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The Role of Medicaid Managed Care in Health Delivery System Innovation

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States are increasingly turning to Medicaid managed care as a key strategy to manage costs and encourage innovation in health care delivery. This report examines health care providers’ perspectives on the role of managed care in improving health services for low-income adults in four communities: Milwaukee, Wisconsin; Oakland, California; Seattle, Washington; and Washington, D.C. It finds that providers do not generally perceive Medicaid managed care as a catalyst for delivery system reform. Fragmented delivery systems, limits on the types of services for which managed care organizations are at risk, and the volatility in managed care markets all present challenges to improving care delivery. Policy and operational changes could enhance the role of Medicaid managed care in promoting patient-centered, coordinated, and high-quality care.

State policymakers are increasingly looking to Medicaid managed care as a key strategy to manage costs and encourage innovation in health care delivery. This study was designed to assess health care providers’ perceptions of the impact of Medicaid managed care on service delivery. The findings are based on interviews in early 2013 with providers and care coordinators serving Medicaid populations in four communities. We also interviewed staff from county health departments, health plans, and other organizations to understand local delivery systems and improvement initiatives. Each of the communities studied—Milwaukee, Wisconsin; Oakland, California; Seattle, Washington; and Washington, D.C.—has robust coverage for a significant share of low-income adults through Medicaid or other state-funded coverage, and each uses comprehensive risk-based managed care for that population. Despite differences in local circumstances and state Medicaid programs, common themes emerged in conversations across the four communities.

For the most part, providers in the four communities regard health plans more as administrative entities than as innovators in delivery system reform. They do not perceive managed care organizations (MCOs) to be the primary sponsors of efforts to improve health care delivery for Medicaid beneficiaries, but report that some are involved to a certain extent. Other community stakeholders have undertaken initiatives to improve care delivery, including activities to reduce use of hospital emergency departments (EDs), provide optimal care for patients after inpatient stays, coordinate physical and behavioral health services, and improve communication among providers. Grants or other special funding streams available for a limited time usually finance these activities. Respondents also note that community-based MCOs associated with safety-net providers tend to be more involved than other health plans in delivery system improvements.

Providers observed that managed care systems are designed to improve quality and control costs by encouraging competition among MCOs, but this may limit the extent to which competing plans participate in collaborative improvement efforts. Further, providers felt that plans that do not have strong local ties may not be as involved or as effective in community collaborations. Also, many respondents said that when MCOs are not at risk for the full continuum of care—for example, when they cover physical but not mental health services—they may have limited ability to promote integration and coordination of care.

In three of the four communities studied, managed care plans joined and left the Medicaid program just prior to or at the time of, the site visits. This led to volatility that interrupted established patient–provider relationships, changed policies and procedures, and disrupted community-based efforts to improve service delivery. Providers noted that in shifting markets, beneficiaries often are assigned to new plans without regard for their longstanding care relationships or their cultural or linguistic needs or preferences. These events may disrupt care arrangements and, in the worst cases, produce adverse consequences for beneficiaries’ health. Providers spoke about diverting resources to counsel patients about their new coverage or assist them in changing plans.

Many providers noted that fragmented health care systems in their communities do not support their efforts to improve access or deliver patient-centered care. As one said, “Our funding streams and information systems are throttling us in our attempt to do something different.” Based on providers’ perceptions, efforts on the part of MCOs to expand or enhance certain practices could be helpful in promoting the effective and efficient delivery of coordinated care.

  • MCOs could contract with local trusted organizations or develop their own care management programs. Respondents emphasized that care managers making frequent, in-person contact with patients would be more effective than efforts to manage or coordinate care by telephone.
  • Primary care providers say that plans could encourage appropriate use of EDs or better posthospital transitions by providing encounter data about hospital visits to them on a timely basis.
  • Primary care providers and referral specialists say they need accurate and current lists of network specialists who will accept referrals.
  • MCOs could consider ways to reimburse services such as group or home visits, which safety-net providers cited as being particularly helpful for patients with complex conditions.
  • Reimbursement for more types of nonphysician professionals, such as patient navigators, and payment for appropriate supportive services, such as child care, transportation, or interpreters for medical appointments, could promote patient-centered care.

Certain policy or operational changes on the part of states could promote patient-centered care in Medicaid managed care programs and improve population health.

  • To minimize market volatility, states could require that MCOs make long-term commitments to the program, discourage plan withdrawals by excluding reentry for a period of time, and minimize rounds of competition for new contracts.
  • To minimize disruption in care associated with market volatility, states could consider current provider relationships in making plan assignments and require that new plans honor prior authorizations and provider relationships for ongoing care.
  • To promote collaborative community efforts, states could develop new performance measures or pay-for-performance programs that credit MCOs for working with other community stakeholders to achieve improvements in service delivery for Medicaid beneficiaries.
  • To encourage plans to compete on the basis of quality and to help enrollees and providers differentiate among plans, states could make easily understood, comparative information about MCOs publicly available on a timely basis.

The use of managed care is not the only approach to achieving high performance in the delivery of Medicaid services. Yet, activity and interest in Medicaid managed care are high and likely to increase with the expansion of Medicaid to cover more low-income adults in many states under the Affordable Care Act. Therefore, certain policy and operational changes, as well as ongoing program monitoring and evaluation, are recommended to promote patient-centered, coordinated care.

Publication Details



L. Summer and J. Hoadley, The Role of Medicaid Managed Care in Health Delivery System Reform, The Commonwealth Fund, April 2014.