Market-Level Effects of Medicaid HMOs on Physician Participation, Enrollee Access, and Program Costs

Grant Description: What does capitated Medicaid managed care buy? States markedly increased their use of capitated Medicaid managed care during the 1990s in the hope of either increasing enrollee access or decreasing costs, or both. Early research found that this delivery system did shift the site of ambulatory care but did not necessarily increase preventive care or reduce hospitalizations. This project used the Community Tracking Study (CTS) physician and household surveys to examine the effects of increased Medicaid HMO penetration on physician participation, enrollee access, and cost savings achieved by changing service mix. The objective of this study was to provide policymakers with a more up-to-date and comprehensive look at what capitated Medicaid managed care “buys,” which would be especially useful in the current climate of fiscal constraint.

Policy Summary: How do states benefit from contracting with health maintenance organizations (HMOs) to provide care to the Medicaid population? The enrollment of the Medicaid population into HMOs increased from 14.1 percent in 1995 to 39.5 percent in 2004, as states were motivated to improve enrollee access to care, reduce total state Medicaid expenditures, or perhaps both. Some states have contracted primarily with commercial HMOs enrolling both Medicaid and privately insured populations, while other states have contracted with HMOs which predominately enroll the Medicaid population. Integrating public with private clientele in commercial HMOs may improve access to “mainstream” office-based physicians and help enrollees avoid the “stigma” that may be associated with receiving public assistance, while perhaps the unique needs of the Medicaid population may be better served by the specialization offered by Medicaid-dominant HMOs. The study’s objective was to provide policymakers with a more up-to-date and comprehensive look at what Medicaid HMOs “buy” for states which is especially useful in the current climate of fiscal constraint. They used data from the urban markets within the Community Tracking Study for years 1996 through 2003 to examine the effect of Medicaid HMOs on access to care, the mix of utilization, and health care expense. They constructed market-level measures for commercial and Medicaid-dominant HMO penetration by integrating data for Medicaid HMOs from the Centers for Medicare & Medicaid (CMS) and InterStudy. Researchers used the CTS Physician Survey to test whether changes in the commercial and Medicaid-dominant penetration rate over time cause physicians to change their willingness to see Medicaid patients. They used the CTS Household Survey to test whether changes in these HMO penetration rates over time resulted in changes in enrollee access, utilization, and expense. The measure of expense focused on direct utilization-based expenses rather than administrative costs. Regarding the use of commercial HMOs, researchers found modest increases in physician participation, primarily in the extent to which office-based primary care physicians already participating in Medicaid accept new Medicaid patients into their practice. However, they found that commercial HMOs generally do not have significant effects on enrollee access to care, their mix of utilization, or overall health care expense. Regarding the use of Medicaid-dominant HMOs, researchers found no direct effect on physician participation, but observed negative effects for reporting access to a usual source of care. Researchers also observed increases in medical practitioner visits and emergency department visits and decreases in surgeries. The net effects of these changes in utilization were an increase in total expenses for children but no change in total expenses for adults. The researchers’ results suggest that states may have experienced modest benefits in access for enrollees from contracting with commercial HMOs to provide services to the Medicaid population. While they did find evidence of a small increase in office-based physician participation, they did not find evidence that the use of commercial HMOs altered other measures of access, utilization, or expenses for enrollees. The results also suggest that as commercial plans began to exit from the Medicaid market in the late 1990s and were replaced with Medicaid-dominant HMOs, states on average, experienced worse outcomes with decreased access and increased expenses. Since it appears that states wanting to contract with HMOs can achieve relatively better outcomes for their Medicaid populations by using commercial HMOs rather than Medicaid-dominant HMOs, attracting and retaining commercial plans appears to be a crucial public policy. However, it is possible that states using commercial plans may still experience higher total expenditures than would occur under fee-for-service if increased administrative expenses are considered.