Challenging the Cost Effectiveness of Medi-Cal Managed Care

INTRODUCTION Researchers and consultants have promoted expansion of Medi-Cal managed-care (MCMC) to additional Medi-Cal beneficiaries currently covered under the Medi-Cal Fee-forService (FFS) program to achieve greater cost efficiency and quality of care. Proponents have also promoted MCMC as a cost-effective way to expand state-subsidized health insurance for many of the State’s 6.5 million uninsured,1 even though claims of this cost effectiveness have been disputed.2 This paper presents data that challenge the cost effectiveness of MCMC, and suggests that cost savings may actually represent cost shifting to the Medi-Cal FFS system. This in turn places an unfair burden on emergency physicians and other feefor-service Medi-Cal providers. This cost shifting appears to have been facilitated by the unique manner in which MCMC has been implemented, allowing health plans to not enroll or dis-enroll the most costly beneficiaries without a concomitant adjustment in the state’s per-member-per-month capitation payments. Because of the highly skewed distribution of the cost of care, shifting even a small number of high-cost patients from a MCMC health plan into the Fee-for-Service program allows these plans to falsely promote the reduced monthly cost of care per enrollee as the result of cost-effective care management. Of the 6.62 million Medi-Cal enrollees in the fiscal year 2007-08, 3.33 million were enrolled in MCMC, which receives $6.06 billion of the $33.98 billion total Medi-Cal budget. Even a small overestimate in the monthly cost per member used to calculate capitation rates has a large aggregate financial impact, easily reaching hundreds of millions of dollars annually. Ever since the Medi-Cal program began shifting its beneficiaries into MCMC in 1994, numerous claims have been made regarding the beneficial fiscal impact of the managed-care model on program expenditures.3 Organizations such as the California Legislative Analyst’s Office4 and the Little Hoover Commission have touted the ability of MCMC to contain costs. Based on these assertions, MCMC proponents have recently introduced state legislation (SB 1332) to expand MCMC enrollment for aged, blind and disabled (ABD) populations, many of whom are prime candidates for dis-enrollment and carve-out cost shifting once per member per month (PMPM) capitation payments are set. However, there is little evidence that substantiates anticipated savings in the Medi-Cal program. In Appendix A (all appendixes are available online as a related file at http:// repositories.cdlib.org/uciem/westjem/vol10/iss2/art17/), the author assesses the validity of the claims in support of, and challenging, managed-care cost effectiveness in California and elsewhere in the country.