Whether due to the federal government's generosity in handing out waivers or the creativity of healthcare visionaries across the United States, Medicaid is assuming a variety of shapes, colors and sizes.
The states, in effect, are laboratories of invention in the program, and one of the largest experiments is in the nation's most-populous state, California.
In 12 of the state's 57 counties, what is known as the "two-plan model for Medi-Cal managed care" is slowly gathering steam. Its primary goals are to increase access, improve quality and continuity of care, and preserve and enhance the healthcare safety net.
It does not aspire to cut costs, at least not in the short term.
"We want Medicaid beneficiaries to have access to (private-sector) healthcare, as well as preserve their access to their traditional health providers," said Ann Kuhns, the state's assistant chief for Medi-Cal managed care in the Department of Health Services. Medi-Cal is the name for California's Medicaid program.
The two-plan model introduces limited competition into Medi-Cal by allowing enrollees in each county to choose between a public or a private plan. This balancing act by the state is designed to entice commercial providers to take Medicaid patients, while at the same time it forces the public healthcare sector to think and behave like a market-oriented animal.
This amounts to almost a cultural revolution for county hospitals and traditional providers. The healthcare fault line in California, Kuhns said, is that "indigent care is financed 100% by the counties. Medicaid is financed 100% by the state and federal governments. The problem is people don't stay in one category. They move around."
The two-plan model provides an umbrella for public-sector hospitals and traditional Medicaid providers to get up to speed for managed care. Whether that umbrella is strong enough or wide enough is a matter of some debate. Many on the public-sector side fear the state has embarked on a perilous path that could destroy California's healthcare safety net in the name of fostering competition.
Public providers suspect that commercial operators may become frustrated by the program's low profit margins and pull out, leaving a drastically weakened public sector behind. They are asking legislators to try to talk sense to the state's healthcare bureaucracy.
The two-plan model may not be relevant for states where private providers care for most Medicaid patients. But in California, where some 80% of indigent persons get their care at county hospitals and other public health providers, special provisions to preserve the public system were required.
Medi-Cal reimbursements in many cases are the primary financial nourishment of the safety net institutions. If the Medi-Cal population were moved lock, stock and barrel into the private healthcare delivery system, the public sector would almost certainly collapse. That would mean no more providers of last resort for California's immense indigent and uninsured population.
It is estimated that 20% of the state's residents have no health insurance. In raw numbers that is 6 million people. Los Angeles County alone has 2.3 million uninsured.
Competing for Medi-Cal. The two-plan model establishes a competitive framework in which just two HMO choices will be available to a portion of the Medicaid population in each of 12 counties. (Seven other counties are using two other Medi-Cal managed-care models that don't involve public-sector providers.) The program is for Medicaid beneficiaries who also are recipients of Aid to Families with Dependent Children. Other Medicaid-eligible people, such as the blind, aged or disabled, may enroll voluntarily.
AFDC beneficiaries will choose between a commercial HMO and a noncommercial plan sponsored by a newly formed partnership created by their county. That partnership, known as the "local initiative," may include the county hospital, clinics, public-health services and other traditional providers of care to Medicaid patients.
In many cases these providers have a long history of serving the Medicaid population, at a time when many doctors and hospitals did not find it an attractive market.
In many areas patients and providers got used to a catch-as-catch-can fee-for-service approach. In other counties, such as Contra Costa, east of San Francisco, managed care started early and became an established way of doing business for Medicaid providers and beneficiaries. Now those providers will compete against private HMOs that come to the battle with far more experience, capital and market power. Such brand names as Omni Healthcare, Foundation Health Corp., Blue Cross of California and Molina Medical Centers will soon be options for patients who previously had no recourse but to sit for hours in the waiting room at a county hospital.
The stakes-and the possible rewards-are high. In fiscal 1995-96, ending June 30, California will spend $15.9 billion on Medicaid, down from $16.9 billion last year.
How will the local initiatives compete? Can they form networks, sign provider contracts, obtain an HMO license and learn the nuances of capitation fast enough to keep up with the big boys?
The speculation is all over the map.
Low rates, high anxiety. At this point only two county-sponsored HMOs are enrolling members, the Alameda Alliance for Health and the Health Plan of San Joaquin. The remainder are scheduled to go on line over the next eight months. Altogether the two-plan program will serve 3.3 million beneficiaries across the state, out of 5.4 million on Medicaid.
The local initiatives, which incorporate the public entities, worry that their patient base may desert them. And they resent the "Johnny-come-latelies who suddenly want to take care of the Medi-Cal community," said Michael N. Smith, director of San Joaquin County Health Care Services. "Ten years ago you couldn't find an OB-GYN to take a Medi-Cal patient."
In the meantime, managed care has driven down private-sector rates for women's and children's services, and the state has raised the reimbursements. "Now it is financially worthwhile for a doctor or hospital to play in the marketplace for women and children," Smith said.
