Testing Public-Private Initiatives to Achieve Integration- Case Study of Three Pilot Programmes in California

• Introduction
• Background
• Case Study: Medi-Cal’s Demonstration Projects
  • Background
  • County Organised Health Systems (COHS)
  • The Solano Partnership HealthPlan (SPHP)
  • Geographic Managed Care (GMC)
• The Sacramento Geographic Managed Care Project
  • Eligibility and Enrolment
  • Issues Arising from Enrolment
  • Cost-effectiveness of the Sacramento GMC Pilot
  • Quality
  • Purchasing Authority Models
• Orange County - OPTIMA
• Policy Implications for New Zealand
• Issues / Questions Arising
  • What is the Problem that New Zealand would like to Solve by Introducing "Managed Care", "Integration" or Other Innovative Models?
  • What is the Role of Government in Managing the "Gap"?
• Key Words / Concepts
• References
• Additional Background Reading
• Acknowledgements

Introduction

Privately funded and publicly funded systems share a common fundamental policy challenge: managing the gap between the demand for health care services and the ability to pay for those services. This gap continues to grow wider as a result of the rise in the demand as well as the rise in the supply of health services. Different health systems have developed different strategies or combinations of strategies to manage this gap. These strategies primarily employ economic or technical solutions to improve efficiencies, increase the supply of services or financing for services, and/or change the need and demand for health care.  ¹  

Created in 1965, the federal Medi-caid programme in the United States undertook to improve access to health services for low income families and people not eligible for other types of insurance cover. Each of the 50 States received funding for a variety of health service programmes to meet the needs of the population. Over the past 30 years the cost of underwriting the programmes at both the federal and state levels have forced each State to consider alternatives to avoid reductions in access to needed services.

California, a leader in developing managed care initiatives in both the public and private sector, claimed an early role in the development of strategic alternatives to reduce costs and increase access to services. These alternatives may offer some lessons for publicly funded systems wishing to develop a national policy framework that will support the creation of delivery system innovations developed in partnership with non-governmental providers and insurers.

This paper will examine three models introduced into the California Medi-Caid Programme, Medi-Cal, for managing the gap: the County Organised Health System (COHS), Geographic Managed Care (GMC), and Purchasing Authority Model under the GMC. Consideration will then be given to the policy implications and questions arising for publicly funded health systems that are currently evaluating the implementation of managed care and integration strategies to achieve public policy goals.

Background

Unlike the New Zealand health system, over 70% of the health system costs in the United States come from private funding sources. These costs represent 14% of the country’s gross domestic product. Forty-two percent of these dollars go toward entitlement programmes   ^(a)   and are distributed amongst five types of programmes (see Figure 1).

One of the entitlement programmes, Medicaid, funds health care services for qualified beneficiaries. There are 34 million people enrolled in the Medi-Caid programme that provides benefits for the elderly, blind and disabled, adults, and children that qualify under federal and state poverty guidelines, ie means testing (see Figure 2). Enrolment in the programme has increased 53% between 1985 and 1993, and costs have increased from $US36.7 billion to $US135.5 billion during the same time period. One study estimated that if growth in Medicaid over the past five years had not offset part of the decline in employer based insurance that the number of uninsured Americans would have climbed from 41 million (the current number) to 50 million.  ²   Consequently the risk of unmet demand is shifting from the private to the public sector.

Case Study: Medi-Cal’s Demonstration Projects

 

Background
California’s Medi-caid programme, Medi-Cal, provides coverage for 5.5 million people or approximately 16% of the State’s population. The total Medi-Cal budget for the financial year 1997/98 is $US18.4 billion with enrollees receiving $US2.3 billion in acute hospital services representing 2.8 million in-patient days.  ³   A change in the State tax laws in the late 1970s eroded the revenue base to fund the State’s portion of social entitlement programmes including Medi-Cal. Expenditures for hospital services consumed the highest proportion of the Medi-Caid service budget and represented the highest uncontrolled cost.

