HMO-style Managed Care is Not the Way to Balance the Budget
As Illinois debates how to fix its disastrous budget, several politicians and interest groups are claiming that the State can save a billion dollars just by moving Medicaid enrollees to HMO-style capitated managed care. This is recited like a liturgy in church, but rarely accompanied by any meaningful details. There's a good reason for that -- the people chanting this verse have not learned from the failed experiments of the past, and thus, wisely, they refrain from trying to give details. It's a political argument, not a real policy idea and not good reform. For that reason, the debate requires some facts.
It is first necessary to understand what Illinois is already doing. Our existing model of primary care case management-disease management (PCCM-DM) for the majority of Medicaid enrollees has been showing impressive results. Illinois already links 1.7 million of the 2.4 million Medicaid recipients with primary-care doctors' offices that are paid monthly fees to manage the care for each enrollee. The program encourages outreach and preventive health-care services for patients such as screenings, tests, shots and medicines, which helps catch medical problems early and avoids costly emergency room use down the road. Last year efficient implementation of this care management program saved the state more than $100 million.
Illinois has an additional program that helps 220,000 Illinoisans with chronic illnesses better manage and coordinate their care and reduce the incidence of costly acute medical crises. It saved the state an additional $104 million in 2008.
So, with the existing PCCM-DM system providing good care while capturing significant savings, the advocates for capitated managed care would seem hard pressed to explain what additional savings or care improvements their system might obtain. They avoid trying to answer that question, and instead fall back on the panicky assertion that Medicaid costs "are not sustainable". But that claim not only avoids the issues about what we should actually do, it is also misleading. When you take a look at the larger picture you see that Medicaid growth is not in a vacuum; the entire health care system overall is what is unsustainable. For instance, in 2007, the U.S. spent $2.2 trillion on health care, an average of $7,421 per person. And since 1970, health care spending has grown at an average annual rate of 9.6 percent or 2.4 percentage points faster than nominal GDP.
Compared to those numbers, Illinois' Medicaid program is actually doing quite well. There has been an average annual reduction of 3 percent in the program's cost per person over the last four years. Medicaid billings in Illinois grew slower than the national average at just 4.2 percent from 2008 to 2009 and just 4.4 percent over the last four years. Medical costs are expected to grow by 7.0 percent in FY 2010-below the projected national average of 7.7 percent. Illinois ranks 42nd among states in per Medicaid beneficiary expenditures (Illinois is at $4,129 per beneficiary; the national average is $4,575). This is much lower than the three states that have recently implemented broad-based capitated managed care programs of the type being touted for Illinois. In fact, Illinois has worked to minimize the cost of medical care to taxpayers and maximize federal dollars, resulting in needing just $.39 in state general taxes for every $1.00 spent on Illinois Medicaid programs.
So, the current Medicaid system in Illinois already captures managed care savings, already spends less per covered person than most other states, including those with capitated managed care programs, and already captures substantial federal funds for the lion's share of the costs. What additional benefit would be derived from switching to capitated managed care?
HMO-style managed care pays a doctor a flat rate each month for each patient, regardless of how much care is provided (that is called "capitation"). The health care provider assumes all of the risk for all of the health care provided. Historically, and logically, this model of care has resulted in difficult problems for patients to access needed care, preventive care, and specialty care. It is a bottom line-focused business that has to include a margin to pay its senior executives and produce profits for shareholders. The model itself raises concerns about its ability to produce savings to the state below its already-low per person Medicaid expenditures, plus profits, without compromising care.
To be clear, we are interested in any and all efficiencies in Medicaid, including those that might flow from a capitated managed care model, but they must be done in a way that realizes savings without compromising care and patient outcomes.
Adding to the concerns evident from the model itself, there have been misadventures around the country. California experimented with requiring its Medicaid population to move to capitated managed care in an effort to control costs. In the end, it was found that despite a dramatic increase in Medicaid capitated managed care enrollment there was neither a significant reduction in spending nor improved health outcomes, and a study concluded that this policy actually, "reduced the efficiency of the Medicaid program in California...In fact, Medicaid spending appeared to increase by almost 20 percent following the shift to managed care and persisted long after the mandates first took effect."
Nor can Illinois ignore its own recent history: The Illinois case of Memisovski v.Maram revealed that well child care at Medicaid HMOs in Cook County was well below that provided in fee for service, and it revealed that the HMOs could not account for the amount of care being provided. Further, Amerigroup, one of the managed care organizations with which Illinois once contracted, defrauded Medicaid by enrolling recipients in a discriminatory way, systematically avoiding pregnant women and people with disabilities. This history places a burden of proof on the proponents of capitated managed care to show that it will not endanger patients in a failed attempt to save money. The baldly political invocation of the capitated managed care idea in the current state budget debates does not meet this burden - it doesn't even try.
Perhaps the state can devise and implement an integrated, well-coordinated capitated managed care program that resolves these concerns. The Quinn Administration is planning a pilot program, and we hope it is done with this kind of care. But if it is meant magically to produce $1 billion dollars in quick savings, then it will fail. The only way to get a billion dollars, if you're not just cutting care, is to reform the whole healthcare system. They're doing that in Washington.
