Medicaid Managed Care and Children with Disabilities: A Cautionary Tale

Loyal fans of the Say Ahhh! blog know that Medicaid is the nation’s largest health insurer for children, covering over 35 million. They also know that Medicaid does not exclude any child from coverage on the basis of a pre-existing condition; in fact, some children qualify for Medicaid because they receive Supplemental Security Income (SSI) benefits on the basis of disability.  Finally, they know that the true test of an insurer is how good a job it does covering enrollees who generate lots of costs because they need lots of medical care.  High-performing insurers will manage the care of these enrollees in a way that reduces unnecessary care and improves outcomes; substandard insurers will simply cut off access to needed services.

We were reminded of this dynamic when we read the complaint in McCutchen v. Becerra, a lawsuit filed last week by the Tennessee Justice Center and the National Health Law Program on behalf of Medicaid beneficiaries in Tennessee.  They are asking a federal district court to unwind the approval of the TennCare III section 1115 demonstration—colloquially known as the “Tennessee block grant waiver”—by the Trump Administration on January 8, two days after the failed insurrection at the Capitol.  TennCare III “subsumes” its predecessor, TennCare II, which had been scheduled to expire on June 30.

The complaint describes the experiences of nine children with disabilities (and their families) under the TennCare II demonstration.  Here’s an excerpt from one:

“Plaintiff M.S. is two years old. She lives in Caryville, Tennessee, with her parents, T.S. and A.S., and her four siblings. Her parents have cared for M.S. from the moment she got out of the hospital after her birth, and DCS [Department of Children’s Services] placed her with them as her foster parents when she was three months old. They adopted M.S. when she was one year old so that they could get her on a kidney transplant list after the DCS failed to do so.

M.S. is diagnosed with Potter’s Syndrome, stage IV renal failure, and is on dialysis. She is non-ambulatory, G-J tube dependent, and needs a kidney transplant. She has frequent episodes of apnea, and she requires continuous oxygen while sleeping.

M.S. is enrolled in TennCare [Tennessee’s Medicaid program]. During the first year of her life, when T.S. and A.S. were her foster parents and DCS retained legal custody, M.S. was enrolled in TennCare Select.  She received 120 hours of PDN [private duty nursing] care per week.

After her adoption, TennCare reassigned M.S. to the Amerigroup MCO. M.S.’s parents requested that TennCare change her assignment back to TennCare Select, but TennCare refused.

Almost immediately Amerigroup sent M.S.’s parents a letter reducing PDN services by more than half, to 56 hours per week. With the help of counsel from the Tennessee Justice Center, M.S.’s parents successfully appealed the denial, and TennCare conceded that 120 hours of PDN per week are medically necessary.”

What’s going on here?

What is the point of coverage for individuals with pre-existing conditions if the coverage doesn’t pay for the services that those individuals need?

And what, exactly, is the state demonstrating about Medicaid managed care?

Here’s some context.  Tennessee is one of 40 states (including the District of Columbia) that contracts with managed care organizations (MCOs) to arrange for the provision of covered services to Medicaid beneficiaries.  All Tennessee Medicaid beneficiaries are enrolled in one of four managed care plans:  AmeriGroup Tennessee (452,800); Blue Care (566,500); TennCare Select (51,500); and UnitedHealthcare Community Plan of Tennessee (455,300) (enrollment as of December 2020).  Amerigroup, Blue Care, and UnitedHealthcare contract with the state Medicaid agency on a risk basis – they are paid a fixed amount each month for each enrollee whether or not the enrollee uses covered services. TennCare Select, in contrast, is not at risk for services it contracts to furnish to children receiving SSI, children in foster care, and individuals with intellectual or developmental disabilities.

Tennessee is also one of 19 states that operate Medicaid managed care through comprehensive section 1115 demonstrations—i.e., those that are not limited to a particular service, like substance use disorder (SUD).  The other section 1115 managed care states are AZ, CA, DE, FL, HI, IN. KS, MD, MA, MI, NJ, NM, NY, OR, RI, TX, UT, and WI. (NC will launch Medicaid managed care on July 1, 2021).  In most of these states, section 1115 authority is used to waive Medicaid’s freedom of choice of provider requirement in order to allow the state to mandate beneficiary enrollment in MCOs with designated provider networks.  States have other options for requiring beneficiaries to enroll in MCOs without using a section 1115 demonstration, including through a state plan amendment or a separate freedom of choice waiver. The remaining managed care states (AR, CO, GA, IL, IA, KY, LA, MN, MS, MO, NE, NV, NH, ND, OH, PA, SC, VA, WA, WV, and the DC) use one of these other options.

The experience of plaintiff M.S. and her adoptive parents raises a number of questions.  Here are just a few:

  1. The reduction in private duty nursing hours from 120 to 56 per week came “almost immediately” after M.S.’s enrollment in an MCO with which the state Medicaid agency was contracting on a risk basis.  There is no indication of any change in M.S.’s pre-existing condition that would explain such a reduction; indeed, on appeal the PDN hours were fully restored.  The effect of the reduction, had it stood, would have been to shift the costs and burden of care to M.S.’s family.  Was this a one-off?  Or is this a technique that MCOs use to “manage” the care of children with severe disabilities?  How would the public know?
  2. Under the terms of risk contracts between a state Medicaid agency and an MCO, the agency makes a monthly capitation payment to the MCO on behalf of each enrolled beneficiary regardless of whether the beneficiary uses services in that month. The federal government matches those monthly payments (Tennessee’s federal matching rate is 66%).  During the period that M.S.’s hours were reduced by over 50 percent, did the state continue to make monthly capitation payments to the MCO?  Did the federal government continue to pick up two thirds of those payments? How would the public know?  And what incentives does that create?
  3. Many states have been demonstrating mandatory Medicaid managed care under section 1115 authority for years, if not decades. Next year, Arizona’s Medicaid managed care program will celebrate its 40th anniversary as a section 1115 demonstration. In Tennessee’s case, it’s been 27 years since the state’s mandatory managed care section 1115 demonstration began and two decades since a federal court found that MCOs were systematically denying EPSDT to Tennessee children because of “pecuniary incentives that MCOs have for denying, suspending, or terminating care under the TennCare system . . ..” Medicaid managed care is the dominant form of health care delivery in Medicaid; over 78 million Medicaid beneficiaries are currently enrolled in Medicaid MCOs. What more will federal or state policymakers learn from continuing to demonstrate mandatory Medicaid managed care?  Wouldn’t their resources be better spent improving the lived experience of MCO enrollees, starting with those beneficiaries with costly pre-existing conditions?
  4. And what about M.S. and her parents, the other plaintiffs, and other beneficiaries enrolled in one of the MCOs? There was no opportunity for the public to comment at the federal level on the proposed extension of the TennCare II mandatory managed care demonstration. Nonetheless, the previous CMS Administrator approved the extension of mandatory managed care for 10 years by “subsuming” TennCare II into TennCare III.  The January 8 approval letter does not explain what an extension of mandatory managed care would demonstrate, why the demonstration needs to run for 10 years, or how the demonstration will promote the objective of the Medicaid program—coverage—by preventing  improper MCO service denials to beneficiaries with expensive pre-existing conditions.  How is that right, much less legal?