Medicaid patients don’t have to be money losers
Tips to negotiate rates
Over the years, many providers have looked at Medicaid as a marginal market in which they had little interest. However, the rapid expansion of Medicaid managed care, plus $24 billion in proposed additional Medicaid coverage for children, make this population more attractive to many medical practices.
Richard Liberman, president of Baltimore-based health care actuarial and consulting firm Health Data Systems, has worked extensively in the Medicaid arena. He discussed with Physician’s Payment Update some of the differences between commercial and Medicaid markets, and other factors that physician practices should consider before entering this arena.
PPU: If physician practices are thinking about taking on more Medicaid patients, what basics should they keep in mind?
Liberman: Since Medicaid rate setting is still more of an art than a science, you will basically be flying blind during the first year, at least. But, unlike an HMO, a doctor or group of physicians has fewer financial reserves to fall back on if something goes wrong. My advice to physicians thinking about getting into Medicaid is to go slow until you have more experience to expand. Physicians should start with capitation contracts limited to professional services and avoid global cap arrangements until they have significant financial reserves and an actuarial analysis verifying the contract is viable.
In addition, make sure you get all the same goodies that the state is giving the HMO like enrollment guarantees and financial incentives in your agreement with the plan. HMOs are increasingly asking providers to take on full-risk deals. If done right, this might be a good thing. However, don’t sign a contract that forces you to take most of the risk while the plan makes most of the money.
PPU: What are some other basic differences between Medicaid and commercial coverage?
Liberman: For one thing, plans don’t make the really big money in Medicaid by simply compressing the fees they pay providers. One of the first things an HMO entering a new commercial market with little managed care usually does is start squeezing down the unit prices paid to the local docs.
Granted, a commercial HMO in a young managed care market can make a lot of money squeezing excess cost out of the system. But since Medicaid fees are discounted compared to commercial rates, providers already feel underpaid to begin with and aren’t as willing to absorb more deep cuts in their fees.
PPU: Then what is the recipe for success in Medicaid?
Liberman: One approach is to aggressively manage the care being given, particularly hospital services. Emergency room and maternity-related services, for instance, account for the bulk of a normal AFDC population’s medical costs. Anyone with a way to significantly reduce these costs, while still providing appropriate care, stands to make a lot of money in Medicaid.
PPU: What are your specific suggestions on how to do that?
Liberman: One idea could be sending expectant mothers with no indication of having a complicated delivery to birthing centers rather than higher-cost hospitals. Another might be creating urgent care centers in the neighborhoods where large numbers of Medicaid patients live and work.
PPU: What are some of the barriers to this happening?
Liberman: Pricing is the biggest barrier. The key to encouraging better care while cutting costs in Medicaid is ensuring the rate the state pays the HMO or hospital, and in turn the rate paid the physician, is appropriate to the risk being assumed. For instance, you should get paid a higher rate for caring for an AIDS patient than for a pregnant woman. But in most states, cap rates are only age- and sex-adjusted. Therefore, the rate for a 30-year-old pregnant female is much the same as for a 30-year-old pregnant woman with symptomatic AIDS. If states want providers who know how to care for their high-cost, high-risk populations, and ultimately reduce these costs, they must learn how to pay providers adequately for taking on greater risks.
PPU: What are some of the things you’ve found peculiar to Medicaid that can affect reimbursement and medical management?
Liberman: When it comes to setting cap rates, most of the providers and plans new to Medicaid managed care don’t really know what they are doing. Most states are basically shooting in the dark when they try to create rates because they don’t really know what their costs under managed care are likely to be. Estimating Medicaid costs, even in states with significant managed care populations, can be problematic because the characteristics of enrollees under a voluntary system are likely to be dramatically different from recipients that join when the state makes Medicaid managed care mandatory. Plus, there is also a lot of so-called noise in the fee-for-service sector.
PPU: For example?
Liberman: There is a lot more turnover in Medicaid than in commercial plans. This makes something seemingly as simple as determining who is eligible for coverage every month more complex under Medicaid than most commercial plans ever have to contend with.
PPU: That must have a significant impact on reimbursement rates.
Liberman: It does. One way I adjust for enrollment breaks is to count the number of eligible member months rather than people. For instance, instead of asking how many dollars per person were spent during a certain period, I look at the amount of dollars per member month.
PPU: What difference does this make?
Liberman: One state I worked with, for instance, will tell you that 10% of its Medicaid SSI [supplemental security income] population is in managed care. But when I reviewed the figures, using member months as my base, I came up with a number closer to 3%.
The main reason for this difference is the state only looks at a specific point in time when it does its eligibility counts and at that time, 10% of the state’s potential SSI population was enrolled in some kind of managed care. However, many of these are only enrolled for a few months at a time. Therefore, when you look at all the managed care member months the state paid for over a full fiscal year, you find this accounts for only 3% of the SSI population.
PPU: What effect could this have on cost and reimbursement calculations?
Liberman: A common mistake when looking at Medicaid cost data is to compute the average spending per SSI eligible, for instance, without adjusting for the fact that not everyone was actually enrolled in the program for a full 12 months. This gives you too low a number. For example, if I told you a person had $3000 in medical costs, but was only Medicaid-eligible for six months, then on average that person’s annualized projected cost is actually $6000.
PPU: How can providers deal with problems caused by frequent changes in member eligibility?
Liberman: Many states have continuous enrollment guarantees allowing members to keep their managed care coverage for a certain length of time even if they are no longer eligible for Medicaid. This is a very important negotiating point for providers and plans wanting to get into Medicaid managed care. My advice is to do all you can to avoid having to verify if someone is eligible for coverage every month. If you can, try to get at least a six-month, or even better a 12-month, enrollment guarantee from the state.
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