If we were rating managed Medicaid as a stock, it would be a “strong buy.” Why? Read on.

There will be sustained enrollment growth in managed Medicaid. It is estimated that the number of people eligible for Medicaid will grow by 16 million over the next 10 years.

Today, approximately 71% of the total Medicaid population is in a managed Medicaid plan. It is clear that states are going to struggle financially as they try to fund their share of Medicaid costs in the face of increasing enrollment. We expect that one tactic states will employ to reduce costs is to shift enrollment from traditional to managed Medicaid. At the same time, states will begin eliminating cost-plus contracting in managed Medicaid, thereby shifting risk (and presumably costs) to the private sector via managed care organizations (MCOs). These two factors—increasing enrollment and states shedding risk—will drive significant opportunities for MCOs in managed Medicaid.

Managed Medicaid can be good business; but, to be successful, MCOs must actively manage their relationships with states. Three key areas of focus are:

  1. Being a rate shaper vs. a rate taker in the rate-setting process. MCOs must actively negotiate rates with states. MCOs should prepare for rate negotiations by developing actuarially sound rate models so that they can defend their margin requirements. Further, MCOs need to ensure that they are diligent in submitting priced encounters for all services covered under contract. States should be given all relevant data (e.g., encounter data) needed for rate setting, and MCOs should check the math (that is, develop their own actuarial model) that the state used in rate setting. Most would agree that state agencies are well-intentioned, but they do make mistakes; MCOs should trust but verify.
  2. Actively managing revenue across the organization. MCOs need to implement and maintain mature processes to ensure that they are reconciling membership and revenue with the state on a weekly or other regular basis. This process should include member-level revenue forecasting, reconciliation, and research. In addition to ensuring that they are receiving revenue for members who are eligible for coverage, it is at least as important to verify that they aren’t incurring medical expenses for ineligible members. Other key aspects of revenue management include state incentives and bonuses, sanctions and penalties, third-party liability, entitlement risk management, and onboarding new members. Successful MCOs will have robust, well-managed processes to support all of the key revenue management functions on an integrated basis across the various silos in the organization.
  3. Treating the state as a customer. States will be under increasing pressure to meet the financial and regulatory requirements introduced under the Affordable Care Act. Many states control the enrollment into plans, and they certainly determine who they will contract with. MCOs that take the time to understand all of the touch points with the state and invest in the appropriate level of resources to guarantee good customer service will increase their chances of success in the marketplace.

Any MCO participating in the managed Medicaid market will have to demonstrate value to the state via good health management programs, satisfactory member and provider services, solid transactional capabilities, and a sufficient provider network; these are the costs of admittance. MCOs that want to excel in the market will be sure to actively manage their relationship with the state. For the MCOs that are willing to make the investment, we rate managed Medicaid a “strong buy.” ▪