Options for Medicaid Cost Containment
January 2003

FOLLOW-UP (PDF)     REPORT (PDF)     SUMMARY (PDF)

Due to continuing concerns about the growth in Medicaid expenditures and number of recipients, members of the General Assembly requested that we review the South Carolina Medicaid program. This is our third recent Medicaid report. Two LAC reports published in 2001 focused on fraud and abuse, prescription drug costs, state funding, managed care, premium payments, and the eligibility determination contract with the Department of Social Services.

The audit requesters were primarily concerned with identifying ways to reduce the cost of the Medicaid program without reducing services. We reviewed Medicaid enrollment and how the Department of Health and Human Services (DHHS) ensures that only eligible people receive Medicaid and that the recipients use those benefits appropriately. We also looked at strategies that the department can use to improve the cost-effectiveness of the Medicaid program including a state preferred prescription drug list, a focus on community long term care, recipient cost sharing, estate recovery, and debt collection.

In South Carolina, Medicaid is a $3.6 billion program, with the federal government paying approximately 69%. In FY 01-02, DHHS spent about $480 million in state general funds. From FY 99-00 through FY 01-02, total Medicaid expenditures increased 25% for an average of 12% or $360 million a year. During the same period, general fund revenues in the state decreased 1.53%. The growth in Medicaid is also tied to the growth in private health care spending, and states cannot control health care costs on their own. However, strategies that can slow the rate of growth by 2% to 3% can result in millions of dollars of savings.

Our findings include the following:

• DHHS could improve the application process to better verify if a Medicaid applicant has private health insurance. There is only one question about private health insurance included in the Medicaid application. The department also needs to ensure that the Medicaid eligibility quality assurance division and its reviews are used to strengthen the eligibility determination process.
• The Medicaid program has experienced rapid growth in two eligibility categories — low income families and transitional Medicaid for former welfare recipients. In order to restrict enrollment in these groups, DHHS could limit income disregards, conduct more frequent eligibility reviews, and eliminate the second year of transitional Medicaid, which is not required by federal law. DHHS is already taking steps to implement these changes.
• DHHS should improve its process for identifying cases of recipient fraud. While prescription drugs are a common area for recipient fraud, the DHHS pharmacy division does not routinely share information from its point-of-sale system that would help the program integrity unit to identify cases of recipient and provider fraud.
• The S.C. Medicaid program includes several groups that are not required by federal law to be covered. However, eliminating coverage for these individuals would most likely result in severe consequences for them as well as for the state and the health care market in general.
• DHHS has slowed the growth in prescription drug expenditures to an increase of only one-third of one percent in FY 01-02. However, it could further reduce costs by implementing a state preferred drug list similar to that used by the state of Michigan. In November 2002, DHHS began the process to amend the State Medicaid Plan and request federal permission to allow for a state preferred drug list.
• Only six of the top 50 drugs used in the S.C. Medicaid program require prior approval from DHHS. One drug in particular, OxyContin, a narcotic pain reliever, should be placed on the prior approval list.
• In order to control the costs for long term care, DHHS will need to shift its focus from nursing homes to home and community-based care (CLTC). Nursing home care for Medicaid recipients costs more than twice as much as care in a home or community-based setting. However, there is a waiting list of 3,600 for the CLTC program, and current policy and funding trends favor nursing home care.
• DHHS does not take full advantage of federal options for cost-sharing by Medicaid recipients. These could include charging an enrollment fee for some Medicaid recipients and a co-payment on optional services and hospital admissions.
• DHHS does not use all available methods to collect from the estates of persons who have received Medicaid services. State law limits estate recovery only for CLTC and nursing home services. DHHS should also expand its estate recovery efforts to include placing liens on real property and expanding the definition of estate.
• DHHS could improve its success in collecting unpaid debts from Medicaid providers and recipients by using the S.C. Department of Revenue to collect debts. DHHS needs to adjust its information system to allow regular debt payments to be deducted from providers’ reimbursement checks.