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Medicaid: Can HMOs do better?

From the July/August 1995 ACP Observer, copyright © 1995 by the American College of Physicians.

By Deborah Gesensway

From his position as director of ambulatory care at one of the public hospitals where New Yorkers on Medicaid get most of their outpatient and inpatient health care, Robert L. Braham, FACP, can reel off dozens of reasons why he thinks the rush to drive most Medicaid recipients into managed care plans means trouble for patients and for physicians. Access and income top his list.

In his next breath, however, Dr. Braham hints at an ambivalence that reveals the complexity of the debate about reforming the nation's health insurance program for the poor. Despite his reservations, he can see how Medicaid managed care could benefit patients and physicians.

"These are people who need health care," Dr. Braham said. "Poor sick people are the people who benefit from getting good access to preventive health care ... and who need to have an ongoing relationship with a competent primary care physician." Both are objectives of managed care.

After all, it's not like either patients or doctors like traditional, fee-for-service-based Medicaid. "When we get into this argument about whether managed care can or cannot serve [a Medicaid] population well, it has to be in the context of compared to what," said Clyde Oden, OD, president and CEO of United Health Plan, a Los Angeles-based HMO that serves predominantly Medicaid patients.

Restructuring Medicaid is the health reform that did not die with the last election. And the preferred strategy in nearly every state has been mandating that Medicaid recipients enroll in managed care plans. Other legislative proposals include block grants to allow states more leeway in operating their programs, expenditure growth caps to put the brakes on skyrocketing costs and outright cutbacks.

Most politicians say saving money is the primary goal of all these efforts; secondary is the idea of expanding access. Plus, they say, the efforts will have the side effect of improving the quality of care and the health status of a difficult and troubled population.

Are you ready?

Debate abounds, however, about the ends and the means to achieve Medicaid reform. On all sides there is more speculation than knowledge. The prospect of so much change coming so fast is causing fear, confusion and rancor to run high. Every survey that shows patient satisfaction with Medicaid managed care as equal to fee-for-service Medicaid is matched by a horror story of fraudulent marketing by some for-profit HMO battling its competitors for a share of the $158 billion pot of health care dollars.

"What's happening is that people are being recruited for managed care plans and they don't understand what it is they are signing or enrolling for," said Dr. Braham. "What we're finding at Jacobi Hospital [the public hospital in the Bronx where he works] is that a large number of people who have Medicaid are coming into our emergency department and our clinics, and when we say they can no longer come here, that they are now a member of an HMO, they don't know what we are talking about. We can't educate patients in such a short time. Providers can't get ready that quickly."

And yet around the country, from New York to Hawaii, doctors and hospitals are being asked to do just that--prepare quickly for imminent and sweeping changes in the Medicaid program.

During the past two years, Medicaid managed care enrollment grew by more than 65%. By late last year, 23% of Medicaid recipients were in managed care.

To continue this rapid transformation, at least a dozen states have submitted, or are in the process of submitting, applications to HCFA asking for waivers to various provisions of the law that governs Medicaid. Another 12 states (Arizona, Florida, Hawaii, Kentucky, Ohio, Oregon, Rhode Island, Tennessee, South Carolina, Massachusetts, Delaware and Minnesota) already have permission to enact statewide managed care demonstrations, although not all of these programs are up and running.

A Congressional target

Medicaid is also a target for Congressional budget cutters. Republican leaders, for example, propose cutting the rate of growth by $175 billion over seven years. In addition, they would abolish Medicaid's status as an entitlement, giving states more leeway to decide who gets what benefits and how much doctors and hospitals are paid. Democrats, meanwhile, have their own Medicaid reform plans. In late June, President Clinton suggested reducing Medicaid spending by $55 billion over seven years and his administration has expressed support for more managed care demonstration projects.

The theory driving the budget-cutters is that managed care will do for Medicaid what it has done for the private health care market: imbue it with competition to bring an arguably bloated system down to manageable size, cut out waste and duplication of effort and focus on prevention, thereby reducing health care costs.

But recent studies have found that the savings possible from mandating that low-income families join managed care plans probably amount to no more than 5-15%. And since the population targeted for managed care accounts for only about one-third of the program's overall costs (Medicaid will continue to pay the old-fashioned way for the health care of the elderly, blind and disabled), even a 10% savings is estimated to cut only about 2% from a state's Medicaid budget.

Among the growing number of the advocates for Medicaid managed care, in fact, are many health care policy- makers and providers who do not think it could save much money. Instead, they argue that managed care could improve the quality of health care for this population. Some of them reason this way even though they don't think very highly of managed care for a middle-class, employed population.

For those people who often have difficulty managing resources and their own health care, "managed care really can be a good thing," said Charles White, MD, a family physician in Lexington, Tenn., and past president of the Tennessee Medical Association. At the very least, he said, managed care can only do better than the current system in ensuring that pregnant women get prenatal care and children get their vaccinations.

