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COMMENTARY

Op inions expressed in this commentary are those of the author and not necessarily those of the American Academy of Pediatrics or its Committees.

Medicaid

Managed

Care:

Can

It

Work

for

Children?

ABBREVIATIONS. AFDC, Aid to Families with Dependent

Chil-dren; EPSDT, Early Periodic Screening, Diagnosis and Treatment

Program; HMO, health maintenance organization; OBRA ‘89,

Om-nibus Budget Reconciliation Act of 1989.

Medicaid managed care, although not a new

con-cept, has grown in popularity among states in recent

years. Between 1987 and 1992, states’ total

enroll-ment of Medicaid beneficiaries into managed care

plans more than doubled.’ Most Medicaid managed

care initiatives focus on the Aid to Families with

Dependent Children (AFDC), or weffare,

popula-tions. Therefore, it is essential to examine the

pro-grams as they relate to low-income children and their

families. The purpose of this commentary is to

ex-plore the potential impact of the explosion of

Med-icaid managed care programs on these populations

and to predict how they might improve access to care

and contain health care costs.

The term “managed care” refers to a variety of

financing and delivery arrangements. The United

States General Accounting Office has categorized

these into three basic models, from which countless iterations are derived.’ The three models include: 1) Fee-for-service case management, whereby beneficiaries

are assigned to a primary care case manager (a

phy-sician or clinic) that furnishes or arranges primary

care services, authorizes use of specialty services,

and coordinates such care; 2) Partially capitated

ar-rangements, whereby plans or providers are placed at

risk for only certain services; and 3) Fully capitated

arrangements, whereby plans are at full financial risk for all or dose to all services to which the patient is entitled.

Managed care offers important potential for

im-proving access to quality health services and for

restraining costs. Through managed care, states can provide “medical homes” for enrollees and promote the formation of comprehensive networks of

provid-ers and services, thereby improving access to needed

care. In addition, unlike fee-for-service arrangements

for which there are economic incentives that can

promote utilization of care, most managed care

ar-rangements aim to reduce use of unnecessary

ser-vices. Studies show that by promoting use of

preven-This project was supported in part by a subcontract from the George Washington University under project MCJ #113A18 from the Maternal and Child Health Bureau (DHHS).

Received for publication May 24, 1994; accepted Nov 4, 1994. Reprint requests to (D.C.H.) Institute for Health Policy Studies, University of California, San Francisco, 1388 Sutter St, Suite 1100, San Francisco, CA 94109.

PEDIATRICS (ISSN 0031 4005). Copyright 0 1995 by the American Acad-emy of Pediatrics.

tive and primary care, as well as curtailing use of

unnecessary care, managed care has reduced the rate

and length of hospitalizations among adults, and

thereby reduced costs.2’

THE IMPACT OF MANAGED CARE ON CHILDREN

The likely increase in numbers of Medicaid

bene-ficiaries enrolled in such plans has major

implica-tions for children. As the primary population tar-geted for Medicaid managed care by most states

(because they comprise the vast majority of AFDC

beneficiaries), children have the most to gain-and to

lose-from this effort. Despite the significance of this

policy and program shift for children, little is known

about the impact of managed care on children or others, even under Medicaid. Moreover, the limited evidence available comes from studies that are dated or subject to methodologic problems. Indeed, most of

the study results on access and quality of care for Medicaid enrollees are derived from evaluations of the Medicaid Competition Demonstrations con-ducted in the early 1980s.

Access to Primary and Preventive Health Care.

Studies of Medicaid managed care programs report

mixed results in terms of improved access to primary

and preventive health services. Studies show that use of routine preventive services-child health

supervi-sion services and immunizations-stays the same or

slightly increases under Medicaid managed care

ar-rangements.8”#{176}’1’ However, in these studies, compli-ance was below the recommended standards set by the American Academy of Pediatrics and the federal Early Periodic Screening, Diagnosis and Treatment

Program (EPSDT).8”#{176}” Moreover, a recent study found that low-income children who sought care

principally in public clinics were more likely to be

adequately immunized than those who obtained care

through private physicians’ offices or health

mainte-nance organizations (FDi4O).’2

There is evidence that managed care has reduced children’s use of emergency rooms4 and specialty physician services,5 as well as shifted them away from clinics and hospital outpatient departments.6

