Medicare Compliance & Reimbursement

Every state has its own rules, so chances for success will differ widely

Any health plan that considers entering the managed Medicaid market will need to do some careful research to make sure it's the right business move.

Reality check: "There aren't going to be any significant, short-term cost savings from Medicaid managed care in the early stages of the program because there are administrative and start-up costs for the states as well as the health plans," says Jim Verdier of Mathematica Policy Research Institute.

This will especially be true if  the health plan is dealing with a new population, such as the disabled, which will have a lot of unmet needs as a result of the patients' years spent in the FFS system. Plans should brace themselves for the fact that, in the initial year or two, a lot of recipients will have accumulated health problems that are very expensive to treat, Verdier says.

Over time, with better preventive care and better management, plans will be able to cut down on ER utilization, drug utilization and hospital rates. "But those savings take a year or two to begin to materialize," Verdier says.

Here are the key issues health plans need to consider:

1. How trustworthy is the state? A state's Medicaid reimbursement rates aren't the only important factors, Verdier says. Plans should ask themselves: What's the state's track record in dealing with managed care? What kind of business partner would the state be?

Plans will want to look for "a reasonably stable environment" and avoid states where reimbursement rates have jumped around from year to year, and where the rules and bidding requirements may change substantially and unpredictably, Verdier says.

2. Are there attractive merger and takeover possibilities? The best markets may be those with a lot of fairly small Medicaid plans, Verdier says. Such plans aren't viable long-term but are candidates for a takeover. Indeed, the success of Medicaid giants like Molina Healthcare Inc., Centene Corp. and Amerigroup Corp. is partly the result of their strategy to acquire these smaller plans, building up a strong infrastructure to help them deal with the vagaries of Medicaid.

3. What are the enrollment possibilities? It's important that a state's managed Medicaid program be a mandatory program, says Charlie Harman, spokesman for Blue Cross Blue Shield of Georgia. If it's only voluntary for people to enroll, a health plan could get stuck with low enrollment numbers, which would make it difficult for the plan to break even.