Pennsylvania’s HealthChoices program has saved state money and improved access 

An analysis of the performance of Pennsylvania’s HealthChoices Medicaid managed care program indicates the plan "is a highly successful program that appears to be working remarkably well for all stakeholders and to be delivering on all fronts." 

The analysis was conducted by The Lewin Group at the request of the Pennsylvania Coalition of Medical Assistance Managed Care Organizations, which represents the plans that contract with the state to provide services under HealthChoices. 

The results are important for many states that are searching for the most efficient and effective way to provide health care services to Medicaid beneficiaries, especially those looking at managed fee-for-service programs.

In its research, Lewin met with each of the seven managed care organizations participating in HealthChoices, interviewed advocates for their perspective on the program, and spoke with staff from the Pennsylvania Department of Public Welfare.

The report focuses on four areas that contribute to a program’s value — cost effectiveness, impact on access to health care services, quality of services provided, and approach to serving individuals with special needs.

Coalition executive director Michael Rosenstein tells State Health Watch the plans have been confident they were doing good work but realized their efforts may have been unrecognized and underappreciated. "We needed to validate the work they have been doing through an independent comparison with the fee-for-service Medicaid program," he adds. "We wanted to see if a capitated system could live up to the goals and desires for which it was developed. The study validated what we expected to see and hoped to see."

HealthChoices, Pennsylvania’s mandatory capitated managed care program for Medicaid recipients, was implemented on a zoned phase-in schedule beginning in 1997. It is mandatory in three areas of the state, including Philadelphia and Pittsburgh and their surrounding counties, and also in the heavily populated Lehigh Valley/Capital area. In the remaining counties, recipients receive services through a fee-for-service program or through a voluntary capitated managed care program.

Expansion stopped

In 2003, the state Department of Public Welfare changed its policy and stopped further phase-in of HealthChoices, moving instead to ACCESS Plus, an enhanced primary care case management 

According to the Lewin report, HealthChoices has delivered massive savings to the state, with the level of savings continuing to compound upward as the health plans hold down the rate of cost escalation. 

"HealthChoices has enabled Pennsylvania to stand apart from most other Medicaid programs in recent years and preserve the Medicaid program’s eligibility, benefits, and provider payment levels," the report explains.

Recipients have benefited from the program’s financial success because they have not been subject to tightening of eligibility requirements or repeated new benefit restrictions that Medicaid recipients in other states have faced. Lewin also found the program to be far superior to traditional fee-for-service programs in the areas of access, quality, and focus on special needs. 

"In short," the report concludes, "what the HealthChoices managed care organizations provide in the way of outreach, access facilitation, innovation, cost-effective care, and enhanced quality is quite remarkable. It is important that the added value they bring to the medical assistance program become better understood by the policy-making community [and perhaps even by the broader population], which often seems to hear only negative stereotypes about the HMO coverage model."

Lewin praises HealthChoices’ cost-effectiveness, saying it could serve as a model for other states. It notes the plans have held average annual medical cost escalation to 7.4% over the past several years, compared to an average annual cost escalation of 10.4% in the fee-for-service program. The report says it appears HealthChoices has saved the state more than $2.7 billion over the last five years.

Pennsylvania also stands apart, the report says, in being able to pay rates that are sufficient to encourage the plans to remain in the program, while still having a medical loss ratio (medical costs as a percentage of revenue) approaching 90%. And the cost-effectiveness appears to be attributable primarily to coordination of care rather than ratcheting down or discounting prices.

Hard to state exact savings

The report concedes it is difficult to provide an exact figure representing the cost savings the HealthChoices program has achieved over the past several years. But, it says, given that state capitation programs generally seek approximately a 5% savings at the outset and that the slope of medical cost increases in HealthChoices has been very different than in fee for service, it almost is inconceivable that the state is not saving at least 10% and perhaps as much as 20% as a result of HealthChoices. And each percentage point savings created by HealthChoices currently is worth more than $35 million annually. 

"If we assume HealthChoices costs are 15% below what the fee-for-service program would expend in the Southeast Zone [the Philadelphia region where the program has been mandatory for close to 20 years] and 10% below fee-for-service in the other two zones [due to having been in place there for fewer years], aggregate savings across the period 2000-2004 exceed $2.7 billion."

