Minnesota counties that want to be Medicaid brokers have to compete for the role like MCOs, says HCFA

Increased administrative cost also worries feds in response to state’s waiver application

Counties that want to take on the financial risk of delivering Medicaid services should be regulated like managed care organizations, say Health Care Financing Administration (HCFA) officials in their response to Minnesota’s bid to implement county-based Medicaid.

HCFA’s stance, which state officials had expected, would mean county governments would have to bid competitively for the right to provide Medicaid services to their residents and would be held to the same quality and service standards as all other Medicaid managed care organizations.

If HCFA sticks to its guns on this point, it may not mean the death of county-based Medicaid purchasing in Minnesota, says Jim Verdier, a senior fellow for Mathematica Policy Research in Washington, DC. In fact, he suggests that county governments potentially have a competitive advantage in their existing information and referral infrastructures, which resemble the Medicaid choice counselors many states now use to help enrollees enter and use the Medicaid program.

"In Minnesota, all that stuff is done by county agencies. That by itself would give a legitimate leg up to county bidders," says Mr. Verdier, who is completing a study of counties’ role in Medicaid managed care for the Center for Health Care Strategies in Princeton, NJ.

The concern about competition is just one of several HCFA officials presented in Minnesota in response to the state’s waiver application:

1. Choice and competition. In its response to Minnesota’s request to modify its Medicaid program, HCFA officials note that "when practical," federal policy gives Medicaid beneficiaries a choice of at least two managed care plans. For Minnesota, the policy means that even if a local government competes successfully to broker Medicaid services, that government ideally is only one of two or more plans available in a single county.

Minnesota’s proposed scenario for county-based purchasing—in which the state would pay counties a per-enrollee, capitated amount to provide Medicaid services—is essentially a sole-source contract, say HCFA officials. In light of federal regulations that require competitive purchasing "to the maximum extent practical," the HCFA response asks for a justification of the sole-source approach.

No justification is needed, says Mary Kennedy, Minnesota Medicaid director and assistant commissioner for health care. Counties are not plans, but rather state government-created entities that already handle some Medicaid duties such as eligibility screening, she says in a letter to HCFA official Mike Fiore.

To bolster their argument that counties are not acting as managed care plans, Minnesota officials contend that the state’s capitated payment does not constitute a transfer of financial risk. Because the state and county governments derive taxing authority from the Minnesota Legislature, the state under county-based purchasing "is essentially passing risk onto itself," says Ms. Kennedy.

Even if Minnesota’s interpretation of the county’s role is wrong, say state officials, competition would not be "practical" for a wide variety of reasons and therefore not required under federal policy.

2. Administrative efficiency. Introducing counties into the Medicaid contracting process poses the potential for duplication of effort, conflict of interest, and loss of state accountability, say HCFA officials. The federal response from project officer Kathleen Farrell says Minnesota has not described "how this demonstration promotes overall efficient administration of the Medicaid program."

Because administrative expenses have to be paid from the same capitation rate that any managed care organization would receive, Medicaid is not at risk for increased administrative costs from county-based purchasing, counter state officials.

3. Level of detail. HCFA officials balk at Minnesota’s request for "conceptual approval" of county-based Medicaid purchasing in the absence of specifics regarding time and location of implementation. "It is possible that even if conceptual approval were reached, individual county models may not be approvable," says Ms. Farrell.

Minnesota officials say they are seeking only conceptual approval of a "framework" for county-based purchasing, deferring discussion of operational details until they are worked out on a county-by-county basis.

"Clearly, it is easier for both HCFA and the state to have a single model operating throughout the state. However, this is not necessarily in the best interest of beneficiaries and may not be possible, because conditions vary in different regions of the state," Minnesota says in its letter to HCFA.

Minnesota officials point in their application to a successful experiment with county-based purchasing in Itasca, a county of about 43,000 in north central Minnesota. In various forms, Itasca County has purchased health care services for its residents since 1982.

"The county-based purchasing model was pushed in the legislature by counties who looked at what Itasca was doing and said, Hey, if the state’s going managed care, that’s what we want to do,’" says Itasca Medical Care executive director Karen Campbell.

Itasca Medical Care receives from the state a capitated per-member per-month sum for about 4,500 residents with state-subsidized health care coverage. About half of the enrollees are composed of the traditional Medicaid population, beneficiaries of Tempo rary Aid to Needy Families. Virtually all of the remaining enrollees receive coverage under MinnesotaCare, the state-only program for low-income residents not eligible for other types of insurance.

Almost all local and primary care providers in Itasca Medical Care receive fee-for-service reimbursement and share in any gain or loss at the end of the plan year. A single pool spreads risk among providers that in many other plans would be financially independent: primary care physicians, hospitals, and mental health providers.

The ability to integrate medical services with mental health services they’re already providing gives counties a powerful incentive to pursue county-based purchasing, says Ms. Campbell. The advantage shows up clearly when an indigent resident is undergoing short-term crisis stabilization or detoxification, two services traditionally funded by county governments.

"By administering the medical assistance benefits, we can more quickly coordinate with social workers and medical providers and say, If this person needs to go to treatment, then let’s go to treatment. Let’s not leave them sit there on three-, four-, five-day hold where the county’s paying until they can go before the judge."

Contact Ms. Campbell at (218) 326-7704 and Mr. Verdier at (202) 484-4520.