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Managed Care is not the answer to Medicaid’s problems

Managed Care is not the answer to Medicaid’s problems

Fred Birnbaum
June 30, 2023
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June 30, 2023

On July 10th, the Legislature’s Medicaid Managed Care Task will hold its second meeting. The purpose of the meeting is to review the Sellers Dorsey report on, “State of Idaho, Division of Purchasing, Medicaid Cost Containment.” 

While I encourage everyone interested in Medicaid policy to read the report, I will suggest that you keep a truism in mind. The only way to reduce Medicaid costs is to enable a combination of one or more of the following: fewer people on Medicaid, the remaining people on Medicaid using fewer drugs and services, and reducing reimbursement costs for those drugs and services to providers. This report artfully dodges this truism.

It is hard to summarize a 50-page technical report in a short article, but the bottom line is essentially that Idaho can try a number of policies related to managed care, but won’t likely save any money in the short term and perhaps even long term. But in order to try to save money, Idaho will need to grow the staff at the Department of Health and Welfare. 

Why am I certain of this?

Let’s start with the firm that prepared the report, Sellers Dorsey. On their webpage, they state, “Our mission—to improve healthcare access, quality, and equity in Medicaid—forms the bedrock of our work.” After perusing their website, one thing was abundantly clear: they never mention cost containment as one of their goals or core competencies. 

It appears that Sellers Dorsey is actually more interested in growing medical welfare programs, not controlling them. They state: “Medicaid programs, providers, and the people they serve depend on Sellers Dorsey to develop initiatives that improve access to and quality of healthcare for low-income individuals by increasing overall Medicaid reimbursement.”

Notably, the leadership team is stacked with people from the medical-industrial complex. People who have built careers on expanding the government-funded medical leviathan.

The point here is not to attack the firm and the team that developed this report unreasonably, but to ground readers in understanding that Medicaid’s massive cost explosion, while a burden to taxpayers, has been a career model for many talented professional people, who seek to “strengthen Medicaid.” 

The enormous growth in expenditures, as noted in Division of Financial Management Administrator Alex Adams’ overview, is a national problem and not just an Idaho one. From national data, in 1990 Medicaid accounted for 12.4% of total state expenditures. In 2000, it was 19.1% of total state expenditures. 30 years later, in 2020, it was 28.4%. Idaho’s experience is similar but worse. In 2000, Medicaid was 18% of total state expenditures. For 2020, it was 32%. For 2022, it was 35% of total state expenditures. We are above the national trend line for Medicaid cost as a percentage of total state expenditures.

The executive summary on page four of the report includes the following, “As described in this report, demand for long-term systemic savings continues to be a focus of the Idaho Legislature and will likely remain so until Idaho implements a comprehensive approach to addressing rising Medicaid costs.” However, the report on page seven is clear that no actual financial goals would be presented: “The second report, deemed the ‘Final Report’ and presented here, required cost containment and revenue maximization recommendations for the Medicaid program over the long-term (three years), with no specific financial or budgetary goal.”

With no specific financial or budgetary goals, we are left with a series of process steps that, if followed, lead to what, exactly? For starters, the report suggests the need for more staff upfront, on page six. “Some of these recommendations may require further initial investment before substantive savings are realized.” And then, in conclusion on page 48, we are told that in order to move more services to managed care and comply with federal guidelines and regulations, “This shift will likely require additional resources, particularly due to the lean nature of the current Medicaid administrative team.”

Why would any organization invest in more resources when there are no clear goals or objectives, so no clear return on investment? 

Under the section titled “Cost containment and Budget stability,” on page 37, the reader is told that, “While managed care typically does not (at least, not initially) reduce costs to the State, it can bring budget stability and predictability through the rate setting process and the transition of financial risk to the managed care entities.” What is particularly frustrating is that there is no cost benchmarking with other states. What does success look like for Idaho? We have no idea after reading this entire report.

In fact, the 50-page report is largely devoid of detailed data. We are presented with Idaho’s high-level expenditure data, something available for free in the Legislature’s budget book and fiscal reports. And the only data cited in terms of savings going to managed care was from an eight-year-old Milliman study in Texas, on page 38, where it was estimated that managed care saved 5% to 10.7% of costs compared to a fee-for-service system. This data doesn’t apply to Idaho because we use a blend of payment models, including fee-for-service, managed care, and value-based mechanisms. 

In another example on page 41, we are told: “For example, Nebraska utilizes three MCOs, all on a statewide basis. Nebraska is an excellent state to consider, as it resembles Idaho in the dynamics of population distribution and geography, utilizes comprehensive managed care, and has a relatively small Medicaid population of approximately 365,000.” But no data is given on the cost per patient per month, just a suggestion to consider their model. 

In short, the report provided no real comparison data to model how the policy recommendations would save taxpayer money.

This report is what is known in the consulting industry as a template, a series of suggestions based on past work that really don’t add up to anything concrete. One would expect a detailed appendix with lots of state-by-state cost comparisons for policymakers to consider, but it is not there. It is not unreasonable to surmise that Medicaid costs will keep increasing until the federal spigot runs dry and this generation of legislators has passed from the scene. 

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