Reducing the Cost of Medicaid: A Multistate Simulation

Abstract

According to some estimates, the United States wastes as much as 30% of health care dollars. Some of that waste can be mitigated by reducing certain costs associated with Medicaid. We chose 5 areas of savings applicable to Medicaid: (1) modification of physician payment models to reduce unnecessary care, (2) development of a medication adherence program for patients dually eligible for Medicaid and Medicare support (“dual eligibles”), (3) improvement in unnecessary admissions and readmissions for dual eligibles, (4) reduction in emergency department visits among children in Medicaid and dual-eligible beneficiaries, and (5) improvement in adoption of end-of-life advance directives. We chose the states from both ends of the spending spectrum: the 5 with the lowest annual Medicaid expenditures: Wyoming, South Dakota, Montana, Vermont, and Alaska, and those with the highest: California, New York, Texas, Pennsylvania, and Florida. This spectrum demonstrates the range of potential cost-saving measures, from US $23.6 million in Wyoming to US $3.4 billion in California. We conclude that there are a number of ways to reduce Medicaid spending and improve quality. To the extent that states have already adopted programs addressing the same problems, our approach may be supplementary but the total savings may be achieved with a combination of current initiative and those described here. As Medicaid creates savings, physician payment could be increased to attract more physicians into caring for Medicaid patients.

Introduction

According to the Institute of Medicine, 30% of dollars spent on health care is waste in the American medical system. ¹ Berwick and Hackbarth ² conducted additional analysis and placed a midpoint estimate of waste at 34% of national health spending. Although Medicaid programs operate with extremely low margins, and prospective savings will not approach 30%, savings are possible. Medicaid in the state of Texas, for example, represents just over 30% of the state budget and covers 4.4 million people. In 2016, Texas spent US $18 billion on Medicaid; with the Federal Medical Assistance Percentage (FMAP) at 57.13%, the federal government paid US $20.5 billion, for the total state + federal shares at US $38.5 billion. ³ Even with only a 5% reduction, annual savings could equal well over US $1 billion, which could be used to improve care and potentially redistribute funding to chronically underfunded areas, such as payments to physicians. In Alaska, where the FMAP is 50%, the total spending on Medicaid (including state and federal contributions) in 2016 was US $1.42 billion ³ ; Alaska’s portion of this payment is $710 million. Applying a 5% savings would yield US $35.5 million for other state programs and priorities.

This article adds to current work on Medicaid reform by exploring specific pathways to find and estimate savings that, at the same time, maintain or improve quality of care. These results should be applicable to Medicaid programs across the states, as well as to other parts of the US health care system. We use the “Wedges Model” for examining proposed reductions in health care spending, a framework Berwick and Hackbarth ² refined to examine a variety of cost-saving initiatives to target wasteful spending in key areas such as failures in care coordination/delivery and overtreatment. The key areas identified in the Wedges Model led us to identify 5 approaches to savings, which could contribute to stabilizing health care spending through streamlining and strengthening care coordination and minimizing unnecessary treatment. The innovative initiatives highlighted are adaptable, relatively low-cost investments, yielding meaningful savings to Medicaid. The programs also aid vulnerable and costly health care populations. The proposed initiatives, applied to the 10-state sample to represent the full range of potential cost savings, include reduction in unnecessary care, improved medication adherence in dual-eligible beneficiaries, improved care for dual-eligible beneficiaries to reduce hospital readmissions, reduction in emergency department (ED) visits among children in Medicaid and dual-eligible beneficiaries, and improved coordination for end-of-life care.

Pathways to Savings

Health workforce initiatives

To reduce overutilization of EDs

The overuse of EDs is a large drain of health care dollars. Routine care provided in an ED setting can be 2 to 5 times more expensive than the same care provided in an alternate setting such as an urgent care clinic. ⁴ A Health Partners study discovered charges for treating strep throat in the ED to be US $328, US $130 at an urgent care center, and US $122 in a primary care office. ⁵ Clearly, based on these figures, it is critical to find ways to treat as many patients as possible outside of an ED due to the 261% price premium that ED care costs.