However, it is not clear that all these changes have

produced a net benefit for children. In fact, few

dif-ferences have been found in office-based primary

care use among children enrolled in managed care

plans versus those in traditional fee-for-service plans, suggesting that there may be no offset effects of increased primary care for reduced specialist and

hospital service use.7’- Still other evidence suggests

that improved access is possible to achieve. Hurley, Freund, and Taylor found that use of emergency

room services declined among children in managed care while the average severity of ifiness for visits

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592 COMMENTARY

Although Mauldon et al did not find a reduction in

emergency room use among Medicaid children

en-rolled in an HMO, they did find reduced acute care visits among children, particularly among those with no health problems at the start of the program, sug-gesting that the HMO successfully “rationalized” its delivery of services.9

Quality. Little is known about the effect of managed care on the quality of health care children receive. In a

comprehensive review of the literature, Fox and McMa-nus report that no studies have assessed clinical

differ-ences based on physical examination or other direct mea-sures of health status.7 Instead, research on quality of care

has generally involved interviews with families about

their perceived health status and review of medical reconls for particular health indicators. The most compre-hensive study conducted in the late 1970s examined the experiences of children in private managed care

arrange-meats and found no significant differences in the health

status of those in managed care plans compared with those in fee-for-service.’3 Reseaithers examining Medic-aid managed care in the early 1980s reported that health status outcomes such as perceived health status, low birth

weight rates, and other screening results appear similar

for the few measures studied in managed care and ke-for-services plans.5

Cost Containment. Medicaid managed care

pro-grams are nearly always designed to achieve some

cost savings. The research suggests that the extent to

which managed care can lead to savings, at least

among low-income children, is limited. Research has

found that savings up to 15% among AFDC

benefi-ciaries in managed care compared with traditional

fee-for-service, while other experiments have

pro-duced little or no savings.5”’6 Moreover, cost

anal-yses typically take into account only costs directly

associated with the plan and the payer. Because they

do not examine costs of care obtained outside the

plan, in-plan cost savings may be offset by cost in-creases to other payers.

Evidence of significant cost savings may be lack-ing, in part, because the various approaches to

man-aged care employed by states often vary only in

small degrees from traditional fee-for-service sys-tems. The failure of managed care to produce signif-icant cost savings may also be related to inherent

limitations in the extent of savings that can be

achieved. Past studies have demonstrated that the

savings realized through managed care result largely from reduced inpatient care.2 Because hospitaliza-tions among children are relatively rare and rela-tively inexpensive compared with adults, only

mod-est inpatient cost savings for children can be

expected. National data reveal that in 1987, 49% of all health expenditures for children (or $24 biffion) were

devoted to inpatient care, compared with 54% of

adult expenditures spent on inpatient care (amount-ing to $168 billion).’7 One of the few studies that

examined costs for children showed no net cost

say-ings because savings from reduced hospitalizations

were offset by increased costs from higher use of

outpatient Services.13 In another study, Freund et a!

found no reductions in the use of inpatient services among children enrolled in Medicaid managed care.5

Medicaid managed care programs tend to focus on

AFDC beneficiaries, even though the potential

say-ings that can be expected from the population are

relatively small. Although low-income families

com-prise 72% of all Medicaid beneficiaries, they account for only 29% of the expenditures.’8 There is by

defi-nition, therefore, a limit on the amount of savings in

overall Medicaid expenditures that can be achieved

among the AFDC population. Moreover, cost

say-ings may be more ifiusory than real. To the extent

that Medicaid programs are already among the

low-est paying third-party payers, further discounting rates in managed care-one of the principle mecha-nisms for cost sharing-can leave providers without

sufficient funds to provide needed care.5 As a result,

care may either be withheld or delayed, leading to

potentially greater costs incurred by the state or

counties through other routes. Therefore, although low rates may appear to achieve short-term savings,

they may simply result in cost avoidance or cost

shifting, and potentially higher long-term costs.

SUITABILITY OF MANAGED CARE FOR

LOW-INCOME CHILDREN

Medicaid programs often attempt to model their

programs after prepaid plans serving relatively

healthy middle class families. However, these

mod-els may not be appropriate for children from

low-income and ethnically diverse populations. To

achieve improved access to high quality health care,

managed care must be molded to the needs of

low-income children. Special provisions are needed

be-cause there are fundamental differences between

Medicaid beneficiaries and middle class families.

Different Health Care Needs of Medicaid Beneficiaries.

