – The State Maximum Allowable
    Cost list governs the maximum reimbursement for generic prescription drugs. These
    recommended changes would make the SMAC methodology more aggressive and closer to
    actual average cost for these drugs.

   Continue Expanding Medicaid Coverage to an Additional 25% of Estimated Uninsured
    Children - $3,241,669. This improved result continues the outreach activities begun in FY
    2008 to cover all uninsured children in Iowa. It is estimated that an additional 5,250 children
    could attain Medicaid eligibility. At a 75% take up rate, with incremental enrollment over 12
    months, it is estimated that 3,938 children would become eligible for Medicaid by the end of
    SFY ’09.

Offer Justification:
Legal Requirements:
Federal regulations require any state that operates a Medicaid program must include, at a minimum,
specific services for individuals who fit into defined categories. This requirement is found at 42
CFR 440.210 and notes that inpatient and outpatient hospital, physician, lab and x-ray, nursing
facility, physician services, nurse midwife and nurse practitioner services must be provided. In
addition, this requirement indicates attention to care for pregnant women. As noted in 42 CFR
440.220, a state plan such as that which Iowa maintains must also include coverage for medically
needy persons as well and includes home health services. Further, Iowa Code defines the services
and eligibility categories the Iowa Medicaid Program is required to cover. This offer maintains our
statutorily required services and populations.

Rationale:
All Iowans have access to Quality Care
In addition to the mandatory services described above, Iowa has elected to provide a myriad of
optional services, which complement and expand quality of care ultimately delivered to its most
vulnerable citizens. These include pharmacy, chiropractic, ambulance and dental services, among
others described in this offer. Covering these optional services not only avoids more expensive
medical interventions, it ensures that the 445,000 Iowans covered by Medicaid receive high quality,
comprehensive health care services.


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                                                                           401-HHS-003-Medical Services

The offer will:

   Provide low-income children, adults, including parents, the disabled, the elderly and pregnant
    women with timely access to appropriate quality medical care.
   Medicaid is a critical part of the State’s economy. It will bring in more than $1.9 billion dollars
    in SFY 2009 to Iowa from the federal government. To assess the full impact of these dollars on
    jobs and income and State tax revenues, one should also take into account the “multiplier” effect
    of these federal dollars. Also there are numerous Iowa communities where Medicaid is the
    largest third party payor for medical service providers who are key players in the local
    economy.
   Maintain the administrative infrastructure necessary to support a performance based, evidence
    driven system of quality acute, preventive and long-term care services.
   Help shift the balance from institutional long-term care to community based long-term care and
    from long term care generally to healthy aging by building a more informed membership.




                                              SFY07 Actual        SFY08             SFY09 Offer
Result:
                                                 Level        Projected Level          Level
Percentage of State long-term care               20.8%             23.3%                 25%
resources devoted to home and
community based care.

The IME strives to assure that members
are receiving services in their
communities whenever possible. The
funds spent for all long-term care is
compared to those spent for community
services.
Proportion of 15-month-old children with           *                40%                  42%
6 well-child visits.

HEDIS measures are used to describe
these and are gathered by the University
of Iowa Public Policy Center annually.
These are compared with national
standards and benchmarks are
determined that are noted as goals in this
document.
Proportion of children with a dental visit.        *                48%                  50%

See HEDIS Measure statement directly
above.




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                                                                           401-HHS-003-Medical Services

                                               SFY07 Actual        SFY08           SFY09 Offer
Result:
                                                  Level        Projected Level        Level
Proportion of persons with asthma where             *                80%               83%
appropriate medications are used.

See HEDIS Measure statement directly
above.
Proportion of women receiving prenatal               *              70%                 72.5%
care from the first trimester.

See HEDIS Measure statement directly
above.
Increase in State savings from pharmacy         $7.7 million     $8.5 million        $8.5 million
cost saving strategies

The IME manages the preferred drug list
that requires use of specific drugs that are
determined to be effective but less costly
to the state. Specific studies are also
performed and results used to educate
prescriptive providers.
Savings from utilization and care               $2.0 million     $3.0 million        $4.0 million
management strategies.

The Medical Services Unit reviews
requests for prior authorization to
determine medical necessity and
recommend alternatives. The denial and
changes are used to develop a savings
over what would have been spent without
such oversight.

Savings from surveillance and utilization          211%             350%                350%
review compared to contract cost.

This dedicated unit used nationally
accepted standards to search the claims
database and find instances where
payments may have been made
incorrectly. The amount of overpayment
recoveries is set by the contract with the
entity performing this function.
Increase over the prior year in revenue           16.53%            15%                  15%
collections from third parties.

The collections (including cost avoidance
measures) for 2007 were 10.25% higher
than the goal. Overall, the enhancement
of the goal from year to year as specified
in this contract would appear sound. The
contracted performance measure is 15%.


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                                                                       401-HHS-003-Medical Services

                                             SFY07 Actual       SFY08          SFY09 Offer
Result:
                                                Level       Projected Level       Level
Increase in State collections of               $500,000        $550,000          $600,000
overpayments.

SFY 2007 tabulations are not complete
but it is expected that this dollar amount
is achievable and the forthcoming years
should see the incremental increases
noted in these measures.
% increase in member satisfaction with           5%               5%                 5%
administration of Medicaid Program over
prior year, based on survey results

In SFY 2006 the survey established a
baseline. The Member Services Unit is
in the process of tabulating a more recent
survey of a statistically valid random
sampling of members to develop the
comparison. Over the life of the contract
the IME expects the positive rate to
increase by 5% each year.
% of members aware of Member                     50%             75%                 85%
Services

A survey is performed annually and asks
members about awareness for assistance
through Member Services. The increase
is an optimistic but achievable
demonstration of the effort to make
members aware of this helpline. The
2005 study performed by the PPC
indicated that 49% were aware of the
helpline. A more recent survey (2007)
has been performed but results are still
being tabulated. Efforts continue to
increase this awareness.
% increase in provider satisfaction with        7.44%             5%                 5%
Provider Services over prior year, based
on survey results

The aggregate score for provider
satisfaction in 2006 was 24.97. The
improvement for 2007 was 1.86 points
which is a 7.44% increase. The goal of
5% per year in incremental improvement
is appropriate.




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                                                                            401-HHS-003-Medical Services

                                            SFY07 Actual           SFY08             SFY09 Offer
Result:
                                               Level           Projected Level          Level
% of clean claims accurately paid or           99%                  99%                 99%
denied on time.

The federal requirement is for 90% of
clean claims to be paid in 30 days and
100% in 90 days. The IME currently
shows that the average payment delay for
a clean claim is less than 10 days. The
99% is simply because no system can be
perfect with 16 million claims per year
being processed. However, the measure
remains valid and consistent with federal
regulations.
*HEDIS data reports only available for SFY 2006. Actual HEDIS data cannot be utilized until
claims data has been finalized and that is generally determined by the Public Policy Center (PPC)
as 24 months following the fiscal year. The SFY 2007 and subsequent year goals are taken from
the PPC report and recommendations for future year goals. HEDIS data for SFY 2006 for these
measures is as follows:
Proportion of 15 month old children with 6 well-child visits: 38.2%
Proportion of children with a dental visit: 45%
Proportion of persons with asthma where appropriate medications are used: 80%
Proportion of women receiving prenatal care in the first trimester: 68.6%


These results assume the level of funding requested in the offer in all appropriations as well as full
funding of salary adjustment. If funding is insufficient in either area, results to be achieved will be
modified to reflect the impact.




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