Doctors to feel squeeze of Medicaid budget shortfalls

Eligibility and benefits are also on the chopping block unless the federal government increases funding.

By Joel B. Finkelstein, AMNews staff. Jan. 27, 2003.

Washington -- Budget shortfalls in state Medicaid programs may hit doctors first.

States, struggling to save money, are expected to reduce Medicaid payments for physicians and others before cutting eligibility or covered services.

"The problem is that given the options that states confront in tight fiscal times, payment rates are the easiest, fastest things to shift," said David Parrella, chair of the National Assn. of State Medicaid Directors. State officials like the approach because Medicaid enrollees would get to stay in the program, and payments could be increased as soon as the economy turns around, he explained.

So far, 37 states have plans to freeze or reduce payment rates this year, according to a recent survey by the Kaiser Commission on Medicaid and the Uninsured. Because this was a preliminary report, the authors could not yet say how health care professionals and institutions would be affected in each state.

Prescription drug costs, the fastest growing sector of health spending, and hospitals, the largest sector of health spending, are also targets for state budget cutters.

"Virtually every state is focused on ways to reduce medical spending," said Vernon K. Smith, PhD, a principal with Health Management Associates, which helped conduct the survey. Forty states predict budget problems this year, he added.

States will likely try to cut a little bit from a lot of places, said John Holahan, PhD, director of the Health Policy Research Center at the Urban Institute.