Massachusetts conducted an in-depth analysis of their ED usage and the emergent status of patient’s health when visiting the ED. Of all ED visits, 42% were classified as avoidable. ⁶ If we extrapolated this percentage to California, this would translate to 5 749 000 avoidable ED visits per year, and in South Dakota, this percentage would translate to 114 000 annual avoidable ED visits. ⁷ The Massachusetts report also highlighted disparities between incomes: the residents in the lowest income quartile, after adjusting for age and sex, had greater than 3 times the avoidable ED rate than residents in the highest income quartile. The lowest income quartile would represent uninsured and Medicaid populations.

The most beneficial program to reduce ED usage is one that prevents unnecessary trips to the ED. This can involve enhancing programs such as “Grand-Aides” to assist patients in health care management and reduce their perceived need for ED treatment. Grand-Aides are nurse aides who are closely supervised by nurses and foster relationships with patients and family with the goal of appropriate use of the ED. Calculations indicate Grand-Aides could potentially reduce Medicaid ED visits by 74% in Medicaid children and patients dually eligible for Medicaid and Medicare support (“dual eligibles”). ⁸

To improve medication adherence among dual eligibles

About 50% of patients with chronic diseases take their medications appropriately. ⁹ Medication nonadherence among the other 50% generates a significant cost burden. Dual eligibles represent 15% of the national Medicaid population but require 33% of Medicaid spending. ¹⁰ This high level of spending can be partially attributed to the dual-eligible population’s vulnerability and complicated chronic health conditions. Significantly, the Grand-Aides program has achieved a 91% medication adherence in patients with heart failure 1 month after discharge. ¹¹

To reduce avoidable hospitalization among dual eligibles

Dual-eligible beneficiaries are at a higher risk for potentially avoidable hospitalizations—admissions and readmissions. Among hospital visits in this population, just over one quarter (26%) of hospitalizations have been determined to be unnecessary, many due to readmissions. ¹² The Grand-Aides program is one initiative achieving the aim of reducing readmissions with a demonstrated ability to reduce hospital readmissions by 58%. ¹¹

Payment Initiatives

To reduce unnecessary care

Most physicians are still predominately paid on a fee-for-service (FFS) basis. Medicaid programs could propose new payment methods. For physicians who are already part of hospital systems or Accountable Care Organizations (ACOs) it would be reasonable to convert to a salaried system (at their current yearly income), with a relatively modest bonus (ie, 5%-10%) for quality. Physician income does not need to decrease with these changes. As Medicaid generates savings in this and other areas, physician payment should increase to attract more physicians into caring for Medicaid patients. Salary + bonus would be the dominant method of payment. For physicians not in systems, Medicaid could test the resultant effect on patient care of paying a certain amount per patient with a bonus for quality. It could also change to FFS payment with not only incentives for quality but also disincentives for doing what physicians’ own specialty societies determine in their guidelines to be unnecessary or harmful. The Centers for Medicare and Medicaid Services (CMS) has announced that by the end of 2018, more than half of Medicare dollars will be paid via alternative payment models that focus on reducing the negative incentives associated with paying physicians based on FFS. Of note, the health care systems in the United States that are routinely ranked the highest for quality (eg, Mayo Clinic, Cleveland Clinic, and Kaiser Permanente) have salaried physicians, some with and some without a bonus. Such systems have demonstrated savings between 20% and 46% due to a decrease in tests ordered and procedures performed.^13,14 For the purposes of this analysis, we assume 15% savings.

