When the Medicare prescription drug benefit begins on January 1, 2006, about seven million beneficiaries face more restricted drug formularies. Currently, these "dual eligible" individuals receive their drug benefit through state Medicaid programs, which offer more liberal formularies than what will be expected of the new Medicare drug plans.

In addition, most of these high-risk patients will be enrolled in stand-alone prescription drug plans (PDPs) at risk for drug costs only. Unlike health plans, which are at risk for the full spectrum of care, PDPs will have no financial incentive to use drugs to avoid costlier hospitalizations.

A new report sponsored by the American Society of Consultant Pharmacists (ASCP) describes a variety of health risks to seniors and disabled persons (particularly those in nursing homes) posed by drugs excluded under the Medicare drug benefit.

The author, Dr. Richard G. Stefanacci, executive director of the Health Policy Institute at the University of Sciences in Philadelphia, concludes:

While the magnitude of the change from the current Medicaid coverage of many medications for dually eligible residents is enormous, the real costs may not be realized for some time. These will come in the form of costly medication substitutions, potentially avoidable emergency room visits and admissions and, even worse, untimely deaths.

Some legal gurus are questioning the constitutionality of a key provision of the Medicare prescription drug benefit: the so-called "clawback" provision that requires states to send the federal government cash to help cover the cost of drugs for dual eligibles. The mandatory payments are enormous - $6 billion in 2006 and over $48 billion (likely much more) during the first five years. And controversial idea of making states pay for a federal program benefit has generated strong criticism from governors and state Medicaid directors.

Recent decisions by the U.S. Supreme Court and appeals courts have placed new restrictions on the ability of Congress to use its spending power to "encourage" state action. The clawback - and the consequences of late payment - would appear to cross the line. When Congress attaches conditions to federal funding, the Supremes say "the financial inducement offered by Congress might be so coercive as to pass the point at which pressure turns into compulsion."

No doubt some states will go to court to challenge the clawback. It may be hard for the feds to argue in court that states, by signing up for the federal-state Medicaid partnership, somehow waived their sovereignty and agreed to remit state cash to the Centers for Medicare and Medicaid Services to pay for a federal program.

For more on this, check out an excellent article by James N. Gardner, JD, in the January 2005 issue of State News, published by the Council of State Governments. Mr. Gardner, a former Oregon state senator, also served as a law clerk to Justice Potter Stewart.

Under President Bush's FY 2006 budget, state Medicaid programs face the prospect of significant changes, including funding cuts of $60 billion, some new expansions, and additional flexibility. Now costing taxpayers over $300 billion a year and growing at 8-12 percent in most states, Medicaid is a hot topic inside the Beltway and in state capitols.

However, Medicaid is extraordinarily complex. To prepare for the policy debate and budget battle, here are some free materials to help you understand Medicaid:

● Medicaid Program at a Glance: Two-page fact sheet summarizing the program.

● Medicaid Benefits: Services covered, limits, copayments, and Reimbursement Methodologies for each state.

● Medicaid Expenditures: State-by-state information on Medicaid spending by type of service (e.g., hospital, physician, prescription drugs).

● Medicaid Resource Book: Comprehensive reference on how the Medicaid program operates - who it covers, what it covers, how it is financed, and how it is administered.

● Medicaid Waivers: Fact sheet explaining Section 1115 Medicaid reform waivers.

Our hat is off to the great folks at the Kaiser Family Foundation, who continue to make available an impressive array of background materials and studies.

A new breed of physician is coming to a hospital near you: the hospitalist. And they hold tremendous promise for improving quality and lowering costs.

Hospitalists, who specialize in caring for hospitalized patients, are specially trained to effectively diagnose and treat high-acuity patients. Assuming primary responsibility for managing medical and surgical patients, hospitalists also help determine admissions from emergency departments and keep the patient's office-based docs in the loop.

While traditional office-based physicians visit hospitalized patients before or after office hours, hospitalists are onsite and immediately accessible to patients and their families. A fulltime hospitalist can care for ten times the number of inpatients than an office-based physician.

Supported by an array of new information management technologies, evidenced-driven protocols, and a team-based approach to care, the hospitalist model dramatically improves clinical decision-making. When done right, this translates to fewer medical errors, better patient outcomes, and lower costs from shorter stays and fewer re-admissions.

The hospitalist model is gaining attention among cost and quality conscious employers, health plans, and hospitals. Hospital services represent some 40 percent of health spending and physician decisions direct more than 80 percent of hospital services.

An excellent new study by the Center for Studying Health System Change says "Mounting financial pressures, increasing problems with patient flow in hospitals, a growing focus on patient safety, and rising malpractice costs..." are increasing use of the hospitalist model.

The number of hospitals increased from a few hundred in the mid-1990s to more than 8,000 in 2003, according to the Society for Hospital Medicine, the professional society of hospitalists.