How does managed care reduce costs

MCOs are at financial risk if spending on services and administration exceeds payments; conversely, they are permitted to retain any portion of payments not expended for covered services and other contractually required activities. Some suggest that capitation does not provide incentives to overtreat patients as in FFS.

Instead, managed care encourages providers to keep enrollees healthy in order to keep costs within the capitation rate, through preventive and appropriate care to avoid expensive hospital stays and emergency department visits. Capitation also provides more certainty when budgeting and encourages the efficient use of services. Others argue that a capitated payment system that pays MCOs a set amount per enrollee and not on how much treatment is provided may create incentives to undertreat patients to minimize treatment costs Green ; Sparer ; Duggan and Hayford ; Berenson and Rich Capitated plans may also seek to enroll as many healthy patients as possible and discourage participation of disabled or high utilizing enrollees Kuziemko et al.

Incentives may also be influenced by capitation payment rates. For example, adequate payments should be able to provide access to coordinated and effective care while generating savings that can support additional medically necessary services.

On the other hand, if capitation rates are set too low, they may create incentives to restrict services through use of gatekeepers, preauthorization policies, or limits on benefits. Low rates may also motivate plans to pay less for services, which in turn may reduce the number of providers willing to treat enrollees thus impeding their access to care. Providers have also cited low payment rates in the California Medicaid managed care program as a barrier to their participation Tater et al.

Network composition. FFS Medicaid programs typically contract with any qualified provider willing to accept Medicaid payment rates, and Medicaid beneficiaries who receive services through FFS are entitled to freedom of choice among Medicaid providers.

Managed care plans can establish their own provider network qualifications, contract terms, and payment rates within parameters required by the terms of the contract with the state. They generally limit MCO enrollees to a network of providers.

MCO provider networks must be sufficient to provide adequate access to all covered services, taking into account the number, type, and geographic distribution of providers, among other factors, but there are no universal metrics to determine sufficiency.

The size and scope of the network will affect the types, availability, and quality of services available to enrollees and access can vary substantially within a state, between urban and rural areas, and across states.

Networks with a sufficient number of participating providers may help ensure access to services covered under the contract while narrow networks may deter specialty care or other referrals and inhibit beneficiary choice and access to high quality care. Consumer advocacy organizations worry about inadequate provider networks and breaks in long-standing patient-provider relationships, especially for the high-cost populations that have the most vulnerable health status Sparer ; Corlette et al. Researchers recently examined a sample of Medicaid MCOs across 14 states and found that on average 12 percent of primary care physicians left the network annually and 34 percent exited over five years.

Plans with narrow networks experienced a higher turnover rate than standard network plans Ndumele et al. Covered benefits.

Contracts between the state and MCOs identify which state plan services are the responsibility of the MCO, which if any remain covered by the state, and which if any are provided by other vendors or through other delivery systems.

In some cases, benefits that are unique to Medicaid and have not been traditionally delivered through managed care, such as long term services and supports or non-emergency transportation are carved out of the capitated benefit package in order to maintain access to these services. However, the provision of benefits through multiple delivery systems can introduce new challenges in coordination of care. MCOs must provide all benefits offered under the state plan, but they can provide benefits additional to FFS using the so-called in lieu of policy.

Under this policy, MCOs contracts may cover, for enrollees, cost-effective services that are in addition to those covered under the state plan, although the cost of these services cannot be included when determining the payment rates 42 CFR Because MCOs can provide services in addition to those offered under the state plan, access to them may be enhanced for their enrollees.

These services are often enabling services that may contribute to ease of obtaining care such as, case management or transportation services not covered under the state plan, long-term services and supports, or social interventions such as education, equipment, or services provided with partnerships with other organizations. Contracting specifications and oversight. Medicaid managed care plans are required to meet access and quality standards that do not apply to other Medicaid delivery systems.

As described in greater detail in the following section, there are federal statutory and regulatory requirements, such as standards for access and capacity and a requirement for periodic external quality review, that only apply to MCOs. Further, states may impose additional access and quality requirements on Medicaid MCOs through the procurement and contracting process. States can require plans to meet certain standards e. Because managed care networks and organizations can be configured, staffed, and funded in many different ways, it is difficult to make general conclusions about their correlation with better or worse access to and quality of care.

Studies examining this issue come to different and sometimes conflicting conclusions, again depending on the many factors described above. Many but not all states report that Medicaid MCO enrollees sometimes face access problems.

In a comprehensive synthesis of studies of the impact of Medicaid managed care, the author concluded that Medicaid managed care can and sometimes does provide beneficiaries with improved access, but the scope and extent of such improvements generally are state specific and variable Sparer A synthesis of 16 studies on the potential impact of Medicaid managed care on access to and quality of care for children with special health care needs found no consistent set of findings regarding access to care Wise et al.

Members of managed care organizations can only visit approved doctors and stay at approved hospitals and get approved tests. They cannot see other doctors or even specialists within the managed care system without an okay from a primary care physician, who is incentivized not to make such recommendations.

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