Advance directives

To improve end-of-life care

Approximately US $205 billion is spent in the United States on patients in the last year of life or 13% of the annual total spending on health care. ¹⁵ A number of strategies are incorporated to improve the quality of a person’s last days. These approaches must be exquisitely sensitive to improving the quality of life of the patient and loved ones address the mislabeled “death panels” from the past. The most successful approach involves recording the wishes of the individual patient and family, broadly called “advance directives,” which fall into 3 categories: living wills, power of attorney and health care proxy. One calculation places the savings through advance directives at US $5585 per patient. ¹⁶ This figure was the most recent study reported from a 2016 systematic review of advanced care planning cost savings. Estimates in the review varied widely from US $1041 to US $64 830 per patient, based on the length of the study and the method for measuring cost. ¹⁷

These savings are realized by reduced usage of EDs and reductions of extraordinary life-saving measures while honoring the patient’s and their family’s wishes. Only 65% of nursing home patients have an advance directive. ¹⁸ There is a great opportunity, as up to 90% of nursing home patients and families will complete advanced directives if a physician initiates the discussion. ¹⁹ The percentage of patients aged 65 and older with recorded advance care plans or surrogate decision makers designated in their medical records is a quality communication and care coordination process measure in the Merit-Based Incentive Payment System for many disciplines.

Methods

Using Urban Institute calculations as of January 2017, based on CMS Form 64, the 5 lowest total Medicaid expenditure states (Wyoming, South Dakota, Montana, Vermont, and Alaska) and the 5 highest Medicaid expenditure states (Florida, Pennsylvania, Texas, New York, and California), were selected for evaluation. Note that North Dakota and Idaho were likely among the lowest Medicaid expenditure states, but they did not have complete reporting to generate adequate data for equal comparisons; therefore, these states were not used in this analysis. Enrollment figures for Medicaid, full dual-eligible beneficiaries, and children enrolled in Medicaid were obtained from the December 2016 MACPAC Databook for various calculations. ²⁰ The FY17 FMAP was applied to reflect the state share of Medicaid savings. Each approach to savings was applied to the 10-state sample to evaluate potential cost savings. If all programs are implemented, the total financial benefit to states ranges from US $11.8 million in Wyoming to US $1.7 billion in California (Table 1).

Table 1.

Overall proposed cost savings.

	5 states with lowest Medicaid expenditures					5 states with highest Medicaid expenditures
	WY, US $	SD, US $	MT, US $	VT, US $	AK, US $	FL, US $	PA, US $	TX, US $	NY, US $	CA, US $
Salaried physicians for reduction in unnecessary care	6 858 000	10 043 000	14 245 000	373 000	24 337 000	69 995 000	12 053 000	67 414 000	95 008 000	166 213 000
Dual-eligible medication adherence program	10 499 000	20 998 000	25 498 000	43 492 000	22 498 000	602 945 000	577 447 000	673 438 000	1 133 896 000	2 078 809 000
End-of-life coordination of care	2 052 000	4 105 000	4 985 000	8 500 000	4 398 000	117 871 000	112 887 000	131 652 000	221 669 000	406 393 000
Reduction in avoidable dual-eligible hospital readmissions	3 453 000	6 914 000	8 397 000	14 313 000	7 406 000	198 485 000	190 094 000	221 689 000	373 275 000	684 338 000
Emergency department visit reduction	818 000	1 273 000	1 380 000	1 587 000	1 270 000	35 378 000	23 154 000	49 099 000	45 760 000	84 075 000
Total cost savings to Medicaid	23 680 000	43 333 000	54 505 000	68 265 000	59 909 000	1 024 674 000	915 635 000	1 143 292 000	1 869 608 000	3 419 828 000

Abbreviations: AK, Alaska; CA, California; FL, Florida; MT, Montana; NY, New York; PA, Pennsylvania; SD, South Dakota; TX, Texas; VT, Vermont; WY, Wyoming.

Results

This research explored the states from both ends of the spending spectrum: the 5 with the lowest annual Medicaid expenditures—Wyoming, South Dakota, Montana, Vermont, and Alaska—and those with the highest—California, New York, Texas, Pennsylvania, and Florida. This spectrum demonstrates the range of potential cost-saving measures, from US $23.6 million in Wyoming to US $3.4 billion in California.

