MANAGED CARE under the microscope [New Hampshire Business Review (NH)]

While the state of New Hampshire decides whether to approve its largest vendor contract ever - $2.3 billion to hire three companies to manage the care of some 140,000 Medicaid recipients over three years starting in December - questions still remain over how a managed care program will work, both financially and in terms of providing health services.

Among the questions:

* Will the state really save $30 million in the first year the program is launched - a figure already written in the budget - and even more in the coming years?

* Will providers get paid on time (especially at first), and will that payment be enough for them to participate in the program at all?

* Will the care of recipients - particularly the developmentally disabled and elderly in nursing homes - improve or stiffer?

The proposed Medicaid contract is "absolutely monstrous," summed up Executive Councilor Chris Sununu on April 18, before voting with the rest of the council to continue to table voting on the deal for the second time this spring.

The council will have to come "to some resolution in the near future," Sununu admitted at a breakfast meeting beforehand. "At some point we have to pull the trigger."

But the Executive Council doesn't have much time to aim.

The budget state lawmakers passed last June counted on saving $30 million in the first year of the contract, which is why it's on the fast track.

The state Department of Health and Human Services issued a request for proposals last October. Six bidders answered in December. The department presented the three winners on March 21 to the Executive Council, which held off twice and will next look at it May 9. The contractors were supposed to hit the ground running in July to go live with the initiative in the fall, though that date has been pushed back to the end of the year - if everything goes right.

But a lot could go wrong. The Executive Council could continue to hem and haw. The federal government could hold up approving the plan. The contractors could fail to fulfill the goals of the contract. And the computer system needed to operate it could not be ready.

As it stands now, the contract would essentially privatize the state's entire Medicaid system in three years. First, everyone, including the developmentally disabled and the elderly, would be offered a "medical home" - a choice of three managed care companies to "manage" or "coordinate" their health care. Those who don't choose to participate - estimated by HHS at about 40 percent of recipients - will be assigned a home anyway, split up between the three companies. (Federal law requires this "choice" for a mandated program.)

Boston Medical Center Health Plan Inc., which manages about 200,000 Medicaid recipients in Massachusetts, would be "home" to half of the recipients, because they received the highest technical (as opposed to cost) score.

Centene Corp., a publicly traded company based near St. Louis, manages 1.8 million recipients in about 16 states. It would be home to 25 percent.

Meridian Health Plan, a subsidiary of Caidan Enterprises, a family controlled privately held business in Detroit that manages about 325,000 recipients in three states, would get the final quarter.

"They bring a set of perspectives, techniques that we do not have at our disposal," HHS Commissioner Nick Toumpas told the executive councilors.

The state would give the three vendors a total of $382 million in fiscal 2013 (which starts in July). They will use that money to cut contracts with providers to meet state and federal standards while at the same time keeping costs down in order for them to make a profit.

Medicaid managed care is nothing new. Some 47 states have some type of managed care program already.

It would be in the second stage of the initiative where the state would be breaking relatively new ground, by filling not just the medical needs, but the long-term care of developmentally disabled patients and the elderly in nursing homes.

Controversial move

Yet while these populations make up less than a third of the Medicaid population, the costs of their care take up about two-thirds of the Medicaid budget. It is here, theoretically, that the state has its chance to capture the greatest savings, but the move is controversial, because the vendors don't have much of a track record when it comes to serving the two populations.

What would happen if the state backed off the second stage, Sununu asked Toumpas, who replied that the foundation for the entire program could "fall apart."

In fiscal 2014, the three companies would receive $900 million to launch stage two. In stage three, some 50,000 more residents are expected to be eligible for Medicaid under the federal Affordable Care Act, upping the payday in fiscal 2015 to $945 million.

Exactly how much each company would get of that $2.23 billion over three years would depend on how many recipients they serve, and how badly those recipients need services (to discourage cherry-picking for the healthiest members).

The "capitated rate" - the amount the companies would get per person for medical services alone - could vary from as much as $175 for a healthy Medicaid recipient to some $1,165 for an adult with developmental disabilities.

Bad experiences

While executive councilors aren't too worried about the first stage, perhaps they should be.

In a study of Medicaid managed care conducted for America's Health Insurance Plans in 2004 and updated in 2009, savings varied widely, from 20 percent to half a percent.

And that study was conducted before several well-publicized experiences in a number of states, such as Connecticut, which pulled the plug on privatization, and Kentucky, which just instituted it.

"Connecticut has a 15-year history with managed care organizations, and there has been a diminishing confidence in the value of what they are providing," said Mark Schaefer, the state's Medicaid director.

In making its decision, Connecticut officials pointed to one report that the state was overpaying insurers by nearly $50 million a year - about 6 percent of total expenses.

Kentucky's three managed care contracts were supposed to save $1.3 billion, but in its haste to make those savings, the program got off to a rocky start.

The companies sat on $250 million, according to State Auditor Adam Edelen. Providers had to borrow to pay their workers. Some worried they would go out of business.

"I feel like I am a bank for these out-of-state insurance companies," Joe Grossman, vice president and chief financial officer of Appalachian Regional Healthcare, told the Lexington Herald-Leader.