In response, in 1982, California embarked on a major innovation in the purchase of hospital care for persons covered by the Medi-Cal programme. Called the Selective Provider Contracting Programme (SPCP), the programme contracts with those hospitals in the State which wish to provide services to Medi-Cal beneficiaries. The California Medical Assistance Commission (CMAC) is the agency established to oversee the SPCP.

Using a competitive model to purchase services, SPCP effectively negotiated "take it or leave it" contracts with over 250 of the State’s hospitals that had the capacity to provide all the in-patient care necessary for the beneficiaries living in the areas where the hospitals operated. However, over a 10 year period (1982–1992), while the average Statewide per day rate for services was below the average per diem rate that Medi-Cal contract hospitals would have received under an alternate cost-based reimbursement system ($US750), that average payment rate had increased 46.2% from 1984 to 1992   ⁴  . This cost increase was not sustainable relative to the eroding funds available for the Medi-Caid programme and the need to provide the minimum level of entitlements to an expanding Medi-Caid population.

During this same time period the agency with the oversight responsibility for Medi-Cal, the Department of Health Services (DHS), State of California, began investigating the possibility of piloting managed care models to rationalise the State’s dwindling resources. The first of the models, COHS, began in San Mateo and Santa Barbara Counties in 1989. By 1991, CMAC and DHS began moving forward to implement additional COHSs for beneficiaries.

A second model emerged in 1991 called GMC. The model’s stated purpose was to provide "a comprehensive programme of managed health care services to Medi-Cal recipients in clearly defined geographical areas … [and] to create maximum accessibility to health care services by permitting recipients the option of choosing from among two or more managed health care plans …".  ⁵  

County Organised Health Systems (COHS)
The COHS managed care model provides for the creation of a local commission appointed by an elected county board of supervisors. The commission should reflect membership from providers, beneficiaries, local government officials and other interested parties. The local commission then administers a comprehensive, case managed health care delivery system for county beneficiaries. The local system includes utilisation control and claims administration. Beneficiaries may choose providers who have contracted with the local commission and beneficiaries do not have the option of obtaining Medi-Cal services through the traditional fee-for-service system unless authorised by the local COHS.

Up to $US566,000 was made available for each of the three designated counties to assist in the development of the new COHS programmes. There are two phases to the COHS developmental funding. The first phase (funding up to $US250,000) involved an overview or "Structural Design" deliverable contract which requires the county to submit its goals and objectives as they pertain to the formation of the authority, development of provider networks, management information systems, services to be provided, reimbursement mechanisms and quality assurance. The second, more specific phase of the development contract required the counties to submit "Detail Design" and "Systems Testing" components.

By 1996 five COHSs were in operation in five counties without plans to implement any more of the models. A description about implementation of one of the five, The Solano Partnership HealthPlan (SPHP), provides background to understanding the design of the model, the partnership created between the government and private sector, and the potential impact on in-patient hospital utilisation and on access to non-hospital services.

The Solano Partnership HealthPlan (SPHP)
The Solano Partnership HealthPlan, the State’s third operational COHS, began operations on 1 May 1994. The Plan has approximately 43,000 enrollees who are residents of Solano County and are eligible for Medi-Cal services.

The Plan began enrolling beneficiaries 60 days prior to commencing operations on 1 May. During that time, 70% of those eligible for enrolment in the Plan selected a primary care provider associated with the Plan.  ^(b)   The remaining 30% who had not chosen a provider were assigned a primary care provider. The Plan’s initial enrolment challenge was to process approximately 3,000 primary care changes after those who had been notified of the assigned provider requested to change providers. For the first two weeks of operation the Plan received 1,500 telephone calls per day.

During the first quarter of operations the Plan experienced a 20% drop in in-patient utilisation and a decline in emergency use per member per month when compared to historical utilisation patterns. Both of these declines are expected in a managed care plan as members are linked to primary care providers and learn to access care through that provider.

