Minnesota Medical Assistance: Managed care vs. fee-for-service


Public payment for health care in Minnesota is a complicated and difficult issue. One crucial question is the difference between managed care and fee-for-service care. Which system-fee-for-service or managed care-provides better care? Which allows greater individual voice in choosing care and providers? Which costs less? In this first article of our series on publicly-funded health care in Minnesota, we examine how each system works, with subsequent articles focusing on what they cost, and how they affect both participants and taxpayers.

Low-income individuals in Minnesota, including people with disabilities, have their health care covered through two kinds of programs: managed care and fee-for-service care. Individuals who are covered by Minnesota’s Medical Assistance because of disability receive fee-for-service care. Low-income individuals and people over 65 who are on Medical Assistance receive managed care.

Fee-for-service care is a basic Medical Assistance reimbursement. This means that when doctors (or other health care providers) provide services for Medical Assistance patients, they send the bill for an office visit or an X-ray directly to the state for payment. Fee-for-service is the way that traditional health insurance works, with patients choosing their doctors and having a greater voice in deciding what kind of treatment they receive.

In contrast, managed care is paid for through a per-person rate called a capitated rate. That means that a Health Maintenance Organization (HMO) receives a fixed annual sum from the state to cover an individual’s health care expenses. In Minnesota, HMOs are paid $3 billion in tax funds per year to cover people on Medical Assistance. Patients who are covered by an HMO see the doctors and other health care professionals who work for that HMO, and who provide treatment in accordance with the HMO’s guidelines.

This distinction is critical for many in the disabled community-particularly at a time when HMOs have published a policy discussion draft, Minnesota’s Healthcare Imperative, which proposes to move all individuals who are receiving fee-for-service care into managed care. According to Randy Bachman, Executive Director of Axis Healthcare, a disability care coordination organization, the report was intended as a discussion draft for policy implementation. Its recommendations outraged many in the disability community. So far, no legislation to implement its recommendations have been introduced. Bachman says it is also unlikely to be implemented by other means. Even if the Department of Human Services approved of the proposal (and there is no indication that they do), they are unlikely to move it forward without legislative direction.

Preserving patient choice

Steve Larson, Public Policy Director at Arc of Minnesota, a disability advocacy group, said that the main difference that moving to managed care plans would make in the lives of individuals with disabilities is in terms of patient options.

Under fee-for-service, patients can choose any medical assistance provider they wish. Under managed care, however, patients have limited options when it comes to service providers, said Larson. They must choose between the providers who are in their HMO’s network. This is similar to health insurance options that have offer a restricted network of providers. According to Larson, the main difference between the two is that people with private insurance can choose a restricted-network plan (which is usually cheaper) or an open network plan (which is usually more expensive).

Moving persons with disabilities from fee-for-service to managed care would change the appeal process in ways that would make it more difficult for them to get the services they need, Larson said.

Bachman said that there was a lot of patient resistance in the early days of managed care, because the HMOs were believed to frequently deny care in order to increase their earnings from the state. Since that time, he said, laws have been enacted that have improved patients’ access to services under managed care. Today, Bachman said, some individuals will say they don’t want managed care, while others would call it beneficial.

But, said Bachman, disability advocates tell a slightly different story. The advocates feel that forcing people into managed care will ultimately take a toll on the lives of disabled individuals. There is still the fear that, if this happens, HMOs will reduce the amount of money that is used for services based on the way things were done in the past.

For persons with disabilities, re-institutionalization is a deep fear. During the past 20 years, individuals with disabilities have been moved from institutions and into group homes or even their own homes. Now there is a fear that HMOs will reintroduce institutionalization as a cost-saving measure. The call for “alternative housing measures” in the HMOs’ report only intensifies these fears.

Coordinating patient care

Larson said that one of the reasons people think moving all fee-for-service individuals into managed care is a good idea is that under fee-for-service, patient care may not be coordinated. Patients may not have a primary physician who is familiar with their particular case history and specific medical issues.

That’s the theory, but Larson does not believe they would get any better coordination under managed care. He said that advocates for the disabled have not been able to access any meaningful data, called “encounter data,” about the amount and quality of medical services people are receiving under managed care. There is no way for the advocates, or for the state, to know what specific services people are receiving under managed care and whether or not these services are sufficient to meet people’s needs.

“We need to work hard to get care coordination established for persons with disabilities,” Larson said. “I think it would be a major factor in improving their health care.”

Larson said that the disabled community in Minnesota has long been advocating for a third way that is neither managed care nor fee-for-service. This third way, a so-called “medical home” program, means that the patient chooses a primary physician, who then coordinates the patient’s care, providing referrals to other medical professionals as needed, providing coordinated care.

Paying for care

Cost is a major issue for all health care. Critics of fee-for-service say that doctors may prescribe (or patients may insist on) unnecessary and expensive tests and services. HMOs, they argue, hold down costs because the HMO limits the services to those that are necessary.

Critics of HMOs say that, especially in regard to publicly-funded health care, the HMO model is a “black box” that does not permit advocates, regulators, or even the individuals receiving public health care themselves, to understand what services are actually delivered and what they cost.  Legislation introduced by Senator John Marty summarizes the critique in its purpose section:

Minnesota has large contracts totaling over $3,000,000,000 per year in state funds awarded without competitive bidding. The state began contracting these programs out in 1983 as a pilot project with the hope of saving money. However, the pilot project was never truly evaluated. The legislative auditor has twice called for greater scrutiny over these programs, but no state agency has conducted an audit of these contracts for quality and cost. Because there have been no audits, the state has no way of evaluating whether health care dollars are being wisely spent.

[For more on state payments to HMOs, see UCare gives back $30 million, but questions on HMO profits from public payments remain.]