The department's strategic plan to dramatically expand managed care services for Medi- Cal beneficiaries is scheduled to be implemented in late 1995-96, but reimbursement rates for county- operated "local initiatives" and commercial HMOs have not yet been determined.
In 1993, the department released a "strategic plan" intended to rapidly move the Medi-Cal Program toward a "managed care" approach for providing services to Medi-Cal beneficiaries. In this section, we make several recommendations regarding the department's proposed expansion.
Background. The Legislature and the department have, for several years, attempted to increase the number of Medi-Cal beneficiaries enrolled in managed care arrangements. In particular, legislation accompanying the 1992 Budget Act gave the department broad authority to expand managed care in California, with the goals of improving beneficiary access to care and making the Medi-Cal Program more cost-effective. Approximately 1 million out of 5.5 million Medi-Cal beneficiaries will be enrolled in a managed care arrangement by the end of 1994-95. The department anticipates this number will increase to a total of 2.5 million by the end of 1995-96.
Under managed care arrangements, the Medi-Cal Program attempts to control costs by generally reimbursing providers on a "capitated," or per-person basis regardless of the number of services any given individual uses. In addition, the use of specialists and high-cost services requires a physician referral. This approach contrasts with the fee-for-service system, where Medi-Cal pays providers for each service they provide, and the beneficiary has his or her choice in selecting providers. In fee-for-service, utilization is controlled by requiring prior authorization from the Medi- Cal field offices for the more expensive medical services.
The principal managed care arrangements are:
Principal Components of the Strategic Plan. The department's strategic plan and the budget propose to enroll nearly half of all beneficiaries (2.5 million out of an estimated 5.7 million) in a managed care arrangement by late 1995-96.
The plan proposes to expand the number of beneficiaries served under managed care arrangements primarily by:
The counties identified for mandatory expansion during 1995-96 are shown in Figure 19.
The department plans to implement managed care in Los Angeles County in 1996-97.
The department's strategic plan focuses on services provided to AFDC-linked beneficiaries and medically indigent children. Additional eligibility categories may enroll at the beneficiary's option, including SSI/SSP-linked beneficiaries.
The department has provided information demonstrating that SSI/SSP-linked beneficiaries are among the eligibility groups where counties are most likely to achieve savings through managed care. According to the department, capitation rates paid to both San Mateo and Santa Barbara Counties in 1992-93 for their county-organized health systems exceeded the fee-for-service equivalent for AFDC-linked beneficiaries, but were significantly below the fee-for-service equivalent for SSI/SSP-linked beneficiaries. This suggests that these counties have been able to achieve savings among the higher-cost beneficiaries--generally those who are linked to the SSI/SSP Program.
Accordingly, we believe that the department's efforts to expand managed care have neglected an area where savings potential exists: the high-cost groups of recipients. We recommend, therefore, the enactment of legislation requiring the inclusion of newly enrolled SSI/SSP-linked beneficiaries in the 12 counties. By limiting the requirement to new beneficiaries, concerns that managed care arrangements would disrupt established beneficiary relationships with a primary care physician would be largely avoided.
We recommend that the department report at budget hearings on how forthcoming reimbursement rates for both new and existing managed care contractors compare to regional fee-for- service equivalent costs, and what adjustments, if any, are proposed. We also recommend that the Legislature evaluate whether it should require that all managed care contractors be reimbursed at 97 percent of the fee-for-service equivalent, as is the case for existing prepaid health plans.
The budget assumes that expansion of managed care in 1995-96 will not change Medi-Cal Program expenditures. Thus, the department assumes that in total, the capitated reimbursement rates Medi-Cal will pay to county-organized health systems, the 12 local initiatives, and new prepaid health plans will be equal to the "fee-for-service equivalent"--what Medi-Cal would have spent if the fee-for-service system continued.
The department indicates it will release proposed rates for the various contractors in February, and that these rates may include adjustments regarding regional cost variations and other factors. Accordingly, we recommend that the department report at budget hearings on how the proposed reimbursement rates compare to regional fee-for-service equivalent costs for both new and existing managed care contractors, and what adjustments, if any, are proposed.
In addition, we note that the original legislation granting the department broad authority to implement managed care assumed that savings would result. Moreover, the 1992-93 Budget Act assumed substantial General Fund savings would occur due to the department's proposal to expand the use of prepaid health plans. Although the savings were not achieved, this approach was reaffirmed in the 1994-95 Budget Act, which assumed an $18 million General Fund savings by requiring a reduction in prepaid health plan rates. The department implemented this reduction in October 1994.
