The market opportunity behind Medicaid redeterminations

States are inking big contracts with contractors promising to help remove masses of people from their Medicaid rolls for the first time in two-and-a-half years.

Outsourcing regulatory and administrative work is common and can reduce the burden on government agencies. For contractors such as Maximus, Public Consulting Group and Automated Health Systems, a Medicaid redeterminations process that the Health and Human Services Department projects will disenroll 15 million beneficiaries is good business.

“There's an opportunity for organizations to provide services for state Medicaid agencies that get them in the door,” said Paul Schuhmacher, managing director at Aarete, a consulting firm not under contract to work on Medicaid redeterminations. “It may lead to other work for them.”

States are confronting a massive endeavor on a scale unlike anything previously attempted. In response to the COVID-19 pandemic, Congress and then-President Donald Trump enacted a law in 2020 offering states extra Medicaid funding. In exchange, states had to agree not to undertake their normal eligibility reviews to remove enrollees who no longer qualified for Medicaid because, for instance, their incomes rose. This contributed to an approximately 30% increase in the Medicaid population, which the Kaiser Family Foundation estimates reached 95 million people last month.

But with President Joe Biden allowing the federal public health emergency declaration to end May 11, and with states free to resume Medicaid redeterminations as of April 1 under a law enacted this year, regulators and their private sector partners will be scrambling for months to trim the rolls.

Most state Medicaid agencies will rely on consulting, staffing and technology companies during redeterminations, said Kate McEvoy, executive director of the National Association of Medicaid Directors, which represents state officials.

“It really is about building out capacity,” she said. “In some cases, these functions can just be efficiently handled from a volume standpoint by a private vendor."

The contracts

Ohio, for example, inked a $35 million contract with Public Consulting Group to identify potentially ineligible people. The Ohio Department of Medicaid and Public Consulting Group did not respond to interview requests. An estimated 534,000 Ohioans will lose Medicaid benefits once the state completes its eligibility checks, according to a Modern Healthcare analysis.

Tennessee signed a $96 million agreement with Automated Health Systems for call center and document processing, using $24 million in state money and $72 million in federal funds. Automated Health Systems did not respond to an interview request.

Additionally, the Volunteer State will tap an existing contract the Department of Finance and Administration holds with staffing firm Covendis, and aims to award a separate grant to an outside marketing vendor, a spokesperson for TennCare, the state's Medicaid program, said in an email. More than 240,000 residents are set to lose coverage during redeterminations, per data Modern Healthcare analyzed.

The company that stands to profit the most during Medicaid redeterminations is Maximus, the largest Medicaid eligibility and enrollment administrator with a 60% market share. After Biden signed a bill permitting the "continuous coverage" requirement from the 2020 law to end March 31, Maximus boosted its annual revenue guidance by $100 million to $5 billion. The company, which also operates the federal Medicare and health insurance exchange call centers, did not respond to interview requests.

With Medicaid redeterminations commencing, demand from state Medicaid departments is rising, Maximus CEO Bruce Caswell said during the company’s first-quarter earnings call in February.

“There's about 39% of the Medicaid population that is not currently in states that use vendors to support eligibility support and, therefore, redeterminations,” Caswell said. “These are customers that, if they find themselves in a pinch, that we can develop relationships with. [We can] add, if you will, new state customers through this process, not dissimilar to what we did during the pandemic.”

Most of Maximus’ new contract work will begin during the third quarter and last a year, Caswell said. Many of the company's agreements with states include pay-for-performance provisions, he said. 

The logistics

As many as 8 million people could lose Medicaid for procedural reasons, such as not having current contact information on file even though they are financially eligible, according to the Health and Human Services Department. Health insurance companies that administer Medicaid benefits, states, federal authorities and patient advocates are engaged in a multifaceted effort to mitigate that risk.

Federal law limits the services contractors such as Maximus, Public Consulting Group and Automated Health Systems can provide. State civil servants must make final decisions regarding eligibility, for instance. But state employees may base those calls on data that contractors and other entities provide. Furthermore, if states rely on automated eligibility systems, contractors can input those data into algorithms used to determine eligibility.

States have 14 months to complete the redeterminations process, although additional federal funding for Medicaid will wind down by the end of the year. Accelerated timelines add pressure for some Medicaid departments to ink outside contracts.

After the Arkansas Legislature ruled its Department of Health Services must finish Medicaid eligibility reviews in six months, the agency skipped the competitive bidding process and doubled its existing Maximus contract to $58 million.

“We needed to move quickly and we used a cooperative contract to lock in the rates of a competitive solicitation run by another state,” department spokesperson Gavin Lesnick said in an email. "We are confident that we have developed a plan for unwinding that fulfills requirements at both the state and federal levels, that protects taxpayer dollars and that will properly protect benefits for eligible Medicaid recipients."

Arkansas is relying on Maximus to process Medicaid applications, conduct customer service and support agency staff, Lesnick said.. The state will monitor the company through observation, reports, case reviews and regular meetings with Maximus representatives, he added.

More than 230,000 Arkansans will be dropped from Medicaid, according to the Modern Healthcare analysis.