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When Squeeze Starts to Hurt

Outsourcing Reduces Pain in Medicaid Processes

In most states, the situation is out of control. So are most of the strategies attempting to deal with the situation.

More than 35 million Americans currently qualify for Medicaid services, and the current growth rate is unsustainable, according to the National Governors Association winter 2002 meeting. Attempting to balance their budgets, some states choose to limit available Medicaid benefits to their citizens; others compensate by increasing taxes. Even worse, some states react to the need to contain Medicaid costs by restricting access to certain medicines for Medicaid patients. Not only is this strategy detrimental to patients, but it’s also similar to a state shooting itself in the foot; for medicine is a proactive step in reducing eventual costs in treatment for illnesses.

But state governors aren’t the only ones suffering with squeezed budgets because of the Medicaid program. Many healthcare providers offering Medicaid services are operating in the red. Physicians in most states are reimbursed only one-third to one-half of their costs actually expended for medical care to Medicaid patients. Hospitals fare a little better but still receive reimbursement lower than actual costs. Facing bankruptcy, many healthcare providers believe they have only one option – cutting back the services they provide to Medicaid patients.

Seventeen states, however, have accomplished their Medicaid cost-cutting measures and, at the same time, have achieved vastly improved quality in services to both patients and the healthcare provider community.

They did it by outsourcing their Medicaid fiscal agent process (MMIS) to EDS.

Alleviating the Impact of Change

Ray Hanley, director, DHS Division of Medical Services for Arkansas, says they outsourced their Medicaid fiscal agent process because they didn’t have the expertise or personnel to do it. Their system now enables transmitting claims at the electronic point of sale, verification of co-payments on the desktop screen, as well as electronic deposit of funds into the healthcare provider’s account, if desired. The claims system works so well that Arkansas was able to develop its own managed-care program, which won the Ford Foundation Award for Innovation in Government in 1997.

Phil Soule, who serves as deputy director for Delaware’s Division of Social Services in the Department of Health and Social Services and has been in the Medicaid business since 1982, comments many states still run their own systems but have vendors handling parts of the process. “But more and more states are outsourcing the whole thing,” he adds, “because they just can’t compete for the people when state governments don’t want to pay those salaries.”

For a state to qualify for 75 percent federal funding, it must have and maintain a federally certified MMIS system; otherwise, it’s eligible for only 50 percent funding. Once just a bill-paying system that also produced a few reports, MMIS systems today continue to grow in complexity as new regulations, such as The Balanced Budget Act of 1997 and the Health Insurance Portability and Accountability Act of 1996 (HIPAA), are enacted. Delaware is ahead of the game in that its new system, implemented mid-2002, will be HIPAA compliant.

There’s great value in looking at what others are doing and not operating in a vacuum, according to Hanley. EDS, which handles the process in several states, can apply best practices and innovative ideas learned from one state to another. In Delaware, for example, EDS brought in its successful system from Arkansas and used it as the basis for developing a Delaware system.

“Before” and “After” Photos

Prior to outsourcing the process in Arkansas, Hanley says it was “impossible” to get physicians to participate in the Medicaid program. “But the way we now are able to handle their claims and money, they come in droves,” he states with understandable pride. The state has 1800 physicians in the program now, is serving more than a million patients, and has cut emergency room use by 60 percent.

Arkansas has the same number of Medicaid employees now – in a $2.4 billion program – as it had when it was only a $600 million program, thanks to outsourcing. “We’re much more efficient than we were then,” adds Hanley. “And the degree of support from our medical community has been unexpected.” Their 1985 outsourcing agreement with EDS has been extended three times, and it now includes maintenance of a data warehouse facilitating decision support.

One of every eight people in Delaware is currently served by Medicaid, reports Soule. He describes his state’s situation prior to outsourcing. “We couldn’t fill staff vacancies and things didn’t get done. Our non-certified MMIS system wasn’t able to meet reporting requirements, and it wasn’t maintained and would fall apart.” In this instance, EDS had to upgrade the old system prior to Y2K and then brought in a new system in 2002.

