Devolution: It’s not just for states anymore— Counties seek role as Medicaid contractors

It’s time to reassess the new federalism—the shift of responsibility for social programs from the federal government to the states. Medicaid managers must now, in limited ways and in certain areas, make a place at the table for county governments.

As Medicaid managed care expands to the disabled and others traditionally served by county social services, a growing number of communities see Medicaid as part of a local, integrated care system for their constituents.

"We are where it all comes together," asserts Mary Mahoney, director of integrated care management for Minnesota’s Ramsey County. At what some consider ground zero of the managed care revolution, the St. Paul-Minneapolis metropolitan area, Ramsey County has seen managed care plans serve the local Medicaid population since 1993. Now county officials want to contract for and organize the county’s Medicaid services themselves.

"It has one and only one purpose," says Ms. Mahoney: "better long-term outcomes for clients." Under state law allowing county-based purchasing of Medicaid services, Ramsey County officials are negotiating with an organization to handle the paperwork, developing a request for proposals for health services, and, like the state itself, awaiting approval of the whole idea from the Health Care Financing Administration. (See related story, p. 6.)

Ramsey County is among the dozens of local governments in a small but growing number of states pursuing and obtaining more control over the Medicaid program that serves their residents. The move is driven by the expansion of Medicaid managed care, particularly to populations that traditionally have received social services from counties: the disabled, the mentally ill, and children with special needs. County officials hope that integrating these social services into the delivery of care for Medicaid clients will, in the long run, improve the quality of care and lower health care expenditures.

A longer time horizon

"At the county level, you’re looking at a different time horizon and a different range of responsibilities," says Ms. Mahoney. "We have any number of consumers who come into our system and are going to be with us for years, whether or not they change health plans every year. So when you’re looking at issues of clinical necessity or even cost-effectiveness, you look across a different time horizon than if you’re looking at it from the standpoint of a health maintenance organization."

Some officials also say county contracting will allow them to serve the twin masters of quality care and responsiveness to local providers. They say ensuring traditional safety-net hospitals and physicians are in a Medicaid plan will enhance beneficiaries’ quality of care while protecting important health care and economic resources for the rest of the community.

At the same time, state legislatures are wary of passing the Medicaid baton to local governments that, however willing, are largely untested in the complexities of designing and administering a Medicaid program.

"If they had their druthers, they’d rather not," says Jim Verdier, JD, a Mathematica Policy Research senior fellow who is analyzing the role of local governments in Medicaid managed care for the Center for Health Care Strategies in Princeton, NJ.

Mr. Verdier, former director of Indiana’s Medicaid program, nevertheless says tapping local governments’ special sensitivity to local providers and local beneficiaries can add a "significant amount of value" to a Medicaid program. He says the question of who should administer a program depends upon who can remain responsive to local providers while meeting the clinical and administrative demands of a managed care plan.

"The issue is, is it easier for commercial managed care organizations to go out and buy care coordination, case management, and social services capabilities? Or is it easier for those entities that have got that care coordination, case management, and sensitivity to local concerns to buy administrative, financial, and management capabilities? That will vary from state to state and it will vary over time and it will vary with the individuals involved," he says.

The move toward county contracting for Medicaid services is most advanced in California and Minnesota. California gives counties three models: a county-organized health system in which the county is the sole contractor with the state; a local initiative model in which a commercial plan and quasigovernmental entity each sponsor a plan; and the geographic model, which resembles the county-specific licensing most states use to implement Medicaid managed care.

Minnesota gives counties the option of providing care on their own or as part of a consortium of counties. HCFA’s response to Minnesota’s application for a modification of its Section 1115 waiver will provide direction to other counties contemplating local contracting, says Mr. Verdier.

While New York City does not directly contract with plans, officials there have extensive oversight and monitoring responsibilities in the process. Problems with the plan’s enrollment broker and issues have slowed the city’s rollout of Medicaid managed care. (See related story, State Health Watch, September 1998, p. 3.)

