Managed care organizations look for ways to rein in Medicaid medical costs

Physicians who already have had to spend the last few months learning the ins and outs of new Medicaid managed care organizations’ medical policies and claims payment rules could face another wave of delays and hassles as a consequence of MCOs’ growing pains.

All but three states enroll Medicaid beneficiaries in managed care. More than half of the roughly 60 million Medicaid enrollees are assigned to an MCO that is supposed to coordinate and pay for their care.

During the last few years, states such as California, Kentucky and Texas have expanded the number and type of Medicaid beneficiaries who are enrolled in managed care plans, meaning their claims are paid and medical care is overseen by a health plan paid by the state.

Until this spring, most health plans were upbeat about the managed Medicaid business when they spoke to investors, particularly the expansion populations they hoped to add to their rolls. The first quarter of medical claims from this year has put a damper on that cheer. Two MCOs that specialize in Medicaid managed care, Molina Healthcare and Centene Corp., reported unexpectedly high medical costs that forced them to downgrade profit forecasts for the year — in Centene’s case by 43%.

In a June 12 research note following Centene’s announcement, investment analyst Dave Shove, of BMO Capital Markets, wrote, “Ouch!”

More specifically, he said, “Today’s announcement from [Centene] reinforces the inherent risk of rapid expansion into markets where little claims data is available.”

In a research note the same day, Goldman Sachs analyst Matthew Borsch wrote, “Some of the companies have pushed too aggressively for new Medicaid business and have accepted inadequate rates as a consequence.”

Effect could be widespread

While the most dramatic recent problems for MCOs have been in Kentucky and Texas, the same pattern could turn up in other states where MCOs are adding new types of beneficiaries or coming into some states for the first time.

Medicaid managed care experts say MCOs are likely to be especially “diligent” about using medical management techniques, such as preauthorizations and drug utilization review, that translate to more time and effort for physicians and their staffs.

Richard Yadon is president and CEO of Brentwood, Tenn.-based Managed Medicaid Services, a consulting firm with MCOs as clients, and hosts an online radio show about Medicaid managed care. He said MCOs are faced with having to “do more with less” as state budgets shrink, so in the long term, they are looking to technology and wellness programs as ways to control medical spending. In the short term, he said they will keep using their standard medical management tools.

“They are becoming more proactive in engaging with individual physicians about appeals, prior authorizations,” he said. “They’re not necessarily new policies or more aggressive policies, but they will be more diligent about them.”

Joel Menges is executive director of Special Needs Consulting Services, a Washington-based firm that helps design coordinated care programs for Medicaid and Medicare beneficiaries.

He said MCOs’ focus for cost cutting isn’t on payments to physicians, but on keeping patients out of the hospital, or making sure that enrollees aren’t needlessly taking an expensive brand-name drug when they could be prescribed a generic. Rather than hitting physician payments directly, MCOs’ push to control referrals and prescription costs could cost physicians time, he said. He said that time goes unpaid under a fee-for-service model, but that MCOs are in many cases moving to pay primary care physicians on a capitated basis so they are compensated for the time they spend coordinating care for Medicaid patients.

Pay cuts coming

Centene executives, talking with investors at their annual meeting on June 14, said they planned to cut some payments to hospitals in response to high costs in Kentucky, along with adopting an emergency department triage program and trying to reduce the typical length of stay for babies in neonatal intensive care units.

Michael McCue, a professor of health administration at Virginia Commonwealth University, co-wrote a 2011 paper looking at Medicaid MCOs’ financial health. He echoed Shove’s thoughts about the difficulty MCOs face in predicting medical costs for a group of people who haven’t been under managed care before.

If MCOs can’t control spending and leave the market at the end of their contracts, MCO turnover or a return to a fee-for-service model could further disrupt physicians and patients.

“Then you have total disarray again — you’re back to chaos,” he said.