A TALE OF TWO STATES

By ELIZABETH GLEICK

NO MATTER WHOSE PLAN WINS in Washington, the current Medicaid program is history. And in 11 states its future has arrived. While still collecting federal money, these states have designed their own health-care systems for their poor and elderly populations. A close look at two of them illustrates the difficulties of the job. Arizona's plan, in place since 1982, is hailed as a model of managed care, while TennCare, started in 1994, is still locked into a troubled and controversial infancy. Both offer visions of what may be facing all states in the lean times ahead. Their stories:

When Dr. Mabel Chen needs a doctor, she goes to see someone at the Arizona Physicians Clinic in downtown Phoenix. Chen, the director of the Arizona Health Care Cost Containment System (AHCCCS, pronounced access), reads her magazines in the waiting room alongside people who pay no insurance premiums, who can barely afford their generic prescription medications, who perhaps cannot even read the warning labels on a bottle of aspirin. When Sherry Broyles, 23, a single mother of two, needs to see a doctor, she waits alongside the likes of Chen and feels no less worthy of her doctor's attention just because she is on welfare and has no private insurance. "I chose him because he was so nice to me when I went into the clinic to get a wart on my finger looked at," Broyles explains. "He treats us all the same. Even if I am on Mercy Care [a provider sponsored by the Roman Catholic Church], he doesn't look at me funny."

The mainstreaming of Medicaid, where low-income patients receive the same care from the same physicians as their better-off peers, is only one of the successes of Arizona's system. The most remarkable thing is that the state government managed to come up with a program that makes just about everybody happy: the patients, the doctors, the bureaucrats and the number crunchers. ahcccs, a managed-care system in which health-care providers enter an intensely competitive auction to win state contracts, serves some 455,000 patients, almost all of whom would be eligible for Medicaid. (Total budget this year: $1.9 billion, of which $1.2 billion comes from the Federal Government.) Thanks to the program's emphasis on primary-care physicians and preventive medicine, the percentage of ahcccs patients since 1989 who receive most of their treatment in emergency rooms has dropped from 18% to 8%, while those seeing regular doctors has jumped from 18% to 36%. Says John Murphy, executive director of the Flinn Foundation, a Phoenix think tank that studies health care: "If what you're trying to do is provide high-quality care to the poorest of the poor for a low price to the state, this system is a success."

Arizona seized an opportunity no longer open to the rest of the country: the state never had an entrenched Medicaid system in place. By 1982, though, county governments were going broke struggling to provide indigent health care. The state decided it needed a piece of the federal Medicaid pie but not under the standard federal conditions. Arizona legislators took their state's clean slate and drew up their own blueprint for a Medicaid system.

The first two years of the new plan, notes an official history of ahcccs with characteristic bureaucratic understatement, were "difficult and challenging." For one thing, Arizona won from the Federal Government the right to go its own way (a 1115 waiver, as it is called) only three months before the program was launched. The start-up was chaotic. Says Frank Lopez, then the city editor of the Arizona Republic, now the program's communications director: "I was having a field day. The thing had started too fast. Doctors weren't getting paid. There were cost overruns. I was sending reporters over here almost every day to get stories of trouble." Corrupt and incompetent managed-care partnerships bloomed in the desert.

HEMORRHAGING MONEY AND sparking controversy, the program was taken over by an experienced HMO administrator in 1984, and the state built a data system that tracks costs and quality of care as well as patient information. By monitoring cost-to-care ratios, the computer turned out to be an expensive but ultimately efficient secret to the program's success--but one that other states will be hard put to duplicate with fewer federal dollars. Although ahcccs' administrative costs are higher than those in states that operate under a traditional Medicaid system, Arizona is still saving money. According to a report by the General Accounting Office (gao), Arizona is saving 7% a year on acute care and 16% on long-term care, compared with a similar program in neighboring New Mexico, a state with comparable demographics.

