You Can Have Your Medicare / Medicaid Cake and Eat it With Better Care Coordination

While 11th hour negotiations prevented the country from toppling over the fiscal cliff, we're still teetering on the edge. Most provisions of the sequester were simply pushed back by two months (to March 1st) and the deal included no reform to entitlements - which play a huge role in driving federal spending. This means, effectively, that lawmakers have simply kicked the can down the road - it is a matter of fact that some savings will have to be squeezed out of entitlement programs; a new report by United Health Group, one of the largest insurers in the country offers some ideas on how to do so without cutting benefits or reimbursements to providers.

Through a combination of managed care innovations, better use of fraud-fighting technology, and various care coordination reforms, the report argues that some $542 billion in savings can accrue to the federal government over 10 years, and an additional $69 billion can accrue to states.

United Health Group Savings Estimates ($ billions)


We already know that Medicaid Managed Care programs have resulted in savings for states, without reducing access to services, (in a managed care plan, beneficiaries are generally limited to a tighter network of providers, but this leads to better coordination of care and lower out-of-pocket spending for beneficiaries) so it shouldn't be a surprise that applying a similar framework would lead to savings in Medicare as well. Indeed, the report advocates adopting a "Medicare Administrative Service Organization" program, which my colleague Avik Roy has written about extensively.

One of the more interesting highlights of the report is the enormous savings potential from reforms to the treatment of dual-eligibles - a full $189 billion over 10 years

Dual-eligibles are arguably the most vulnerable, and difficult to treat population - they are those who qualify for both Medicare and Medicaid - generally extremely low-income seniors or the disabled. The nature of treatments that they require, often involving complex chronic diseases, makes coordinating care between Medicare (which covers doctor's visits and prescription drugs) and Medicaid (which would cover long-term care if it is needed) extremely difficult. The lack of care coordination is an important contributing factor to estimates that total spending on dual-eligibles may reach one-third of all spending on Medicare and Medicaid over the next 10 years.

Through better care coordination and high levels of participation by dual-eligibles, the study argues, these significant savings can become a reality. The Centers for Medicare and Medicaid Services are currently testing two models of care coordination - the first is a capitated payment model where states and the federal government to contract with a third-party to provide integrated Medicare and Medicaid benefits, while the second allows states to enroll dual-eligibles into a managed care program. Both models have large savings potentials, and the study doesn't come down in favor of one model over another, explaining that both models have important cost-saving benefits.

Under the capitated model, for instance, insurance plans or other intermediaries could be assured of two steady, but capitated, payment streams from the states and the federal government in exchange for coordinating and integrating care for dual-eligible populations. The managed care approach would probably require some sort of capitation, but would put more control of the programs in the hands of states, which are arguably better positioned to know unique the needs of their own populations.

In any case, the results from CMS testing these models will have to be monitored to see which performs best; one thing is certain, however - for once, we may be able to have our cake and eat it too.

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