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Checkup on Bayou Health Reform
By David Hood
Senior Healthcare Policy Analyst
Louisiana Public Affairs Research Council
PUBLISHED: January/February 2012
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Enrollment for Bayou Health, the new Medicaid Coordinated Care Networks (CCN) program, is now underway, marking the start of perhaps the largest privatization ever of state-sponsored health services. The Public Affairs Research Council of Louisiana (PAR) published a report in December that describes the CCN model of care and its strengths and weaknesses.
Checkup on Bayou Health Reform: What Louisiana Needs to Know About Medicaid Managed Care Privatization examines the state’s initiative to place more than two-thirds of the state’s Medicaid population and more than $2 billion in annual health care spending under the responsibility of privately managed Coordinated Care Networks. Similar Medicaid privatized managed care systems have been adopted by many states and rejected by some others.
PAR’s report recommends the Legislature take the lead in providing oversight of this program by establishing a special committee or commission on oversight of state and federal health care reform. Oversight bodies for health care reforms have been created in most states. For Louisiana, the purpose would be to establish a year-round focus on the reforms and to verify their impacts on spending, health care service providers, and patient outcomes.
Over the next several months some 900,000 persons (70 percent of total Medicaid enrollment) will be transferred to five privately owned and operated managed care plans (CCNs). The transfer will include 750,000 persons currently enrolled in CommunityCARE, the state-operated managed care program for nearly a decade. Enrollees can choose from two types of CCN: (1) three of the five plans will use the prepaid model (CCN-P) that receives monthly Medicaid risk-adjusted premium payments for each member and (2) two plans will introduce a shared savings model (CCN-S) which retains fee-for-service reimbursement but allows the plans and the state to divide any savings.
In the first full year of operation (Fiscal Year 2012-13) more than $2.2 billion will be spent for CCN activities, including almost $1.9 billion for medical care of enrollees, $260 million paid to plans for administrative costs and profit, and at least $70 million in state administrative costs that will be allocated to CCN operations. Comparing these numbers to projections for the CommunityCARE program that will be replaced by CCNs shows there will be a net reduction in FY 2012-13 of $373 million (16%) in spending for medical care of enrollees and an increase of $263 million for CCN administrative costs and profit.
The underlying logic of the CCN initiative, like other forms of Medicaid managed care, is that improvements in coordination of care will result in lower costs and better health outcomes. The reality is that the reduction in medical spending is necessary to pay for administration and profit, as well as to generate a relatively small savings for the state. The central question is whether Louisiana, already a low-spending state on a per enrollee basis, can reduce spending further without threatening access to vital services.
Privatized managed care elsewhere has received mixed reviews. Some states have found savings and improved health outcomes for patients while other states have wrestled with fraud and unexpected demands by private companies for higher rates of compensation. Some states have tried the model only to bring care management back under state control. Many states use a hybrid approach of privatizing managed care for certain populations while letting government staff manage care for other populations.
The key public policy issue at this juncture is the need for effective oversight, accountability and program authority, especially given the public dollars involved and the impact on citizens, particularly those who will depend on the CCN program for vital health services and often life-saving care. The financial performance of the model should be closely monitored. Under the current system, Louisiana Medicaid spends among the least in the country on a per-enrollee basis, ranking 48th on spending per child and 41st on spending per person for all enrollees compared to other states. That relatively low rate of spending could be a potential impediment for CCN companies seeking to cut health care costs through efficiencies and lower expenditures on enrollees while also finding room to make a profit.
An additional factor is that implementation of the Affordable Care Act (federal health reform) will occur almost simultaneously with the effort to launch the CCN program. It comes as no surprise that Louisiana has been judged as one of the states that has done very little to meet upcoming federal deadlines set forth in the ACA. The state CCN program and the federal ACA reform will have a major impact on each other and extensive planning is needed to assure coordination of efforts.
CCN planning so far has failed to include the looming provisions of federal law which call for a major expansion of Medicaid that will enroll 400,000 or more low-income adults. Actuarial studies for the CCN implementation have projected costs and savings as far as 2019, but do not include the impact of the federal expansion which starts on January 1, 2014. While federal funds will cover 100% of cost for new enrollees for the first four years of the expansion, there will be a major impact on provider capacity and other factors which should be taken into account to determine if state funds are needed.
Confronted with two colossal and concurrent tasks, Louisiana would be well advised to establish a single entity to assist with ensuring that all of these critical efforts are successful. The state would benefit from a public and transparent process with participation by the executive and legislative branches as co-equal partners and formal input by experts and stakeholders.
The report can be found at PAR’s website at www.la-par.org/Publications/PDF/PAR_HealthcareReport.pdf.
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