The SPHP subcontracts with Kaiser Permanente Health Plan, a Knox-Keene licensed plan. Kaiser is a significant provider of health care services in the Solano health care market and is an important participant in the COHS. The Plan, in conjunction with Kaiser, has conducted an outreach programme in underserved areas of the county to improve access to care with the hope of demonstrating that the money spent on outreach and early intervention will reduce overall health care costs. Grants of nearly $US1 million have been pledged by Kaiser, the Irvine Foundation, and Solano County for the outreach programme.  ⁶  

The initial motivating factor in Solano County’s choice of a locally controlled Medi-Cal managed care model was to improve access to care and beneficiary choice since very few providers participated in the fee-for-service Medi-Cal programme. One of the significant impacts on access has been that nearly every provider in the county participates as a SPHP provider. One of the flow on effects from increasing access through private providers has been the threat to the community clinics that have traditionally provided primary care and community support services. Referred to as "safety net providers", these clinics found that they had to compete for beneficiaries without resources to market their services. The fate of the safety net providers is not clear given the State’s strategic direction toward a managed competition model for the Medi-Cal programme and reduced funding for providers operating outside of the model.  ^{7     8}   It should be noted that the safety net providers have played an important role in access to services in the rural areas of the State.

Geographic Managed Care (GMC)
In the GMC model the State negotiates capitated contracts with prepaid health plans (PHPs), health maintenance organisations (HMOs) and primary care case management (PCCM) entities on behalf of beneficiaries receiving Aid to Families with Dependent Children (AFDC). The organisations chosen for contracts are expected to provide all Medi-Cal required health care services including comprehensive preventative care services. Just as with the COHS model such managed care programmes are intended to improve access to health services, while at the same time reducing the need for unnecessary acute, in-patient hospitalisation and costly emergency room visits.

The Sacramento Geographic Managed Care Project

After a series of Statewide hearings the County of Sacramento was designated as the county within which to attempt a GMC pilot programme. By July 1992, letters of interest for participation in the pilot were received from 15 PCCMs, 7 prepaid health plans and four dental plans. Development funds were available to almost all of those organisations submitting letters of interest up to a maximum of $US50,000 per proposed contractor. An additional $US100,000 per contractor was made available for Management Information Systems development to those applicants chosen to negotiate operational contracts.

Eligibility and Enrolment
The pilot began operations on 1 April 1994. By January 1996 approximately 150,000 Medi-Cal beneficiaries in Sacramento County were enrolled in seven medical plans and 134,000 beneficiaries were enrolled in four dental plans. This represents coverage of roughly 63% of all Medi-Cal beneficiaries eligible for medical programmes and 57% of those eligible for dental programmes. Enrolment is mandatory for beneficiaries categorised as qualifying under the AFDC and Medically Indigent Children (MIC). Enrolment is voluntary for those qualifying under aid codes for Old Age Survivor, Aid to the Blind, Aid to the Totally Disabled and Medically Indigent Adult-Pregnancy services only. In addition there are some categories of aid that are not eligible for participation in GMC on either a mandatory or voluntary basis. Examples are long-term care, certain medically indigent categories, refugees and others.

The DHS selected a private contractor, HealthChoice, to establish and maintain a system for enrolling beneficiaries into one of the participating medical plans and one of the dental plans. HealthChoice also assisted beneficiaries in changing plans and collecting information regarding the reasons why beneficiaries change plans.

Issues Arising from Enrolment
A series of hearings conducted in September, 1995 uncovered six key issues in connection with the enrolment process.

1. Unrealistic expectations regarding the education of providers and beneficiaries
   Providers and beneficiaries did not understand the principles underlying managed care enrolment. Beneficiaries did not understand the concept of access to health services through a single point of contact and primary care doctors did not understand their co-ordinating role in ensuring access to all services under entitlement.
   
    
2. Beneficiaries not understanding that they had a single choice amongst multiple options, not multiple choices amongst those options
   This lack of understanding was reflected in the fact that nearly 400,000 enrolment forms were received by the enrolment contractor from less than 130,000 persons. This was the result of the enrolment contractor widely distributing the forms rather than targeting enrolment.
   
   
3. Loss of revenue by traditional Medi-Cal doctors
   Some providers assumed that beneficiaries, when given a choice, would simply choose to remain with the same provider. However, many beneficiaries, when given a choice of several plans and providers, chose to switch providers. This cause, some providers to express their concerns about lost revenues through questioning whether the enrolment process was properly recording beneficiary choices.
   
