• Privatization to reduce Medicaid prices

    Paul Krugman, reacting to Florida’s waiver to direct its Medicaid expansion population to private managed care:

    And despite some feeble claims to the contrary, privatizing Medicaid will end up requiring more, not less, government spending, because there’s overwhelming evidence that Medicaid is much cheaper than private insurance. Partly this reflects lower administrative costs, because Medicaid neither advertises nor spends money trying to avoid covering people. But a lot of it reflects the government’s bargaining power, its ability to prevent price gouging by hospitals, drug companies and other parts of the medical-industrial complex.

    He didn’t mention Arkansas in the column. The claim/hope for that state is that by permitting newly eligible Medicaid beneficiaries to sign up for private, exchange-based plans, they’ll take advantage of cost-reducing, price-lowering, market competition. I have not yet seen the theory that explains how segmenting the market among multiple private health plans reduces prices. With that stipulated, let’s move on.

    First thing’s first. Does Medicaid managed care reduce spending? Mark Duggan and Tamara Hayford asked and answered this question.

    [S]hifting Medicaid recipients from fee-for-service into [Medicaid managed care] did not reduce Medicaid spending in the typical state. However, the effects of the shift varied significantly across states as a function of the generosity of the state’s baseline Medicaid provider reimbursement rates. These results are consistent with recent research on managed care among the privately insured, which finds that HMOs and other forms of managed care achieve their savings largely through reduced prices rather than lower quantities. [Emphasis mine.]

    Where state Medicaid payments to providers were relatively more generous, managed care organizations had room to maneuver on price and could produce savings. (Aside: the same savings could have been produced by simply lowering state rates.) Where Medicaid payments were relatively low, managed care didn’t do much. On average, according to the Duggan/Hayford study, it doesn’t.

    I covered this, and wrote pretty much the paragraph you just read, over a year ago. Then I went a bit further and did something that sheds some light on how much market competition will have to do to bring prices down to what they are under the public program. Exhibit 3 of the 2009 Health Affairs paper by Stephen Zuckerman, Aimee Williams, and Karen Stockley reports state Medicaid rates relative to those of Medicare for all services,* primary care, obstetric care, and other services in 2008. This is handy because Medicare rates are adjusted for variation in underlying cost. Below I’ve graphed the ratios.

    There were, in 2008, eleven states with Medicaid physician payments at least as high as Medicare’s (AK, AZ, DE, ID, MT, NE, NV, NM, ND, OK, WY). If you’re looking for a state that has some running room to bring down Medicaid prices through competition or privatization, good candidates are among these. (What’s going on in Alaska and Wyoming?) Note, however, Florida and Arkansas are not among them.

    * All services include primary care, obstetrical care, hospital visits, surgery, radiology, psychotherapy, and laboratory tests.

    @afrakt

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    • Krugman seems to imply that lack of advertising among state Medicaid programs is a desirable feature rather than flaw. Given that only 62% of those eligible for Medicaid actually enroll, one might well argue Medicaid doesn’t advertise nearly enough.

      One important virtue of Medicaid managed care is that it provides beneficiaries with a “medical home.” Those enrolled in a managed care plan at least have the benefit of knowing their plan/provider network will see them when they need care. In contrast, those reliant on FFS Medicaid have to endure the indignity of repeatedly finding the door slammed in their face given that less than two-thirds of physicians accept new Medicaid patients. Thus, even if managed care cost somewhat more than FFS Medicaid, the continuity of care benefits provided by a medical home might well be worth it.

      • This comment appears to conflate the concept of medical home with that of an MCO’s provider network, which is incorrect.

        In a medical home, you have an ongoing relationship with a physician. That physician coordinates all your medical care. The Commonwealth Fund’s four indicators of a medical home are that you have a regular doctor, you can contact him/her by phone, you can get care or medical advice after hours and doctors visits are organized and on time. In addition, medical homes need some mechanism to have providers communicate between themselves so that the PCP can be informed of a beneficiary’s specialist visits and keep up to date on the beneficiary’s health.

        In contrast, a provider network means that your MCO contracts with a bunch of providers of various medical specialties (and it’s possible that some won’t accept new patients). There’s no guarantee that you get a medical home-like experience when you go to one of them. I’ve been insured through HMOs from both CareFirst and Kaiser. Kaiser was a medical home experience. CareFirst has not been one: my PCP is difficult to reach by phone and visits aren’t organized. My PCP has never been appraised of the results of my allergist visits by either the allergist or CareFirst. Bottom line: just because you are enrolled in managed care does not mean that you have a medical home, as the comment implies. It may. Or it may not, in which case you could be spending more than you would in FFS Medicaid without getting better results.

        Fee for service Medicaid can potentially support medical homes if it reimburses appropriately and contracts with qualified providers. Or, Medicaid can require the MCOs it contracts with to provide medical home services.

    • It’s news to me that Medicare reimburses obstetrical services.

      In the current system, the poor churn in and out of Medicaid and insurance rapidly. Any participant in the system that invests in the long-term health of their patients will be the high cost provider and a long future of lower costs for the healthier patient are unlikely to accrue to the group that invested in improving his health.

      • Medicare covers many individuals with disabilities under age 65. Of these folks, some are women of childbearing age. They have sex. They have kids. So yes, Medicare covers ob/gyn services.