Debates over fee for service and managed care has states in quandary over how to do business
September 1, 2003 7 minutes read
Hoping to head off suggestions in some financially pressed states that Medicaid should abandon managed care and return to a fee-for-service payment mechanism, the Washington, DC-based Association for Health Care Affiliated Health Plans (AHCAHP) is publicizing a study it funded that it says demonstrates "managed care does a better job of caring for Medicaid beneficiaries than traditional fee for service does."
AHCAHP executive director Meg Murray tells State Health Watch there have been rumblings in some states about a return to fee-for-service structures, and a desire on the part of her association to provide ammunition to people at the local level to use with their governors and legislatures to support continued use of managed care.
"We wanted to demonstrate that managed care is the best thing for Medicaid beneficiaries and also for states’ financial coffers," she explains.
The study, The Good Olde Days’ of Fee-for-Service Were Not So Good After All: Managed Care Has Made Things Better, was conducted by Vernon Smith, principal, and Linda Hamacher, senior consultant, of Health Management Associates in Lansing, MI.
Ms. Murray says it should "remind policymakers that going back to fee for service does not make sense fiscally or from a quality perspective. Managed care has improved the lives of Medicaid beneficiaries around the country."
Good for future improvements
Mr. Smith and Ms. Hamacher say in their report that not only has managed care made things better, it offers a structure to make further improvements. "The evidence shows that the traditional Medicaid fee-for-service system of the past failed to assure access to care for the most vulnerable of our citizens; failed to engage beneficiaries and providers in any meaningful dialogue or education; failed to monitor and measure the quality of care beneficiaries received; and failed to contain Medicaid costs, for the second largest program item in most state budgets," they wrote.
"Managed care offers guaranteed access to primary and specialty care, disease and care management, and coordination of services. Managed care includes monitoring, measuring, and improving the quality of care beneficiaries receive; avenues for provider relations; beneficiary and provider education; and communication. Managed care is containing costs through predictable rates, economies of scale, increased market leverage, and better integration of care. From virtually every angle, things are better now," they point out.
In fact, the two say, things are so much better now that "going back should be unthinkable." Still, no one would claim that the current system is perfect, or that improvements do not need to be made, according to Mr. Smith and Ms. Hamacher. But it is moving in the right direction.
Medicaid card, hunting license’?
In terms of access, they say, in 1990, when most Medicaid beneficiaries were in fee-for-service programs, their Medicaid card was in reality a "hunting license," a license to hunt for a provider who would take a Medicaid patient with the program’s low payment rates. It was a hunt that often was difficult, if not impossible; because in many areas, there were not enough providers willing to accept Medicaid’s payment rates.
Mr. Smith and Ms. Hamacher say the evidence shows that traditional Medicaid fee for service failed to assure access to care for the most vulnerable citizens; failed to monitor, measure, and improve the quality of care beneficiaries received; and failed to contain Medicaid costs.
"There is now enough experience with managed care to show progress where it counts," they write, "access, quality, and cost savings. States have found that managed care offers a prudent purchasing system with greater accountability and an infrastructure that supports continued improvement."
The researchers say that one of the most strongly held American values is freedom of choice. Thus, they say, it is ironic that until 1997, states had to get a waiver of freedom of choice to implement managed care. Now states can get a waiver or satisfy the same issues through the Medicaid state plan amendment process.
Whichever way a state chooses, Medicaid must assure choice of a health plan and, within each plan, must assure choice that is better than that which is available outside of the plan.
"Choice is better within the health plan for several significant reasons: The choices guarantee access and availability; the choices guarantee a medical home;’ the choices are among credentialed providers; [and] the choices are within a system that measures quality and is designed to assure top-notch performance," the two say. "In other words, managed care guarantees choice among alternatives that are not even available in fee for service. Within a health plan, there is freedom to choose among better alternatives."
Problems with Medicaid fee for service cited by Mr. Smith and Ms. Hamacher include:
1. Low provider participation because many physicians are not willing to accept Medicaid patients in the fee-for-service system.
2. Lack of a medical home, where patients know which provider is uniquely theirs, and providers know which patients are uniquely theirs. Patients who don’t have a medical home are less likely to have consistent, continuous care; less likely to know where to go when care is needed; less likely to seek care when it is needed; less likely to go to the doctor or clinic instead of the emergency department (ED) for nonemergency care, and less likely to seek preventive or wellness visits.