Many states have moved their Medicaid programs into a managed-care environment, further complicating the systems and requiring an enrollment broker. In Delaware, where 80 percent of Medicaid services are handled through managed-care companies, EDS bid and won the outsourced enrollment broker function. Some states have instituted the Children’s Health Insurance Program (CHIP), which uses the same healthcare providers and services as Medicaid but is not a Medicaid program. EDS now runs Delaware’s CHIP program. All in all, regulatory changes and value-added services have changed the scope of Delaware’s outsourcing arrangement; and the contract has been amended more than 30 times in 10 years.

Can-Do People

Health and Human Services Secretary, Tommy Thompson, announced in June 2001 that the Centers for Medicare and Medicaid Services (formerly the Health Care Financing Administration) had launched reform efforts, including the following objectives: (1) reform the contractor process to improve the quality and efficiency of the claims-processing services; and (2) instill a new culture of responsiveness.

That’s just the beginning for what EDS has achieved for its state Medicaid partners.

It was a “radical, eight-month nightmare” when Delaware began processing claims in its new MMIS-certified system. Providers kept submitting claims the old way, and the system bounced them out. The problem, recalls Soule, was not a lack of EDS providing hands-on training for the providers. “Often, the billing people in a provider’s office don’t last very long. And some had the manual but didn’t look at it,” says Soule. He adds that “the same mess” happened when they switched over to a certified system in New Hampshire, where he served as Medicaid director prior to moving to Delaware. EDS has implemented an extensive training program for system changes due to HIPAA modifications.

Being a can-do outsourcer involves more than just putting extra people in the field when EDS rolls out new technology. Medicaid is a moving target, and the outsourcer must be flexible and willing to solve problems. The loss of a managed-care company, for instance, can throw a state into an almost impossible situation; without an outsourcer’s vast and scalable resources to handle such a situation, a patient’s health could be endangered.

Soule recounts such a quick-shuffle incident. Delaware was in negotiations with a company that wanted much more money and, at the 11th hour, the budget director determined the state wouldn’t use that company any more.

“Surely you jest,” Soule recalls his reaction. “I have 23,000 people in that plan who will have to be changed to another plan overnight.”

But it was not a jest. So he telephoned EDS and said, “Guess what?” The outsourcer immediately kicked into gear. They first called everyone who had a disabled child in that program, he remembers. They then did a computer program that matched doctors from the discontinued plan to one of the two remaining options, moving people first to a plan that had a patient’s existing primary physician already participating in that plan. And the EDS health benefits manager jumped in to determine what would work best in situations where a disabled child required oxygen or medical equipment.

“EDS did not have to do that quick shuffle,” Soule says. “They handled the workload of the overnight shift to other plans, and they were great. They are definitely can-do people.”

Life After Outsourcing

Soule describes Medicaid as a program that doesn’t sit still. There are 67 ways to be eligible for Medicaid, and there are optional services. There are 52 different Medicaid programs, and no two are exactly alike. There are even challenges in ensuring that people who exit from welfare roles because of salary increases are not wrongly dropped from Medicaid eligibility. States have many choices in how they operate the program, and it’s definitely not a one-size-fits-all deal for an outsourcer handling the process or its systems.

“EDS is definitely my ally,” claims Soule. “They are not inexpensive. But you get what you pay for. We are paying them to do something we can’t do ourselves. Even so, I have found them always flexible, extremely collaborative and wanting to make sure we are happy.”

Hanley is equally enthusiastic with Arkansas’ relationship with EDS. “Because we strategically outsourced, it made our own jobs a lot easier,” he explains. “Now we’re not inundated with complaints from providers who can’t get paid, so we’re able to concentrate on further improving our delivery system and services.”

Lessons from the Outsourcing Journal:

  • An outsourcer’s resources and expertise can enable cost-cutting techniques that a healthcare provider or government department cannot accomplish on its own.
  • A process fraught with changing technology and government regulations is best handled by an outsourcer because of its flexibility and change management capabilities facilitating quick implementation of new IT and new procedures.
  • There’s great value in looking at what others are doing and not operating in a vacuum. An outsourcer can apply best practices and innovative ideas learned from one client to another.

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