But cost savings should not be the sole measure of the success of a Medicaid managed care program. It has been shown that financial coverage alone does not ensure true access to needed health and medical services. 

Access to and receipt of needed care by Medicaid recipients is affected by factors such as the level of active physician participation in Medicaid; the ease with which Medicaid recipients can locate a physician who participates and whose panel is open to new patients; proximity, appointment availability, and other ease of accessibility factors; and the degree to which cultural, language, and other barriers exist and the extent to which the recipients’ health coverage system addresses them.

Access improvements

The study identified many ways in which it said HealthChoices has improved access for Medicaid recipients:

  1. The HealthChoices managed care organizations enhance active provider participation through provider payment practices and initiatives; regularly performing and acting upon provider network analyses; cultivating relationships with providers through fully staffed provider relations departments; training and education; and assisting physicians to see that their panels receive needed services.
  2. The managed care organizations help recipients locate network providers through comprehensive provider directories available in alternative formats and provided to all member at the time of enrollment and each year after that, and through operation of a 24-hour hotline.
  3. The managed care organizations incorporate scheduling and other ease of access network standards more specific than those in the ACCESS Plus program.
  4. The managed care organizations engage in value-added services and initiatives designed to enhance access, including member incentive programs to encourage use of preventive services and healthy behaviors; and health education materials and approaches such as health screening reminder postcards and calls from member services representatives to members being discharged from a hospital to assess whether they are receiving services such as home health, durable medical equipment, or physical therapy.
  5. The managed care organizations and their employees have taken steps to invest in the communities in which their members live.

While several HealthChoices managed care organizations recommended Lewin include comparisons of HealthChoices quality outcomes with fee-for-service program quality results, it is not possible because the traditional fee-for-service model is not a system and was not designed to produce quality measures.

What the consultants could do was look at HealthChoices’ quality accomplishments. 

One area of focus was the plans’ quality standing relative to their industry peers. Lewin reports each of the Pennsylvania managed care organizations is accredited by the National Committee for Quality Assurance. Six of the organizations have an excellent rating, and one was rated commendable. 

The plans also have several years of experience in monitoring performance and developing quality improvement initiatives. Each health plan has a quality improvement work plan in place and each has made significant investments in quality improvement efforts. 

Special-needs clients helped

When looking at how the HealthChoices plans serve individuals with special needs, the report says the managed care organizations have created significantly enhanced access and quality for special needs individuals, most of whom under the unmanaged fee-for-service model are left on their own to navigate a disconnected array of services that doesn’t resemble a system of care.

Lewin concludes that a great number of improvements can be made to the unmanaged fee-for-service setting through enhanced primary care case management programs such as Pennsylvania’s new ACCESS Plus program and says that program appears to be well-designed. But the consultants said it also is important to draw appropriate distinctions between what can occur under the managed fee-for-service environment vs. the capitated HealthChoices model. Many aspects of the HealthChoices model simply can’t be replicated under ACCESS Plus or other managed fee-for-service approaches, Lewin adds. Those aspects include:

