Medicaid Managed Care: The Answer Is In The Question

Medicaid Managed Care: The Answer is in the Question

Managed care has a long and robust history in the Medicaid program, but there are still questions that deserve additional probing, as pointed out astutely by Goldsmith and colleagues in their recent Health Affairs blog posts here and here. Nonetheless, there is also clear evidence demonstrating the inherent value in the use of Medicaid managed care organizations (MMCOs). This value is most clearly demonstrated in three areas: the cost savings provided by MMCOs; the efficiency of the MMCO model as compared to alternative delivery systems; and the high level of care provided to vulnerable populations.

MMCO Financing and Savings to the Medicaid Program

According to a study by PwC, over seventy percent of all Medicaid beneficiaries are currently enrolled in MMCOs and that number continues to grow. This is largely attributed to the goal of states to limit risk and uncertainty, while optimizing the quality of care and the role that MMCOs play in helping states to achieve that goal.  A Menges Group analysis (Potential Savings of Medicaid Capitated Care: National and State-by-State Estimates, July 2017) estimated that the MMCO model delivered nationwide Medicaid savings of $7.1 billion in 2016. In addition, the report estimated that had all remaining fee-for-service (FFS) expenditures been transitioned to full risk managed care during 2017, additional $5.0 billion would have been saved.

One element of Medicaid managed care financing that is often confusing is the requirement for MMCOs to maintain risk-based capital (RBC). RBC as defined by actuarial firm Milliman is reserve funds required by the states to assure plan solvency. Plans supply RBC and dedicate a percentage of their revenue towards maintaining their required reserves.  If an MMCO’s RBC falls below a certain threshold, it is subject to state action.  State payments that increase the RBC pool are part of the capitation rates paid by states and established by the operating agreements. The plans’ RBC funds are not a “slush fund” despite state efforts to “raid” them to help finance other state programs or balance their budgets.

Another fundamental aspect of the MMCO public (state)-private (MCO) partnership are state determinations of “actuarially sound” rates for the diverse populations covered by Medicaid. By definition, actuarially sound rates “are projected to provide for all reasonable, appropriate, and attainable costs that are required under the terms of the contract and for the operation of the MCO, PIHP, or PAHP for the time period and the population covered under the terms of the contract.” (42 Code of Federal Regulations §438.4(a)).

Rates are provided for traditional Medicaid beneficiaries (pregnant women and children) as well as high-need populations (aged, blind, and disabled) and the new Medicaid expansion population (childless adults). While there is a federal requirement for actuarial soundness, there is wide variation in how states determine their capitation rates; therefore, it is important that the manner in which actuarial soundness is determined does not underpay MMCOs for the risk that they carry.

The Efficiency of the MMCO Delivery Model

The efficiency of the MMCO model is best attested to by the fact that state rate books, which establish the capitated rates paid by states to MMCOs, includes an efficiency factor, which, according to the Medicaid and CHIP Payment and Access Commission (MACPAC), adjusts the payment for services that plans are expected to manage, and creating an incentive to reduce their use over time, e.g., reductions in unnecessary inpatient admissions and brand-name drugs when a generic is available. This efficiency factor accounts for the savings achieved through the use of managed care and which are not easily duplicated in other delivery models.

For example, accountable care organizations (ACOs) -- groups of doctors, hospitals, and other health care providers who come together voluntarily to give coordinated care -- have been promoted as a potential alternative delivery model in Medicaid. However, they are in limited use with just 12 states having active Medicaid ACO programs, according to the Center for Health Care Strategies. In order to capture the benefits of care and services integration, and to avoid unnecessary duplication and bifurcation of care, ACOs should operate as elements of an MMCO network with their rates incorporated into the overall per member per month capitation rates of comprehensive MMCO services.

The use of MMCOs also saves on administrative costs according to a study by health care consulting firm The Lewin Group. However, some states that use managed care also incur significant levels of state administrative overhead costs.  It is worth nothing that these states often retain a portion of their Medicaid population in fee-for-service (FFS), requiring the maintenance of state administrative functions in addition to outsourcing of costs.  

MMCOs Promote High Quality Care

Finally, there is a stark contrast in performance and quality oversight monitoring between FFS and MMCOs. In FFS there are limited monitoring and few states are utilizing HEDIS or other nationally endorsed measures to evaluate the quality of services provided under the FFS model of Medicaid. By contrast, state contracts with MMCOs often include financial withholds for specific quality measures. Some states also auto-assign beneficiaries (i.e. where states take lead in allocating beneficiaries to different plans) to MMCOs based on quality measures, as noted in a white paper by Health Management Associates.

The benefits of high-quality performing managed care plans are well documented by groups like the Institute for Medicaid Innovation and the Anthem Public Policy Institute. For example, an HHS-contracted 20-state survey of managed care programs found that use of preventive care, including more timely receipt of prenatal care, improved among MMCO and CHIP enrollees over a 10-year period. A litany of specific examples of MMCO driven improvements in quality of care abound on a state-by-state basis.

Taken together, the evidence for the benefits of managed care, especially in Medicaid, compared to other less comprehensive models for care coordination and care delivery that do not take full risk is clear. Data interpreted to the contrary must be viewed in the context of the operational and regulatory frameworks and constraints in which MMCOs operate and should not be used to further fragment health care delivery and payment. To the contrary, it is through greater use of integrated, all-risk managed care that Medicaid can deliver better health at lower costs.