Collaborative Healthcare Series: The Advent of Medicaid Managed Care


While we previously touched on the history of managed care, this next post for Healthify Insights’ Collaborative Care Series will focus on the coordination and development of Medicaid managed care.

The Establishment of Managed Care             infographic.jpg

The advent of Health Maintenance Organizations (HMOs) initiated the managed care movement. These entities originated out of a mix of employers who sought benefits for their employees, providers who sought increased patient revenues, and consumers who sought access to improved and affordable healthcare. HMOs contracted with physicians in a fee-for-service practice, and would coordinate care by requiring patients to obtain referrals from their primary care physician (PCP) before seeking care elsewhere. The goal was to reduce costs by cutting down on providing unnecessary ancillary care, and preventing the duplication of services. The HMO model gained momentum during the 1960s and 1970s before experiencing rapid growth up through the early 1990s. To this day more than 90 million Americans receive health care under an HMO plan.

The Evolution of Medicaid Managed Care

While HMOs experienced significant growth, hefty costs continued to plague the American healthcare sector, especially the Medicaid population. State Medicaid programs endured these high costs while also coping with beneficiaries who lacked access to high-quality and coordinated care. In 1982 states began contracting with private insurance companies to provide care for groups of Medicaid beneficiaries, forming the first Medicaid Managed Care Organizations (MCOs).

What is a Medicaid MCO?

These Medicaid MCOs were inspired by the HMO model, but sought to improve upon it. They began by further emphasizing the coordination of care, and implementing innovative payment structures to further curb healthcare expenditures while also ensuring the provision of high quality care. While the MCO model actually began under the Medicare umbrella before branching into Medicaid, this form of providing healthcare gained significant headway once implemented in the Medicaid space. These Medicaid MCOs allowed for the delivery of Medicaid benefits in addition to ancillary services by forming contracts with state Medicaid entities, and accepting set per-member-per-month (PMPM) capitation payments for these services. This set PMPM fee places full financial risk for the provision of services on the MCO, because they are responsible for any additional charges over the fixed rate. However, these MCOs are also allowed to retain any savings resulting from beneficiaries whose healthcare costs fall under the set amount. Additionally, states will often adjust these rates for specific populations based on age, gender, disability, and other identifying factors.

This capitation payment method and the assumption of risk by providers is known as risk-based managed care, since providers are assuming full financial risk, which varies from other models such as the Shared Savings Program. Additionally, MCOs are required to meet federal and state regulations that ensure beneficiaries’ access to adequate, efficient, and high-quality care. States will often exempt certain services from their MCO contracts, such as prescription drugs, and allow providers to obtain subcontract agreements with other prepaid health plans in order to lessen some of the financial burden.

The Success of the Medicaid MCO Model

The overall goal with the formation of Medicaid MCOs stems from a desire to manage care, reduce costs, improve health plan performance, and ensure adequate care delivery while improving health outcomes. As a result, many states and MCOs have seen success with the managed care model and implemented supplementary services to coordinate care outside of traditional care management, typically focusing on improving care for populations with complex health needs, and addressing issues such as social determinants of health.

By 2010, MCOs provided coverage for over half of all Medicaid beneficiaries across 35 states. Additionally, The Lewin Group, a national health care and human services consulting firm, published a report that analyzed studies of 24 states using the Medicaid MCO model. Every state in the study demonstrated a reduction in their PMPM spending thanks to Medicaid managed care, with savings moving upwards of 20 percent. Additionally, several states have seen cost savings that are attributable to decreases in inpatient utilization. For example, California saw reductions in preventable hospitalizations by over 25 percent with the adoption of the MCO model for their Medicaid population. Furthermore, PMPM drug costs were compared across populations, and were 10-15 percent lower in managed care settings than in fee-for-service settings.

Where Healthify Can Help

While the MCO model has proven effective for many states, there is still significant room for improvement, and this is where Healthify can help. Our network of validated community-based resources allows users to successfully address social determinants, therefore reducing healthcare costs and preventing unnecessary hospitalizations. Additionally, our streamlined care coordination platform allows for easy referral tracking, and improved efficiency by reducing referral time by over 70 percent. By supporting organizations like MCOs, that seek to provide coordinated managed care, Healthify can help address social determinants head on, resulting in decreased healthcare costs, and the provision of efficient high-quality care for those in need.

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Topics: Healthify Medicaid managed care

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