Two Boston-area hospitals set up managed care plans to compete for Medicaid patients, enroll uninsured.
Boston Managed Care / Medicaid
October 31, 1997
It could have been a double whammy for Boston Medical Center (BMC) and Cambridge Hospital this summer when the state of Massachusetts both expanded its Medicaid managed care program and made changes in its uncompensated care pool.
The inner-city hospitals derive much of their revenue from caring for Medicaid patients and the state’s uninsured. Not only did they face the risk of losing Medicaid patients to managed care plans trying to attract new members, but they also faced the prospect of giving up uncompensated care pool dollars to suburban hospitals and to an insurance subsidy program being planned by the state.
However, thanks to some clever negotiating—and an intergovernmental transfer of funds—the two city hospitals stand to benefit from the changes ahead.
Higher per member rate
One major part of their strategy: BMC and Cambridge Hospital have both launched their own managed care plans so that they can compete with managed care plans to keep their Medicaid patients. One important advantage they won from state and federal officials is that they will be paid a higher per-member, per-month rate than the nine other plans in the state’s Medicaid program.
"They really came out of this quite well," said Katharine London, policy development manager for the Massachusetts Division of Health Care Finance and Policy.
State and hospital officials won’t pinpoint in dollar amounts how much extra BMC and Cambridge Hospital are getting paid for Medicaid beneficiaries who enroll in their plans. In percentage terms, the two hospitals are being paid about 25% more than the upper payment limit paid to other health plans, according to Tom Traylor, the BMC official in charge of setting up the hospital’s plan. A total of $33 million has been set aside this year to fund the additional payments. The higher rate is supposed to be phased out in five years.
"They [BMC and Cambridge] made their case well with HCFA," acknowledges David Webster, the director of capital budget in the Executive Office for Administration and Finance.
The hospitals pressured the state and the Health Care Financing Administration (HCFA) for a waiver of the "upper payment limit" as part of the state’s application for a Section 1115 Medicaid managed care waiver. The MassHealth program, which not only calls for expanding Medicaid but also for reducing the number of uninsured through a subsidized insurance program for the working poor, was approved by HCFA two years ago.
The first phase was implemented July 1 when some Massachusetts residents with household incomes between 100% and 133%—those with disabilities, the long-term unemployed and those with children receiving Medicaid—became newly eligible for Medicaid. The subsidized insurance program will be implemented later.
The higher rate for Medicaid beneficiaries who will enroll in the two hospital plans partly reflects the hospitals’ case mix, considered "sicker" than the mix of patients at the average hospital. The higher rate also helps cover the gap between what the hospitals get paid for Medicaid beneficiaries and what they customarily have gotten from the uncompensated care pool, according to Mr. Traylor. BMC receives about 96 cents on the dollar for uninsured patients’ care from the pool compared with 75 cents on the dollar paid by Medicaid, he said.
State officials hope the two urban hospitals will be motivated to enroll eligible uninsured patients into the Medicaid program. In the past, critics of the state’s uncompensated care pool have said there was little incentive for the hospitals to help identify Medicaid-eligibles because they got paid more to care for them if they were uninsured than if they were on Medicaid. Massachusetts hospitals now have a legal responsibility to steer eligible patients into
Besides the $33 million set aside for the higher per member per month rate, another $70 million annually is being used to relieve the pressure on the uncompensated care pool and to pay the two hospitals’ for some of their uncompensated care costs. BMC and Cambridge Hospital will draw down on those funds first before going to the uncompensated care pool. The two hospitals depend heavily on pool dollars for revenue: In 1996, 27% of BMC’s revenues came from the pool and 37% of Cambridge’s.
The $103 million to fund the differential rate ($33 million) and uncompensated care ($70 million) for the two hospitals comes from federal matching funds made available because of the state’s Section 1115 waiver.
To obtain the federal money for the hospitals, the cities of Cambridge and Boston put up an equal amount as the local match. The cities’ match is expected to revert back to them. Although the matching funds are funneled through the state, Ms. London said any repayment arrangement is a matter for the cities and hospitals to work out among themselves.
One important advantage they won from state and federal officials is that they will be paid a higher per-member, per-month rate than the nine other plans in the state’s Medicaid program.
Notwithstanding this golden parachute, in the long term, BMC’s viability very much depends on successful operation of its health plans, said Mr. Traylor.
So far, however, enrollment in the BMC and the Cambridge health plans has been slow. By mid-September, two and a half months after the official July 1 start date, only 75 people had enrolled in the BMC plan. BMC plans to enroll 40,000 people in the next few years. In Cambridge, enrollment is similarly low. Less than 100 had enrolled in Network Health by mid-September, according to Barbara Fisher, executive director of Cambridge Hospital’s plan. She expects there will be 20,000-25,000 people in the plan.
Mr. Traylor mentions that the state has been slow in publicizing the first phase of the Medicaid expansion targeted at people with incomes between 100% and 133% of the federal poverty level.
To get a running start on enrollment, the two hospitals had wanted the state to automatically assign some long-time patients (many of whom are already enrolled in pilot projects at the hospitals) to the hospitals’ health plans, but lost on this point during the negotiations. "We were adamantly opposed to that," said Mr. Webster, the state budget analyst. The Weld administration wanted the new enrollees to choose freely among health plans, he said, and not steer them in any way to the health plans run by the two hospitals. Ms. Fisher another reason enrollment has been slow is that it is contingent on the state determining people’s Medicaid eligibility.
According to Mr. Webster, "they [BMC and Cambridge] are banking on loyal customers choosing them...because they speak their language, because they are in the neighborhood, because they have received good care in the past. They are banking on that in a huge way."
"People are very, very supportive—I think universally," said Barbara Fisher, executive director of the Cambridge network, which is calling itself Network Health. She adds that, besides a history in serving a disadvantaged population, the Cambridge Hospital plan has another important asset: "We have Portuguese, Spanish, Creole interpreters—we can communicate in their language."
"They [BMC and Cambridge] are banking on loyal customers choosing them...because they speak their language, because they are in the neighborhood, because they have received good care in the past. They are banking on that in a huge way."
According to a recent survey by the National Association of Public Hospitals and Health System 74%, or about 50 public hospitals, owned, operated or were otherwise involved in managed care plans, said Jennifer Tolbert, a senior policy analyst with the association.
Ensuring that a public hospitals has the administrative infrastructure to run managed care plans is no small task. Mr. Webster said the state "insisted on partnerships with existing managed care organizations."
While the Boston and Cambridge hospital systems control the managed care plans themselves, they have contracted out significant portions of the administration of the plans.
BMC has contracted with AmeriChoice, a New York City-based company, to provide claims management and other services and with Medimetrix, a Cleveland-based company, for marketing. The Cambridge system has hired Beacon Health Strategies, a Boston-based company, as a third party administrator and the Mount Auburn Cambridge Independent Practice Association to provide medical management services. BeaconHealth Strategies has a contract for utilization management for mental health and substance abuse.
—Peter Wehrwein
Contact Ms. London at 617-988-3100; Mr. Traylor at 617-638-6730; Ms. Tolbert at 202-414-0110; and Mr. Webster at 617-727-2040.
Two Boston-area hospitals set up managed care plans to compete for Medicaid patients, enroll uninsured.
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