ATLANTA -- Louisiana insurance commissioner Jim Brown has proposed that the state set up a managed health care system in order to head off a looming $740 million budget gap in fiscal 1996 expected to result from changes in the federal Medicaid program.

Brown is pitching his idea as the federal government prepares to phase out its "disproportionate" Medicaid payments to Louisiana at the end of the state's current fiscal year, June 30, 1995.

Louisiana received $740 million in extra Medicaid funding this year under the program, which in recent years has awarded supplemental Medicaid payments to states that have a large portion of poor citizens in public hospitals.

State officials had hoped to be granted a continuation of this funding into fiscal 1996, but recent discussions with federal officials indicate that option is closed, Brown said. Accordingly, Louisiana is now faced with a large budget problem in fiscal 1996 if it wishes to continue to provide health care services at present levels to Medicaid patients.

"We are in the process of coalescing what we need to do, and I think the best approach will boil down to a managed care plan that will seek to cap the costs" of Medicaid patients, Brown said in an interview.

Under Brown's proposal, the state would pool all of its health care dollars under a managed care approach. Instead of obtaining separate fees for Medicaid services, Louisiana would then pay designated insurers or health plans a fixed amount to cover a fixed number of patients.

Brown said this would not only allow the state to cover its current Medicaid population, but also cover a "significant" portion of uninsured patients now covered by the state's charity hospital system. The use of a fixed cost approach could save Louisiana at least $250 million in outright savings, he said.

Using these savings and a Federal research and development waiver that would cap Medicaid spending at 95% of current levels, the state must then come up with $350 million to continue to draw federal matching funds for Medicaid at the current level, Brown said.

The insurance commissioner said that much of this could be made up by turning over the management of the state's charity hospital system, currently under the Louisiana Health Care Authority, to the Louisiana State University Medical School. As a teaching facility, the university is in a position to draw greater reimbursements from payers than the charity system, Brown said.

A possible way to ensure the waiver from the federal government is to guarantee that the state will hold future increases in its managed health care costs to the consumer price index, currently between 4% and 5%, Brown said. He noted that two other states in the Southeast, Tennessee and Florida, have recently obtained such waivers.

Brown said his proposal does not require ratification by the U.S. Congress, but he acknowledged that it would take a legislative session to achieve such changes in Louisiana. Gov. Edwin Edwards has committed himself to working out a solution, Brown said.

Brown said he is asking private health care insurers to provide ideas on a comprehensive state health plan that would include those not covered by insurance and not eligible under the federal Medicaid program. He said that proposal would be due by Dec. 20.

A spokesman for Edwards said that the governor will work with federal officials, expected to visit the state this week, but that Edwards is not at this point planning to call for a special legislative session on health care reform.

Rose Forest, the state's secretary of health and hospitals, could not be reached for comment.

Legislative sources said that a special session on health care is not likely until January, before the beginning of the state's regular session in March.

Brown said that Louisiana officials met recently with U.S. Health and Human Services Secretary Donna Shalala, who said she would send a team to Louisiana this week to begin discussing the state's ideas and a possible waiver.

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