Medicaid Block Grants: Managed Health Care for the Feds

Medicaid is an open-ended health care payment program for the poor and disadvantaged in our nation.  Every year since the program’s inception in 1965, the federal government has paid whatever the program costs were in a sharing arrangement with the states.  State governments often looked at the program as free dollars from the “feds” since,  more often than not,  a larger share of program expenses were shifted to the federal government under the program.  Those total costs were a staggering $597.4 billion in 2018 or 16 percent of the total national health care expenditure.[i]

Finally, the federal government is feeling the “pangs” of chronic overspending in health care and is waking up to the idea of controlling costs.  Sema Verma, CMS administrator, recently commented about block grants saying, “We’ve built-in strong protections for our most vulnerable beneficiaries, and included opportunities for states to earn savings that have to be reinvested in strengthening the program so that it can remain a lifeline for our most vulnerable.”[ii]   In view of the present health care reform environment, is it not reasonable to introduce a level of fiscal responsibility and clinical accountability at all levels of spending?

On the Medicare side of federal health care spending, Accountable Care Organizations (ACOs) are moving from no-risk shared savings programs to risk-bearing, value-based arrangements.  In these new payment schemes, the physician-providers must improve the health outcomes of their patients as measured by key performance quality indicators.  As much as the ACO program is about saving money, the quality of care must be improved by measured outcomes.[iii]  In the recently introduced Pathways to Success program, ACOs must accept downside financial risk, which moves clinical outcomes and financial risk to the provider level.[iv]  Medicare Advantage is the commercial version where CMS has offloaded the financial risk to the managed care organizations (MCOs).  The MCO then has variably shifted the risk to providers.[v]

Medicaid managed care organizations are not new to the Medicaid program.  Beginning in 1982 until now, nearly all states have some form of managed care in place–comprehensive risk-based managed care, mental health care, and/or primary care case management (PCCM) programs. As of July 2019, 40 states, including DC, contract with comprehensive, risk-based managed care plans to provide care to at least some of their Medicaid beneficiaries.[vi]

There are a handful of states that have Medicaid ACOs in place preparing to take on quality and financial risk at the provider level.  There is an overall push for all CMS-derived health care programs to push the risk and financial rewards toward the providers.  Why not let the federal government move its financial risk to the states as the states move the risk to the managed care organizations and the providers? 

Nonetheless, some provider groups and patient advocates worry about cutting eligibility and benefits with the block grant approach.  Furthermore, they worry that a transition to block grants could transform Medicaid into a “program with funding limits that drive care rationing for the most vulnerable,” said Howard Burris, president of the American Society of Clinical Oncology, in a statement before the guidance’s release.[vii]  On the other hand, none of the expressed concerns of the vested worriers have shown up in Medicaid demonstration projects or any of the Medicare or Medicare Advantage risk-sharing programs that have been operational for years.

It appears that it is the time for Medicaid improvement, rationalization, and reform rather than regression and retrenchment.  Block grants will give the states more flexibility to introduce a program matched to their populations and driven by quality outcomes.  Changing the open-ended payment system is a good place to begin.








Craigan Gray

About the Author

Craigan Gray, MD, MBA, JD

Dr. Craigan Gray, Salient Healthcare’s Chief Medical Officer, brings rich experience from private practice, hospital leadership, and governmental health-benefit programs. Prior to joining Salient, Dr. Gray was director of North Carolina’s $12 billion Medicaid program. His time as VPMA at Bon Secours Our Lady of Bellefonte Hospital in Kentucky was distinguished by moving the facility into the top-quality performance tier for Health Grades and CMS health quality indicators. Dr. Gray is a Stanford University trained Obstetrician/Gynecologist. In addition to an MD degree, Dr. Gray holds an MBA degree and a JD degree. He is a Certified Physician Executive and is published in various medical journals.

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