Will managed care be Jekyll or Hyde for states?

• Author: Tobler, Laura
• Position: Includes related articles on federal approval of managed care programs and the Arizona Health Care Cost Containment System

Managed care has helped reduce Medicaid costs across the country, but the transition from fee-for-service has had its problems.

Medicaid managed care. Dr. Jekyll? Or Mr. Hyde? Health care costs have skyrocketed in the past decade. And state and federal spending for the program that helps finance health care for the poor - Medicaid - has doubled in the past five years. Medicaid spending increased from $41 billion to $72 billion from 1985 to 1990. Costs reached $138 billion by 1994 and accounted for 19 percent of states' total expenditures in 1995, according to the National Association of State Budget Officers.

Concerns over cost, quality and access to care have made managed care an attractive alternative to the traditional fee-for-service system. All but two states, Alaska and Wyoming, have adopted some type of Medicaid managed care system. State Medicaid programs have been enrolling beneficiaries in managed care plans since the early 1970s, especially in states or cities that had early entry to managed care. Washington state began contracting with Group Health of Puget Sound in 1970; New York City Medicaid beneficiaries were enrolled in the HMO-like Health Insurance Plan of Greater New York the same year. But in the past three years managed care has proliferated to the point where approximately one third of the nation's Medicaid recipients are enrolled. A total of 11.6 million people - more than 30 percent of the total Medicaid-eligible population - were enrolled in managed care as of June 1995, compared with 2.7 million in 1991.

Expansion of Medicaid managed care raises certain challenges for state policymakers: They must determine the "who and when," deciding who will be served by managed care and when the program will start. Specific regulations must be drafted for managed care organizations that help ensure the financial stability of the plan, establish standards for quality of care and protect patients' rights. Policy also must help preserve the so-called "safety net providers" such as inner-city clinics and community health centers that have traditionally served the poor.

MEDICAID MANAGED CARE PROGRAMS

With conventional (fee-for-service) Medicaid, health care providers bill a state from a fee schedule set by the state. If payments are low, private physicians may refuse to treat Medicaid patients. If that happens, the poor must use public health clinics and public hospitals for their medical care. Fee-for-service system critics also contend that it can lead to unnecessary care and hospitalization, which lead to unnecessary costs.

Medicaid managed care models differ state-to-state and within areas of the state but there are three common models:

* Primary care case management - Medicaid recipients enroll with a primary care physician paid through fees set by the state. This doctor manages the overall patient care and attempts to reduce unnecessary referrals or hospitalization. The physician serves as a "gatekeeper," an intermediary between the patient and the rest of the health care system. A primary care physician is usually paid a modest monthly fee for care management and referrals, but gets his regular fee-for-service payment for all other care.

* Full risk plan - The Medicaid beneficiary must receive care from a provider who belongs to a participating HMO. States contract with the HMOs for a set amount of services, paying a rate per patient (capitation). If the cost of care rises above the state payment, the managed care organization or its doctors must cover the difference.

* Limited risk plan - The state shares the risk with the managed care organization or the providers. States contract directly with providers on a per patient basis for certain services, but continue to pay fees for all other care.

In the budget shrinking '90s, the trend is enrollment in full risk plans that have the greatest potential to save money. The number of Medicaid patients enrolled in this model has increased more than 50 percent since 1993.

DR. JEKYLL EFFECT

States are moving to managed care as a way to save Medicaid money as well as a way to provide poor people with better access to good health care. In fact with the possible shift of Medicaid responsibility from the federal government to the states, there will be increased pressure to move away from costly fee-for-service and limit the state's risk through managed care.

Managed care can get the poor into needed medical care in addition to saving money. It can help coordinate services because patients are directed to appropriate health care providers, which is not generally the case in fee-for-service...