Reduction in Overutilization of EDs

Using a statistic of 24.8% of Medicaid children ²¹ and 44% of dual-eligible beneficiaries, ²² ED visits are calculated for each state for these populations. Next, 50% of the maximum possible reduction from the Grand-Aides program is applied, which is a 37% reduction. The savings applied include the cost of the Grand-Aides program. If the Grand-Aides program were implemented to assist these key populations (assuming 50% of the possible benefit = 37% reduction), it could result in Medicaid savings of US $243 million in this 10-state sample, with state savings ranging from US $409 000 in Wyoming to US $42 million in California (Table 2).

Table 2.

Savings calculations for reduction in emergency department use for children and dual eligibles in Medicaid.

	5 states with lowest Medicaid expenditures					5 states with highest Medicaid expenditures
	WY	SD	MT	VT	AK	FL	PA	TX	NY	CA
Total Medicaid Pop (FY13, average monthly enrollment), n	68 000	107 000	114 000	170 000	111 000	3 386 000	2 159 000	4 081 000	5 115 000	9 307 000
Children as % of Medicaid population	65	59	57	34	55	51	42	63	35	36
Children on Medicaid, n	44 000	63 000	65 000	58 000	61 000	1 727 000	914 000	2 590 000	1 815 000	3 340 000
Average ED use for Medicaid children 24.8%, n	10 912	15 624	16 120	14 384	15 128	428 296	226 672	642 320	450 120	828 320
Grand-Aides reduces ED visits by 37% (assume 50% of opportunity of 74%), n	4037	5780	5964	5322	5597	158 469	83 868	237 658	166 544	306 478
Grand-Aides US $158 savings per ED visit, including cost of program, US $	637 846	913 240	942 312	840 876	884 326	25 038 102	13 251 144	37 549 964	26 313 952	48 423 524
Dual-eligible population, n	7000	14 000	17 000	29 000	15 000	402 000	385 000	449 000	756 000	1 386 000
Average ED usage for dual-eligible population 44%, n	3080	6160	7480	12 760	6600	176 880	169 400	197 560	332 640	609 840
Grand-Aides reduces ED visits by 37% (assume 50% of opportunity of 74%), n	1139	2279	2767	4721	2442	65 445	62 678	73 097	123 076	225 640
Grand-Aides US $158 savings per ED visit, US $	180 057	360 113	437 280	745 918	385 836	10 340 310	9 903 124	11 549 357	19 446 134	35 651 246
Total Medicaid savings through reduction in ED visits, US $	817 903	1 273 353	1 379 592	1 586 794	1 270 162	35 378 412	23 154 268	49 099 321	45 760 086	84 074 770
State share, %	50	45	34	45.54	50	38.9	48	43.82	50	50
State savings, US $	408 951	573 772	475 131	722 625	635 081	13 762 202	11 164 988	21 515 322	22 880 043	42 037 385

Abbreviations: AK, Alaska; CA, California; FL, Florida; MT, Montana; NY, New York; PA, Pennsylvania; SD, South Dakota; TX, Texas; VT, Vermont; WY, Wyoming.

Data obtained from Garson et al ⁸ ; MACPAC ²⁰ ; Cubanski et al ²² ; and Gindi and Jones. ²¹

Improved Medication Adherence

Improved adherence was calculated from 50% to 75% for 4 chronic conditions: hypertension, diabetes, heart failure, and dyslipidemia. ²³ State populations for each chronic condition were estimated using data from the CMS Chronic Conditions Chartbook. ²⁴ Assuming that 50% of patients take their medication appropriately, an improvement to 75% adherence would produce savings displayed in Table 3. These significant savings also incorporate increased drug cost as a result of drug adherence. Importantly, those expenses are offset due to overall reductions in health care expenditures for costly services such as ED visits, hospital admissions, additional diagnostic testing, and increased pharmacy expenses related to treatment. For patients with hypertension, potential savings in the 10-state sample equal US $2 billion; for heart failure, total savings equal US $1.55 billion; for diabetes, US $1.17 billion; and for dyslipidemia, US $260 million. The potential cost savings for state Medicaid range from US $5.2 million in Wyoming to US $1 billion in California.

