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Managed Care 101

photo-1457369804613-52c61a468e7d.jpgManaged care is an all-encompassing term that covers a variety of methods to pay for healthcare outside the norm of fee-for-service. Medicare Advantage (MA) plans are a form of managed care, as are Managed Medicaid plans. Accountable Care Organizations (ACOs) also fall under this umbrella. With the exception of MA, managed care is a relatively new idea in terms of health care financing. Generally, with managed care, payments flow through a risk-bearing third-party company to health care providers. The third party’s goal is to manage a patient’s total cost of care so that the total payment made by the third party is smaller than the initial bill. How this system is regulated is still evolving; CMS is committed to moving away from traditional fee-for-service payments, and managed care has a role to play in attaining that goal.

Challenges and Opportunities for Medicare Advantage and ACOs

Indeed, MA plans are growing among Medicare-eligible seniors. Despite their growth in popularity, changes enacted through the Affordable Care Act (ACA) actually reduce the per-patient amount that Medicare pays the private insurance company managing the enrollee’s care. An analysis conducted by the American Action Network concluded that the annual rate Medicare pays per beneficiary will decrease by 21.8% in 2017, or an average of $2,976. According to NIC’s Skilled Nursing Data Initiative, about 6.1% of SNF residents are covered by MA plans, and the rates they pay for skilled nursing care have been on the decline since 2011. The average rate was $441 per patient day as of March 2016, while that amount was closer to $500 in 2011. Meanwhile, the share of residents covered by MA plans has grown, just as MA plans have increased in popularity among the whole population. A separate analysis published in 2015 in the American Journal of Managed Care concluded that MA plans are not as beneficial for very sick seniors, which may explain why about one-third of seniors are enrolled in MA plans, but only 6% of SNF residents in the NIC data set are covered by such plans. The study found that MA plan enrollees were more likely to switch out of those plans upon entering a skilled nursing property because of narrow networks or cost-sharing that exceeded the out-of-pocket amount traditional Medicare would impose. MA plans tend to pay less per patient to skilled nursing properties than traditional Medicare, in part because MA plans operate like private insurance companies and can therefore define narrower networks and negotiate rates with skilled nursing properties.

While the ACA may place negative pressure on Medicare Advantage, it simultaneously provides incentives for the creation of ACOs. These networks of hospitals and care providers manage care for Medicare patients, but some also manage care for patients with private insurance. A recent IRS ruling stated that the latter type of ACO is not eligible for a tax exemption usually granted to ACOs operating as charitable organizations. Working with private insurance companies to negotiate rates on behalf of member providers, the IRS said, does not amount to charitable behavior. Taking this tax incentive off the table “creates a significant obstacle” for ACOs, the New York Times reported.

Managed Medicaid Is Growing

While MA plans and ACOs are facing challenges at the federal level, Managed Medicaid has grown at the state level this year. Under Managed Medicaid plans, states pay private insurance companies a capitated rate for each enrollee, similar to how the federal government pays MA plans on a per-enrollee basis. These plans are called Managed Care Organizations (MCOs). Iowa was the first state this year to transition its Medicaid program to MCOs, and now North Carolina has submitted a waiver to the U.S. Department of Health and Human Services (HHS) to do the same, according to The News & Observer. Managed Medicaid looks different in every state, however. Some programs only cover certain populations, such as pregnant women or people with specific conditions. About half of the programs in states cover nursing homes, but often when a MCO plan enrollee enters a nursing home, they are switched back to traditional Medicaid fee-for-service. Louisiana tried in vain to add nursing homes to its Managed Medicaid program earlier this year. Currently, the NIC Skilled Nursing Initiative breaks out only Managed Medicare, not Managed Medicaid.

Pros and Cons in the Managed Care Model          

Managed Care in its many forms seems likely to be a significant payment model of the future, although this type of payment has its supporters and detractors. Supporters argue that Managed Care has the potential to reduce costs while increasing quality by leveraging value-based payments and care coordination, creating a more efficient system with standards for care quality. Among detractors, MA plans often are accused of making profits by cherry picking enrollees or creating impossibly narrow networks. Some commentators caution that ACOs, if left unchecked, could create monopolies of care providers, especially in smaller markets, driving up the cost of care through negotiating power. Managed Medicaid is privatization of Medicaid, and serves a very vulnerable population, especially the frail elderly without assets. Skeptics of the MCO model argue that policies aimed at preventing MCOs from exploiting this vulnerable population are paramount for this payment model to succeed in guaranteeing essential care and access for enrollees.

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About the Author

Liz Liberman

Healthcare Analyst Liz Liberman provides policy, regulatory, and healthcare perspective to the dynamic environment surrounding the seniors housing and care market. She comes to NIC from the Department of Defense, where she served as a contractor in Acquisition policy, implementing statutes, executive orders, and updates into the Federal Acquisition Regulation (FAR) and Defense Federal Acquisition Regulation Supplement (DFARS). She also served as a health policy analyst for Bulletin Intelligence, where she crafted daily briefings for government agencies and trade associations in the healthcare field. Liz earned degrees from The George Washington University (B.S.) and George Mason University (M.S.), and is a member of the Junior League of Washington.