  • Full Risk. The motivation that capitated managed care organizations have to contain costs cannot be matched in a fee-for-service payment structure. "Managed fee-for-service models such as ACCESS Plus can provide important financial incentives to contractors [and ACCESS Plus does this], but these arrangements cannot approach the dollar-for-dollar risk and cost-management incentives that capitation creates," the report states. "The cost savings attained in Pennsylvania are indicative of the positive results that can be achieved from full risk capitation."
  • Integration. Capitation contracting creates a highly integrated system of care in which the contracting health plans are responsible for access, delivery, and payment of a comprehensive array of acute health care services. While combining disease management and primary care case management under ACCESS Plus creates a much more integrated system than the traditional fee-for-service model, that approach still is not seen as offering as high a level of integration as the capitated HealthChoices model. 
  • Competition. While managed fee-for-service programs such as ACCESS Plus typically are "given" an enrollee population to work with, the HealthChoices managed care organizations compete for business both at the point of bidding for a Department of Public Welfare contract and daily thereafter. Lewin says the ongoing competition appears to be creating dynamics where the managed care organizations continually are striving to attract and retain enrollees and to be perceived as the organization that provides the best service to the beneficiary population.
  • Local Focus. To a large degree, the HealthChoices managed care organizations employ staff who live in the communities being served and who have a strong knowledge of and commitment to those communities, the report notes. 
    "The ongoing presence of HealthChoices staff at local provider sites, community events, shelters, and members’ homes . . . is an important and unique advantage of the capitated model," Lewin asserts. "In contrast, Medicaid fee-for-service models tend to rely primarily on staff working out of a state’s capital city and/or on contractors whose staff may often predominantly work from out-of-state locations."
  • Innovation. Lewin contends that the fee-for-service model, even one that is enhanced with care management, is ill-equipped to go outside the box to achieve a positive result, while capitated plans such as HealthChoices can implement a wide range of spend-to-save investments in the capitated setting that cannot occur in fee-for-service.
  • Politics. Lewin’s view of the environment is that Medicaid fee-for-service programs present a visible target for provider associations and other groups with vested interests trying to secure higher funding levels for their constituents. But they find that capitated managed care programs such as HealthChoices generally create results grounded in normal business transactions that are mutually acceptable to both parties rather than political outcomes.
  • Accountability. HealthChoices access requirements are detailed, explicit, and numerous, Lewin says, while the ACCESS Plus requirements are far fewer in number and tend to be much more vague. "These contract differences are indicative of the heightened levels of accountability in the HealthChoices model vs. what can realistically be expected to occur in the managed fee-for-service environment," the report says.

Nationally, according to Lewin, enhanced primary care case management programs such as ACCESS Plus are the newest model gaining favor among many policy-makers. But the consultants found that HealthChoices has provided superior outcomes so consistently and for so long "that we are concerned that this program now exists a bit under the radar. It may be such an integral part of the fabric of medical assistance in Pennsylvania that it may be underappreciated by the commonwealth’s policy-makers." 

Mr. Rosenstein tells State Health Watch his coalition of managed care organizations has tried to get the Lewin report in front of as many of the state’s policy-makers as possible. With positive feedback coming in, and with the state advising Medicaid recipients of possible cuts necessary to balance the 2006 budget, he says the coalition "would like to see HealthChoices expanded if it is the will of the General Assembly and the administration." They also hope the plans will receive adequate rates so they can continue their work.

Michael Rashid, chief operating officer of Keystone Mercy Health Plan, which operates one of the Pennsylvania HealthChoices managed care organizations and also has Medicaid managed care plans in other states, tells State Health Watch it is clear from the report that Pennsylvania operates one of the best managed care programs in the country and could use it to help solve its Medicaid financial problems.

"There’s a mindset that managed care isn’t working, that it doesn’t save money and doesn’t provide high quality care and access," Mr. Rashid adds. "We believed that getting an independent company to compare HealthChoices with the fee-for-service program would be a useful thing. Even though the plans footed the bill, this was an independent assessment because the Lewin Group’s reputation is more important to them than any fee we would pay."

Mr. Rashid says in some other states, such as South Carolina, that have moved to an ACCESS Plus-style enhanced fee-for-service program, that program competes in geographic areas with the managed care program. But that has not happened in Pennsylvania. He says the shift from managed care to enhanced fee-for-service came with a change in administrations but the programs operate in noncompeting geographic areas. Mr. Rashid points out there has been no indication the administration would like to roll back HealthChoices in the areas of the state in which it has been working.

But with the state Department of Public Welfare starting to send notices to recipients of potential service and benefit cuts to save money for the state’s 2006 budget and advocates gearing up to oppose the cuts, Mr. Rashid says that "at the end of the day, we think that managed care is the solution to the state’s budget problems. Unfortunately, the folks at the state agency don’t think it is the solution. They’re good people, and they know that the cuts will hurt recipients. We did this study to try to show them there are good alternatives available," he adds.

[For a copy of the report or more information, contact Mr. Rosenstein at (717) 234-1250. Contact Mr. Rashid at (215) 937-8400.]