States Considering Contracting With Managed Care Firms To Implement Medicaid Expansion

The Washington Post’s Alec MacGillis looks at some of the pitfalls and challenges states that outsource their Medicaid programs to private managed care companies will face as they try to cover some 16 million people over the next 10 years:

With an expanded Medicaid absorbing at least half of those newly covered under the health-care law, Medicaid HMOs will play an outsize role in managing costs. Some studies suggest that managed Medicaid has, in certain states, slowed the increase in costs without harming care, and even improved care for some conditions. The theory is that insurers can save states money by reducing avoidable treatments — by monitoring diabetics to keep them from needing dialysis, for example.

But managed Medicaid has also produced a steady stream of controversies. Last year, insurer WellCare agreed to pay $40 million in restitution to Florida after it admitted shortchanging children on Medicaid by setting up a subsidiary to make it look like WellCare was spending more on medical care than it really was.

Today, 70 percent of the 48 million Medicaid enrollees are in a managed plan. States typically pay insurers a per-person rate and the insurers, or HMOs, negotiate rates with doctors and hospitals.

Indeed, from Medicaid’s beginnings in the mid-1960s, states have struggled with skyrocketing health care costs and diminishing provider participation (the program’s reimbursement rates are generally lower than private insurers or Medicare). By the 1990s, policy makers began to see managed care as a way to control spending and improve patients’ access to primary care physicians. Approximately 70% of Medicaid enrollees are already covered by some sort of managed-care plan “rather than by a fee-for-service model in which the states simply pay bills for care.”

With the new health care law, private insurers are hoping to expand that reach. In April, UnitedHealth Group Inc. released a report “describing a variety of managed-care strategies it says will help cash-strapped states solve budget problems and doctor shortages that hobble the government health-care programs for the poor.” Cash strapped states are strongly considering partnering with private insurers, but the evidence on the degree to which managed care actually accomplishes these goals varies. Medicaid patients in some states seem to have better access to doctors, while other surveys have found that overall improvements in access associated with managed care are minimal.

States view managed care as way to budget their Medicaid expenditures and managed care firms consistently claim that they’re relying on coordinated care to reduce costs. That may be true in some instances, but if you talk to providers, they’ll tell you that many commercial companies simply look out for short term profits and pay them less than private insurers. Consequently, they pull out of the Medicaid program.

So it seems that as states begin to think about how to expand their Medicaid programs and contract with managed care companies, they need to remain vigilant in ensuring that the firms are paying providers in thoughtful ways, rather than simply reducing their reimbursements. As payers, states can become drivers of innovative payment reforms, but they need to keep an eye on patient outcomes and resist the urge of simply passing along risk to a third party.