On April 29 the National Pharmaceutical Council (NPC) hosted a virtual panel discussion on state decisions to implement budget caps and the strategies, challenges, and the relevance of these decisions on patient health. Twenty four percent of states currently use budget caps to help limit annual health spending growth, and that percentage continues to increase. As we emerge from the pandemic and states balance their budgets, how do decision-makers ensure budget caps meet the dual goal of constraining costs while still preserving patient health?
To inform the discussion, Michael Ciarametaro, vice president of research at NPC, shared findings from NPC’s Value in Health study, “The Dollar or Disease Burden: Caps on Healthcare Spending May Save Money, but at What ‘Cost’ to Patients?” The study assessed the potential effects of budget cap design to help budget decision-makers understand how and when these approaches impact patient health. After analyzing budget caps for eight conditions, the study’s three main takeaways were:
- Budget caps should only be applied at total costs of care level and not at the individual service level, such as pharmaceutical spending;
- Budget caps should be adjusted for population or prevalence growth; and
- Quality metrics are needed for patients with vulnerable conditions
For many years, states have been thinking about how to drive value in health care while simultaneously keeping costs affordable and ensuring there is still funding for other areas, such as education. Hemi Tewarson, visiting senior policy fellow at the Duke-Margolis Center for Health Policy, provided an overview of budget caps at the state level and the models used to set up growth benchmarks. Nine states use a general health cost budget model (Washington, Oregon, Vermont, Massachusetts, Connecticut, Pennsylvania, New Jersey, Tennessee and Rhode Island). One uses a drug spending capitation model, or paying providers a lump sum per patient regardless of the number of services the patient receives (New York), and two are considering budget limits (Maine and California).
Andrew Sperling, director, legislative affairs, advocacy and public policy at the National Alliance on Mental Illness (NAMI), discussed the importance of applying budget caps at the total cost of care level and not at the individual service level – further enforcing one of the key findings of the study. Patient advocacy organizations like NAMI are concerned that use of budget caps could potentially disadvantage people with higher costs associated with their care. Applying a social determinants of health model, we should also ensure we’re focusing on the entire spectrum of health care services a person might need before they end up in the emergency room.
Matt Salo, executive director of the National Association of Medicaid Directors (NAMD), shared what we can learn from programs, like Medicaid, that have direct experience with fixed budgets. His view was that until there is federal legislation to help states manage spending growth, we will continue to see states use approaches like budget caps. He also encouraged programs with fixed budgets to consider the impact on beneficiary health if there is no effort to constrain costs, as opposed to framing the decision in terms of harms to innovation and patient health.
Panelists also discussed the impact budget constraints have on innovation. From a state perspective, Tewarson said there is opportunity to think about cost growth benchmarks and be innovative at the same time. Salo, on the other hand, maintained that states do not have the infrastructure to sustain Medicaid’s current trajectory. To afford pharmaceutical innovation, the federal government needs to shoulder a larger burden of the costs of innovation. All panelists agreed that, as we emerge from the pandemic, the focus needs to be on providing integrated, whole-person quality care.
The webinar was moderated by Robert Dubois, MD, PhD, interim president and chief executive officer of NPC.