Iowa and Medicaid Managed Care: Proposed Changes for 2016 (Guest Author, Matthew Nattinger)

06 Apr

Note: The following post was submitted to the blog by Matthew Nattinger. Matt is a doctoral student in the Department of Health Management and Policy at the University of Iowa. This is his first contribution to the blog, so if you like it, let him know in the comments and maybe we can encourage him to contribute more regularly–as long as it doesn’t detract from his studies!

Pending federal approval, Iowa Medicaid will change from a primarily fee-for-service (FFS) model into a risk-based managed care model beginning in January 2016 to reduce Medicaid expenditures. Under the current FFS model, Iowa directly pays providers about $2 billion annually for services provided to an estimated 564,000 Medicaid beneficiaries, but under the proposed managed care model, Iowa will contract with between 2 and 4 managed care organizations (MCOs) to operate Medicaid. According to Governor Terry Branstad’s (R) administration, Iowa will save an estimated $51 million within the first six months of the change. However, there are concerns in Iowa that the state is primarily focused on reducing program costs without considering the effects moving Medicaid from FFS to risk-based managed care may have on healthcare quality and access.

Iowa will pay each MCO a “per member per month” (PMPM) capitated rate to provide coverage for Medicaid beneficiaries. The MCOs profit if they provide the coverage for less than the capitated rate and take a loss if they are unable to do so. Thus, the state reduces costs by shifting the financial risk to MCOs. The change would mark a significant expansion of Medicaid managed care in Iowa. Since 1990, Iowa Medicaid has operated a primary care case management program, where primary care providers act as “care managers” for Medicaid beneficiaries, but still receive FFS. In 2012, Iowa first contracted with MCOs (Meridian and Magellan) to provide Medicaid coverage in 19 counties. Currently, Medicaid beneficiaries who live in those 19 counties are given the option to enroll in the MCO or stay in traditional FFS Medicaid. However, beginning in 2016, at least one Medicaid MCO will be available in every Iowa county and enrollment via MCO will be mandatory for all Medicaid beneficiaries who are not also enrolled in Medicare (i.e., dual-eligibles).

Iowa is not the only state that contracts with Medicaid MCOs. According to a Kaiser Family Foundation survey, 39 states and the District of Columbia contract with MCOs to provide coverage for over 26 million Medicaid beneficiaries, with many states having moved towards mandatory MCO enrollment in recent years. In 2010, 9 states reported that MCOs covered over 80% of their Medicaid populations. Moreover, as Medicaid expansion under the Affordable Care Act (ACA) moves forward, states are expected to rely more heavily on MCOs.

Thus far, there doesn’t appear to be a downside to Medicaid MCOs for states, but you may be wondering how Iowa can save $51 million with the MCOs simultaneously turning profits? Well, since MCOs only profit if they are able to provide coverage for less than the capitated rate, they must do an excellent job of controlling costs. Traditionally, Medicaid MCOs have controlled costs by implementing service review policies (e.g., prior authorization), developing narrow provider networks, reducing unnecessary services, improving care coordination between providers, and incentivizing preventive services (e.g., flu vaccinations) for beneficiaries.

While Medicaid MCOs can successfully reduce costs, there are concerns that their methods of cost control adversely affect healthcare access and quality for Medicaid beneficiaries. A study by the Robert Wood Johnson Foundation found that the available research is inadequate to determine how Medicaid MCOs affect the quality of healthcare, but found mixed results for how healthcare access has been affected. Thus, it’s difficult to say one way or another how contracting with MCOs will affect healthcare access and quality for Iowa Medicaid beneficiaries. As a result, advocacy groups, such as the Child and Family Policy Center, and Iowa state senators are calling for better state oversight of MCOs to ensure the quality of and access to healthcare are not adversely affected by the move. Since little is known about how risk-based managed care in Medicaid affects healthcare quality in other states, Medicaid officials in Iowa should carefully monitor how the change affects both healthcare access and quality for beneficiaries.


Posted by on April 6, 2015 in Uncategorized


6 responses to “Iowa and Medicaid Managed Care: Proposed Changes for 2016 (Guest Author, Matthew Nattinger)

  1. Erica Nelson

    April 7, 2015 at 12:12 pm

    After reading the attached audit, I would think the state of Louisiana would disagree with your claim of ‘no downside.’

    Health care expenditures are simply a function of rates and utilization. Commercial managed care reduces costs and maximizes profits by reducing utilization and or payment to providers. Commercial managed care companies only have to reimburse at rates to ensure access to necessary services in their catchment areas.

    So long as EMTALA exists, they do not have to pay even close to cost to ensure access to emergency services and, therefore, have little incentive to reduce utilization of costly emergency services, raising the cost of care for the privately insured that must subsidize these costs. I am, in no way, advocating for the repeal of EMTALA. However, it may make more sense for providers, through Accountable Care Organizations, to be the entities at risk for caring for Medicaid patients. This keeps the care decisions with the care givers and incentivizes health systems to reduce overall costs by engaging patients in their wellness and encouraging them to access lower-cost care in a timely fashion.

    See pages, 12-13:$FILE/00003D74.pdf

    “In analyzing financial trends of DHH Medicaid expenditures over the past five years, expenditures remained fairly consistent between 2010 and 2012. However, since 2012, expenditures have increased by more than $900 million, or 14 % (see Exhibit 1). Because of a shift in services for the implementation of Bayou Health (BH) and the Louisiana Behavioral Health Partnership (LBHP), fees for service payments to private and public providers decreased by more than $800 million, while Buy In (per-member, per-month fee) payments for BH and LBHP increased by over $1.4 billion, for an net increase of approximately $600 million.”

  2. Matthew Nattinger

    April 16, 2015 at 2:46 pm

    Erica, I think that you misunderstood my statement of “no downside,” which was meant to transition the discussion from the benefits of Medicaid Modernization suggested by the state of Iowa to a discussion about the problems associated with quality oversight and how the savings will actually be achieved.

    However, the distinctions that you make between ACOs and MCOs are important to consider. That is, who should bear the financial risk in our health care system to provide the best allocation of resources? While some states are initiating Medicaid ACOs (through demonstrations), I think that it will take some time before we can effectively assess their effects on service utilization, quality, and other health-related outcomes. So, while great in theory, I think we need to see how Medicaid ACOs work in practice before advocating for their widespread use in Medicaid.

    In any case, whether we shift the risk to MCOs or providers through ACOs, it’ll be important that the states maintain adequate oversight of the quality of care and services provided to Medicaid beneficiaries.

  3. Brandon

    December 3, 2015 at 1:11 pm


    You’re absolutely right in your observations. As an physician, I can say that how Iowa has handled Medicaid (first expanding it, and then turning it over to – let’s call them what they are – HMOs which ration care) has destroyed emergency medicine in the state. Our busy level III community department has seen a 29% increase in patient volumes over the past year and a half with no additional staff to care for the new arrivals. Even our federally-funded community health center is refusing new medicaid patients. Physicians are dealing with the fallout by leaving for greener pastures in South Dakota, Nebraska, Kansas, and Texas. There has been a 160% increase in advertised-but-unfilled-positions for emergency medicine physicians in the state over the past year. It would seem as if the law of unintended consequences is still in effect.


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