Some Medicaid managed care plans have higher costs, lower quality

A study that tallied the financial and quality scores of different types of Medicaid managed care organizations found that shareholder-owned, Medicaid-only companies fared worst at keeping overhead low and quality high. However, the report said the organizations might end up being better at handling the growth in Medicaid enrollment expected to happen as health system reform rolls out.

The study found that Medicaid managed care organizations have higher administrative costs and lower quality scores than nonprofit insurers and publicly traded companies that have multiple lines of business. The Commonwealth Fund, a left-leaning Washington, D.C.-based policy think tank, sponsored the study.

For 2009, the shareholder-owned plans that the study referred to as "Medicaid-focused" had an average 14% administrative cost ratio, compared with 10% for nonprofit MCOs. The administrative cost ratio is the measure of Medicaid administrative and claims adjustment expenses as a percentage of Medicaid premiums.

The average administrative cost ratio for plans that focus on Medicaid business was 12%, compared with a 10% average ratio for plans with multiple lines of business plans. A few percentage points difference can mean millions of dollars in Medicaid spending on administrative costs, the study said.

Researchers also examined plans' scores on the Healthcare Effectiveness Data and Information Set and found that nonprofit plans did significantly better than shareholder-owned MCOs at ensuring that members receive preventive care and managing members chronic diseases.

Even small differences in administrative costs and quality of medical management programs will be important to MCOs as they try to win state contracts and compete over a rapidly growing customer base.

A sharp increase in the Medicaid rolls is in progress because of the recession and its aftermath, and Medicaid is expected to grow by as many as 16 million people by 2019, thanks to expanded eligibility that is built in to the Patient Protection and Affordable Care Act.

About 55% of Medicaid enrollees, or 18.8 million people, are enrolled in a Medicaid MCO, as opposed to programs managed directly by state agencies.

States can barely afford the program with the current enrollment, and many have cut benefits and eligibility. Others, including Florida, Kentucky, Louisiana and Texas, have either initiated or expanded managed care enrollment in their Medicaid programs.

Leaving medical management to these managed care organizations allows states to make better predictions on costs and in general spend less on care for the growing population of Medicaid enrollees. Many managed care contractors also promise to improve enrollees' health by managing chronic disease.

Michael McCue, professor of health administration at Virginia Commonwealth University and one of the report's authors, said he knew some would interpret the report as meaning that publicly owned Medicaid MCOs waste money and don't take good care of enrollees. But that wasn't his conclusion, he said. In fact, rapid Medicaid growth may favor large, publicly owned companies, because they can spread the cost of infrastructure around all of their lines of business.

"These publicly traded Medicaid plans, in my opinion, are in a better position to support the expansion," he said.

J. Mario Molina, MD, the CEO of Molina Healthcare, a Medicaid-focused, shareholder-owned MCO based in Long Beach, Calif., questioned the study's methodology. He is contracted in 16 states, and covers more than 4 million people.

Dr. Molina said the company runs an extremely low administrative cost margin across all its states. "We are stewards of the government's money; therefore, we must be good stewards," he said.

He said the company reported a 7.5% administrative cost ratio across all its states in 2009 -- much lower than the 14% average for the Medicaid-focused plans in the report.

Dr. Molina said he was worried at how the report might be interpreted by the public and policymakers who are trying to figure out how to cover the growing Medicaid population.

"My personal feeling is we need good studies. I'm disappointed this study doesn't give us all the information we need," he said.

Andrea Gelzer, MD, is chief medical officer for AmeriHealth Mercy, a Medicaid-focused MCO that is co-owned by Mercy Health Systems and Independence Blue Cross and based in Philadelphia. She said state Medicaid program directors look at administrative cost ratios when they award contracts to MCOs, but always in context with a list of other factors.

In the next few years, Dr. Gelzer expects companies that can ensure members' access to care will succeed. With so much growth in the program, managing a network of physicians and hospitals who can care for beneficiaries -- and accept new Medicaid enrollees as patients -- will be key. "Ensuring access is going to be job No. 1," she said.