Managing Medicaid(1)

New Law Expands Medicaid HMOs Statewide

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Legislative Affairs Feature – October 2011

Tex Med. 2011;107(10):53-56.

By Ken Ortolon
Senior Editor

Medicaid beneficiaries in the Lower Rio Grande Valley and rural Texas who have little or no experience with HMOs soon will become closely acquainted with them. 

Under Senate Bill 7, which passed in this summer's special session, the Texas Legislature mandated statewide Medicaid managed care, which previously was limited to large urban areas. The move is one of dozens of cost-cutting initiatives included in SB 7. 

While the state expects to see savings of more than $2 billion during the 2012-13 biennium from the shift to managed care, implementation of Medicaid cost-containment initiatives, and the other provisions of SB 7, Texas Medical Association officials say the move will not be without some pain and confusion for Medicaid patients and their physicians. 

"Change is always difficult, and it's going to be hard to convert a physician population, and even a patient population, that's used to being in a private, choose-your-own-physician, fee-for-service arrangement into a new way of getting care," said San Antonio pulmonologist John R. Holcomb, MD, chair of TMA's Select Committee on Medicaid, the Children's Health Insurance Program (CHIP), and the Uninsured. "Ultimately, we may all be better off for this, but there will be lots of aches and pains in the short term." 

Other provisions of SB 7 likely will impact physicians, hospitals, and other health care professionals across the state. Foremost among those is a provision that requires the Texas Health and Human Services Commission (HHSC) to begin moving toward quality-based payments in Medicaid. (See "Dozens of Cost-Cutting Measures in Senate Bill 7.") 

TMA officials say it is not clear exactly what that will entail.  

The HMO Expansion

The Medicaid managed care expansion under SB 7 repeals the Medicaid HMO prohibition for Cameron, Hidalgo, and Maverick counties in the Rio Grande Valley and also authorizes expansion of the HMO model to 202 rural counties across the state. All of those counties formerly were under the Medicaid Primary Care Case Management model. 

The managed care rollout began in September in rural counties adjacent to existing urban Medicaid managed care service areas. Managed care will expand to the remaining rural counties and the Rio Grande Valley in March 2012. 

The change affects patients in both the STAR and STAR+PLUS programs. STAR covers acute care, primarily for children and pregnant women, while STAR+PLUS covers the elderly and people with disabilities. 

State officials estimate the shift to the HMO model will save roughly $385 million through efficiencies they hope the health plans can achieve, such as reducing hospital inpatient services and keeping patients out of emergency departments. Plus, the state expects to gain an additional $240 million in health insurance premium taxes by shifting Medicaid beneficiaries into private health plans. 

Another $805 million in savings is expected to be garnered from provider rate cuts, most of which will impact hospitals. Plus, an additional $843 million in savings would come from provisions of Rider 61 in the budget bill and other benefit changes, including reductions in optional services and discontinuing paying coinsurance for patients dually eligible for Medicaid and Medicare if paying the coinsurance would result in Texas paying above the Medicaid rate. 

In August, HHSC awarded contracts to five health plans to provide STAR and STAR+PLUS HMO services in the Rio Grande Valley: United Healthcare Community Plan, Superior Healthplan Network, Molina Healthcare of Texas, Driscoll Children's, and Health Spring (STAR+PLUS only). 

In addition, HHSC divided 166 of the affected rural counties into three services areas. Amerigroup, Superior, and First Care will cover West Texas. Contracts for Central Texas went to Amerigroup, Superior, and Scott & White. Amerigroup and Superior received the Northeast Texas contracts. The remainder of the 202 counties in the Medicaid HMO expansion will be added in existing urban services areas. 

Fear and Loathing

TMA did not support the Medicaid managed care expansion, but it did not oppose it as it did in previous legislative sessions. 

"The medical professional societies realize the problems associated with Medicaid funding, especially in a cyclical downturn as we're in right now," Dr. Holcomb said. "I don't think we had any expectation the further rollout of Medicaid managed care wouldn't happen. It was a matter of understanding reality and finding the best way to deal with it." 

Helen Kent Davis, director of TMA's Office of Governmental Affairs, says physicians realized even before the 2011 legislative session started that lawmakers would have to find savings in the Medicaid program to balance the budget. Had TMA opposed the managed care expansion, that $600 billion in savings likely would have come out of physician and other provider payments. 

TMA officials met several times with physicians from the affected county medical societies before the 2011 session to discuss the HMO model and the ramifications of opposing it. 

Harlingen pediatrician Stanley Fisch, MD, says the Cameron-Willacy County Medical Society began discussing Medicaid managed care last fall with Executive Commissioner Tom Suehs and others from HHSC "trying to get in there early with our concerns and questions." He says HHSC was very responsive to those concerns, including retaining one statewide drug formulary under the Medicaid HMO model instead of multiple ones and establishing a single claims clearinghouse. 

But physicians in the Rio Grande Valley still have many questions about how the transition to managed care will work. 

"The fear and loathing is the issue we have to overcome," Dr. Holcomb said. "We've been down this road before with Texas Medicaid. We've done conversions from fee for service to Medicaid managed care in the past." 

There were many problems when Medicaid managed care was introduced to the large urban areas a decade or more ago. For example, children from the same family often were assigned to different HMOs. And many patients or their parents didn't understand that they had to choose a primary care physician from their HMO's network. 

Dr. Holcomb hopes many of those issues will be avoided this time around. 