3. EDs can become community medical homes for those with no other place to go, resulting in overly expensive, often unnecessary, sometimes duplicative care and services.
4. Fee for service is most unkind to the sickest, with almost two-thirds of adult Medicaid beneficiaries having a chronic or disabling condition, with nearly half of those with multiple conditions. Continuity of care is not possible in a system characterized by hit-or-miss treatment for ongoing medical conditions.
Mr. Smith and Ms. Hamacher say that by contrast, those who are enrolled in Medicaid managed care plans are "no longer relegated to ricocheting through the system like a pinball, but instead have a designated primary care physician. The days of blindly seeking medical attention are gone. Networks are monitored for capacity and the specialty, ancillary, and tertiary needs of beneficiaries.
"With a primary care physician, Medicaid beneficiaries have access to prenatal care, disease/care management for complicated cases, preventive care such as cancer screening, education about their health and the delivery system, and some continuity in treatment of chronic illnesses. Further, they are granted some degree of dignity not always possible in fee for service," they add.
Sharing best practices
Further, they say, managed care plans share best practices and continue to improve care delivery and use of services.
"In fee for service, measurement of quality is inherently difficult," Mr. Smith and Ms. Hamacher say. "By its nature, there is no structure or organization within which to measure quality or to know if it is improving or not. Fee for service produces a lot of data based on claims that are paid, but those data are not ideal for assessing quality. As a result, there are scant studies about fee-for-service quality. On the other hand, the number of studies on managed care quality has increased dramatically in the past decade, reflecting the availability of reliable quality data, the importance of managed care in the health care system, and increasing interest on the part of researchers and funding agencies." In fact, they assert, managed care’s greatest success could be quality management, monitoring, and improvement.
Managed care holds costs down
Looking at state costs, Mr. Smith and Ms. Hamacher say that under fee for service, costs are unpredictable, with states bearing financial risk and using limited resources to try to control the growth of Medicaid costs.
What’s worse, they say, the nature of fee for service makes it more difficult to control costs due to the inherent incentives to provide more services so more services can be billed. This can result in excessive payments, overutilization, upcoding, unbundling of services, billing errors, and fraudulent billing. In contrast, managed care is designed from the beginning to be efficient, to incorporate policies, procedures, and incentives that encourage appropriate and cost-effective care.
With a capitated reimbursement method, Mr. Smith and Ms. Hamacher point out, managed care also offers budget certainty because the health plans accept the financial risk. States use rate-setting methodologies that guarantee that Medicaid’s costs are less under managed care, whether the rates are set administratively or competitively bid.
With prescription drug costs one of the principal drivers of higher Medicaid costs, they say that recent studies document superior performance of managed care compared to fee for service in controlling drug costs.
In a direct comparison of Medicaid pharmacy costs and usage between the fee-for-service and capitated settings, managed care had better performance in terms of drug prices, drug mix, utilization review, and per-member per-month costs. Managed care organizations paid lower dispensing fees to pharmacies, experienced a 9% greater generic drug mix, and had a 15% to 20% lower utilization rate.
The overall result, they say, was a 10% to 15% lower per-member per-month cost than fee for service, even after accounting for the substantially higher level of manufacturers’ rebates under fee for service.
Intense look at managed care
Mr. Smith and Ms. Hamacher say the current fiscal crisis in almost every state "presents an opportunity for Medicaid to look more intensively toward managed care.
"Managed care has shown it can deliver on greater value and better performance, and can provide excellent care for the special needs of the Medicaid population. Managed care may not yet be perfect, but it is far better than old-fashioned unfettered fee for service, and it provides the foundation for an even better system in the future," they add.
Ms. Murray says that because the report lends itself more to state-level advocacy rather than federal, it will be sent to state Medicaid directors, governors, and legislatures in those states where concerns exist. She says the report was presented at the AHCAHP conference in May and received positive feedback from those in attendance.
[Contact Ms. Murray at (202) 331-4601 and Mr. Smith and Ms. Hamacher at (517) 482-9236. To download the report, go to the AHCAHP web site at www.ahcahp.org.]
Hoping to head off suggestions in some financially pressed states that Medicaid should abandon managed care and return to a fee-for-service payment mechanism, the Washington, DC-based Association for Health Care Affiliated Health Plans is publicizing a study it funded that it says demonstrates managed care does a better job of caring for Medicaid beneficiaries than traditional fee for service does.
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