Regardless of the state laws under which they operate, counties contemplating local purchasing of Medicaid services are likely to confront the following operational and administrative issues:

Plan size. Whether counties can make a local plan work depends first upon whether the number of enrollees is actuarially stable, taking into consideration such factors as the health risk in the population and the nature and degree of medical risk-sharing in the plan.

For example, counties in rural Minnesota banded together to pool risk and share costs in areas where each county’s Medicaid population could not support separate plans. There’s no such "regionalization" in California’s version of county Medicaid purchasing, although several single-county systems are pursuing the development of multiple-county plans with their neighbors.

On the other end of the spectrum, political pressure to ensure competition among plans can subdivide a large Medicaid population in a single county. In California, for example, the two-plan model approved for 12 large counties requires that at least one of the plans be run by a quasi-governmental entity; the other can be a conventional HMO. L.A. Care, the so-called local initiative in Los Angeles County, doesn’t actually perform conventional plan functions, but further subcontracts to seven plans.

Welfare reform complicates the actuarial assumptions on which many California counties based their plan projections, notes Crystal Hayling, director of the Medi-Cal Policy Institute in Oakland. Unanticipated declines in Medicaid enrollment have presented financial and administrative challenges to some of the smaller plans in the state, she says.

Local politics. County-based contracting is, almost by design, a way to introduce local political preferences into delivery of care. This month, for example, members of L.A. Care are electing two consumer representatives to the plan’s Board of Governors.

The two-plan model itself, though, is not universally admired.

"Why do we have a two-plan model? Quite simply, it was politics and to protect the providers," says Peter Abbott, acting deputy director for health information and strategic planning in the California Depart ment of Health Services.

In some of California’s two-plan counties, local governments were not up to fielding a local initiative. Medicaid services there are delivered through independent commercial plans or commercial plans that county governments have contracted to serve as the local initiative. For example, Wellpoint Health Networks, the for-profit descendent of the California Blues, is the contracted local initiative in Stanislaus and Tulare counties.

Administrative expertise and network access. Local governments will need extraordinary financial and administrative skills to operate a county Medicaid program, regardless of whether those skills are developed in-house or purchased. For their part, Ramsey County officials anticipate that they will contract with local HMOs for, at a minimum, access to their provider networks.

"The difficulty in getting something like this off the ground in terms of the investment in information systems and staff and the provider contracting and all that is monumental," says Michael Scandrett, executive director of the Minnesota Council of Health Plans.

"I think the counties have been thinking that if they can get health plan partners to do that, they are more likely to be more successful. That’s what leads them to say, Okay, once we have the health plan doing everything, why are we doing this in the first place?’"

The failure in the mid-1980s of a county-organized health system in Monterey County, CA, provides a cautionary tale for local governments. Researchers noted the system’s failure to generate reliable financial and utilization data, a shortcoming that probably proved fatal. An analysis in the January 1987 issue of Medical Care also blamed the system’s failure on overly generous fees to case managers and insufficient utilization controls.

Widespread implementation of Medicaid managed care in California is only about five years old, generally allowing county initiatives there insufficient time to develop a track record. The Kaiser Foundation and the Santa Barbara Regional Health Authority stood out in a baseline assessment of clinical services in 1996 (see chart on p. 5), but their performance may suggest the value of longevity rather than the particular model under which they deliver care.

"The experiment continues," says Ms. Hayling. "There are counties that are beginning to look around and become restless with the models they’ve got. If, in the future, the state is going to be moving other populations into managed care, I think the counties are rightly going to question whether the model they have now is going to be appropriate not only for the population they’ve got but also for the population they’ll anticipate having in a few years."

Contact Mr. Verdier at (202) 484-9220, Ms. Hayling at (510) 587-311, Ms. Mahoney at (651) 523-7955, and Mr. Scandrett at (651) 603-2692.