HEALTH CARE/Joan Retsinas

Clawback Time


It's clawback time for states. Uncle Sam has presented them with a hefty invoice for Medicare Part D. Forget their careening deficits, their cutbacks in human services, their incipient taxpayer revolts. Uncle Sam wants his money.

The roots of the clawback (legislative term: "phased-down State contribution") lie deep within the innards of Congressional deliberations. Before Medicare Part D, states paid for all the outpatient drugs of residents enrolled in Medicaid. Medicaid enrollees include not just mothers and children, but elderly enrollees whose low incomes qualify them for the program as well. These "dual eligibles" get both Medicare and Medicaid. The latter pays for outpatient drugs. States have been sharing the tab for outpatient drugs for Medicaid enrollees -- they pay on average 43%, and the federal government pays the rest.

Under Medicare Part D, all Medicare enrollees have prescription coverage. States should save some Medicaid dollars.

That was good news until federal budget-busters juggled the numbers. Part D promised to be a billion-dollar boondoggle, in part because Uncle Sam would not intervene to set prices on drugs. Who would pay the tab? Enrollees would pay some of it, via premiums. That left too hefty a share for Uncle Sam to pass on to taxpayers. The budgeters looked to states. Under Part D, states would save a bundle. Why not tap into that bundle, forcing states to kick back some of their savings to Uncle Sam under a "clawback" provision? Federal projections called for states to contribute $6 billion in 2006 and up to $15 billion in 2013.

States have known about the clawback provision. They just didn't know how costly this payback would be until bills came due this year.

The formula was elegantly simple. Each state would calculate its 2003 Medicaid drug expenditures for "dual eligibles," then pay a percentage of their savings to the federal government. In the first year, they would pay 90% of the savings, declining to 75% in year 2015.

Like a crafty loan shark, Uncle Sam skewed the rules. The clawback was set at 2003 spending levels. States that used managed care and bargaining to bring down their drug expenditures after 2003 were penalized: They had to pay the higher percentage, even though their actual drug expenditures right before Medicare D took hold were lower. Under Medicaid, states negotiated for rebates and for lower prices. Under Part D, states no longer negotiate with drug companies for the drugs of dual eligibles. (Nor does Uncle Sam.)

California's budgeters have calculated that, under Part D, the state may show a small savings in year one, but losses after that. Other states have done the math. Notwithstanding the rosy rhetoric of savings, Uncle Sam will come out ahead.

To date, attorney generals in Texas, New Jersey, Kentucky, Maine and Missouri have sued the US Department of Health and Human Services. 10 states joined in friends-of-the-court support.

Medicare Part D is morphing into the "bad seed" of federal programs. Since its birth, it has confused would-be enrollees with its 40+ plans, choices that are not choices and sign-up provisions that require a computer with a DSL line or the patience of Job to wait on the phone for somebody to explain the logistics. It has enraged enrollees, particularly those who used to get pharmaceutical support from their states: They may be paying more under Part D, and they may not be covered for all the drugs they take. It has dismayed physicians, who now must look at insurance charts before prescribing medications. It has angered pharmacists, particularly the independents, who are losing money in part because Uncle Sam doesn't pay his bills as quickly as he wants states to pay theirs. No wonder the president didn't tout Part D in his state of the nation address.

Now Part D has enraged governors.

In the 1956 movie, The Bad Seed, a lightning bolt did away with outwardly angelic Rhoda, after she wreaked too much havoc. I'm hoping for a bolt from Congress.

Joan Retsinas is a sociologist who writes about health care in Providence, R.I. Email

From The Progressive Populist, May 1, 2006

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