   
4. Lack of communication between the health plans, the DHS, and the enrolment contractors
   This resulted in lack of co-ordination between the health plan marketing staff, the enrolment staff responsible for enrolling the "sale" and the DHS programme staff responsible for ensuring access to entitlements.
   
   
5. Enrolment forms were difficult to understand
   Suggested improvements included more spaces for provider selection area and separate forms for medical and dental plans.
   
   
6. Improvements to the enrolment process would be labour intensive and costly
   Official notices, plan marketing mailings, telephone contacts, and face-to-face interviews were all discussed options.

Cost-effectiveness of the Sacramento GMC Pilot
The State of California established the cost parameters for the GMC pilots by specifying that the cost, each pilot would not exceed the total amount which the DHS estimated it would pay for all services and requirements within the same geographic area under the fee-for-service Medi-Cal programme.  ⁹  

Prior to beginning rate negotiations in 1993, DHS actuarial staff provided CMAC with the actuarially adjusted equivalent costs of providing services to the selected population groups under the fee-for-service payment system. Those costs were projected for the time period of the GMC contracts and certain trend factors applied. CMAC then negotiated comprehensive at risk contracts with 11 health care plans to ensure that the total programme costs were below the projected fee-for-service equivalent levels.

A preliminary evaluation of the cost-benefit showed a 4.5% decrease in medical costs for beneficiaries between 1993 pre-GMC Medical Costs and 1995 Post-GMC PHP payments under capitation. However, there was a 10% increase in dental costs and a 7.2% increase in medical costs for the AFDC category codes (see Figure 3). The net savings to the State for the pilot during this two year time period, with cost adjustors, is estimated at $US1,283,318.

Extrapolating the per capita savings to the entire Medi-Cal population could yield approximately $US26 million annual savings to the State while significantly expanding access to primary care and other support services for eligible beneficiaries.

Figure 3
Comparison of Pre-GMC Costs to Post -GMC Capitation Payments

	CY 1993	CY 1995	Comparison
Service	Pre-GMS Costs	Post GMC Payments	Savings (+) additional costs (-)
Medical (PHP) Only All GMC Aid Codes AFDC Aid Codes Only	$73.30 $59.13 -	$69.97 $63.41 -	$3.33 - $4.28 -
Dental All GMC Aid Codes	- $9.74	- $10.71	- - $0.97

Source: Annual report to the legislature, January 1996, California Medical Assistance Commission.  ⁹  

Quality
In addition to the cost-benefit analysis, the DHS conducted a series of medical audits and surveyed beneficiaries that had disenrolled from plans to determine the reasons for disenrolment. Both processes provided quality indicators for future monitoring and review.

Preliminary results indicate that beneficiaries appear to be satisfied with the level of care that they are receiving under the Sacramento GMC.

Purchasing Authority Models
While not recognised in the documentation as a separate model, an example of a regional purchasing authority model is being piloted under the GMC programme. Rather than the State of California contracting separately with each health plan serving the county, this model is organised such that the State contracts with a single purchasing authority that then contracts with the separate health plans or fully integrated networks (FINs).

Orange County - OPTIMA

In September 1993, the Orange County Board of Supervisors established a separate health authority known as the Orange Prevention and Treatment Integrated Medical Assistance Plan (OPTIMA). The seven members who are appointed by the Board of Supervisors include three consumer members, three provider members, and one member of the Board of Supervisors.

In 1994, OPTIMA progressed development work that included establishment of operational procedures and protocols for the COHS and released a request for proposals to all interested health care providers in the County.

To accommodate the significant number of beneficiaries and providers in Orange County OPTIMA contracted directly with HMOs, FINs and Physician/Hospital Consortia (PHCs). The difference between the HMOs and FINs is that HMOs are currently licensed by the State to assume full risk for the provision, co-ordination and payment of service delivery while FINs, traditionally service providers, would need to be granted the ability to assume full risk by the State using current Knox-Keene legislation reserve requirements. PHCs consist of a physician group or physician groups contractually aligned with at least one hospital.