To compete against the big guns, the local initiatives are scrambling to become more patient-friendly and marketing-savvy, before the new system goes on line.
In a report prepared for Contra Costa County's local initiative, Sacramento consultant Henry W. Zaretsky advised that to succeed, it must "attract the lion's share of the Medi-Cal beneficiary population" and "effectively manage*.*.*.*within miserly capitation payments from the state."
Contra Costa County has been in the HMO business almost 20 years. It has a well-established provider network and 24,000 enrollees. In principle it should be ideally poised to segue right into the two-plan environment.
Yet even under such favorable circumstances, Zaretsky warned, the Contra Costa Health Plan faces formidable obstacles "due to its current operating culture, which is not conducive to aggressive competition and cost-effective medical practice."
The plan lacks productivity measurements for physicians and suffers from the inflexibility of public organizations. It's burdened by the expense of training family-practice doctors. Further, the county doesn't have the capital to pour into healthcare at a level equal to the private Medi-Cal plan in the county, Foundation.
The total market for the two plans in the county is estimated at 61,000 enrollees. If managed care results in a 20% decline in utilization at the county hospital, Merrithew Memorial Hospital in Martinez, the plan will have to add 20,625 new enrollees to maintain current inpatient volume, Zaretsky estimated. It also will have to retain 11,000 current Medi-Cal enrollees. Significant shortfalls from this target, Zaretsky noted, could lead to financial problems for the county hospital.
Like his counterparts, Frank Puglisi, executive director of Merrithew, is trying to squeeze costs and reconfigure operations any way he can. Medi-Cal for Aid to Families with Dependent Children is currently paying the county health plan $98 per member per month. Under managed care, that drops to $77.81. "The rate sucks. We can't make it on that," Puglisi said. "And we can't make up the difference on volume."
Kuhns said the state, aiming for a cost-neutral program, derived the cap rates by taking the total spent on Medi-Cal in each county, and dividing it by the number of beneficiaries to be served. The cap rate appears low because the AFDC population is generally healthy and doesn't require huge amounts of medical care.
On Feb. 1, San Joaquin's local initiative went into operation. Two years ago it hired an HMO administrator, Leona Butler, who has years of experience setting up managed-care plans for Blue Cross and who helped shepherd Medi-Cal reform through the Legislature.
Already the Health Plan of San Joaquin has gotten its HMO license and contracted with seven hospitals. It has signed up more than half the physicians in the county and all the pharmacies except Wal-Mart. Through aggressive marketing it has enrolled 59,000 people out of 89,000 eligible.
So far so good, Butler says.
But there's a catch. The commercial plan is not only not yet in operation, it hasn't even been chosen. The state first awarded the bid to California Care (a Blue Cross product), but the losing bidder, Omni, appealed. The state rescored the bids and declared Omni the victor. Now California Care is appealing. In the meantime the field is wide open to the local initiative.
Moreover, only 16,000 of San Joaquin's enrollees have signed up voluntarily. The default process, which favors the local initiatives, assigned the remainder to the county plan. (Beneficiaries who don't choose a plan within a certain time are automatically assigned to one or the other.)
The capitation rate for AFDC beneficiaries in San Joaquin is even lower than in Contra Costa, $64.55. A commercial HMO operating in that area would charge around $100 a month.
"It's ludicrous," fumed Smith, the county health department director. The two-plan model is "a complete joke," he thinks. He doesn't see how the public sector can keep up.
"How do we compete in the managed-care marketplace when we have to teach young physicians who, when they're (moving fast), see maybe two patients an hour, when managed care expects you to see four? This will bankrupt some very good public-sector delivery systems," Smith said.
Scrapping over the rules. The shoe will be on the other foot in about half the 12 counties, where the commercial plan starts enrolling beneficiaries first. That makes Milt Camhi nervous. He is executive director of the Contra Costa Health Plan and chair of the state alliance of local initiatives.
"They give private plans first entry into the marketplace. Then they create impediments to entry. Then they set up new requirements at the 11th hour," Camhi said.
Added to that, the state is moving very slowly on reviewing local initiative plans, and the two state departments responsible for the program, the Department of Corporations (which hands out the HMO license) and the Department of Health Services (which OKs the Medi-Cal particulars) are often not coordinating their policies and review practices. It makes Camhi wonder if the state really wants to just commercialize the whole Medi-Cal market.
One of the things that troubles Camhi and Puglisi is that local initiatives are required to contract for services from federally qualified health centers, and the commercial plans are not. FQHCs are ambulatory-care centers designated by the federal government to serve indigent and underserved populations. By federal law, FQHCs are reimbursed at cost, while the Medi-Cal plans are capitated. "They don't have to go at risk," Camhi said, which means the two plans' incentives are at cross-purposes.
