3 Cost of Care Strategies for Health Plans to Mitigate Revenue Losses From Medicaid Redetermination


Health plan leaders should act quickly to implement cost of care strategies to help offset future Medicaid-related revenue losses. Steps they can take include careful reviews of pricing and of medical management to make sure that the services are medically appropriate and necessary.

Mark O'Hara of AArete say that health plan leaders need to brace themselves for revenue losses from Medicaid redetermination.

Mark O'Hara of AArete say that health plan leaders need to brace themselves for revenue losses from Medicaid redetermination.

Health plans must act now to protect their profits. Billions of dollars in revenue are disappearing due to changes in federal regulations that will cause an estimated 15 million Americans to no longer qualify for Medicaid coverage.

The sheer size of Medicaid disenrollment is a direct result of two pieces of federal legislation. Before the COVID-19 pandemic, states were required to annually review the eligibility of residents who were enrolled in Medicaid, a process known as redetermination. That stipulation was put on hold in 2020 with passage of the Families First Coronavirus Response Act, which shielded financially strapped Americans from losing healthcare coverage during the pandemic and allowed them to remain enrolled in Medicaid.

That safety net, however, ended on March 31 after Congress enacted the Consolidated Appropriations Act, which included the requirement that states once again review (or redetermine) a person’s Medicaid eligibility. That process has triggered the start of the largest disenrollment in the program’s history. The U.S. Department of Health and Human Services estimates that 17.4% of Medicaid and Children’s Health Insurance Program enrollees, or about 15 million people, will lose coverage.

Fortunately, the Great Redetermination will take at least 12-18 months or more to play out, which means Medicaid premium revenue will decrease over time and not fall off a cliff during the next several months. But make no mistake about it: Medicaid revenue will decline. For example, one of the country’s largest health plans is forecasting that its 2024 Medicaid revenue will be almost 10% less than its 2023 projected Medicaid revenue. Moreover, a recent KFF survey found that 83% of health plans are expecting their Medicaid revenue to decline.

In addition to the departure of millions of Americans from the Medicaid program, health plans’ margins will be further impacted by the healthcare needs of remaining members. The KFF survey found that 66% of plans expect members’ risk profiles (or acuity) to increase and, as a result, medical-loss ratios (MLRs) — the share of premiums going to pay for care — will also increase. The challenge for health plans, then, will be protecting profitability while ensuring quality of care for Medicaid members.

To stay ahead of the game, forward-thinking health plan leaders should act quickly to implement cost of care strategies to help offset future Medicaid-related revenue losses. Here’s how you do it:

1. Review payment systems and processes for accuracy

The configuration of a payer’s claims adjudication system affects the timing and accuracy of payments. Process enhancements to claims processing can lead to sustained improvements in profitability. But there is another area that is often overlooked: Are you 100% certain that the prices your company is paying are the same as those written in contracts with providers?

As a consultant working with health plans, I see this mistake all the time – that the prices being paid are different from those contracted. The reason is simple: It is the result of honest slip-ups made by hard-working team members. If you have not already, now is the time to review pricing and services. Dot all the i’s and cross all the t’s in your contracts – and watch how you improve cost of care metrics.

Other areas of payment configuration that should be examined include:

  • Payment and clinical policy configuration
  • State and CMS policy configuration
  • Provider data mismatches
  • Implementation of prospective fixes and overpayment recovery

Health plans also must not underestimate potential savings from revisiting provider pricing. Questions to answer range from “Are we getting the best rates in the market for each service?” to “What areas can be shifted to a shared-savings model?” You will be surprised at the savings and additional income that can be generated when you partner with providers to reduce administrative expenses and share the benefits of value-based payment models. Other areas that should be explored include:

  • Opportunity quantification
  • Segmentation and prioritization of contracting opportunities
  • End-to-end negotiation support
  • Custom fee schedule augmentation

2. Review medical management/care management services

As states wrestle with redetermination, payers can expect to see an increased percentage of higher-risk members remain enrolled in Medicaid. Health plans should review all aspects of medical management/care management to ensure that the services being rendered are medically appropriate and necessary.

A few words of caution on this point: It is absolutely critical that the health plan’s role in redetermination does not disrupt healthcare services —that members still receive treatment in a timely manner to help improve health outcomes and prevent life-threatening events.

Health plans need to conduct a deep dive into the enrollee claims files that states share. The findings from that analysis can lead to productive talks with the decision-makers at state Medicaid departments to discuss possible rate changes that could be implemented in the future.

Other areas to review include:

  • Population impact and engagement modeling for high-cost, life-threatening disease or chronic conditions
  • End-to-end disease management program development and support
  • Utilization management (UM) process review and augmentation
  • UM policy review and market alignment
  • Place-of-service redirection and optimization

3. Revisit drug cost management

Prescription drugs cost about 250% more in the U.S. than other developed countries, and prices for brand-name drugs have risen substantially more than the rate of inflation. Add those two factors together and it is easy to see why drug-cost management remains a key concern for health plans.

There is a great opportunity for health plans to better manage cost of care by working more closely with pharmacy benefit managers (PBMs). Discussions should focus on reviewing preferred drug lists for pricing accuracy and increasing access to generic and biosimilar drugs.

Health plans can also play a huge role in monitoring prescription drug use. An estimated 37% of Americans have not filled a prescription because of the cost of the drug. Medication nonadherence can lead to life-threatening consequences and result in higher costs for the Medicaid program.

Other areas to assess include:

  • PBM support and rebate review
  • Value-based contracting for high-cost drugs
  • UM strategies

The Great Redetermination is here, and it is clear there will be a negative impact on payers’ bottom lines. But by preemptively implementing strategies now, health plan leaders can reduce the impending financial impact and position their companies for improved profitability in the near future.

Mark O’Hara is a managing director and co-leader of the Healthcare Payer Practice at global management and technology consulting firm AArete.

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