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Nelson, Policy Fellow, Center of the American Experiment
1600 Tower, 1600 Utica
Avenue South, St. Louis Park, MN
September 24, 2010
Verne Johnson (Chair); David Broden, Janis Clay, Marianne Curry, Bill
Frenzel, Paul Gilje, Jim Hetland (phone), Sallie Kemper, Dan Loritz, Tim
McDonald, Jim Olson (phone), Wayne Popham (phone), Clarence Shallbetter,
Summary of Nelson’s comments:
stands out as a state that has chosen to cover medical services for poor
childless adults through its General Assistance Medical Care (GAMC)
program. The program was restructured this past legislative session
through efforts of stakeholders in response to budget pressures. What had
been a program that paid providers a fee for each service (reimbursing
below cost) has now become a program that pays a lump-sum ‘global payment’
to participating hospitals. The goal of this change Nelson says is to
incentivize hospitals to find new ways to reach out to and treat the
target population. Minnesota is at the forefront of healthcare redesign
with this reform, but it is costly and the current funding for the program
does not adequately cover every eligible person to take part in the
program. Its future may be affected by coming changes in Medicaid.
Context of the meeting—Many
individuals worked through the past legislative session to find ways to
provide care to the poorest citizens of Minnesota through General
Assistance Medical Care (GAMC). One of the people involved deeply in the
topic—Peter Nelson of the Center of the American experiment—will describe
what they did to redesign the program, how healthcare services to this
population may evolve as a result, and, with the expected shortage of
funds, what the outlook might be into the future.
Welcome and introductions—Peter
Nelson is a Policy Fellow at the Center of the American Experiment, a
conservative think tank. As such, he spends most of his time researching
and writing on issues related to health care and energy. On health care,
Nelson primarily focuses on issues involving insurance regulation,
Medicaid, and long-term care. He regularly consults with state policy
makers on these issues and contributes commentaries to the Star Tribune
and other local newspapers across
Nelson received his B.A. in economics from
and a law degree from the University of Minnesota Law School where he was
a member of the Minnesota Law Review.
Comments and discussion—During
Nelson’s visit with the Civic Caucus, the following points were raised:
As background, Nelson
explained that the CAE focuses mainly on health care and education issues,
since these are the two largest components to the state budget, and the
most thoroughly regulated. The organization regularly hosts nationally
recognized speakers at public forums, every one or two months, to help
inform the public on issues related to CAE’s primary interests. Nelson
pointed out that he is the only member of CAE who interacts regularly with
the legislature, and that CAE is funded almost entirely by individual
Responding to the
Caucus’s interest in re-design of government services, he proceeded to
describe the recent changes that occurred in the General Assistance
Medical Care (GAMC) program.
Character of the GAMC population
GAMC is a program that
began in 1976 to cover childless adults that were not covered by Medicaid,
a federal entitlement program created to cover children, families, and
those with disabilities.Nelson said that
Minnesota might have
been the first state to step up and say that this excluded population is
very troubled and needs our assistance. So we created this program for
those individuals with income below 75 percent of the poverty guideline.
Single adults qualifying for GAMC today earn less than about $8,000 a
Minnesota also has a
program called MinnesotaCare, which serves the same group of people, but
offers a slightly different product. There is a limit of $10,000 on
hospital benefits and it requires more cost sharing. Thus, Minnesota Care
is not an ideal product for impoverished people with significant health
There is some overlap:
MinnesotaCare serves families and childless adults; GAMC serves
only childless adults. Of people on GAMC, 45 percent have an alcohol or
drug diagnosis, 42 percent have a mental health diagnosis, and up to 60
percent have one and/or the other. Furthermore, 25 percent are homeless,
and 69 percent male. A majority live in the central cities, but it should
also be noted that the only participating hospitals in the program are
located in the central cities.
Over 90 percent of the
people in the program are under 25 percent of the poverty guideline. They
are desperately poor, homeless, and struggle making their own health care
decisions. About 31,000 people are in the program on average.
Problems with the old program
GAMC is a very costly
program, running almost $300 million per year. That comes out to be about
$9,000 per patient.
Regions Hospital said
their costs for GAMC patients reach $12,000 per patient. That is double
the costs associated with other public health programs. In the old GAMC
program there may have been some systems in place to help treat chronic
health conditions, but fundamentally it was a reactive program, working
with people from one personal health crisis to the next.
In practice GAMC has
been less a health-care program for the poor, and more a financing
arrangement for hospitals.
Motivation for the change
The motivation behind
rethinking GAMC was budgetary. In 2009 the Governor came forward with his
budget. The original budget left GMAC unchanged, but midway through the
session Pawlenty brought forth a modified budget, which included a new
GAMC program that was about half the cost. It recommended transferring
GAMC funds to a pool of money covering uncompensated care.
basically ignored the proposal—as the session ended there was no change,
and the Governor line-item-vetoed the program entirely. This forced the
state to rethink the program. Otherwise the program would go away. So the
interested parties got together with thoughtful legislators, and began
working on restructuring the program.
The original proposal
on the table was to keep the same program, but to spend less. It became
apparent that this would not be sufficient; so two key legislators—Erin
Murphy (DFL-64a), and Matt Dean (R-52b)—worked on a new proposal in
consultation with interested groups. “Many of the advocates have been from
housing,” Nelson observed, in response to questions about the
systemic-nature of the challenge of assisting those in extreme poverty.
The primary policy makers involved with restructuring GAMC were
legislators, but the Governor’s office stayed involved as well.
Changing from fee-for-service to a lump-sum, ‘global’ payment to hospitals
The old version of the
program was fee for service: if you get an MRI, or drugs, the hospital
receives a payment for the service provided. The state did pay a
capitated payment to managed care health plans for many GAMC enrollees,
but these plans pay providers on a fee-for-service basis as well.