"Under the old-fashioned fee-for-service system, prevention really isn't stressed at all," said Los Angeles' Dr. Oden. "The reality is that under fee-for-service, there is no patient education about how to use the system. Beneficiaries are given a card and told, 'good luck.' All too often their care was defaulted to emergency rooms. That paradigm has to be turned on its head in a managed care environment. The emergency room cannot be a primary care provider. Preventive services are essential in order for a managed care organization to be able to operate."

To date, however, that paradigm shift has not necessarily occurred. A 1995 report from the Kaiser Commission on the Future of Medicaid, "Medicaid and Managed Care: Lessons from the Literature," states that studies on the effect of managed care on Medicaid recipients' health care and health status have been inconclusive. For example, some researchers have described a decline in the use of specialist services and emergency rooms; others have found little use of preventive services by Medicaid card carriers regardless of whether they were in fee-for-service systems or managed care programs.

Joel Menges, senior manager with Lewin-VHI, a Fairfax, Va.-based consulting firm that has been working with many states to put together Medicaid managed care programs, is in favor of mandating managed care for Medicaid because it has potential. Under the traditional system, he said, no health care provider has had to take responsibility for the access and quality problems encountered by Medicaid beneficiaries.

"We all feel bad when we look at infant mortality rates in urban areas or when we look at [childhood immunization] compliance rates or the degree to which kids come down with asthma," Mr. Menges said. "We all feel bad about it, but none of us is responsible for making it better, and no one is accountable for not making it better." A managed care environment where health plans are given a certain amount of money per month for each patient and then may lose that capitation payment if they do not use the money well, he added, "creates that badly needed accountability."

ACP also sees some potential in improving Medicaid by drawing on the strengths of managed care. "Our members, for the most part, are concerned about making sure that patients have access to adequate medical care that they need, particularly for the most vulnerable segment of our population," said Jack Ginsburg, senior associate for policy analysis in ACP's Washington, D.C., office. "

We have come out in favor of major reform of Medicaid, but what we are saying is that as you make reforms, you have to continue to provide a safety net," he said. "You just can't slash the money and say that solves the problem."

There may be a place for managed care in the Medicaid system, ACP officials say, but the transition should come only after careful planning, with quality control standards and with adequate financing so that physicians and hospitals can participate without bankrupting themselves.

"It is important for plans to find their way to more of the physician community who have, for whatever reason, not traditionally served the Medicaid population," Mr. Menges said. This has been a constant problem; according to the AMA, at least a quarter of the nation's physicians report they do not accept Medicaid patients in their practices, and another third limit the number of Medicaid patients.

"Physicians often find that Medicaid managed care provides them with more money on a per unit basis than fee-for-service Medicaid. At the same time, it's not going to turn Medicaid into one of their best payers, or probably not even to an average payer," Mr. Menges said. A study published in the April issue of the American Journal of Public Health, for example, estimated that it would take a 48% increase in funding merely to close the gap between what Medicare and Medicaid pay physicians. Needless to say, increases of that magnitude are not in any state's budget.

Under Medicaid managed care, Mr. Menges said, "A lot of health plans will raise the fee schedule by 10%, and physicians will correctly notice that dirt plus 10% is still dirt."

A fight for survival

There is no doubt that providers of health care stand to see dramatic changes in how they do their jobs as a result of Medicaid reform. How they view these changes depends on their opinions of Medicaid and of managed care.

Community health centers and public hospitals like Dr. Braham's Jacobi Hospital, for example, are in a fight for their very existence as they lose patients and income to HMOs. Dr. Braham says his hospital is trying to develop information systems it will need to track utilization and to manage care so it can win and cope with managed care contracts.

Traditional providers of health care to the poor are also trying to come to grips with the conflict between their own and some HMO's views of case management. "In our case, case management is getting people into services," explained Sheila Martin, of the National Association of Community Health Centers. "The idea of setting up gatekeepers or barriers doesn't work for that population. This is a population that doesn't utilize the system, and then unfortunately when they have to utilize the system, they are very sick, or [women] come in the eighth month of their pregnancy."

The changes encountered by individual physicians are primarily the challenges of managed care, although magnified because the capitation rates and discounts leave less of a cushion in case of mistakes. "It's not realistic to play the discount-for-volume game in the Medicaid arena," Mr. Menges said. Savings are only made, he added, through actual management of care.

And although reformers are hoping the changes will attract more physicians to treat Medicaid patients, some doctors are already concluding that they would rather treat Medicaid patients for free than participate with Medicaid HMOs that pay too little.

"We have to make sure that the states that are interested in taking over Medicaid and increasing the level of managed care for Medicaid do it for the right reasons," says Dr. Oden. "If the reason is to do it on the cheap, then they are doing it for the wrong reason."

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