"The state made promises to the medical community that they, in fact, have learned from past rollouts and will implement those lessons learned from past rollouts," he said. 

Still, Dr. Fisch and others expect there will be some initial confusion among patients. He says patients in the Valley are used to having to choose a primary care physician under the Primary Care Case Management model. 

"But what they're not used to is the fact that HMOs will probably enforce that much more stringently and not be so forgiving when they do go to somebody else or if they go to the ER a lot," Dr. Fisch said. 

Physicians in the Valley also are concerned that having five different plans running Medicaid managed care in the area could increase administrative burdens on their practices. 

"My concerns for my practice are how many HMOs will we have to deal with? Do we have to enroll with each and every one? Are we going to have to bill through five different clearinghouses or will the HMOs share one clearinghouse?" asked Dr. Fisch, who says Medicaid makes up 55 percent of his practice. "And what about formularies? Will there still be one Medicaid formulary or will there be five formularies?" 

Ms. Kent Davis says his questions about formularies and clearinghouses have been resolved.  

Waiving the UPL

Also still to be answered is whether the federal government will grant a waiver to allow Texas to implement fully the Medicaid managed care expansion and other cost-cutting provisions of SB 7. 

HHSC spokesperson Stephanie Goodman says the U.S. Centers for Medicare & Medicaid Services (CMS) already approved expanding Medicaid managed care to the Rio Grande Valley and rural counties, but still is negotiating a waiver to allow hospital services to be included in the program. At stake are some $2 billion in Upper Payment Limit (UPL) dollars now going to Texas hospitals. The UPL funds are supplemental federal matching dollars that go to hospitals with heavy Medicaid patient loads. 

Without the federal waiver, Texas either would have to forego the UPL payments or cut hospitals out of the HMO plans. That would mean HHSC would have to find other ways to make up for money expected to be saved by having hospitals in the HMOs. TMA officials say that likely would mean cuts in hospital payment rates. 

Also still subject to federal approval is the provision of SB 7 to move to quality-based payments in Medicaid. That provision created a Medicaid and CHIP Quality-Based Payment Advisory Committee to advise HHSC on quality-based reimbursement systems and policies; programs; standards and benchmarks; and outcome and process measures. 

In consultation with the advisory committee, HHSC is required to:   

  • Develop quality-based measures and payment systems.  
  • Convert Medicaid and CHIP hospital reimbursement systems to a diagnosis-related groups methodology to more accurately classify specific patient populations and account for severity of patient illness and mortality risk. This does not apply to managed care organizations (MCOs). 
  • Base a percentage of premiums for MCOs on quality-based measures. 
  • Develop quality of care and cost-efficiency benchmarks for MCOs.  
  • Give preference in contracting to MCOs that successfully implement quality initiatives or meet benchmarks. HHSC could provide financial incentives to MCOs that successfully implement quality initiatives or meet benchmarks. 
  • Develop and implement quality-based payment initiatives such as quality-based payments for health homes. 

Ms. Kent Davis says the committee will have at least four physician members. Other members will include representatives of health care facilities, managed care plans, and other stakeholders. 

State Sen. Jane Nelson (R-Flower Mound) authored SB 7. "A healthy outcome for patients is my top priority for moving Medicaid and CHIP toward a quality-based payment system," she said. "This type of system will also increase efficiency and reduce costs."

The Legislative Budget Board (LBB) estimates a savings of $467.6 million in the first few years after quality-based payments begin, Senator Nelson says. "I believe the savings will only go up from there by focusing on keeping patients healthy, reducing hospital infections and unnecessary tests and procedures. These savings will add up over time as quality and efficiency improve."

According to the LBB, this provision will save $48.8 million annually by 2013, increasing to $71 million by 2016.  

Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by email.


Dozens of New Cost-Cutting Measures in Senate Bill 7

 While the Medicaid managed care expansion has the most immediate impact on physicians and patients, Senate Bill 7 and riders within the 2012-13 budget bill include dozens of other cost-containment measures. 

Among other provisions, the bill requires:   

  • All Medicaid managed care organizations to provide outpatient pharmacy benefits using the Texas Health and Human Services Commission (HHSC) formulary, preferred drug list, and prior authorization requirements in fiscal years 2012 and 2013. 
  • HHSC to study physician incentive programs to reduce inappropriate hospital emergency department use. 
  • HHSC to work with managed care plans to promote and provide payment incentives for patient-centered medical homes. 
  • Medicaid cost sharing to encourage personal accountability and appropriate utilization of health care services, including cost sharing for nonemergency services provided in emergency departments. 
  • HHSC to seek a federal waiver for more flexibility to determine Medicaid eligibility and benefits; allow the use of copayments, health savings accounts, and vouchers for consumer-directed services; consolidate federal funding streams and allow flexibility in the use of state funds; and more. The state assumes such a waiver could result in $700 million in savings. Those savings would be in addition to the more than $2 billion in savings achieved by SB 7 and the budget riders, but some political observers feel it is unlikely the waiver will be approved. 
  • HHSC to seek additional federal Medicaid funding for services required for undocumented immigrants. 
  • Ending the State Kid's Insurance Program, a program for the children of state workers, and requires HHSC to enroll eligible children in the Children's Health Insurance Program (CHIP). 
  • Prohibiting the use of state funding from the Women's Health Program for elective abortions. 

The bill also authorizes the state to sign an interstate health care compact with one or more other states to allow the states to receive federal Medicaid funding as a block grant, allowing the states to design their own Medicaid programs. Congress must approve the compact.  

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