Pennsylvania Medicaid saves billions with mandatory managed care

The number of people in Medicaid's managed care plans is growing, but more of these new enrollees are children and their parents, rather than the higher-cost aged, blind, and disabled population. In 1997, Pennsylvania began to implement a program called HealthChoices and move people on Medicaid into mandatory managed care.

"I think that including the aging, blind, and people with disabilities was really an advantage to us," says Michael Nardone, acting secretary of public welfare for the department of public welfare's office of medical assistance programs. "Some states have not necessarily gone forward with some of the more complex populations, but that is something that Pennsylvania had the foresight to do early on."

HealthChoices saved the state $2.7 billion over a five-year period, according to a 2005 report by the Falls Church, VA-based The Lewin Group, Comparative Evaluation of Pennsylvania's HealthChoices Program and Fee-for-Service Program.

Since 2005, significant savings have continued to accrue and are projected to continue. The rate increases for Pennsylvania's mandatory managed care plans have been one-half of the medical cost trend in the managed care zones for the five-year period ending Dec. 31, 2009.

"We've had a pretty long history of managed care in Pennsylvania, so we have a fairly mature program," says Mr. Nardone, who has been the state Medicaid director since early 2007, but was in the provider community when HealthChoices was first implemented. At that time, both consumers and providers were voicing concerns that this change would limit a consumer's choice of providers, or their access to care.

"At that point in time, managed care was still not as pervasive in the Medicaid world. But if you were to talk to our consumers now, you would find that we have overcome those concerns," says Mr. Nardone. "Stakeholders are now generally supportive of managed care in Pennsylvania, but that was something we had to develop over time."

Outcomes are achieved

Support was achieved by involving stakeholders in the managed care program's development. Other key factors included giving providers enough time to make a smooth transition to the new program and having the necessary infrastructure in place.

"It isn't that you just turn Medicaid over to Medicaid managed care and then let managed care plans go off and do their own thing," says Mr. Nardone. "It isn't enough to just go to managed care. We've really had to manage the managed care program to ensure we get the necessary outcomes and make sure the managed care plans are tasked to achieve them."

This is done in a variety of ways, including using pay-for-performance initiatives. "That is one of the things I'm particularly proud of," says Mr. Nardone. "Paying managed care plans to reach certain care objectives is really the strategy we use, to be sure we are maintaining a cost-efficient program, while at the same time, achieving the type of health outcomes that we want to see for our consumers."

The infrastructure needed for this, though, was something that had to evolve over time. "It wasn't something that was in place on day one. You need to develop staff capacity; that is something that takes some time," says Mr. Nardone.

Although the goal from the beginning was to take managed care statewide, it was rolled out in the Philadelphia area first. Pittsburgh and the surrounding counties came next, and nine years ago, a third zone was developed for mandatory managed care in the south central, or "Lehigh/Capital" zone.

However, Pennsylvania's managed care model may not have been an ideal model in the state's rural areas. "Difficulties in establishing sufficient provider networks, and the feasibility of compliance with the requirements that federal regulations impose on managed care organizations, compelled serious consideration of an alternate method for delivering Medicaid services in rural Pennsylvania," explains Mr. Nardone.

Ultimately, the department chose an enhanced primary care case management (PCCM) model with a disease management component. Known as ACCESS Plus, the PCCM program operates under Pennsylvania Medicaid's fee-for-service system.

The PCCM program is operational in 42 of Pennsylvania's rural counties. Recipients residing in 25 of these 42 counties also have a choice between managed care and PCCM, as ACCESS Plus and voluntary managed care plans operate side by side.

Performance is monitored

In Pennsylvania, the elderly and disabled represent about one-third of the Medicaid population, but consume about two-thirds of Medicaid resources. "Each state has its own statistics on this, but it is the high-cost patients that do consume a significant portion of resources," says Mr. Nardone. "So, if we can better manage their care and do some better preventive services up front, we can bend the cost curve in terms of better managing care."

A two-pronged strategy is used to pay HealthChoices managed care organizations (MCOs). "We have certain federal requirements around what we have to pay the MCOs at minimum," says Mr. Nardone. "We basically start at that point, and the managed care entities can earn additional payments based on their performance."

These pay-for-performance initiatives are based on 12 Healthcare Effectiveness Data and Information Set measures, including cholesterol management for patients with cardiovascular conditions, glucose screening for people with diabetes, frequency of prenatal visits, and lead screening for children. "We use it to monitor the performance of the MCOs, but it also has an impact on their bottom line. They can earn up to 2.5% of their capitation related to these measures," says Mr. Nardone. "We are pretty proud of that aspect."

A similar set of performance measures are used to evaluate the disease management/PCCM vendor. In nine of the 12 quality measures, significant improvement has been seen since the pay-for-performance program was established in 2005.

"Again, it's not just about contracting with a managed care entity. You have to manage that process," says Mr. Nardone. "I think our pay-for-performance has set up a pretty good structure to ensure good quality and be cost-efficient."

Cost increases are faced

"Because of the infrastructure we have built, we have been able, up to this point, to forestall some of the draconian cuts we have seen in other states," says Mr. Nardone. "Still, this is a real challenge in an environment where revenues are declining or stagnant. Even though we are managing the program as well as we can, there are cost increases."

The FY 2010 budget includes a 4% increase in the capitated, per-member, per-month rate paid by the state for the 1.2 million enrollees in managed care. "We have had to reduce hospital payments, but not on the magnitude of some other states," says Mr. Nardone. "At a time when revenues are stagnant or declining, that is still a cost that we have to absorb within the budget. That is why there is still pressure on the Commonwealth and the department budget."

Mr. Nardone says, however, that the state is "pretty well positioned on health care reform. We think that this will actually be a potential net savings to Pennsylvania through 2018."

The drug rebate provisions included in health care reform will bring significant advantages to the state. "We have tried to carve out the pharmacy benefit but have not been able to," notes Mr. Nardone. "So, the provision that enables us to collect federal rebates for prescription drugs provided through MCOs helps us significantly. It is a budget savings and something we are counting on for the next fiscal year. We are putting the pieces in place so we can aggressively take advantage of that provision."

Pennsylvania also has programs that provide coverage for single adults. There is a general assistance program for chronically disabled adults who otherwise are not eligible for Medicaid. An adults basic program covers individual and family members up to 250% of the federal poverty level.

"These are folks who would be considered 'newly eligible' under health care reform. So, when the provisions kick in, in 2014, we should be a good position to take advantage of the federal matching funds available for those individuals," says Mr. Nardone.

There are currently 40,000 individuals in the programs. "So, to the extent that we will now receive 100% federal financial participation [FFP], that is additional money to the state," says Mr. Nardone. "If a state doesn't have a state-only program for low-income individuals like we do, they will not see the benefits that we will. It could be a cost to them, because they have to pick up the state share."

Another area of interest is the rebalancing incentive for long-term care. "We are below the threshold and are potentially eligible for that funding," says Mr. Nardone. "Moving towards more community-based services for folks in nursing homes is something we have been pursuing for a number of years. The ability to get enhanced FFP for those services is something we can take advantage of."

The state will incur costs to upgrade or replace its eligibility systems and administrative costs for drawing down the federal drug rebates for the MCOs. "As we plan our health care reform efforts, our budget folks are at the table. They are ensuring, to the extent there are additional resources required, that we are building that into our budget," says Mr. Nardone. "But when we look at the broader picture, I think the potential savings will be greater."