On the Record: Colorado Medicaid Chief Richard Allen

Colorado’s Richard Allen has had a pretty tough year. Like most Medicaid directors, he’s had to cut numerous budget items to keep spending low. On top of that, the division he runs– the Department of Health Policy and Financing– was sued by several HMOs who claim they weren’t paid enough to care for people on Medicaid. Despite those headaches and after more than 23 years in the state’s Medicaid program, Allen still relishes his job. He recently sat down with Stateline.org to discuss the budget crunch, what’s next for Colorado on prescription drugs and other issues.

STATELINE.ORG : When we spoke last about the Medicaid budget, Colorado was looking at a 7 percent increase in current spending. What’s happened with the budget since that time?

Allen : The amount of recommended reductions that we put out there would have brought the overall spending of Medicaid to just about a six percent increase, one year to the next. We were doing that to try to stay in line with a constitutional requirement that overall state spending be capped at (a) six percent (increase). In order for us to do that, we had to recommend close to $40 million worth of deductions and no inflationary increases where most years they would have been made.

These proposals went over to the Colorado General Assembly. Of the ones that were embraced– our price for prescription drugs will change. It will go from Average Wholesale Price (AWP) minus 10 percent to AWP minus 11 percent. The dispensing fee for pharmacists will also change from $4.08 to $4.00 per prescription. The department recommended that we go to AWP minus 13 percent, so the Legislature didn’t go as far as we recommended. In our research on the issue, we found that Colorado Medicaid is a very good payer compared to commercial payers, Medicaid HMOs and other groups like that.

One other change that needs to happen is the way we’ve been determining disability for some people on Medicaid. The federal government requires disability determination to be done a certain way and we’ve not been doing that. When we make this change, two things will happen–fewer people will pass the screen than in the past. The early estimate is it will affect between 600 to 1,000 people. But the [new] federally-prescribed way of doing this also takes longer than the system we’ve been using. We do anticipate we’ll save some money, but we’re also very aware it will be difficult for the people who would have had coverage in the past. We’re going to try to do what we can to put them in contact with other parts of the health care system that can offer them some coverage.

Otherwise the big change is that there will be very (few) inflationary increases this year. Just about all Medicaid providers will not receive inflation, including hospitals, physicians and other caregivers of that nature. Notable exceptions will be nursing facilities. There will be big rate increases of 12.5 percent for alternative care facilities [like assisted living] and 11 percent for personal caregivers. We’re doing things to contain costs but we’re also being strategic as a state to say these other caregivers are vital to delivering good care, to delivering cost-effective care, so we do want to invest in that direction.

STATELINE.ORG : In terms of cutbacks, Oregon has announced cuts in programs for the elderly and disabled. As a result, state officials have seen some backlash from residents. How did the public react to this year’s Medicaid budget and related cuts?

Allen : We [initially] put more than just the reductions that [lawmakers have okayed]. The hospitals in particular would have been significantly impacted. Not only did we do away with facility fees [in which the state was essentially paying both the doctor and the hospital for one visit], but we also were talking about rate reductions on the basic rates and stuff like that. So [provider and advocacy groups] lobbied hard against these changes and they were only partially successful in getting them reversed, because the facility fee item still stands.

The pharmaceutical folks, in particular the retailers, did not like the changes we were proposing. As you can see, they were modified significantly. Instead of a three percent reduction, we’re only seeing a one percent reduction in the (average wholesale) price.

STATELINE.ORG : Many states have had problems keeping dentists involved in Medicaid because of low reimbursement rates. What’s happened in Colorado?

Allen : We have the same issue here, however a few years ago, we made a major increase in the rates for dentists. We went from paying roughly 40 percent of the American Dental Association (ADA) mean to now 68 percent of the ADA mean and that was a big change. We [put in] major rate increases and our dental expenditures rose significantly. Next year’s dental budget will be about $21 million. When we started those increases, the budget was only around $8 or $9 million. So in a few short years, we’ve spent a lot more money on children’s dental.