One laboratory company filed suit against Kentucky Spirit Health Plan (a Centene subsidiary) for failing to pay for some 2,000 lab tests within the required 30 days. One TV report told the story of a 12-year-old boy who tried to hang himself when he was switched from the drugs that had stabilized him.

"We implemented too quickly, in my opinion," Dr. David Neel, a Louisville physician told WTVQ. He said the state, hospitals, doctors, patients and the managed care companies themselves were not ready. In New Hampshire, critics worry that the state's program may face the same pitfalls if it doesn't slow down the process.

"Rushing to get this done to fill a budget hole may not be the best option," said Deb Fournier, an analyst for the New Hampshire Fiscal Policy Institute.

Toumpas agreed that the timeline was "aggressive," but that it won't be rushed.

"If I need more time, I'll ask for more time. We want to do this, and we want to do this right. We won't move forward if it is not ready," he told executive councilors.

One big reason the system may not be ready is the state's Medicaid Management Information System (MMIS).

ACS, a division of Xerox, was supposed to implement the system five years ago, but repeated delays have pushed it forward to the end of this year, when the switch to managed care is to begin. Neither the old nor the new MMIS systems are set up for managed care.

Computer concerns

Toumpas told executive counselors that he is "confident" that the computer systems will be all set to go as early as Oct. 1. But he seemed a little less convinced when talking with NHBR - he listed the computer system as one of the things that might hold up implementing managed care.

In fact, it wasn't even clear who would be doing the heavy lifting to switch from a fee for service system.

"That's part of the discussion." Toumpas said.

Even with such possible delays, Toumpas reiterated to NHBR that he was sure the state would achieve its savings. Others aren't. First of all, Fournier said, it takes a while for companies with no previous experience in the state to find out "where the spend is."

A lot of that "spend" isn't in stage one. The Medicaid population consists of 58 percent children and 15 percent mothers - cheap compared to the long-term care costs in stage two.

It is in urban areas that managed care companies have made the greatest inroads, Fournier said. That's because it's difficult to get the clout required to negotiate good deals in rural areas with small, scattered populations, like much of New Hampshire.

In addition, there isn't a lot of "low-hanging fruit" in New Hampshire, Fournier pointed out, and Toumpas agreed.

Medicaid reimbursement rates are already so low nationwide that many providers turn away patients - and New Hampshire's rates are the 36th lowest in the nation, according to a report issued by the Kaiser Commission on Medicaid and the Uninsured.

That means most of the cost savings would be through programs that lower utilization, but New Hampshire has already instituted a few of these. It has a pharmacy benefits manager, prior authorization, service limits, inpatient review and discharge planning.

Indeed, the state did try to go to outside companies for savings before. It had a voluntary risk payment program from 1999 to 2003 and a disease management program from 2005 to 2009. But both ended because the expected savings were not achieved.

The new initiative, however, will go further, said Toumpas, because all recipients will be included.

"There will be better efficiency, more coordination of care, more unified case management. We didn't have the whole person in our delivery systems before," he said.

'Another world'

Perhaps the biggest unknown is the long-term care aspect of the initiative.

Eleven states have tried some sort of managed care for the developmentally disabled, but the Kaiser report found that many of those states backed up to a more hybrid approach, known as Primary Care Case Management (PCCM), through which there is a capitated rate for the primary care physician, but specialists are paid a fee-for-service rate. Toumpas actually said that the department did unsuccessfully lobby for alternative approaches when .the Legislature passed the law last year mandating managed care, but noted that the vendors themselves could be flexible in paying providers.

However, these particular vendors are just getting their feet wet when it comes to providing such care.

When asked whether his company had experience managing the care of such populations, lames Cotton, CEO of Meridian, replied, "not directly," adding, "we deal with auto accidents" that involved long-term care, but we don't do the full program."

Scott O'Gorman, president of BMC HealthNet Plan, said that his company serves a developmentally disabled population of 5,000 out of its caseload of nearly 200,000.

Rick Bowser, Centine's point man in New Hampshire, said that the company was in the process of setting up long-term care programs in Illinois and Texas. In its financial filings, the company said that its membership includes about 225,000 developmentally disabled and elderly recipients out of 1.8 million members.

But it's one thing for a managed care program to help "a person with a developmental disability get a well exam or manage diabetes, but they have never provided care management for long-term care or service coordination, employment, shared family living or day-to-day living assistance," according to one report released by Community Bridges, an area agency serving central New Hampshire.

"This is another world," said Sununu of the long-term care proposal. "A lot is being asked to just say, 'Trust us.'"

Toumpas said it was his "expectation" that the vendors would all work with the existing agencies, but admitted that another agency could step up and negotiate a contract.

Another item to be negotiated is the capitated rate that HHS would provide for managing long-term care. Nevertheless, that's part of the contract the council is being asked to approve.

"We have to vote on this and find out later?" asked Executive Councilor David Wheeler.

Added Sununu: What if the council rejects the fee schedules down the road?

"My biggest concern is maintaining the status quo," said Toumpas of the current fee-for-service system, which he said would continue to try to meet greater needs with fewer resources.