As a group, children are especially vulnerable to the

health risks associated with poverty, such as poor

housing and sanitation, inadequate diet, general

family stress and hardship.’9 These threats, as well as

the social isolation and environmental hazards that

accompany poverty, are associated with elevated

health problems.’9’#{176} For example, low-income

chil-dren are more likely to have experienced a learning

disability, and to have had a long-term emotional or

behavioral problem.21

Because of their more stressful living

circum-stances, Medicaid beneficiaries often have a greater need than the general population for services that effect health status, but are not considered “medical

care.” These include services such as psychosocial

support and care coordination. As a result,

low-in-come children often require access to a broad array of

providers, such as social workers, counselors and

health educators, as well as effective linkages to

pub-lic health programs and “non-health” public

pro-grams, such as housing and food assistance.

How-ever, many of these services are often not covered by

traditional managed care plans.

Pent-up Demand. Research shows that low-income

children receive less health care than the general

population despite a higher level of need.24 As a group, poor children are less likely to have a regular source of care. Poor children also use fewer

physi-cian visits after adjustment for need.20 Taking into

account greater likelihood of health problems,

cou-pled with historic underuse of services, utilization

may be higher among Medicaid covered children, at

at Viet Nam:AAP Sponsored on September 1, 2020 www.aappublications.org/news

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least initially. Managed care plans may expect to initially lose money on this population as “catch up” occurs.

Eligible for More Benefits. Non-Medicaid

beneficia-ries in managed care generally sign up for a set of

benefits that are negotiated with the employer and

the plan, based on a notion of what the plan can

reasonably provide and the premium paid. In the

case of Medicaid, the benefits to which beneficiaries

are entitled are set by federal law, and go beyond

what is typically covered in typical managed care

plans. Indeed, under the EPSDT, children are entitled to the full range of federally-allowed Medicaid ser-vices, even if those services are not contained in the

state plan?- Under shared risk arrangements, the

financial incentives can restrict availability of these extended services. In fact, a 1990 survey of Medicaid directors found that only half of the states that enroll children in managed care planned to revise their contracts to ensure compliance with the EPSDT mandates?

Fluctuating Eligibility. In theory, shared risk

ar-rangements encourage provision of preventive

health care to achieve future savings by preventing expensive hospitalization and treatment. Without

as-surances that patients will be enrolled in the future,

there is little incentive to provide preventive health care to either public or privately insured patients. Yet, it is estimated that 40% of Medicaid AFDC enmllees go on and off Medicaid during the course of a year.8

Low Rates of Payment. Typically, managed care

rates are set at a discounted amount of annual

fee-for-service expenditures for each eligibility category.

As indicated above, Medicaid rates are already typ-ically well below market fees, particularly in

pediat-rics. For example, the average Medicaid fee paid to a

pediatrician in 1989 for an established patient was

nearly half the market fee.27 In states where fee-for-service rates for pediatric care are especially low, the customary managed care rate-setting methodology could reinforce the incentive to under-serve.

CONCLUSION AND RECOMMENDATIONS

Research indicates that Medicaid managed care

has not yet fulfilled its promise for children. This can be attributed, in part, to the emphasis states have placed on managed care as a cost saving vehicle. It can also be attributed to the design of most Medicaid

managed care programs, which are usually

pat-terned after the needs of relatively healthy, middle class families, rather than low-income children and

mothers. A number of specific suggestions for

im-proving access and quality of care, while controlling costs, follow.

Limit Expectations about Cost Savings. Because of the pent-up demand and the inherent limitations on cost savings as described above, significant savings

from children enrolled in Medicaid may not be

achievable. However, long-term, lasting Medicaid

savings might reasonably be expected under

man-aged care with sufficient long-term investment in

preventive care and early intervention and

treat-ment. Mechanisms such as guaranteed eligibifity or

premium supplements for initial periods of coverage are needed to encourage plans to make these investments.

Ensure Access to All Mandated Medicaid Services.

Federal law requires that Medicaid children have full access to federal EPSDT services, which include

rou-tine health screenings, diagnostic services, and

nec-essary treatment. Implementation has been slow in

some states, largely because of the added expense

involved. To achieve full implementation under

managed care, specific steps must be taken, includ-ing formal acknowledgment by plans of their

respon-sibility to provide all services, demonstration of the

availabifity of providers capable of furnishing such

care, development of mechanisms for ensuring that

children receive such care in a timely manner, and

rigorous monitoring by the states to ensure that such services are provided.