Table 3.

Savings calculations for improvement in drug adherence by dual eligibles, by disease category.

	5 states with lowest Medicaid expenditures					5 states with highest Medicaid expenditures
	WY	SD	MT	VT	AK	FL	PA	TX	NY	CA
Total dual-eligible population	7000	14 000	17 000	29 000	15 000	402 000	385 000	449 000	756 000	1 386 000
Hypertension
60% of pop, n	4200	8400	10 200	17 400	9000	241 200	231 000	269 400	453 600	831 600
50% nonadherence, n	2100	4200	5100	8700	4500	120 600	115 500	134 700	226 800	415 800
Savings with 75% adherence at US $3908/patient, US $	4 103 400	8 206 800	9 965 400	16 999 800	8 793 000	235 652 400	225 687 000	263 203 800	443 167 200	812 473 200
Heart failure
23% of pop, n	1610	3220	3910	6670	3450	92 460	88 550	103 270	173 880	318 780
50% nonadherence, n	805	1610	1955	3335	1725	46 230	44 275	51 635	86 940	159 390
Savings with 75% adherence at US $7823 per patient, US $	3 148 757	6 297 515	7 646 982	13 040 941	6 747 337	180 828 645	173 181 662	201 970 302	340 065 810	623 453 985
Diabetes
36% of pop, n	2520	5040	6120	10 440	5400	144 720	138 600	161 640	272 160	498 960
50% nonadherence, n	1260	2520	3060	5220	2700	72 360	69 300	80 820	136 080	249 480
Savings with 75% adherence at US $3756 per patient, US $	2 366 280	4 732 560	5 746 680	9 803 160	5 070 600	135 892 080	130 145 400	151 779 960	255 558 240	468 523 440
Dyslipidemia
40% of pop, n	2800	5600	6800	11 600	6000	160 800	154 000	179 600	302 400	554 400
50% nonadherence, n	1400	2800	3400	5800	3000	80 400	77 000	89 800	151 200	277 200
Savings with 75% adherence at US $1258 per patient, US $	800 600	1 761 200	2 138 600	3 648 200	1 887 000	50 571 600	48 433 000	56 484 200	95 104 800	174 358 800
Total savings	10 499 037	20 998 075	25 497 662	43 492 101	22 497 937	602 944 725	577 447 062	673 438 262	1 133 896 050	2 078 809 425
State share, %	50	45.06	34.44	45.54	50	38.9	48.22	43.82	50	50
State savings—FMAP 2017 contributions applied, US $	5 249 519	9 461 733	8 781 395	19 806 302	11 248 969	234 545 498	278 444 973	295 100 646	566 948 025	1 039 404 712

Abbreviations: AK, Alaska; CA, California; FL, Florida; MT, Montana; NY, New York; PA, Pennsylvania; SD, South Dakota; TX, Texas; VT, Vermont; WY, Wyoming.

Data drawn from Roebuck et al ²³ and Centers for Medicare and Medicaid Services. ²⁴

Reduction in Avoidable Hospitalizations

Assuming the Grand-Aides program would achieve 50% reduction in hospital admissions, and calculating the cost of a readmission based on US $15,435, ²⁵ the net savings to the Medicaid program could range from US $3.4 million in Wyoming to US $684 million in California, including the expense of operating the Grand-Aides program (Table 4). ²⁶ ]

Table 4.

Savings calculations for reduction in hospital readmission costs for dual eligibles.

