Medicaid Managed Care Compliance Tools: Another ‘Pay-For’

Discussions have begun on the possibility of enacting a scaled-down version of the Build Back Better legislation. Any agreement that includes new federal spending will also require pay-fors (a/k/a offsets) either in the form of spending reductions or tax increases, or both.  In Medicaid, responsible pay-fors—i.e., policy changes that the Congressional Budget Office will score as federal savings but that do not simply shift federal costs to states, providers, or beneficiaries—are hard to find.  There is one in hidden in plain sight: requiring managed care organizations (MCOs) to spend at least 85 percent of their Medicaid revenues on payments to providers for covered services and quality improvement.  Regrettably, that pay-for did not make the cut in the President’s FY 23 Budget proposals for Medicaid.  But the President’s Budget does propose another eminently responsible Medicaid pay-for: enhancing Medicaid managed care enforcement, which it estimates will save the federal government $2.1 billion over 10 years.

The proposal is designed to improve the ability of CMS to enforce compliance by MCOs with existing Medicaid requirements.  Currently, if CMS determines that an MCO is not complying with those requirements, and the state Medicaid agency does not take action, or the state agency’s action does not bring the MCO into compliance, CMS’s only option is to withhold all federal matching funds on payments to the MCO, effectively defunding it. (The only exception is CMS’s current authority to withhold federal matching payments on part of an MCO contract if an MCO does not submit encounter data as required).  In the real world, defunding an MCO in the middle of a contract period is not an option; it would result in massive disruption to the tens if not hundreds of thousands of beneficiaries enrolled in the MCO, to the network providers treating those enrollees, and, given the size of many of these contracts, to the state’s Medicaid budget.

To address this, the budget proposes to amend the Medicaid statute to “condition federal match in Medicaid managed care plan contract capitation payment amounts on a service-by-service basis and provide CMS with additional enforcement options.” There’s no further detail as to what those “additional enforcement options” might be.  The summary of the proposal says that it would “enhance CMS’s ability to take meaningful actions to protect beneficiaries and enforce requirements, making these managed care compliance tools more effective and consistent with similar authorities in fee-for-service.” Again, no further explanation of these “compliance tools” or how they would result in $2.1 billion in federal savings.

Granted the proposal is not as specific as one might like; nonetheless, it is potentially a watershed in Medicaid managed care policy.  Historically, the federal government has delegated monitoring and enforcement of compliance by MCOs with federal program requirements to state Medicaid agencies.  This can be seen in the structure of the current federal regulations, which limit CMS’s enforcement role in the event of noncompliance by an MCO to referral of the matter to the Office of Inspector General for “consideration of possible imposition of civil money penalties.”  The federal government pays, on average, 65 percent of the cost of Medicaid program, so it seems anomalous that the federal government would have no effective compliance tools to protect its investment in Medicaid MCOs.

The budget is candid about this vulnerability: “CMS has inadequate financial oversight and compliance tools in Medicaid managed care.” And it proposes to do something about it: to give CMS the “ability to take meaningful actions to protect beneficiaries and enforce requirements.”  There are tens of millions of beneficiaries to protect: some 80 percent of children in Medicaid, and 70 percent of all Medicaid beneficiaries, are enrolled in MCOs. Going forward, the expectation is that states are likely to enroll even higher percentages of beneficiaries in MCOs. By giving CMS the authority to apply targeted financial sanctions when MCOs are out of compliance with federal requirements, this proposal will dramatically enhance CMS’s ability to protect beneficiaries as well as federal funds.

Hopefully, Congress will enact this proposal, either as an offset to the cost of another Medicaid improvement, such as mandatory continuous eligibility for children, or just on its own merits.  (This proposal would pair nicely with the aforementioned minimum 85 percent medical loss ratio that aligns Medicaid MCOs with current federal expectations of Medicare Advantage plans and Marketplace QHPs). But CMS doesn’t need to wait for Congress to act in order to get in the game. And to its credit, CMS has already signaled in guidance that it will start to enforce managed care reporting requirements under its current regulations. Yet CMS could do more under it current authorities—notably, standing up a child health dashboard that would allow all stakeholders to understand how individual MCOs were performing for children.

Greater transparency in Medicaid managed care might not save the federal government much money.  But the cost of maintaining a website of data that is already being reported but is just not public would be trivial, particularly in relation to federal Medicaid managed care spending (CBO expects the federal government to spend $3.0 trillion with a “t” on Medicaid managed care between now and 2031). And the compliance benefits of transparency—MCO managements would be incentivized to improve their companies’ performance, knowing that their metrics would be posted—will more than pay for this trivial administrative investment.  Combined with new compliance tools such as those proposed in the budget, transparency around MCO-specific performance would greatly enhance the ability of CMS to assist state Medicaid agencies in ensuring that Medicaid managed care delivers on its promise for beneficiaries.

Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.