Continual Rise of Medicaid: Two Paths to Reforming Healthcare Delivery

Ken Perez
Ken Perez

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

When one thinks of the areas targeted for healthcare delivery reform by the Patient Protection and Affordable Care Act (PPACA), Medicare, the largest area for healthcare spending by the federal government, obviously comes to mind. Notably, there are more than 400 Medicare accountable care organizations, and that figure is projected to rise in the coming years.

However, Medicaid is another significant and growing area of healthcare spending that could benefit from reform.

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 and 25 percent more than the number of Medicare beneficiaries—were enrolled in Medicaid or the Children’s Health Insurance Program, which represents an increase of almost 40 percent from the number enrolled at the end of 2009.

In 2013, the federal government and states together spent $438 billion on Medicaid, with $250 billion (57 percent) covered by the federal government. With 28 states and the District of Columbia expanding Medicaid coverage, in 2015 the federal government will spend $343 billion on Medicaid, an amount equal to 9 percent of total federal outlays and two-thirds of Medicare expenditures. Taking into account funding by the states, well over half a trillion dollars will be spent in total on Medicaid in 2015.

Moreover, spending on Medicaid is projected to eclipse the growth of the U.S. economy over the course of the next decade. The Congressional Budget Office projects the federal government’s spending on Medicaid will reach $576 billion in 2025, a compound annual growth rate (CAGR) of 5.3 percent over 2015 to 2025. That compares with projected a 4.3 percent CAGR for U.S. gross domestic product for the same period.

Although the coverage or access-to-care issue has been partially addressed via Medicaid expansion—with much more work to be done—how to provide high-quality care in a cost-effective manner through Medicaid constitutes the next challenge.

Two distinct paths to reforming healthcare delivery under Medicaid have emerged. They parallel initiatives being carried out in Medicare.

Medicaid Accountable Care Organizations

Medicaid ACOs, which employ a variety of shared savings and capitated payment approaches, are gaining momentum in spite of the challenges associated with managing the health of economically disadvantaged patients, such as low health literacy levels and higher rates of serious chronic conditions.

The movement is picking up steam in part because Colorado, Utah, Oregon and Minnesota have all experienced success with their respective Medicaid accountable care initiatives. Four other states— Iowa, Illinois, Maine, and Vermont—are also operating Medicaid ACOs. Also, there are nine states in the process of developing Medicaid ACOs: Alabama, Connecticut, Massachusetts, Michigan, New Jersey, New York, North Carolina, Rhode Island and Washington.

The oldest and largest Medicaid ACO is Colorado’s Accountable Care Collaborative (ACC). It began in 2011 and today has more than 600,000 members, almost half of the state’s Medicaid population. The ACC has focused on connecting members with their primary care physicians, employing care coordinators, and using analytics extensively.

“Modernizing” Medicaid Managed Care

Many states contract with private managed care organizations (MCOs) to deliver Medicaid program healthcare services to their beneficiaries. These MCOs have grown from handling 8 percent of Medicaid beneficiaries in 1992 to about 70 percent of the 70.5 million Medicaid enrollees today—roughly 50 million people, almost three times the number of Medicare Advantage enrollees.

On May 26, CMS issued a 653-page proposed rule to “modernize the Medicaid managed care regulations,” which have not been updated in a decade.

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 plans and Qualified Health Plans, which are offered through 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. Perhaps most significant, 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.


In this era of health reform and rising income inequality, it is clear that spending on Medicaid will continue to grow in absolute and relative terms for years to come. The development of Medicaid ACOs and the reform of Medicaid managed care are two mutually exclusive and promising approaches to improve the quality of care and reduce the cost of medical services delivered through Medicaid.

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