Arizona's computer system also helps keep the bidding for its contracts competitive. With comprehensive records on the cost of every procedure, administrators know what kind of bid to expect from would-be providers--and what is too low to be realistic. Still, the competition to win contracts is so keen that the system's capitation rate--the cost per patient, which averages $1,824 a year--dropped 11% last year. In the last bidding go-around, in 1994, 21 health-care groups, including such national giants as Blue Cross and Cigna, sent in 95 proposals for only 42 contracts. Every county, no matter how thinly populated, offers a choice of providers.

Letting market forces rule satisfies the cost cutters in the state, but it also helps the patients. The Arizona program does not permit would-be providers to select only the healthiest patients, a practice called cherry picking in the health-care business. If providers want a contract, they must be prepared to take on the care of the disabled, the elderly, and women and children.

Charlene and Todd Weber, for instance, could never have handled caring for their daughter at home without the safety net provided by the Arizona system's long-term-care program, which guarantees aid to severely disabled children. In 1992 Charlene had twin girls, one of whom, Ariel, was born seriously disabled, with no genital body openings and many of her internal organs in the wrong place. Charlene, a part-time flight attendant for America West, and Todd, a supervisor in a waste-disposal company, have a combined income of about $45,000. Todd's employee health insurance, Intergroup, paid for all of Ariel's reconstructive surgery and hospital costs, but after the little girl left the hospital at the age of 14 months, Intergroup's coverage became much more limited. Yet Ariel's medical needs remained daunting: an array of physical and emotional therapies, a future cataract operation (both Ariel and her sister Aleah were born legally blind) and special schools. Ariel is the only Weber covered by Arizona's state program, which tries whenever possible to help families care for patients--both disabled and elderly--at home. "If they took away funding for this,'' says Charlene, "we'd be at the point where some parents consider giving up their kids to homes for the disabled. You can only take so much."

This long-term-care program also serves about 11,000 elderly people, either in their homes or in nursing care. Many of these people, like Medicaid recipients around the country, may have saved for their retirement, but their care remains either unaffordable or unmanageable. Lois Horn neglected her now bankrupt lamp business to care for her aging mother until the burden became too much. The 89-year-old mother currently lives, wheelchair bound and dementia-stricken, in the Carondelet Holy Family Center in Tucson, which costs more than $3,000 a month. "We don't have the money to pay for her care. She has to have assistance. I've given up taking her home for holidays, like I used to do, because you can't control her wandering," says Horn.

Arizona's big surprise is the effect the program has had on the state's doctors. The reimbursement rates are kept high enough so that they actually want to join. And health-care groups are raking in so much money--they took in $54 million in net profits last year, a 25% increase from 1993--that experts suggest that members of Arizona's "notch" population--the uninsured working poor--be added to the plan as well. But that is an unlikely outcome now. Even states like Arizona, which have created a lean Medicaid machine with very tight eligibility requirements, are facing the same federal budget cuts as states locked into traditional Medicaid programs.

If Arizona's plan is the wizened grandfather of them all, then Tennessee's is the cranky infant. In January 1994, less than two months after the Federal Government approved the state for a 1115 waiver, TennCare was under way. Perhaps the most ambitious state-waiver program in the nation, this managed-care system provides coverage to about 1.2 million people, or nearly one-quarter of the entire state. The breakdown: 750,000 Medicaid patients and an additional 400,000 people who were previously uninsured--a generous move that means funds are especially tight.

TennCare, however, is not the product of a long, thoughtful, democratic process. Stealth attack is more like it. In 1993 then Governor Ned McWherter, alarmed that Medicaid had ballooned from 13.4% of the state's budget in 1987 to more than 26%, presented lawmakers with a managed-care program contained in an innocent-looking 1 1/2-page bill. Before the powerful lobbyists for doctors, insurance companies and the elderly knew what had hit them, the bill passed, with virtually no debate.

