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State's managed care initiative will bring a revolution to Medicaid

Non-Profit Management
Rochester Business Journal
November 2, 2012

 "It is one of the most beautiful compensations in life.... We can never help another without helping ourselves."
  -Ralph Waldo Emerson
"Why is America such a divided nation? Women's rights, gun control, the economy, class warfare, health care, segregated education! I could go on and on," she said.
"We have always been a divided nation. Healthy debate and disagreement is a sign of a successful democracy. However, if there is no room for bipartisanship, any democracy will exhibit some serious flaws. Unfortunately, that's where we are and where we have been for a number of years."
That exchange took place at the annual Healthcare Financial Management Association Conference, held recently in Saratoga Springs. I was speaking with a colleague who has spent her entire career in health care as a clinical registered nurse, a CPA and a health care consultant. This particular exchange took place soon after a presentation made by Steven Harwell, chief economist for the Healthcare Association of New York State.
Harwell's presentation was made to more than 250 health care finance and consulting professionals. His message was clear and concise. He did a most effective job of explaining why every health and human service provider in New York needs to be concerned regarding future financial viability. If you would like a copy of his presentation, please email me at the address below.
His presentation was focused exclusively on the state Health Department's continuing initiative to enroll the 5 million Medicaid-eligible New Yorkers in "managed care" plans. In a previous column, I have addressed the issues of managed care implementation for individuals with disabilities. This column is focused on all New York Medicaid recipients.
Medicaid is the largest single component of the state budget, with more than $50 billion expended each year for the 5 million eligible recipients. Medicaid costs have followed the trend across the nation with increases far exceeding the relatively low inflation rates of the past few years. In many instances, cost increases have exceeded 10 percent each year, depending upon the demographics of the population being evaluated.
In the case of Medicaid, the state Health Department has taken up the challenge from Gov. Andrew Cuomo's administration that these Medicaid cost increases cannot continue. Specifically, the department has applied for a Section 1115 waiver from the federal government to implement managed care principles for all Medicaid-eligible beneficiaries in the state. As Harwell described it, the following quote from the waiver application provided its stated goal:
"The goal is to transform New York State's health care delivery system into one that is completely integrated and provides access and coordinated care to every New Yorker. We need to shift from an emphasis on fragmented institutional care to an integrated system that has a foundation of primary and preventive care."
The waiver application goes on to state that this goal will require:

  • Clinical and financial integration for providers.
  • Increasing levels of financial risk for providers.
  • Development of effective care coordination.
  • Implementation of robust information technology systems.

Each of those requirements will, from the state's perspective, achieve a quality-driven, patient-centered care delivery system for all New Yorkers.
This stated goal is admirable and has broad support from health care providers, New Yorkers and employers. However, the use of managed care principles results in a serious division of opinion with respect to the approach.
I have been involved with health care and human service providers for more than 35 years. For 30 of those years I have also dealt with the concept of managed care, which has a most desirable objective.
In the case of the state Medicaid waiver, the objectives are described as having a "triple aim": better care, better health outcomes and reduced cost.
It is true that most complicated industry sectors, including health care, have detailed requirements that are frequently referred to as the "devil." Applying managed care principles to health and human service providers and consumers is no different. While the triple aim includes objectives that can garner broad support, you might feel different after reading some details below.
In my experience, managed care can also be described using the "Five R's":
Restricted access, also known as challenges to service eligibility or pre-existing conditions.
Relocation of service delivery sites to the lowest-cost alternative. Hospital emergency rooms are viewed as the ceiling and your home is viewed as the floor with respect to cost-effective sites of care.
Rationing of services through care coordination, commonly referred to as utilization management or "who is entitled to what and when."
Redistribution of the health and human services fiscal payments among providers. Competition and lowest-cost providers are given preference.
Reduced end-of-life care, the Achilles' heel of our society's expectations related to health care.
With immortality still as evasive as the elusive butterfly, it is not surprising to learn that 30 percent of our total health care costs is spent in the last 12 months of life. This single statistic is one of the key reasons why the U.S. spends twice as much (18 percent of GDP) as most developed industrial countries on health care without achieving better life expectancy or outcomes.
Harwell's presentation focused on the short-term impact on providers, including rate cuts, elimination of inflation trend factors, penalties and compliance recoupments.
The long-term impact, if managed care is successfully implemented, will have payments to providers tied to "value," defined according to quality and efficiency standards, which will require redesigned payment systems.
Every non-profit health and human service delivery provider will be significantly affected by the state's Medicaid managed care initiatives. The managed care train has left the station, and it is imperative that your strategic plan include a discussion of your action plan for capitalizing on the opportunities presented by the challenges of managed care.
In my continuing admiration for David Letterman and his Top 10 lists, I provide below the areas of potential impact on your organization as a result of managed care implementation (no humor intended).
1. Your organizational culture must change from a fee-for-service mentality (volume) to what is considered to be a necessary-and-appropriate approach (quality outcome).
2. Your board must be properly informed of managed care implications and should develop the appropriate attitude and commitment for success in a managed care environment.
3. The best evidence of embracing managed care principles is the ability to develop and implement an effective change management process within your organization.
4. Without question, your executive and management leadership team may need to "reinvent themselves."
5. With 70 percent to 75 percent of your costs typically devoted to staff salary and benefits, 100 percent buy-in and support from your employee base is an absolute requirement.
6. The state has indicated there are far too many Medicaid service providers in New York. More than 100,000 are currently licensed to provide Medicaid services. The need for collaboration, networking and possible mergers and acquisitions should be on every organization's radar screen.
7. If your organization is not financially stable at this time, it is highly unlikely that you will be able to improve your financial stability under managed care. In other words, look for a partner or a merger candidate.
8. Managed care will most likely create increased competition in the non-profit sector. Regional providers and increased volumes of consumers served will be important to financial success.
9. Your organization must have a strong banking relationship with access to both capital financing as well short-term, line-of-credit borrowing facilities.
10. Make no mistake about it: The No. 1 issue for your organization is convincing and educating your employees regarding who, when and whether they will lose their jobs-a communications, public relations and human resources challenge that is extraordinary.
Back to Harwell's presentation. He provided the most dramatic quote in stating that the "DOH views the 1115 waiver request as preparing to transition the entire Medicaid system to care management and achieve the end of fee-for-service Medicaid within five years."
He went on to state, "DOH believes that providers must emphasize both transformation and change."
It would seem your organization might need a bit of luck in addition to the strategies discussed above.

Gerald J. Archibald, a CPA, is a partner in charge of management advisory services at the Bonadio Group and is known for expertise in non-profit and tax-exempt accounting, management and governance. He can be reached at (585) 381-1000 or Download podcasts of his articles at (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email

What You're Saying 

JOHN SACKETT at 9:52:40 AM on 11/8/2012
We need more centralized guidance and help. Our high priced educational system has forgotten our history and promotes socialism and reliance on government--instead of individual self-relance.

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