Electronic Health Reporter

Guest post by Ken Perez, vice president of healthcare policy, Omnicell.

Since the passage of the Patient Protection and Affordable Care Act, most of the health reform activity in the Medicaid arena has primarily been about expansion of coverage. According to the Centers for Medicare and Medicaid Services (CMS), as of February 2015, 70.5 million people—more than one in every five Americans—were enrolled in Medicaid or the Children’s Health Insurance Program (CHIP), which represents an increase of almost 40 percent from the number enrolled at the end of 2009.

However, on May 26, CMS aimed its sights on improving the quality of care delivered by Medicaid, issuing a 653-page proposed rule to “modernize the Medicaid managed care regulations,” which have not been revised in a decade. The proposed rule faces a public comment period that will continue thru July 27.

The changes presented in the proposed rule would align the regulations governing Medicaid managed care with those of other major sources of coverage, including Medicare Advantage (MA) plans and Qualified Health Plans (QHPs), which are offered thru health insurance exchanges (marketplaces). CMS has said that the proposed Medicaid measures will emphasize evaluating health outcomes and the patient experience enrollees have with private plans. In addition, the proposed rule mandates public reporting of information on quality of care, as well as the use of financial incentives to reward Medicaid managed care plans that meet quality measures, a la Medicare Advantage Star Ratings.

CMS’s announcement has been met with mostly favorable responses. “It was about time for the changes” has been a common refrain, with the revisions viewed as a natural, logical progression.

How big is the market that will be impacted by the changes? Per CMS, Medicaid managed care organizations (MCOs) have grown from handling 8 percent of Medicaid beneficiaries in 1992 to about 70 percent of the 70 million Medicaid enrollees today—almost 50 million people. That figure compares with 17.3 million MA enrollees as of January 2015.

The intersection of the Medicaid MCO and MA populations is the high-cost, high-risk dual-eligible population, estimated by the Kaiser Family Foundation to be slightly less than 10 million people in 2010.

Perhaps the most controversial part of the proposed rule is the establishment of a national standard medical loss ratio (MLR)—defined as the proportion of premium revenues spent on clinical services and quality improvement—of 85 percent for Medicaid managed care plans, beginning in contract years that start in 2017. This minimum percentage is in line with the industry standard for MA and large employers in the private health insurance market.

The imposition of the MLR threshold and quality ratings for Medicaid MCOs would have significant implications for some of the biggest names in health insurance, including Aetna, Anthem, Humana, and UnitedHealthcare, as well as fast-growing Medicaid MCO-focused companies such as Centene and Molina Healthcare.

As for the remaining 30 percent of Medicaid that is based on fee for service, states that want to promote coordination and care management may still contract with primary care providers or care management entities to support better health outcomes and increase the quality of care delivered to beneficiaries, while continuing to pay for covered benefits on a fee-for-service basis directly to the healthcare provider. Furthermore, the proposed rule does not directly impact the Medicaid accountable care organizations that are progressing in Colorado, Minnesota, Oregon, Utah, and other states.

Because of its use of Medicare Advantage and private health insurance benchmarks, the main elements of the proposed rule should be accepted and finalized, and Medicaid enrollees will be the ultimate beneficiaries of these long-awaited changes.