This model is coming
under fire generally because of its poor incentives. Generally, the
fee-for-service model is criticized for paying providers for volume, not
value. Providers are paid more when they provide more services. Thus,
fee-for-service encourages doctors to overprovide. However, the GAMC
program reimburses providers below cost. As a result, GAMC creates an
incentive to underprovide because it does not cover the providers costs.
Furthermore, because they are not covering the cost of GAMC services,
hospitals are shifting costs to other private pay customers. Data show
that as public reimbursement goes down, private pay goes up. Nelson
illustrated an uneasy picture: “I’ve heard that when private insurers go
to the table to negotiate reimbursements, it’s all on the table.” That is,
costs of uncompensated care are expected to be part of the formulas for
private insurance rates.
The GAMC program has
not contained an incentive to work toward quality and the future health of
the patient. There was no incentive for incorporating value into the
process. That is why there is much talk today about ‘payment reform,’
trying to get providers to think about the quality of the outcome of
services they perform.
So those working on
the GAMC reforms began to think, “Let’s give these health plans some
incentive for healthcare providers to go out and meet the needs of the
patients.” The key component of the new program is a “global payment,” or
lump sum payment to the hospital to serve the GAMC patients they work
with. It is a form of “capitation” for the entire population. For
knows they have a certain number of GAMC people coming through their
doors, and any part of the lump sum provided they don’t spend on care for
GAMC patients they can keep.
Because so many GAMC
enrollees depend on prescriptions to maintain chronic conditions,
especially mental health conditions, the new GAMC program also set up a
new prescription drug pool.
Shortcomings of the new program
This program has a lot
of challenges, Nelson admitted. Usually the concept of a global payment is
attached to an individual, like the “capitated” HMO payment that calls for
a limited amount of payment per patient. With this plan’s single outlay
for the entire GAMC population, there will be challenges overseeing the
use of the lump-sum payment by the hospital. There is incentive for the
hospital to coordinate the care of this individual in order to improve
outcomes and reduce redundant care. Nelson told the group that he has seen
evidence that new clinics are being set up for this purpose.
Another challenge of
the program is its metro focus. There is still a need for some type of
statewide uncompensated-care pool, as the new program does not address
care of outstate GAMC patients. Since there is no outstate
Minnesota plan, if you
need particular services you must come to the participating hospitals in
the central cities.
A member expressed
skepticism at the capacity of hospitals to deal much beyond immediate care
for the GAMC population. Their problems require residential care—the basic
hierarchy of needs is not being met. Nelson admitted that this was not
part of the policy conversation. There are housing needs that are not
being met. There is nothing to say that hospitals can’t work to help solve
those needs. There is nothing in the program now that would prohibit a
hospital from partnering with a halfway house that could help manage
taking of medication, for example. This is an important part of the
reform; the hospitals don’t need to go to the legislature for approval.
There is one
enormously significant problem with the incentives to provide and obtain
care under this program: If all people eligible for GAMC signed up for and
used the program, costs would overrun the capacity of the program. In
fact, the program is already over capacity. Only
Medical Center is accepting new enrollees. This naturally raises a
practical frustration with those tasked to administer the program.
Hospitals now have incentive to reach out
“The hospitals are in
the best position to know what these people need,” Nelson asserted. At a
policy level the goal should be to put in place the right incentives.
A participant wondered
whether a person in poverty, living homeless, and struggling with
addiction or mental illness would have sufficient incentive themselves to
enter into preventative medicine treatment. Instead won’t they do as most
people do and wait until something is wrong? “It is an enormous
challenge,” Nelson admitted, adding that GAMC should not be seen as asking
the hospitals to solve all social ills.
asked how much communication about this program has taken place with the
eligible population—especially those outstate that qualify for the
program. This is a good question, Nelson responded. In the past GAMC has
been a hospital financing scheme first and a health care program second.
Thus, communication with the user was less of a priority. One possibility
is that clinics will reach out into communities and provide that
is at the forefront
Minnesota was at the
forefront of offering these health benefits to childless adults, Nelson
said, and it is now at the forefront of trying to rethink its design.
“There is not a whole lot going on,” he said, to a question about the
status of other states in this area. Some have programs, but are not as
generous: “I use
as an example of a state that has a good program but is only serving those
at or below 25 percent of the poverty line.”
wondered whether the global payment mechanism should be used for Minnesota
Care? No, Nelson said, “global payment is a good solution for a population
of patients that are not generally responsible for themselves, and need a
clinic to actively reach out to them.” But his concern with using global
payments for a larger program is that health care then becomes
administered on a population level, and not an individual level.
Nelson is cautious
about federal money: If Minnesota were to early-adopt new Medicaid
provisions to cover this population, then the GAMC program would be
discarded, along with its incentives to proactively reach out the to
population in need. For all its imperfections, Nelson argued, this is an
important ingredient for innovation.
To close, Nelson
proposed that the state must further refine the GAMC program so that
hospitals and communities are incentivized to come up with solutions that
save money and better meet needs. “I’ve worked at the capitol long enough
to know that those kinds of creative ideas need to be created by the
providers, not manufactured at the capitol.” The fundamental problem now,
Nelson said, is that the program is severely underfunded, although there
are opportunities to get additional money from the federal government.
A participant observed
that GAMC is one of the few examples of the state’s budget crisis having
compelled a rethinking in the legislative process, within both the
legislature and the governor’s office. Another said of the redesign of
GAMC: “We want to offer an endorsement for this work you are doing.”
The Chair expressed
our thanks to Peter Nelson for a good meeting.