Can states really manage managed care?

Basically, you’re powerless, James Fossett, a researcher with the Rockefeller Institute of Government in Albany, NY, says about the states and their management of managed care.

He reached this conclusion after looking at implementation of full-risk Medicaid managed care for the TANF (Temporary Assistance for Needy Families) population in 10 states in terms of state success at achieving interconnected management objectives — developing organizational capacity to manage managed care effectively; becoming a prudent purchaser of managed care by developing contractual standards for quality of care and other measures, collecting data to measure compliance with the standards, and rewarding or sanctioning health plans based on their performance; and developing political constituencies among governors, legislative leaders, providers, plans, and advocacy groups to support and advance programmatic objectives.

In a working paper published by the Center for Health Care Strategies Inc., Mr. Fossett writes that he and his colleagues concluded that while states that operating in favorable market and political settings have made reasonable progress toward the goals, states in less favorable circumstances have been less successful.

Mr. Fossett says that states’ ability to manage managed care effectively is strongly influenced by the competitiveness of the local managed care market and the state’s ability to offer a commercially viable package to managed care plans.

"States are constrained in the product they are trying to sell managed care organizations," he tells State Health Watch. "The budget neutrality regulation puts a ceiling on rates that can be paid. Thus, traditional low payers start behind and can’t pay what the current market requires. In such circumstances, it can be hard to attract and retain plans."

The researchers also found that states with weaker positions as purchasers have more trouble establishing full-risk managed care on the scale desired and have experienced trouble getting adequate numbers of plans to participate.

Other findings include:

  1. The political context within which managed care was debated and adapted also affects program management.
  2. Medicaid management systems in more "successful" states have undergone significant reorganizations, typically by relocating Medicaid to health agencies separate from traditional welfare departments.
  3. In most states, the organizational shift to managing managed care has been more incremental.
  4. States have few performance standards in their contracts with plans and make only limited use of data they collect from plans to encourage plans to improve the quality of care they provide to Medicaid clients or to manage their managed care programs.
  5. States have difficulties making use of data to manage health care programs for a variety of reasons, ranging from difficulty in attracting and retaining personnel with the necessary analytical skills to concerns over the political and public relations consequences of reports of unfavorable program results.
  6. Many Medicaid agencies experienced difficulties in developing effective political constituencies for their managed care programs.
  7. Most Medicaid agencies have made little effort to develop political support for their managed care programs.

Some of Mr. Fossett’s conclusions were based on research conducted by the University of Kansas’ Jocelyn Johnston in Arizona, Colorado, Florida, Georgia, Kansas, Michigan, New Jersey, North Carolina, Ohio, and West Virginia. Ms. Johnston found that while Arizona, Florida, and Michigan had effective management systems, only Arizona met the standards required for prudent purchasing of Medicaid managed care — rigorous analysis of managed care provider performance and managerial will to hold providers accountable by imposing penalties or sanctions for inadequate performance as needed.

She found that management success often is determined by contextual factors beyond the control of administration, including the extent of political support for adequate provider reimbursement rates and managed care administration, and by the degree of competition in the managed care market.

In addition, in states with the strongest political support for Medicaid managed care and the most competitive health care markets, managers are free to focus on program oversight and improvement, whereas in states with less political support and less competitive health care markets, management resources often are diverted to crises and retention of managed care providers.

"Management systems in all 10 states demonstrate a strong commitment to health care quality," Ms. Johnston says, "as demonstrated by the share of managerial resources allocated to quality oversight and the creation of organizational units dedicated to improving quality."

Training not always a priority

Because cost containment and budgetary pressures typically drive the transition to Medicaid managed care, allocating resources for new, well-trained staff often is not a priority. This can mean that the management staff may have extensive Medicaid experience, but relatively little training in the skills necessary to oversee managed care, manage contracts, or analyze managed care performance.

Also contributing to the Rockefeller Institute of Government’s examination of Medicaid managed care is a paper by Michi-gan State University researcher Carol Weissert examining the role of Medicaid agencies and their executives in public policy formulation and implementation.