From the moment TennCare was law, its opponents had much to grouse about. The speed of the transition from a fee-for-service Medicaid plan to the new system, in which the state takes $2.9 billion in federal and state funds and contracts with 12 privately run managed-care organizations, wreaked havoc on doctors and patients alike. The chaos that even a small private business often undergoes when switching medical plans was multiplied a thousand-fold. Many patients did not know which managed-care group they had been assigned to, and in the early days it could take hours to get through to TennCare's phone lines. The managed-care groups were sometimes four or five months late reimbursing doctors and other providers, who were unhappy with TennCare's lower fee schedule. In the race to sign up new patients--the more patients, the more government dollars--one managed-care group even sent sales representatives into a county jail, whose occupants already had medical coverage.

As with Arizona's program, one of TennCare's greatest successes has been in mainstreaming Medicaid patients, who no longer see doctors at so-called Medicaid mills. This too was accomplished cunningly. The architects of TennCare created a controversial rule called the "cram down." A doctor who opts out of TennCare is not permitted to participate in BlueCross and BlueShield's commercial network, thereby losing a huge amount of potential business from approximately 1.2 million non-Medicaid people, including state and municipal employees and teachers. Initially, almost one-third of the doctors in the BlueCross and BlueShield network refused to join TennCare, but most have since signed up.

To many patients, TennCare has been like a balm. Those people who never had health coverage are "happy just because they have a TennCare card in their pocket," says Gordon Bonnyman, a Tennessee legal-services lawyer. And many Medicaid recipients like the shift to managed care, since it provides an opportunity to build a relationship with a primary-care physician.

Administrative snafus and tight dollars all around, however, have hurt the quality of care in Tennessee. TennCare critics say the program is often about managing costs, not care. The worse a patient's medical problems, critics claim, the worse the system works. That is, they contend, because the profits for managed-care groups lie in attracting healthy members who require little or no treatment in a given year. "The experience of people with severe disabilities is that they get poor care because, frankly, the provider hopes they will choose another provider," says Carol Westlake, executive director of the Coalition for Tennesseeans with Disabilities. "What's missing is accountability." Frequently, she says, medical decisions made by doctors are second-guessed, even vetoed, by administrators.

Donna Guyton's experience bears this out. Her son Patrick, 9, has viral encephalitis and a seizure disorder. When he got an ear infection, her health plan refused to authorize the medicine he needed, but the cheaper medication aggravated his seizure disorder. Eventually, he got seriously ill and had to receive intravenous antibiotics. "What really aggravated me," says Guyton, "was that the [plan's] own physician said this is what Patrick needed, but then they wouldn't approve it."

Such penny pinching hurts not just the special-needs patients. Mary Milburn, an 82-year-old retired seamstress who suffers from high blood pressure, was prescribed a blood-pressure medicine to which she was allergic. As a result, her doctor then prescribed a more expensive alternative medication, Accupril, but her managed-care company refused to cover the cost. Milburn, who lives on $440 a month in Social Security benefits, had to lay out about $30 a month of her own money until the company eventually relented under the threat of a lawsuit. Says Milburn: "Thirty dollars a month doesn't seem like much, but to me, trying to get by on $440 a month, it was an awful lot."

Legal-aid lawyer Bonnyman claims that many of these wrinkles can be smoothed out with more flexibility and a better grievance system. For instance, managed-care companies could allow 5% of their patients to use nongeneric drugs if absolutely necessary. Keeping the providers from defecting may prove more difficult. Many doctors feel that the medical budget for poor Tennesseeans was balanced on their backs. Even now, money for TennCare is tight. According to a gao report comparing TennCare's reimbursement rates with the old Medicaid levels, doctors now get slightly higher fees for visits and consultations, but for some forms of surgery and radiology they receive 20% to 50% less than they did before.

All 12 managed-care companies renewed their contracts for 1996, but their support for TennCare is tenuous at best. The gao report suggests that if their concerns are not addressed, they "could withdraw in large numbers." Robert Corker, the Tennessee commissioner of finance, insists that the state is still working on making TennCare more responsive to providers. But if federal money is cut next year, the state may be faced with the stark choice of slashing rates still further or dropping coverage for thousands of residents.

--Reported by Adam Cohen/Atlanta and James Willwerth/Tucson

With reporting by ADAM COHEN/ATLANTA AND JAMES WILLWERTH/TUCSON