Big savings. Painful lessons. In Medicaid revamp, Rauner tries to learn from other states

In Arizona, Medicaid officials estimate they saved nearly $29.5 billion over the last five years by outsourcing the bulk of their enrollees' healthcare to private insurers.

Ohio did the same thing, and the results are promising. From 2009 to 2013, it slowed the growth of costs in its $25 billion Medicaid program from 9% to 3%. Annual spending has remained relatively flat ever since.

Illinois Gov. Bruce Rauner is looking to these two states, and others, as he tries to figure out how to reboot Illinois' Medicaid managed care program, which treats the poor and disabled. The end goal: to save money in a state where 57% of the proposed 2018 budget is marked for healthcare.

To make this happen, he plans to limit the number of insurers that contract with the state, expand managed care statewide to fill gaps in care and focus on mental health and addiction. Illinois Medicaid members who are diagnosed with or treated for a behavioral health issue make up just a quarter of all enrollees but account for more than half of total costs.

"These are populations you don't necessarily send letters to and think you're going to get a response," says Felicia Norwood, ​ director of the Illinois Department of Healthcare & Family Services, which runs Medicaid. Some are homeless. Some are addicted to drugs. In essence, insurers that contract with the state to oversee the health of these Medicaid enrollees need a better strategy to reach them, Norwood says.

Rauner's Medicaid overhaul comes at a time of high anxiety. The Republican governor has been battling with Illinois legislators over a state budget for much of his two years in office. Meanwhile, the entire healthcare industry is bracing for a big shake-up as President Donald Trump and his Republican-controlled Congress work to unravel Obamacare. More than 20 million people gained insurance under the healthcare law.

What's at risk in a Trump overhaul? The federal government could stop picking up the tab for anyone who became eligible when Obamacare gave states the option of expanding Medicaid. In Illinois, this added nearly 650,000 people to the Medicaid rolls.

Federal lawmakers also are mulling over whether to give Medicaid programs a lump sum rather than a matching reimbursement rate to cover their spending. But this is particularly problematic in Illinois, which already has a backlog of bills totaling $11.98 billion. If another recession hits and people lose their jobs, Medicaid likely would swell with new members and the state would be on the hook to cover the increased costs.

Revamping managed care is a way for Rauner to do what he can to wring savings from a program that could be flipped on its head by D.C. lawmakers. "I think people are rightly concerned," says Craig Garthwaite, director of the healthcare program at Northwestern University's Kellogg School of Management. "It's not like we fund Medicaid so lavishly to start with."

Illinois contracts with 12 private insurers that oversee the care of 65% of Medicaid enrollees, or about 2 million people. For the rest of the population, Medicaid pays doctors and hospitals directly.

The idea of managed care is to surround patients with providers, including social workers, nurses and doctors, who closely monitor and coordinate their care with an eye toward lowering medical costs. Patients with routine ailments who use the ER instead of a doctor's office are flagged. So are those who don't take their prescriptions on time.

Norwood is sympathetic to how quickly insurers were flooded with patients after a 2011 state law required 50% of Medicaid recipients to be in managed care. The migration was fast. In 2014, just 8% of Medicaid recipients were in managed care. Today, it's 65%, and Rauner wants it closer to 80%.

"I think they work hard to try to be responsive in an environment that has (seen) a very rapid growth with a lot of change," Norwood says of the 12 insurers.

In a 2015 state report card that measured the quality of nearly all the managed care companies, most received average to high marks on such indicators as vaccinating children and preventive visits. But among the two benchmarks for behavioral health—addiction treatment and continued care for the mentally ill—a third received below-average grades.

Norwood and Rauner want better results. And doctors and hospitals want less of an administrative headache from dealing with so many insurers. On Feb. 24, the state Medicaid program confirmed it will competitively bid managed care contracts to begin Jan. 1. There will surely be winners and losers, since the state is awarding only up to seven contracts valued at a collective $15 billion.

Dr. John Jay Shannon, CEO of the Cook County Health & Hospitals System, is concerned. His CountyCare managed care program includes inmates at Cook County Jail, which has been called possibly the largest mental health hospital in America. "These are perhaps the most challenging populations," Shannon says, because patients don't change their attitudes toward healthcare overnight. "The idea that those things are going to turn on a dime is naive."

He plans to bid on a new managed care contract. So does Detroit-based Meridian. Chicago-based Blue Cross & Blue Shield, which has one of the largest managed care enrollments, is evaluating the bid proposal, a spokeswoman says.

Meanwhile, Norwood has been studying other states. Arizona has been in managed care since its Medicaid program started 35 years ago. Insurers are "highly motivated" to meet quality measures and come into compliance if they don't, says Beth Kohler, deputy director of Arizona's Medicaid program. After all, if an insurer loses a contract in Arizona, other state Medicaid programs learn about it, she says.

While states are increasingly moving toward managed care, experts caution that privatization doesn't always net big savings. Illinois has hired a firm to crunch the numbers to see how much, if any, it has saved so far, Norwood says.

A revamp could also cause a potential dust-up. Ohio attracted a few lawsuits (now settled) when rebidding its managed care contracts to nix insurers.

"Big savings. Painful lessons. In Medicaid revamp, Rauner tries to learn from other states" originally appeared in Crain's Chicago Business.