Medicaid Managed Care - U.S. Senate Special Committee on Aging

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Option A is still quite rare. Pioneered by the Arizona Long Term <strong>Care</strong> System and
PACE (Program of All-inclusive <strong>Care</strong> for the Elderly), this approach includes all
<strong>Medicaid</strong> funded services in a single capitated payment to the managed care
contractor. Minnesota recently moved in this direction with its Senior Health
Options program, though contractor liability for nursing facility services has been
capped at 6 months in that program, with additional nursing facility payments on a
fee-for-service basis when needed. The perceived advantage of this approach is the
ability to hold a contractor accountable for total care while closing off avenues for
cost shifting from capitated services to those reimbursed on a fee-for-service basis.
This may not be possible, however, if the contractor does not have a comprehensive
enough network to provide the full range of services or is not willing to be at risk
for the full range. Also, a state may not want to use a single contractor for policy,
program or political reasons. For example, a state may desire to preserve a direct
relationship with community mental health centers or home- and
community-based long term care providers.
Most managed care programs for older people or people with disabilities capitate
some but not all services, in some variation of Option B. The most common
arrangement (e.g., parts of California, Oregon, Pennsylvania) is to capitate primary
and acute care and reimburse LTC on a fee-for-service basis beyond short, post-acute
stays, but some states are experimenting with other combinations. For example,
New York has a set of pilot programs in which LTC is capitated, but primary and
acute care are paid fee-for-service. Regardless of which sector a state capitates, it
needs to consider the incentives for cost shifting that such systems can create. One
way to address this concern is to establish fee-for-service utilization targets and to
hold contractors financially responsible when they exceed the targets or reward
providers for containing its enrollees utilization of fee-for-service services, an
approach that has proven effective in Wisconsin.
Other variations on Option B stem from particular state laws passed with the
support of certain provider groups. These include arrangements that exclude
pharmacy or dental services from capitation.
Option C appears to be growing in popularity as a number of new states create
mental health carve out programs. In those states, mental health services are
capitated to a specialty contractor, which may be a national behavioral health firm
(as in Massachusetts) or a locally-created entity with roots in the county mental
health system (as in parts of Oregon). Primary and acute care are typically capitated
to a second contractor, with LTC remaining fee-for-service.
Medicare Services
As previously noted, most older beneficiaries and many younger beneficiaries with
disabilities also have Medicare coverage. When Medicare coverage exists, <strong>Medicaid</strong>
becomes the last payor for most primary and acute care services, raising implications
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