Now we’re trying to find ways to expand our network of dental providers who are really committed to taking low income Medicaid children, so that’s where most of our spending and strategic planning is going. In [years] past we handed out grants. Just this year we handed out four grants worth $50,000 to different dental providers around the state. We’re looking at expanding that program. In particular we want to expand it to set up a strong foundation with the Children’s Basic Health Plan.

STATELINE.ORG What are the major cost drivers in Colorado’s Medicaid budget?

Allen : Prescription drug costs continue to rise significantly. I’ve talked about the price reduction that we tried to implement and we are looking at a new utilization control device around mental health drugs. We would like to see if managed care companies that serve the mental health market can manage those drugs so that when they’re provided, they’re being provided in the most cost-effective and quality-assured way. There’s a real revolution going on in the prescription drug industry. There are many new drugs coming out, especially in the area of mental health. You want those drugs provided to the clients who really need them, in the proper dosage and in the proper care regimen because it really keeps people out of hospitals and having quality of care issues in other parts of their lives. We recognize that while prescription drugs are going up quickly, there are some real differences going on in the care patterns in our society due to the drugs. We want the benefits of [the new drugs] but we also want to make sure that what we’re paying is what we really do need to pay.

STATELINE.ORG :Georgia’s Medicaid director went on record in February to say he didn’t think the state was getting the ‘best price’ on prescription drugs for its Medicaid program. What are your thoughts about this?

Allen :Evidence is developing through some litigation that the best price [on prescription drugs] may not have always been made available to Medicaid. In particular, there are some settlements going on with Bayer where they do admit that through the way the records were handled in their company, the best price was not immediately known or ever known to the Medicaid agency. It’s more than just speculation when you have settlements acknowledging something has happened, so I think there’s some truth to it. Now is it true for all companies? I don’t want to say that, that’s not fair.

STATELINE.ORG : What’s happening with state compliance with the Olmstead* decision? (*Editor’s Note: The U.S. Supreme Court ruled in L.C. & E.W. v. Olmstead in June 1999 that states must provide community-based services for the disabled if it’s considered more appropriate care than in a nursing home or institution.)

Allen : It is our goal in the summer of 2001 to produce a preliminary report on an Olmstead plan. We have a working group convened in our state and they’ve been meeting on a regular basis. We’re still trying to define the goals of what an Olmstead plan should be.

The other thing that is starting to grab our attention is the feds are coming out with a series of grants. The grants are very sizable, one for $50,000 which is pretty small but the others could be $500,000 to $1 million, so there’s now a lot of talk in Colorado about how those grant monies could be used.

We believe we’re ahead of the game [because we’re pretty advanced with home and community-based services]. That’s what is so important about Olmstead compliance because all the states start in a different place. Where’s Georgia, which is where Olmstead came from, compared to Colorado? It may well be that another state will pursue things that Colorado already has in place.

People would like [the plan] to be all things. We know there are some things we must focus on, at the very least deinstitutionalization and diversion. We want to respect clients’ rights at all times but it does appear that even in a state like Colorado, we can do an even better job than what we’ve done so far and that’s the next challenge. What’s neat about Colorado is we already have so much in place.An audit of Colorado’s SCHIP program last summer revealed a “cumbersome, wasteful” program according to the Rocky Mountain News. What’s your take on that characterization?

Allen : I don’t run the SCHIP program here, but I will say this in defense of the program. SCHIP is a great program. Colorado was one of the first states to put its program into play. The number of kids that we have enrolled in the program compares favorably to what most other states have been able to do.

If we’re to be judged, in certain ways we should also be judged by the performance of the other states, because we’re all working under the same rule limitations. One of the big rule limitations is that kids have to be screened for Medicaid before they can be put on the SCHIP program. New York used up all of its allocation because they didn’t screen kids for Medicaid and officials now apparently have to pay back the money. There are some things about the federal program that make it difficult to enroll as many kids as a state would like. The efforts in our state have been earnest and people have tried very hard to make it a successful program.