Evaluation of OPTIMA will be conducted by CMAC in the 1997/98 fiscal year.

Policy Implications for New Zealand

The public/private partnerships described so far are reforming the way that health services are funded, organised and monitored for beneficiaries eligible for government entitlement programmes. A critical success factor for the implementation of any of the managed care models in California was the strong role of the government in setting the strategic direction, defining the core services that would be funded under the entitlement programme, establishing the legislative framework necessary to enforce the standards around access, cost and quality and creating a process for testing and evaluating the impact of the models. As stated in the 1996 report to the California Legislature.  ¹⁰  

"The important point is that the Legislature has provided the statutory authority for these different managed care models. While basic benefits are uniform throughout the Medi-Cal Program, enrolment requirements of various aid categories differ among the various managed care models and the models are not intended to duplicate one another …

It is only through the use of various models of managed care that comparisons can be made relating to the best means of delivery services to beneficiaries. Over the course of the next several years it will be possible to conduct comparisons among the various models and reach conclusions relating to the best means of operating programmes for beneficiaries. Or perhaps it may always be the case that different models are best suited for different communities."

The implementation of managed care programmes have relied heavily on the role of government mandates. Beginning with the 1975 HMO Act and its subsequent amendment, aggressive health plans have used the government mandates to force market entry and use the market to create price competition. The savings extracted from the system have yet to be fully evaluated in terms of benefit and in terms of additional costs incurred as a result of demand for non-health related services necessary to manage the system. While California State Government health funds faced bankruptcy due to a declining tax base, mandates to improve access through expanded eligibility for entitlements, and double digit inflation in cost of health services, they were quick to see the cost savings realised by Knox-Keene licensed health plans capable of assuming the full risk of cost for employers. Incorporating the principles of access and equity to the government programme along with the cost-containment parameter allowed the State to create a policy vision and direction through their strategic plan and to implement the policy, enforce compliance with the entitlement programme under the Knox-Keene and other legislation and evaluate the impact of its implementation.

Another important success factor was the government’s ability to fully pass on risk to the private sector. The reserve requirements explicated in the Knox-Keene legislation, as well as the minimum benefit cover and quality assurance criteria, provided a minimum level of standards for any health plan licensed under Knox-Keene and for any provider credentialled and qualified to provide services under contract with such a plan.

Additionally, physicians and hospitals could not "balance bill" patients for any costs that were not paid by the State through the COHS, regional purchasing authority, or the contracting health plans. The contract price was the contract price and physicians and hospitals were terminated if found in breach of this contractual term. Consequently, access to services was guaranteed and enforced through both State mandate and health plan regulation.

Issues / Questions Arising
Key issues arising if New Zealand were to consider adopting a similar process to test the efficiency, effectiveness and quality of managed care and/or integration models:

• What is the Problem that New Zealand would like to Solve by Introducing "Managed Care" , "Integration" or Other Innovative Models?
  Managed care was introduced as a rationalisation strategy to improve access to primary services while reducing the access to secondary and tertiary services. Thus the name "health maintenance" and "care management (or managed care)" rather than "disease management".
  
  Compared to the integration of primary, secondary and community support services based upon the principles of continuity of care, managed care is an aggressive strategy designed to control access and is based on the principle of efficient and effective resource management. Controlled access can and usually does mean increasing access to primary services while reducing access to secondary services.
  
  If managing the "gap" between what services are needed and what resources are available is a problem requiring solution then a policy goal might begin with clarifying the factors that widen or narrow the gap and whether managed care or other "models" offer tools that might influence those factors. The appropriate tools to solve the problem may come from a variety of sources.

• What is the Role of Government in Managing the "Gap"?
  The State Government of California offered an explicit and transparent process for discussing the management of the gap when it published its strategic plan, Protecting Vulnerable Populations: California’s Strategic Plan for the Transition of Medi-Cal to Managed Care, and offered it for public debate. The plan contained not only the strategic direction but models for testing, a process for implementation and evaluation, the development funding available and the timetable for completing implementation. The high profile and transparency in process stimulated a vigorous public debate that culminated in an agreed process to pilot a variety of models within a competitive environment. It set the framework for the relationship between the public and private sector and the role of each in managing the access to the highest quality services available based on need and within available resources. Public and private were able to align their strategic vision and direction around health service access, delivery, quality and funding.
  