Dealing with the FQHCs and other such complications have introduced a degree of procedural overkill and regulatory drag that threatens to swamp the local initiatives, Camhi said. "If this is a level playing field, I'm getting dizzy."
As low as the cap rates are for the local initiatives, they are lower still for the commercial plans.
For that reason, among others, Kurt Davis, spokesman for Foundation, thinks the playing field is tilted in favor of the local initiatives. "When the state originally started down this path, they weren't contemplating having a local initiative," Davis said. "It was just going to be private health plans competing in these areas. The counties intervened and forced changes. I'm surprised to hear that they're now complaining about that structure."
If the local initiatives don't want to support the traditional providers, "there'd be no reason for those county programs to exist. Why not let private enterprise do it?"
Further, the local initiatives get "preferential enrollment quotas" in the form of a guaranteed minimum enrollment, while the commercial plans are constrained by a maximum enrollment. "In theory their volume level is protected. We're taking more of a chance," Davis said.
Foundation is taking a very large gamble indeed. It won four county contracts and is subcontractor on a fifth. One county alone, Los Angeles, will have more than 1 million beneficiaries in the program.
Hospitals and doctors in Southern California are not necessarily enthusiastic participants, either.
"This is a real hard pill to swallow, quite frankly," said Jim Lott, a senior vice president for the Healthcare Association of Southern California, which represents 190 hospitals and 42 physician groups. "The two-plan model, while we support it, isn't the best way to go. It's a compromise to accommodate counties with vast healthcare delivery systems the state had to make, to keep (Medicaid managed care) politically viable." It would have been easier to do a straight commercial managed-care changeover, he said.
The local initiatives are administratively top-heavy, with each layer extracting its own percentage. At the local initiative AFDC cap rate of $71.68 for Los Angeles County, Lott calculates that $53.27 will be left over per member per month for actual care. "That doesn't buy a whole lot of hospitalization or anything else."
Most at risk are the hospitals, especially the county hospitals. "The county hospitals in L.A. get half their revenues from Medi-Cal," Lott said. They will be very hard pressed because health plans will prefer to contract with private not-for-profits to avoid paying for the huge teaching component at the county facilities.
Brian Johnston, M.D., president-elect of the Los Angeles County Medical Association, thinks the two-plan model is "unwise" and "a threat to the health of this community."
The emergency room at White Memorial Medical Center in East Los Angeles, where Johnston is chief of medical staff, sees about 35% Medi-Cal and 40% uninsured. He considers himself a traditional provider to this population.
The situation of traditional providers is so dire, he believes, that many could be driven out of business entirely. "The (commercial) managed-care organizations have steadfastly refused to give any promises, have fought any legislative attempts to force them to include traditional providers," Johnston said.
The physician, he explained, may choose to join a managed-care plan through an independent practice association and contract with it to see his or her current patients. But now the plan will take 15% off the top of an already lousy reimbursement.
Then, if the doctors bring their patients into the plan, they face the threat of being deselected. The patients, of course, stay with the plan and are reassigned.
"We think many physicians are simply going to fold their tent and move out of the community," Johnston said. He's not worried about the federally qualified health centers because they will prosper under cost-plus reimbursement.
He worries there is a strong incentive not to provide any service at all. "The bureaucracy, which is supposedly going to watchdog this, is toothless and mindless."
If the state really wanted to preserve the safety net, he argues, it should have created a unified managed-care plan for the uninsured as well as the Medi-Cal populations.
Silver linings. Yet there is optimism that this experiment could work, at least in part.
Wendel Brunner, M.D., public health director of Contra Costa County, said managed care could improve the population's general health. The state is requiring the Medi-Cal managed-care plans to work with the local public health department. "It allows me to work these two plans off against each other. I'm quite eager to do that," Brunner said.
Molly Joel Coye, M.D., who was director of the Department of Health Services in 1993 when the program was born, said fee-for-service Medicaid serves its patients much less effectively than managed care. As a state health official, she said, "it was extremely frustrating to spend $14 billion a year on a system of care that I knew was fragmented, inefficient, of greatly variable quality and seriously outmoded."
Medi-Cal's Kuhns said California's effort to involve the commercial sector in preserving the safety net and serving the Medicaid population goes beyond what other states have tried. She's impressed by the goodwill the commercial plans have brought to the table. "There's more than hope" that the two-plan model will work, she said.
Even the HASC's Lott thinks the program will not fail, for perverse reasons. The oversupply of hospitals and physicians means that they'll take ridiculously low rates to survive.
But when Los Angeles County enters the two-plan model, "there are going to be thousands of physicians who wake up and wonder where their practices went." They'll be history, Lott said.
And Coye, whose brainchild this is, doesn't sound particularly alarmed by the local initiatives' complaints: "They would not be happy unless we guaranteed them that they would be immune from competition. On the other hand, the commercial HMOs would prefer that we let the counties sink or swim much earlier than the state is prepared to do.
"The truth is somewhere in between."