By Diane Carman

When Gov. John Hickenlooper announced his endorsement of a plan to expand Medicaid coverage under the Affordable Care Act last week, he outlined a proposal that would cost Colorado an estimated $128 million over the next decade. But cost containment strategies would save $280 million in state and federal funds, he said, making the expansion a bargain.

On Monday, it fell to the staff of the state Department of Health Care Policy and Finance to persuade skeptical legislators on the Joint Budget Committee that the plan really will work.

“We can’t make these changes without each other,” said Sue Birch, executive director of the department, who said dramatic work to cut waste, fraud and abuse, and to create a streamlined health care delivery system will “reset the cost trajectory” for Medicaid over the next decade.

Among the policies proposed to produce cost reductions, she said, are payment reforms in which the state “no longer will be paying for volume but will be paying for value” in health care services, and further implementation of the Accountable Care Collaborative, a system for coordinating whole-patient care and collecting data to enable the state to hold providers accountable.

Still, Rep. Cheri Gerou, R-Evergreen, pointed out that under the governor’s plan one-in-five adults in Colorado could be on Medicaid by 2017 and one out of every three babies born in the state already is on Medicaid.

“I would like to see more details on how cost savings will specifically offset the costs of expansion,” said Sen. Kent Lambert, R-Colorado Springs.

According to the 126-page document presented to the committee, the Accountable Care Collaborative already has cut costs through reduced numbers of emergency room visits, reductions in hospital readmissions and fewer demands for high-cost diagnostic imaging tests. One way this has been accomplished is by withholding $1 of the per-member, per-month payments to be used as incentive pay for providers who demonstrate progress in reducing the numbers of ER visits, hospital readmissions and high-cost imaging among their patients.

The document also outlined a series of negotiations that have been under way with Medicaid providers to develop payment systems that succeed in rewarding value over volume of services. Contracts reflecting those changes are expected to be written by July 1.

Birch also explained the department’s request for $1.8 million to expand the state’s behavioral health system, another of the governor’s initiatives.

The department has proposed moving mental health services, specifically substance abuse treatment, away from a fee-for-service model and into a managed-care model. Since a high percentage of substance abusers have mental health conditions, “treating both conditions together is much more clinically effective than treating clients in health care silos,” the document said.

Birch said the staff does not believe that the per capita costs for new enrollees in the program will be higher. Under the integrated-care model, “we can treat the whole person in one system,” she said, cutting administrative and other costs all along the way.

She added, however, that the department does not have the capability for the necessary data collection and analysis to track savings produced by the new program. “We hope to establish that tracking mechanism over time.”

Gerou argued that it would be impossible to track the cost-effectiveness of the program without first establishing a baseline. “How do you develop a budget without a baseline? There’s no way we ever will determine if there are cost savings. Without a baseline, we never will have hard proof.”

Birch said the department does watch per capita costs closely, but “we can’t forecast future costs competently with the tools we currently have.”

Gerou was not satisfied.

“My goal is to be as efficient as possible,” she said, “and to prove to Coloradans that we’re not only improving lives but saving money at the same time.”

The department also requested $1.4 million for rebuilding the Medicaid Management Information System, which is used to process claims and analyze case management data.

“We have the best of 1970s technology,” Birch said. “The current system is very clunky,” forcing the staff to create numerous “manual work-arounds” that make the department “highly inefficient.”

A new system would receive a 90 percent subsidy from the federal government, which also would pay 75 percent of the cost of maintaining the system in the future.

Among other requests was an additional $352,172 for the department to add 7.4 staff positions to handle the increased caseload and demands for new programs.

“We’ve been striving for a modern Medicaid system with the right services at the right costs,” Birch said. “Colorado absolutely is seen as a national leader in health care and achieving value.”

But, she said, “The work has continued to outpace our resources.”

Birch compared staffing levels at comparable departments in other states, noting that Oregon, with approximately 566,000 eligible Medicaid clients compared to Colorado’s 560,000 had 200 more staff positions in the state department managing the system.

“Additional staff would add value,” Birch said.

The Joint Budget Committee will consider the requests of this and other state departments and will make its final recommendations to the General Assembly in the long bill. The 2013 session begins Wednesday.