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Government Looks to Managed Care as Cost Saver for Medicaid

By Rebecca Adams, CQ HealthBeat Associate Editor

July 20, 2012 -- Federal officials are planning a widespread test next year to see whether moving as many as 2 million low-income people into managed care health plans can save money without undercutting the quality of the care patients get. But even before it launches, the experiment is turning into a test of wills, with critics so far unable to convince the government to scale it back.

On July 18, the official in charge of the effort said at a Senate Special Committee on Aging hearing that federal regulators do not intend to significantly reduce the number of people who would be shifted from fee-for-service plans, where they see the doctor of their choice, into managed care, which sometimes has access restrictions.

The patients are part of the so-called dual eligibles, 9 million low-income people who qualify for Medicaid, the federal-state program for the poor, and Medicare, the federal program for the elderly and disabled.

Critics of the proposed project say it does not fit the concept of a demonstration because it is moving too fast with too many beneficiaries. But Melanie Bella, director of the Centers for Medicare and Medicaid Services (CMS) office overseeing the pilot, said that enough people must be included for agency officials to gauge whether managed care will work under a variety of conditions. She also said that the status quo, in which patients see a range of medical professionals who often do not closely coordinate their care, is not good enough.

"We are sticking with our 2 million target," Bella said after the hearing.

Savings, or Nothing

CMS officials will begin announcing as soon as August which states will get the green light to start shifting patients into managed care next year. According to guidelines CMS sent to states, the agency will work with individual states to determine payment rates based on spending and on expected savings. If the switch to managed care does not produce savings for both CMS and the state, "the demonstration will not go forward."

Twenty-six states applied, hoping to save on Medicaid. Seven want to move almost all of their dual eligibles into managed plans. Federal officials don't expect to approve all the applications, so the number of beneficiaries could be fewer than 2 million.

But critics—including Sen. John D. Rockefeller IV, D-W.Va., who helped write the language in the health overhaul law (PL 111-148, PL 111-152) that created Bella's office—say managed care might not work well for these patients, who have some of the most complex health care needs in the Medicare and Medicaid populations. Earlier this month, Rockefeller called on CMS to redesign or scrap the initiative.

Doctors and hospital executives worry that they won't get paid enough under this experiment. "Any achievable savings should come from improvements in health outcomes and quality, not restrictions in benefits or reductions in provider payments," the Federation of American Hospitals, the for-profit hospital trade group, said in a July 11 letter to senators.

Patient advocates fear not all of the services people receive now will be covered and that patients might not be able to keep using the providers that have overseen their care in the past.

Urban Institute expert Robert Berenson, a former vice chairman of the Medicare Payment Advisory Commission (MedPAC), recommended at the aging panel hearing that no more than 500,000 people be moved into managed care.

"Assume that after two or three years, CMS's outside academic evaluators find quality or access problems in state programs, perhaps from inadequate provider networks," said Berenson, something that would indicate the demonstration is not working and should be changed or stopped. "Would a future CMS administrator actually then get on the phone to the involved governors and tell them to shut down their programs and return to the status quo ... once again dislocating beneficiaries, while disturbing state budgets? It won't happen."

Federal officials and lawmakers are always hunting for ways to cut Medicare and Medicaid spending without jeopardizing patient care. Supporters of the dual-eligible test say it makes sense to target patients with the highest costs. State and federal spending on Medicaid totals $400 billion a year. Although only 15 percent of Medicaid beneficiaries are dual eligibles, they consume 39 percent of Medicaid costs.

Medicaid and Medicare both use managed care to control costs for their populations, but not for many dual eligible patients because their care is more complex and they often need to see specialists, including mental health providers—something that might not be as easy under managed plans.

Some state officials say the time for a change is long overdue. "We have had 45 years of fragmentation," said Thomas Betlach, who oversees Medicaid in Arizona. "We know the current system is not working for the people we serve or the taxpayers who are footing the bill."

State and federal officials, medical providers, insurers, patient groups and industry executives are all watching to see how the demonstration unfolds.

"There is a lot riding on whether or not coordination and financial alignment can work to truly improve the quality and contain the cost of care for dual eligibles," said Sen. Bob Corker, R-Tenn.

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