Managed care experiments with new Medicaid model

July 1, 2005

The majority Of the funding for Medicaid comes from the federal government, while the administration for the program is performed largely by the states.

THE MAJORITY OF THE FUNDING for Medicaid comes from the federal government, while the administration for the program is performed largely by the states. It is one of the largest budget functions of our state governments, and the budget for most such state programs is growing.

The two most common service models for Medicaid are traditional fee-for-service Medicaid and the capitated managed care model. The FFS model is managed and administered (including claims) by the state; whereas, the capitated model utilizes private HMOs for the delivery of healthcare.

A new concept for Medicaid healthcare delivery is being considered in some states-called "integrated care management" (ICM). This concept is designed around a non-capitated primary care case management. To date, it has been tried in rural areas where managed care has not flourished, focusing primarily on the TANF (Temporary Assistance for Needy Families) population-moms, children and babies. It purports to utilize managed care principles to assure proper utilization of healthcare services. Many of the details of this delivery system have yet to be specified or implemented.

ICM employs a non-capitated fee-for-service reimbursement system based on the Medicaid fee schedule. Generally, it has an open-access delivery system: while a "medical home" for beneficiaries is to be established, gatekeeper referrals are not utilized. The state contracts with a management company for case management services at a fee based on a percentage of the projected medical expenditures. Often, a portion of the management fee is put at risk-with the future payout based on whether projected savings and other performance standards are achieved. The ICM management company typically is responsible for network development and management, prior authorization and utilization review, quality assurance, and case management and care coordination.

MISSING PIECES ICM is an unproven healthcare delivery concept that is designed primarily to avoid the loss of UPL payments to public hospitals. It lacks the key cost-saving ingredient existing in the capitated model: the transfer of risk (for achieving cost savings) to the HMO. Without this feature and with the additional administrative costs associated with the ICM management contract, it is unlikely that ICM can achieve the same cost savings that have already proven to exist in the capitated model.

With states needing to rein in the cost of their Medicaid programs, a switch to a new untested approach is a risky venture. If the primary motivation for the ICM model is the maximization of federal funds, then federal policy should address the UPL issue so that safety net hospitals continue to receive federal UPL funds even in a managed care environment. This will allow the states to continue to benefit from a tested model with proven cost and quality benefits.

This column is written for informational purposes only and should not be construed as legal advice.

Barry Senterfitt is a partner in the insurance industry practice of Akin Gump Strauss Hauer & Feld LLP, and is located in the firm's Austin, Texas, office.