Last week the New York Times reported on the Kaiser Family Foundation study that showed Medicaid spending in the US has slowed.  Spending growth slowed to only 2% in the fiscal year that ended in June and it is expected to be in the 3% range this year.  This was helped by both slower enrollment and cost containment measures.  By comparison, enrollment two years ago grew at 7%.  Medicaid currently serves over 60 million people or roughly 20% of the population with about 9 million being dual eligibles, those who qualify for both Medicaid and Medicare.  As the report indicates this could merely be the calm before the storm as enrollment should explode with the full implementation of the Affordable Care Act in 2014 when millions of uninsured come into the system.  It is important to look at what is going on as it appears to have both positive and negative aspects and is a real challenge for our industry.

The major stimulus for this slowdown has been the federal government cutting back on the extra funds they were giving states and this forced some significant belt tightening.  The report says that 45 states froze or cut back reimbursement and 18 actually cut benefits.  This is all good only if the quality of care is not being compromised.  Qualifying for Medicaid is not that easy and the people covered are truly in need.  Those who don’t qualify get their care in emergency rooms where the cost shifting paradigm is ridiculous.  As the politicians have been pointing out this year much of the cost of Medicaid is directed to the poor elderly who have “spent down” all their assets and rely on the program for nursing home care. The cost saving measures really need to be carefully monitored.

On the more positive side most of the states implemented significant programs to help coordinate care for patients with chronic expensive problems to both improve care and control costs.  Perhaps another bit of good news might be that the 5 million new jobs reported by the Department of Labor over the last 3 years may have contributed to the slow growth in enrollment.  Importantly, the belt tightening may have forced the system to examine and eliminate waste while maintaining what is important for quality care.  If so, this could provide a model for accountable care organizations and others working to make the entire healthcare system more efficient.

In the pharmaceutical industry we know where much of this cost control effort has been directed.  Drug budgets have been slashed and it is very difficult to get new products on Medicaid formularies.  This should be a concern for both the states and the pharmaceutical companies.  By not having drug access even similar to Medicare, another government program, the states are limiting options that could provide better care today and potentially limit huge costs down the road.  It might be a little short sighted on their part.  For companies the concern is that up to 20% of the population is excluded from using the industry’s newer therapies.  Something should be worked out.

In so many ways I think this might be one of the most important challenges for our industry today.  Companies are setting up huge divisions and investing significant resources going after emerging markets outside the US.  This is good, but why not the same effort to go after the Medicaid market in our country?  What would be different if companies dedicated 20% of their people, their thinking and their budgets trying to market to the 20% of population on Medicaid?  I think there could be some compromise where the patients, the states and the industry all win.