Selecting a health care provider is tricky today because there are so many choices. To ensure the 1.8 million people enrolled in the Medicaid program in Texas have help in making that important decision, the Lone Star State decided to outsource that task, according to Larry Fisher, director, Contract Compliance division for the Texas Department of Health in Austin, Texas.
The state began its Medicaid outsourcing program in 1993 as a result of legislation passed in 1991. The Department started two pilot programs in Austin and Beaumont. One part of the pilot was to ensure that all eligible recipients were enrolled in the program. At that time the state hired a traditional insurance company, NHIC, to administer the services for the traditional Medicaid program.
When the state had to roll out the program state-wide, the department split the work into four distinct categories. One of those categories included the job of enrollment broker. The state held a competition for government outsourcers. The goal was to negotiate the best price and the highest quality services for the state’s Medicaid participants, according to Fisher.
However, he says the true purpose of outsourcing “is to make government agencies more accountable to the taxpayer.”
The state hired Maximus, a McLean, Virginia supplier, to handle the enrollment process. The Department awarded the contract in June, 1997. Maximus had 90 days to roll out the enrollment. The contract is for $15 million per year. Fisher says Texas had never outsourced its enrollment program before it handed the process to Maximus.
Helping Recipients Choose
The two year contract had two 2-year renewal options. Fisher says the state has been so happy with Maximus’ performance it has exercised both renewal options.
Maximus’ job description is threefold: The outsourcing provider must:
- Identify the beneficiaries. These include people who are mandated to join or who eligible.
- Provide education and counseling activities for Medicaid members.
- Help members select their managed care provider.
- Operate the interfaces required to record the enrollment decisions.
Selecting a health care provider does require some thought. In Dallas County, for example, Medicaid participants have four choices: three Health Maintenance Organizations (HMOs) and one Primary Care Case Management program (PCCM.). The outsourcing provider must supply the Medicaid recipient with information packets so s/he can make an informed choice.
In addition, the Medicaid recipient must select a primary care physician within the plan. This physician becomes the recipients’ primary medical provider, the person to help shepherd them through the medical maze.
The final function is administrative. The contract requires Maximus to operate the information interfaces required to record the enrollment decision. It had to create the system which informed the health plans and the participating physicians that clients had chosen.
Incentives and Penalties
These widely divergent tasks have produced a myriad of service level agreements (SLA). They include how many times the telephone can ring before a Maximus employee answers the call, to how long the client can be put on hold. Maximus must have the staff to handle the demand; the SLAs require the provider to answer 90 percent of the calls. SLAs also stipulate the amount of time that can elapse before a client receives the information packet.
Fisher is impressed with Maximus’ ability to manage the work. “They know more people call in the morning, so they adjust their staffing accordingly,” he says.
The state has established a global incentive, which affects all its Medicaid contractors, including Maximus. If the entire Medicaid program saves the state of Texas $20 million in administrative costs a year, all three contractors receive an incentive based on their contractual input.
Penalties include $500 for each working day that the requisite reports are late. In addition, there is a $500 penalty for each incident. Fisher says the state hasn’t had to assess one penalty in three years.
Fisher says one of the reasons this outsourcing relationship is so healthy is because the Department placed a huge amount of effort into preparing to outsource the enrollment function. It was clear about the focus of the work and didn’t concern itself with how the work was performed. “We hire companies who can use their own judgment and expertise to provide solutions to us,” he explains.
The state has also made a conscious decision not to micromanage its vendors. “We closely define the outcomes and then let the contractors figure out how to do that best,” says Fisher.
The executive believes a good outsourcing relationship begins at day 1. “If the vendor understands what we want and we understand how they are going to do it, the success is dramatically increased,” he says.
The Power of Economies of Scale
Fisher is glad that Maximus has grown to become one of the largest enrollment brokers in America. The state has enjoyed a decrease in price thanks to economies of scale. And he feels the state of Texas is experiencing a best practices engagement thanks to all the other companies also using Maximus. “Maximus is looking at what’s working best in one place and then implementing it across the country,” he says.
Lessons from the Outsourcing Primer:
- Economies of scale can cause the fees to decrease over the course of an engagement if the supplier grows significantly.
- Governments outsource to provide better services to their inhabitants as well as to make government agencies more responsive to the taxpayers.
- Don’t micromanage an outsourcing contract.
- Know what you want and then let the vendor do it.
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].