	5 states with lowest Medicaid expenditures					5 states with highest Medicaid expenditures
	WY	SD	MT	VT	AK	FL	PA	TX	NY	CA
Full dual-eligible population, n	7000	14 000	17 000	29 000	15 000	402 000	385 000	449 000	756 000	1 386 000
Dual-eligible hospitalization (27%), n	1890	3780	4590	7830	4050	108 540	103 950	121 230	204 120	374 220
Avoidable hospitalizations (26%), n	491	983	1193	2035	1053	28 220	27 027	31 519	53 071	97 297
Expense to Medicaid calculated at US $15 667 per readmission, US $	7 692 497	15 400 661	18 702 661	31 882 345	16 497 351	442 122 740	423 432 009	493 808 173	831 463 357	1 524 352 099
Grand-Aides could reduce readmissions by 50%, US $	3 846 248	7 700 330	9 351 330	15 941 172	8 248 675	221 061 370	211 716 004	246 904 086	415 731 678	762 176 049
Grand-Aides cost US $800 per individual per year, applied to 26% preventable hospital population, US $	392 800	786 400	954 400	1 628 000	842 400	22 576 000	21 621 600	25 215 200	42 456 800	77 837 600
Calculated Medicaid savings, US $	3 453 448	6 913 930	8 396 930	14 313 172	7 406 275	198 485 370	190 094 404	221 688 886	373 274 878	684 338 449
State share, %	50	45.06	34.44	45.54	50	38.9	48.22	43.82	50	50
State savings, US $	1 726 724	3 116 799	2 891 902	6 518 218	3 703 137	77 210 808	91 663 521	97 144 069	186 637 439	342 169 224

Abbreviations: AK, Alaska; CA, California; FL, Florida; MT, Montana; NY, New York; PA, Pennsylvania; SD, South Dakota; TX, Texas; VT, Vermont; WY, Wyoming.

Data drawn from Segal ¹² ; Garson ²⁶ ; and Fitch et al. ²⁵

Reduction in Unnecessary Procedures

Assuming that paying physicians a salary plus bonus could result in a 15% reduction in tests and procedures; in the 10-state sample (based on the 2016 Medicaid expenditure data), ²⁷ these measures result in state savings ranging from US $3.4 million in Wyoming to US $83.1 million in California (Table 5). Vermont classifies most of the Medicaid expenditures as “other services” so the state savings for this innovation are small, US $170 000.

Table 5.

Savings calculations for reduction in unnecessary care with salaried physicians.

	5 states with lowest Medicaid expenditures					5 states with highest Medicaid expenditures
	WY, US $	SD, US $	MT, US $	VT, US $	AK, US $	FL, US $	PA, US $	TX, US $	NY, US $	CA, US $
Medicaid physician, lab, and X-ray, US $	45 722 882	66 956 387	94 969 409	2 488 213	162 246 654	466 630 080	80 351 103	449 423 819	633 387 993	1 108 088 171
15% savings	6 858 432	10 043 458	14 245 411	373 232	24 336 998	69 994 512	12 052 665	67 413 572	95 008 198	166 213 225
State share, %	50	45.06	34.44	45.54	50	38.9	48.22	43.82	50	50
State savings, US $	3 429 216	4 525 582	4 906 119	170 011	12 168 499	27 227 865	5 811 795	29 540 627	47 504 099	83 106 612

Abbreviations: AK, Alaska; CA, California; FL, Florida; MT, Montana; NY, New York; PA, Pennsylvania; SD, South Dakota; TX, Texas; VT, Vermont; WY, Wyoming.

Data obtained from KFF as of January 2017, The structure of Vermont’s Medicaid program formulates most of the state’s Medicaid expenditures in the category of “Other Services.”

Improved End-of-Life Care

About 21% of dual-eligible beneficiaries are in long-term services and supportive living according to the 2017 MedPAC Databook. ¹⁰ End-of-life care cost savings were estimated for each state by applying a 25% increase in advance directives among this population with the estimated saving of US $5585 per directive. This results in state savings ranging from US $1 million in Wyoming to US $203 million in California (Table 6).

Table 6.

Savings calculations for coordination of end-of-life care.