Involvement of “Traditional Providers.” Involvement of providers who traditionally serve low-income

families is important because they have

demon-strated abifity to provide comprehensive care that addresses the conditions of low-income families that affect health status. It is important to consider not only traditional providers to low-income people gen-erally, but traditional providers to low-income

chil-dren. For example, in some communities, it may be

more important to involve a children’s hospital in a network rather than a public hospital.

Provider Qualifications. Related to the preceding

point, managed care contracts should include

lan-guage requiring plans to demonstrate the availabifity of providers capable of providing the services that

children need, induding all EPSDT services.

Al-though contracts typically specify benefits and

ser-vices that must be furnished, they often do not spec-ify the types of providers who will deliver those services. Many states have instituted provider certi-fication programs within the fee-for-service system to ensure that providers are qualified to serve

high-risk pregnant women and children. Such provider

certification programs should be extended to man-aged care arrangements.

Sufficient Fees. The potential for under-service in

managed care settings is sufficiently great that

safe-guards must be established to protect against it.

Maintaining some high-cost services out of the plan, such as specialty services for children with severe physical or mental ifinesses, is one safeguard. Ensur-ing the inclusion of adjustments in payments based on the risks of the patient population is another. Still another involves offering a rate sufficiently high that does not encourage under-service. However, states

which have yet to fully implement the extended

mandatory EPSDT treatment requirement set forth in

OBRA’89 face a dilemma in setting adequate rates. In as much as rates will, at least initially, reflect fee-for-service payments, those rates will underestimate the true cost of providing care to children once OBRA’89 is implemented. Fees must be established to incor-porate additional anticipated costs associated with

OBRA’89 or efforts should be made to fully

imple-ment OBRA’89 within the fee-for-service system

dur-ing the first few years of start-up to establish a real-istic baseline for rate setting.

Incentives for Preventive Care. To ensure that well

child exams, supplementary prenatal care services,

and other preventive services are provided, financial incentives may be needed. For example, the Health Care Financing Administration, in its review of the

California managed care program, recommended

that California institute a financial incentive effort as at Viet Nam:AAP Sponsored on September 1, 2020

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594 COMMENTARY

a means of encouraging providers to furnish health assessments.28 Incentives could include additional

payments or bonuses for provision of age- and

de-velopmentally-appropriate health screens to children or maintaining screening services in the fee-for-ser-vice system.

Continuous Eligibility and Coverage. One of the most

efficient and cost-effective incentives to guard

against underprovision of services is continuous

eli-gibiity by encouraging plans to invest in primary

and preventive services. Studies show that the mar-ginal costs of continuous eligibility can be low.#{176} Moreover, the small cost increases associated with continuous eligibility would be offset by savings from lower utilization. One study found that Medic-aid patients who were continuously enrolled in Med-icaid have lower utilization than those who were on the program only part of the year.29 Similarly, those who remained with their provider after losing

Med-icaid coverage made fewer emergency room visits

than those who were assigned to a new primary care provider.”

States, therefore, should offer a minimum of I year continuous coverage. Similarly, no child should be

terminated from a Medicaid managed care program

upon loss of AFDC without a re-determination of

Medicaid eligibility on the basis of the child’s pov-erty status. Although federal law provides federal

financial participation for only 6 months, the high

benefits and low costs of continuous eligibility sug-gest that investment of state dollars for this purpose

would be worthwhile, particularly if the aim is to

genuinely improve access to care.

DANA C. HUGHES, MPH, MS Institute for Health Policy Studies

University of California, San Francisco San Francisco, CA 94109

PAUL W. NEWACHECK, DRPH

Department of Pediatrics

Institute for Health Policy Studies

University of California, San Francisco

San Francisco, CA 94109

JEFFREY

J.

STODDARD, MD Department of Pediatrics

University of Wisconsin Medical School

Madison, WI 53715

NEAL HALFON, MD, MPH

Department of Pediatrics, School of Medicine Department of Community Health Sciences

School of Public Health

University of California, Los Angeles

Los Angeles, CA 90024

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1995;95;591

Pediatrics

Dana C. Hughes, Paul W. Newacheck, Jeffrey J. Stoddard and Neal Halfon

Medicaid Managed Care: Can It Work for Children?

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1995;95;591

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Dana C. Hughes, Paul W. Newacheck, Jeffrey J. Stoddard and Neal Halfon

Medicaid Managed Care: Can It Work for Children?

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