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
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
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
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 PediatricsUniversity 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
REFERENCES
I. General Accounting Office. Medicaid: States Turn to Managed Care to Improve Access and Control Costs. GAO/HRD-93-46. United States Con-gross. Washington, DC: General Accounting Office; March 1993 2. Loft H. How do health-maintenance organizations achieve their
“say-ings?” N Engl IMed. 1978;298:1336-1343
3. Miller RH, Luft HS. Managed care: past evidence and potential trends.
Front Health Serv Manage. 19933:3-37
4. Hurley RE, Freund DA, Taylor DE. Emergency use and primary care case management: evidence from four Medicaid demonstration
pro-grams. Am IPublic Health. 1989;79:843-847
5. Freund D, Rossiter L, Fox P, et al. Evaluation of the Medicaid
compe-tition demonstrations. Health Care Finan Rev. 1989;1l:91-97
6. Welch WI’, Miller ME. Mandatory HMO enrollment in Medicaid: the
issue of freedom of choice. Milbank Q. 1988;66:618-639
7. Fox HB, McManus MA. Medicaid Managed Care Arrangements and Their
Impact on Children and Adolescents: A Briefing Report. Center for Health Policy ResearcK The George Washington Univeisity Washington DC: 1993
8. Freund DA, Lewitt EM. Managed care for children and pregnant women: promises and pitfalls. Future Child. Fall 19933:2
9. Mauldon J, Leibowitz A, Buchanan JL, Damberg C, McGuigan KA.
Rationing children’s medical care: comparisons of a Medicaid HMO with fee-for-service care. Am JPublic Health. 1994;84:899-904
10. Heinen L, Fox PD, Anderson M. Findings from the Medicaid
competi-tion demonstrations: a guide for states. Health Care Finan Rev. Summer
1990;11:55-67
11. Hurley RE, Freund DA, Gage BJ. Gatekeeper effects on patterns of physician use. IFam Pract. 1991;32:167-173
12. Wood D, Halfon N, Shervourne C, Grabowsky M. Access to infant immunizations for poor, inner-city families: what is the impact of managed care? JHealth Care Poor Underserved. 19945:1-12
13. Valdez RB, Ware JE, Manning WG, et al. Prepaid group practice effects in utilization of medical services and health outcomes in children:
results from a clinical trial. Pediatrics. 1989;83:168-180
14. Health Management and Cmi Associates. Evaluation of the Michigan Medicaid Program’s Physician Sponsor Plan, 1989-1990, Part I, Analysis of Cost Effectiveness Issues in the AFDC Population. Lansing, MI: Health Management Associates and Gird Associates. 1991
15. Rowland D, Lyons B. Mandatory HMO’s for Milwaukee’s poor. Health Aff. 1987;6:87-100
16. Wallack SS. Managed care: practice, pitfalls and potential. Health Care Finan Rev. Annual supplement. 1991:27-34
17. Lewit EM, Monheit AC. Expenditures on health care for children and pregnant women. Future Child. 1992;2:95-114
18. The Kaiser Commission on the Future of Medicaid. Medicaid at the Crossroads. Baltimore, MD: The Henry J. Kaiser Family Foundation; November 1992
19. Wise P, Meyers A. Poverty and child health. Pediatr Clin North Am.
198835:1169-1186
20. Egbuonu L, Starfield B. Child health and social status. Pediatrics. 1982;
69:550-557
21. Zill N, Schoenborn CA. Developmental, Learning, and Emotional Problems: Health of Our Nation’s Children, United States, 1988. Advance Data from Vital and Health Statistics. No 190. Hyattsville, Maryland: National
Cen-ter for Health Statistics; 1990
22. St. Peter RF, Newacheck PW, Halfon N. Access to care for children: separate and unequal? JAMA. 1992267:2760-27M
23. Newacheck PW. Access to ambulatory care for poor persons. Health Seru Rev.1988;23:401-419
24. Newacheck PW, Halfon N. Access to ambulatory care for economically disadvantaged children. Pediatrics. 1986;78:813-819
25. United States Congress. Omnibus Budget Reconciliation Act of 1989. Pub.
L. 101-329
26. Fox HB, Wicks LB. Newacheck PW. State Medicaid health maintenance
organization policies and special-needs children. Health Care Finan Rev.
1993;15:25-37
27. McManus M, FlintS, KellyR, etaL The adequacy of physician reimbursement
for pediatric care under Medicaid. Pediatrics. 1991$7.909-920
28. Health Care Financing Administration. Review of California’s Adminis-tration of Its Managed Care Program. San Francisco, CA: Department of Health & Human Services; 1993
29. Research Triangle Institute Maiiazid Consumer Suruey Results, Minnes,ta
Pr--
avnonstmtion Pmject, 1986-1988. Nationwide EWJUatiOn OfMediaiidCorn-ion Demonstnznins. Springfield, Vk Research Triangle Institute; 1989
30. Celum CL, Newacheck PW, Showstack JA. Patterns of Medicaid eligibility: a sample of 408 MediCal eligibles in San Francisco, Califor-ma. Health Care Finan Rev. Spring 1981:1-8
at Viet Nam:AAP Sponsored on September 1, 2020 www.aappublications.org/news
1995;95;591
Pediatrics
Dana C. Hughes, Paul W. Newacheck, Jeffrey J. Stoddard and Neal Halfon
Medicaid Managed Care: Can It Work for Children?
Services
Updated Information &
http://pediatrics.aappublications.org/content/95/4/591
including high resolution figures, can be found at:
Permissions & Licensing
http://www.aappublications.org/site/misc/Permissions.xhtml
entirety can be found online at:
Information about reproducing this article in parts (figures, tables) or in its
Reprints
http://www.aappublications.org/site/misc/reprints.xhtml
Information about ordering reprints can be found online:
at Viet Nam:AAP Sponsored on September 1, 2020 www.aappublications.org/news
1995;95;591
Pediatrics
Dana C. Hughes, Paul W. Newacheck, Jeffrey J. Stoddard and Neal Halfon
Medicaid Managed Care: Can It Work for Children?
http://pediatrics.aappublications.org/content/95/4/591
the World Wide Web at:
The online version of this article, along with updated information and services, is located on
American Academy of Pediatrics. All rights reserved. Print ISSN: 1073-0397.
American Academy of Pediatrics, 345 Park Avenue, Itasca, Illinois, 60143. Copyright © 1995 by the
been published continuously since 1948. Pediatrics is owned, published, and trademarked by the
Pediatrics is the official journal of the American Academy of Pediatrics. A monthly publication, it has
at Viet Nam:AAP Sponsored on September 1, 2020 www.aappublications.org/news