	5 states with lowest Medicaid expenditures					5 states with highest Medicaid expenditures
	WY	SD	MT	VT	AK	FL	PA	TX	NY	CA
Full dual-eligible population, n	7000	14 000	17 000	29 000	15 000	402 000	385 000	449 000	756 000	1 386 000
21% in long-term services and support, n	1470	2940	3570	6090	3150	84 420	80 850	94 290	158 760	291 060
With 25% increase in advance directives at US $5585 per patient, US $	2 052 487	4 104 975	4 984 612	8 500 370	4 398 187	117 871 425	112 886 812	131 652 412	221 668 650	406 392 525
State share, %	50	45.06	34.44	45.54	50	38.9	48.22	43.82	50	50
State savings, US $	1 026 243	1 849 701	1 714 706	3 871 068	2 199 093	45 851 984	54 434 020	57 690 086	110 834 325	203 196 262

Abbreviations: AK, Alaska; CA, California; FL, Florida; ID, Idaho; MT, Montana; NY, New York; PA, Pennsylvania; SD, South Dakota; TX, Texas; VT, Vermont; WY, Wyoming.

Data obtained from Nicholas et al ¹⁶ and The Medicare Payment Advisory Commission and the Medicaid and CHIP Payment and Access Commission. ¹⁰

Discussion and Conclusions

Several caveats are important related to the estimated improved adherence calculations: first, the savings are in the short term (ie, hospital admissions over several years) and do not take into account the cost of future disease if the current disease is well-controlled (eg, hypertension is well-controlled and a stroke is avoided, only to have the patient get cancer). Second, there is clear overlap in the patient diagnoses (ie, many patients with diabetes have heart disease). Improvement (and medication adherence) in one of these diagnoses will likely have a positive effect on the other diseases in the patient and therefore these are, again, maximal numbers. Personal reinforcement and teaching are among the most promising approaches to improving medication adherence, as the American Diabetes Association recognizes and recommends. ²⁸ Programs such as Grand-Aides with a 91% medication adherence could be extremely beneficial.

Physician Payments

Although combining alternative physician payment models are the basis for part of Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), it is unwieldy. In addition, there will be added expenses as managed care companies and physicians switch to a value-based payment system because the data infrastructure to track these metrics must be in place. These expenses must be netted against potential savings (ie, paid to systems and physicians) as the requirements for financial outlays are real. This issue should be addressed through more sophisticated and interoperable Electronic Health Record (EHR) systems, which are, unfortunately, likely a decade away.

An alternative method to reduce unnecessary care would be to examine the 20 most expensive procedures and tests (because of high volume, high price, or both) and compare the indications for the tests or procedures reported by the ordering physician to national guidelines produced by the physician’s specialty society. A recent such analysis revealed that 34% of echocardiograms performed on preoperative patients were unnecessary and were outside the recommended practice guidelines. ²⁹ We are recommending the physician payment change because it could be achieved more simply (eg, the MACRA regulations could provide an incentive for programs in which at least 50% of their physicians are salaried).

These estimates do not take into account existing state programs that could have already achieved some of the savings. The program overlap poses a significant limitation (ie, the same savings may be attributed to more than one program), as well. The data are likely to be correct within an order of magnitude; rather than focusing on the exact amounts, we suggest that “large (say, 10%), medium (5%) and small (2.5%)” be attached to the possible program savings and be made available as a potential supplement to the cost-saving work already being done by the state Medicaid programs.

We have examined a number of possible approaches to reducing the expense of Medicaid. These savings should remain in the Medicaid program and, for example, help to cover more people and increase physician reimbursement. Increased reimbursements will enhance the number of physicians seeing Medicaid patients, thus improving access for the underserved. If all programs are implemented, the total financial benefit to states ranges from US $11.8 million in Wyoming to US $1.7 billion in California, as illustrated in Table 1. These 5 initiatives also could be applied to commercially insured patients or those covered by Medicare, resulting in major savings across the United States. Realizing these savings in achievable ways suggested in this article could make a major dent in the rising cost of health care.