  The State made the process for the rationalisation and prioritisation of health services for low income families explicit and debatable. The public agreed, albeit reluctantly, to see if the demonstration projects would work as they were consistent, in principle, with public values around access, quality and cost effectiveness. The measures of success will be evaluated by providers, consumers, politicians, employers and health plans.

What is the role of governments in countries that have shared societal values around the public funding of access to services and guarantees of a minimum level of entitlement? What authority has the citizenry delegated to their government to maintain what level of access to what types of services and what level of quality and at what cost? What is the social definition of the "minimum acceptable level" of entitlement and access?

At the end of the day, the supply and demand of health services rise and fall as a result of people. Many rationing and prioritisation methods are implicit and applied by professionals, managers and political bodies who do not account for or justify their decisions. Any model adapted to manage the gap between supply of and demand for health services must be clear about the problem it is attempting to solve, the methods that will be employed to solve the problem and an evaluation of the impact of the methods. Clarity of purpose by the government and agents of the government and transparency in process will ensure that models designed to solve well specified problems will gain public support by being explicit, fair and ethical. The ultimate success of any model will be measured by the public’s confidence in its publicly funded system and those that manage and govern the system.

Key Words / Concepts

Integration, innovative funding, managed care models, public / private partnership, rationalisation of health services, health policy.

References

1. Ovretveit JA. Managing the gap between demand and publicly affordable health care in an ethical way. Eur J Public Health, 1997:7(2).
2. 20th century mutual fund. What’s right with Medi-caid? http://www.tcf.org/publications/basics/medicaid/whats_right.html , 1997.
3. Department of Health Services, State of California, 1997/98 budget. DHS Fiscal Department, Office of Statistics, 1998.
4. Annual Report to the Legislature. California Medical Assistance Commission, January 1993 .
5. Op cit.
6. Annual Report to the Legislature. California Medical Assistance Commission, January 1995.
7. Protecting vulnerable populations: California’s strategic plan for the transition of Medi-Cal to managed care: draft document. California Department of Health Services (DHS), 13 January 1993.
8. Leibowitz A, DuPlessis H. Restructuring the Medicaid program. Rand Research Review, Summer 1996:XX(1).
9. Annual report to the legislature. California Medical Assistance Commission, January 1996.
10. Op cit

• (a) Entitlement programmes specify benefits that eligible beneficiaries receive and that are funded by either the federal, state or local government. In addition, services excluded from the programmes are also specified.
• (b) Primary care providers include doctors of family practice, general practice, internal medicine, obstetrics, and paediatrics. They do not include other health professionals that may provide primary care services.

Additional Background Reading

Health Affairs, Spring 1996:15(1). California Marketplace in Motion.
Ovretveit J. Purchasing for Health. Milton Keynes : Open University Press, 1994.

Acknowledgements

Research for this paper was funded in part by Midland Health, a division of the Transitional Health Authority.

It is with gratitude and acknowledgement that I would like to thank the following individuals for their time, support and contribution toward completing this paper. Dr. Byron Chell, Executive Director, California Medical Assistance Commission. Dr. John Ovretreit, Professor of Health Policy and Management, The Nordic School of Public Health. Chris Mules, Chief Executive Officer, Midland Health, a division of the Transitional Health Authority, Hamilton, New Zealand. John Aird, CEO, Executive Health Forum, Northern California. David Topp, Senior Analyst, California Department of Health Services. Kristine Vine, Vice President, Managed Care Operations, California Health Systems, a Statewide, fully integrated delivery system. Dr Paul Torrens, Professor of Health Policy, UCLA School of Public Health. Samuel Breneiser, Director of Provider Relations, California operations, Maxicare Health Plans. Richard Gold, Senior Consultant, Towers-Perrin, San Francisco, California.