Minnesota seeks waiver approval from HCFA for five-county Medicaid purchasing project

Five counties in north-central Minnesota are seeking federal approval as the state’s first conventional county-based contracting initiative. Observers worry, though, that the counties’ plan will be hard pressed to stay financially viable, and question the plan’s decision to delegate many key administrative duties.

In a Section 1115 waiver modification request, state officials are asking the Health Care Financing Administration (HCFA) to not only approve the five-county project, but to bless the concept of county-based Medicaid purchasing in general.

To get the ball rolling

County-based Medicaid purchasing has been tested elsewhere in Minnesota and was made possible generally by a 1997 law (see Minnesota Statutes, section 256B.692). The counties’ plan is one of five accepted by the Minnesota Department of Health in April in response to its request for county-based purchasing proposals. The move reflects a growing desire by local governments to have more control over the Medicaid programs that insure their constituents. (See "Devolution: It’s not just for states anymore — Counties seek role as Medicaid contractors," State Health Watch, May 1999, p. 1.)

HCFA has been leery of giving the nod to Minnesota’s county-based purchasing ideas without seeing specific projects. State officials maintain that the particulars of county-based purchasing will vary from place to place, and say they hope the first prospective project, known as Essential Health Plan, will at least get the ball rolling.

"They seemed to be the furthest along," says Jane Vanderwall, a waiver specialist with the Department of Human Services.

Under the scenario proposed to HCFA, Minnesota will pay Essential Health Plan a capitated per-member-per-month amount roughly equivalent to 95% of comparable fee-for-service expenditures, as it would any managed care organization. The counties, in their role as an MCO, will assume all financial risk for enrollees’ care and contract or buy plan services as needed.

Early in the application process, HCFA said counties would have to compete and be regulated as any other managed care organization. (See "Minnesota counties . . . have to compete like MCOs," SHW, July 1999, p. 1.)

Essential Health Plan has contracted with The Araz Group, a Bloomington, MN-based third-party administrator, to perform provider services and network management, medical management, claims management, beneficiary services, quality assurance, and data analysis and reporting. A full-time administrator came on board in July.

To build its physician network, the plan proposes to contract with any willing physician on a fee-for-service basis. In addition to helping build a comprehensive network, the strategy is intended to ensure consumer choice and help allay HCFA’s fears about giving the counties what amounts to an exclusive franchise to broker Medicaid services in the region.

Capitation? Maybe later

Initial reimbursement is set at 110% of the Medicaid rate with a 10% withhold. Dentists, who have been hard to attract to the Medicaid program, will be paid "slightly higher than Medicaid, but still lower than commercial rates," says executive director Michael Woodyard.

The plan hopes to wring the money for the increased reimbursement from strategies such as concurrent and retrospective review, case management, and joint purchasing. With no Medicaid managed care at all now in the five project counties — Cass, Crow Wing, Morrison, Todd, and Wadena — plan organizers hope the introduction of such managed care features will be enough to keep the plan solvent and the providers satisfied.

"We know we have to make up the increased savings and the administrative overhead. We think we can do that," Mr. Woodyard says.

Plan organizers considered capitation arrangements that put physicians at financial risk, such as those in a successful county-purchasing project in neighboring Itasca County, but rejected that approach. "We don’t feel we have the data and analysis at this point to do capitation," he says, "and I don’t know if we would build as much trust and good will that way."

Still, the lack of tighter utilization controls and financial risk-sharing leaves one researcher dubious about the long-term feasibility of Essential Health Plan’s approach. "They’re not doing anything to manage care, as far as one can tell," says James Verdier, JD, a senior fellow at Washington, DC-based Mathematic Policy Research.

(See related story, below, "Brokering Medicaid is still a long way off for most counties.")

Mr. Verdier, Indiana’s Medicaid director from 1991 to 1997, also notes that Essential Health Plan seems to have passed along to a third-party administrator the hard-won control of local Medicaid dollars. "It’s hard to see what they would be accomplishing, possibly other than preventing other managed care companies from coming in," he says.

Mr. Verdier says he’s also worried that managed care may not bring significant cost savings among the initial population to be served by Essential Health Plan.

While the plan will start off with mandatory enrollment of the traditional groups served by Medicaid — women and children — bigger cost savings accrue when elderly and disabled Medicaid enrollees are rolled into managed care, he says.

Essential Health Plan hopes to encompass such enrollees in the future, Mr. Woodyard adds. The region has between 13,000 and 16,000 Medicaid enrollees on any given month, of which about 20% are elderly, disabled, or otherwise exempt from mandatory Medicaid managed care. Annual Medicaid revenues to Essential Health Plan are estimated at $40 million, he says.

Minnesota’s statutory definition of a county-based Medicaid purchasing entity mirrors that of a health maintenance organization or the state’s incarnation of a provider-sponsored network. Essential Health Plan has met all the requirements except for final certification of its network, says Mr. Woodyard. "We’re about 90% there."

Final actuarial analyses on the financial feasibility of Essential Health Plan were due from Milliman & Robertson at the end of December. The plan hopes to begin offering services in March.

The counties in the Essential Health Plan do have the advantage of a long history of cooperative ventures, notes Mr. Verdier, and may be able to accomplish many of their goals even without formal county-based Medicaid purchasing. "You can’t tell on paper whether something like that is going to work or not. That’s all going to turn on personalities and budgets."

Contact Mr. Woodyard at (218) 894-1732 and Mr. Verdier at (202) 484-9220.