In contrast, the budget does not assume savings from managed care expansion in 1995-96. This is because the administration believes that any savings achieved by the counties through managed care should be used to improve beneficiaries' access to health care--particularly for primary and preventive care. The administration has stated this view on several occasions over the last few years.
In addition, we note that if a reduction to all managed care contractors were imposed, much of it would be felt by county-operated delivery systems, which are also obligated to serve indigent persons who are not eligible for Medi-Cal and have no other form of health insurance. Counties typically rely on Medi-Cal reimbursements to assist them in providing care to such indigent persons.
While the administration's goal to improve access clearly is meritorious, the budget proposal to reimburse managed care contractors in the 12 counties at 100 percent of fee-for-service costs represents a departure from a policy of achieving modest savings (3 percent) through managed care--at least as provided by prepaid health plans. We also note that, as a result of the managed care approach based on capitated payments, counties have an incentive to become more efficient in the delivery of health care--for example, through better access to primary care.
Because the managed care approach is designed to effect savings, counties should be able to accommodate payment levels that are lower than fee-for-service rates. Thus, we believe the Legislature should revisit the issue of overall reimbursement rates for managed care contractors. Specifically, we recommend that the department report at budget hearings on the General Fund savings that would occur in 1995-96 and in 1996-97 if all managed care contractors were reimbursed at 97 percent of the fee-for-service equivalent, as the Legislature has required for existing prepaid health plans. Based on 1992 data, we estimate this approach could achieve General Fund savings in the tens of millions of dollars in 1995-96 and in the range of $50 million to $100 million in 1996-97.
Up to $5.3 million in total General Fund savings ($1.1 million in the current year and $4.2 million in the budget year) from implementation of a managed care pilot project for dental services may not be realized due to a recent court order blocking mandatory enrollment in the program. In addition, General Fund savings of $85 million that were assumed to occur through statewide implementation of the project in 1995-96 (as part of the state's two-year budget plan) are effectively precluded by the order.
In April 1994, the department began implementation of dental managed care in Sacramento County as part of its Geographic Managed Care project. Under the program, AFDC-linked beneficiaries in the county were required to select one of four contracting clinics to receive dental services. The department reimburses these contractors on a capitated, rather than a fee-for-service basis at rates negotiated by the California Medical Assistance Commission. The budget assumes General Fund savings for this program of $2.2 million in the current year and $4.2 million for 1995-96 because the reimbursement rates negotiated by the Commission were lower than estimated fee-for-service payment levels.
In November 1994, the department sought permission from a federal court to implement the Sacramento County program, as well as to expand dental managed care to AFDC-linked Medi-Cal beneficiaries statewide. The state proposed to expand dental managed care statewide in response to the Clark vs. Coye dental access case, which specifies reimbursement levels for fee-for-service dental payments. (At the time of the Clark decision, most Medi-Cal beneficiaries received dental care on a fee-for-service basis.)
In a ruling issued in December 1994, the court denied the department's request to continue operating the Sacramento program on a mandatory basis, and effectively barred implementation of dental managed care statewide.
As a result of the court's decision, up to $5.3 million of the savings assumed in the budget for the Sacramento program in the current and budget years may not be achieved. In addition, as part of the state's two-year budget plan, the Legislature and the administration assumed a General Fund savings of $85 million would occur in 1995-96 through expansion of dental managed care statewide. The court's decision precludes this savings. The state has filed an appeal of the decision.
We withhold recommendation on the department's request for 126.5 positions to oversee managed care expansion, pending further review.
The budget proposes 126.5 positions and $6.1 million from the General Fund for additional staff to oversee managed care expansion and implement a computerized management information system for the program. (The Legislature recommended approval of 30 positions through the deficiency process for the current year.)
While we believe some additional staff may be warranted, we have not had sufficient time to review the proposal in detail.
In addition, we note that the department has not yet proposed staffing reductions in its field offices, where treatment authorization requests for fee-for-service beneficiaries are reviewed. Given that the number of Medi-Cal beneficiaries served in man aged care arrangements in the current year has increased by 300,000 beneficiaries, and that nearly half of Medi-Cal beneficiaries will be enrolled in managed care arrangements by the end of 1995-96, we believe it is reasonable to assume that some of the Field Office workload will be reduced. Accordingly, we recommend that the department report prior to budget hearings on its plans to reduce field office staffing levels.
We will comment on the department's proposed staffing increase, and its plans for field office staffing levels, during budget hearings. Accordingly, we withhold recommendation on the department's request, pending further review.
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