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

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have it available in a timely fashion so that it can be used. The
structural problems relate in part to the incentives that are created.
If one uses characteristics of individuals such as diagnosis,
there become incentives to upcode the diagnosis, in other words, to
overstate the severity of an individual's condition. If one uses prior
utilization as a measure of a person's health status, and very frequently,
hospitalizations are cited as the service that should be the
marker of more expensive individuals you have created an incentive
to hospitalize someone. We don't have the practical experience
to know how severe these problems are.
In addition to the rates we pay health plans, besides risk adjustment,
there are issues of how we should adjust the structure of
rates to try to improve the incentives that exist in our payments
to managed care organizations. We would like to try to reduce the
potential for profit or loss associated with providing services to any
one individual, and this can be done through two different devices.
One is reinsurance, which most States have embraced, where plans
are protected from having particularly expensive individuals to
serve or from having a whole population that is too expensive to
serve. As a plan's costs rise, the State or some other reinsurer will
share in the excess costs above some level in order to protect the
plan.
The other adjustment would be an adjustment known as risk corridors
where, in addition to protecting plans against excessive
losses, we prohibit plans from having excessive profits. We ask
plans whose profits exceed a certain level to share those profits
with the <strong>Medicaid</strong> program in order to discourage the incentive for
underservice.
Let me turn now to the final issue that I want to discuss today,
which is the issue of establishing the boundaries for service coverage.
There are two aspects of that. First, there is the demarcation
between the supportive-type services that I mentioned earlier
that are needed to compensate for the loss of functioning associated
with chronic condition, and second, there are the issues associated
with medical and health care.
Long-term care or supportive services distinction and distinction
from medical services is important to ensure that there is coverage
for all the services that an individual is going to need and that an
appropriate payment is made to the managed care plans for the
services they are expected to be providing.
Now having said that, it is not an easy task to divide those two
sets of services up, because there is a major gray area in the
boundaries that exist between the two types of services.
The second concern about the definition of services or the responsibility
for services is something that we uncovered in our review,
discussing this with individuals with disabilities, and that is that
medical necessity definitions that are often used may not apply
well to a population with special needs.
Medical necessity definitions are often focused around rehabilitation
improvement, recovery, whereas individuals with a special
neeA and a chronic condition that is not going to get better may
have a very important need for services in order to maintain their
existing functioning, to relieve pain that is associated with their
condition. Generally, there is not going to be the outcome in terms