Ms. Weissert says that while Medicaid agencies are important factors in formulating Medicaid policy, they often are at odds with state legislatures and provider interest groups, who "either do not understand the issues or choose to frame them in a way that can undercut state agency positions. Political leadership by Medicaid directors also clearly entails more than simply fostering good relationships with the legislature and setting up advisory groups that solicit the input of interest groups. Medicaid directors need to be aware of the importance of political and market conditions in their states and pursue strategies to take advantage of those situations."

Her findings and recommendations for states include:

  • Consultation and cooperation are useful means of enhancing the positive contributions of interest groups, and can help the program succeed. However, consultation and cooperation must be viewed as necessary, but not sufficient.
  • Positive relationships between agencies and state legislators are crucial but can be very difficult. It is not enough for state Medicaid directors to have friends in the legislature. They need to provide solid, usable information, refrain from talking down to elected officials, and develop local ties, including people who can share real stories and problems with legislators.
  • Information can be useful. For example, Michigan’s Senate Fiscal Agency investigated allegations against Medicaid managed care by a strong provider interest group and found evidence supporting the allegations lacking.
  • Interest groups are not endowed equally and probably should not be treated equally. While most interest groups like to be consulted, established provider groups have access to a political base and to the media, giving them special status. They also are substantial contributors to legislative and gubernatorial campaigns, giving them additional political standing.
  • Gubernatorial support is key and generally forthcoming. However, some governors provide their support primarily through their appointees. Others choose to use their own political capital to promote the program. But all tend to stay out of battles with providers over payment issues.

Bringing together his colleagues’ research, Mr. Fossett says that two broad contextual factors are particularly important for states’ abilities to manage managed care well: the state’s position as a purchaser in the managed care market and the political context within which Medicaid managed care has been implemented. "Differences in market and political context indicate that states confront very different oversight and constituency-building tasks," he writes. "In Arizona, Florida, Michigan, and New Jersey, state Medicaid agencies are in a relatively favorable position. Managed care is well established in the private insurance market or is rapidly becoming so. State agencies are in strong positions as purchasers — state premiums have been reasonably competitive and there is, at least currently, a surplus of plans interested in competing for Medicaid contracts. Elected officials have been willing to support more complex objectives for managed care beyond cost control, so that agency officials have some political slack to pursue improvements in quality and access.

"By contrast, Medicaid agencies in Kansas, Georgia, North Carolina, and West Virginia face a more difficult situation. Managed care is less well established in the private market than in other states, and there is significant opposition from providers, particularly in rural areas. State premiums are low, and states have become dependent on a small number of plans to enroll Medicaid clients. None of these states have been able to move into full-risk managed care on as large a scale as planned, so that much of the TANF population remains in fee-for-service or case management. Elected officials are mainly interested in managed care as a means of saving money, so that Medicaid agencies have limited leeway or resources to pursue other objectives.

"Colorado and Ohio occupy an intermediate position. Both states have well-developed private managed care markets and considerable experience with Medicaid managed care, but both have experienced difficulties in taking advantage of their potentially favorable market position.

"Ohio has experienced problems with plans dropping out because of low rates and declines in Medicaid enrollment. While Colorado’s agency has had more political support, it has had difficulty attracting plans to participate in the program. It also has the touchy problem of encouraging the enrollment of clients in full-risk arrangements without alienating the providers who participate in the state’s case management program."

The findings indicate, Mr. Fossett says, that states are capable of managing full-risk managed care for Medicaid populations, but only in a limited range of political and market circumstances. The findings also suggest that recent changes in managed care markets, federal regulations, and state budgets may make it difficult for more states to operate managed care programs effectively.

Mr. Fossett tells State Health Watch, "States that hold their own are doing pretty well these days." A likely deterioration in market position suggests that many states may be faced with the need to develop alternative arrangements to full-risk managed care for which the management and political requirements are less severe. Primary care case management, initially seen as a transitional arrangement between fee-for-service and full-risk managed care, may become more popular in many states, Mr. Fossett says.

He suggests that a change in the upper payment limit dictated by Medicaid could help the situation, although state budgets still might not allow them to pay higher rates.

[Contact Mr. Fossett at (518) 443-5846. To access his working paper, go to To access other papers, go to]