The Medicaid program, which operates as a joint Federal-State entitlement program, is the third largest source of health insurance in the U.S. after employer-based coverage and the Medicare program. The Medicaid program pays for a broad range of services for certain groups of low-income persons. These groups are disabled children and adults, the elderly, pregnant women and single parents. Total (Federal and State) expenditures in 1999 were $190 billion with the Federal government contributing about 57% and States 42% of the total. There are approximately 41 million beneficiaries in the program including 41% of all children now born in this country and more than half of Americans with AIDS. Managed care has become the major delivery/payment system in the Medicaid program. In 1998 53% of Medicaid beneficiaries were enrolled in a managed care plan, five times more than in 1991.
States are given considerable discretion and control to run their Medicaid program within broad Federal guidelines. States are given a great deal of flexibility in developing their program eligibility criteria, in designing their benefit packages and in determining how much to pay for covered services. Therefore, across the country the Medicaid program consists of 50 unique programs with considerable state-to-state variation.
The fact is that there has been little Federal guidance on the procedure codes that Medicaid providers should use on claim forms to enable the State Medicaid agency to process and pay claims for services provided to Medicaid patients. Neither the Medicaid statute (Title 19 of the Social Security Act) nor Federal Medicaid regulations specify what procedure codes are to be used. It has been longstanding Federal policy that States are to use the HCFA Common Procedure Coding System (HCPCS) codes for these transactions and updates of the codes are sent annually to the States. But Level III of the HCPCS coding system allows for the use of local codes and we, at the Federal level, have allowed and, at times, encouraged States to create local codes to meet their own unique needs.
As a result, today most State Medicaid programs use their own State developed codes to identify many of the services for which they pay. We have heard estimates that 40-50% of all State Medicaid “fee-for-service” transactions use local procedure codes and we know that there is enormous state-to-state variation with some States using local codes only and others using very few local codes. We also know that Medicaid managed care plans have not been submitting the kinds of encounter data that are often required under their contracts with State Medicaid agencies. The reasons for this are not totally known and probably vary by health plan, but the impact of HIPAA and the elimination of local codes on Medicaid managed care plans is likely to be significant.
With HIPAA on the horizon, we know that State Medicaid programs as well as other public and private insurers will be required to eliminate the local codes they have developed . The question, or one important question, is whether and the extent to which special,unique codes will be needed by State Medicaid agencies to run their programs or will the standard sets of codes used by other insurers be sufficient? In other words, how different and unique are the services covered by the Medicaid program compared to the services covered by other insurers? I know that some of these issues will be discussed by others following me on this panel and on the next panel discussing the resolution of the problem. I would like to briefly and simply describe the issue and landscape from a Federal Medicaid perspective.
Local codes used by States now can be classified into one of three categories. One category reflects local codes which are, in fact, basically the same as existing national codes that adequately describe services that are commonly provided and covered by other payers. States frequently use these kinds of codes and they can be “safely” eliminated under HIPAA. There is another category of local codes that reflects services covered by Medicaid and other payers but where no national code currently exists to describe the service. For example, services provided via telemedicine (now covered by 17 State Medicaid programs and by Medicare) and new and emerging procedures and technologies covered by State Medicaid programs and others but where a national code has not yet been developed. There remains a third category consisting of a substantial number of local codes used to describe special and unique services covered by the State Medicaid program but not generally covered by any other health insurers. For example, there are currently 250 Medicaid Home and Community-Based Waiver programs operating in every State but one at a cost of $10 billion annually. These programs provide coverage for an extensive array of non-medical type services such as air conditioners, home and vehicle modifications, companion and attendant care for the elderly, disabled, mentally retarded and developmentally disabled individuals included in these programs. Such services are not generally covered by other public or private health insurers. Medicaid Home and Community-Based programs are expected to increase dramatically following the recent Supreme Court decision in Olmstead. Other examples include the school-based health services provided to disabled children under the Individuals with Disabilities Education Act to enable these children to receive a free, appropriate public education. Almost all State Medicaid programs cover these services for Medicaid children at a cost of over $2 billion annually while the local, State and Federal Education Agencies pick up the rest of the cost for these services when provided to non-Medicaid children. Other services commonly covered by State Medicaid programs but not other health insurers include transportation to health care providers, case management services and services that are part of Medicaid enhanced pregnancy related services such as health education and counseling. Procedure codes to describe these special and unique services not generally covered by other health insurers are needed to enable State Medicaid agencies to run their programs.