Changes in per member per month expenditures after implementation of Florida's Medicaid reform demonstration.

Medicaid is the principal state and federal program that finances the health and medical care of low-income families, some elders, and people with disabilities who meet eligibility requirements, do not have health insurance, and otherwise cannot pay for their health care. In the 2006–2007 fiscal year (FY0607), Florida Medicaid served three million people, with expenditures of approximately U.S.$14 billion (Kaiser Commission on Medicaid and the Uninsured 2007; National Association of Budget Office 2008;). For the 2008–2009 fiscal year (FY0809), Florida Medicaid expenditures are estimated at U.S.$6,619 per eligible enrollee for a total of U.S.$15 billion (Agency for Health Care Administration 2008; Williams 2009;). Given budget challenges in Florida and other states, expansion of Medicaid-managed care is an attractive alternative because it can potentially control costs by ensuring appropriate health care utilization, and, by providing insurance through private health plans, potentially making Medicaid more similar to commercial coverage (LewinGroup 2009). Most studies on the impact of Medicaid-managed care have focused on health care access and utilization (Eberly et al. 2010; Zuckerman et al. 2002; Garrett et al. 2003; Garrett and Zuckerman 2005; Cook 2007; Burns 2009a,b;) and results have been mixed. However, despite the strong belief among policy makers in the ability of managed care to reduce health care costs, its economic impact has not been as well explored. In 2004, the LewinGroup published a report that synthesized findings from 24 studies examining the effect of the implementation of managed care programs on Medicaid savings throughout the United States (LewinGroup 2009). According to this report, the majority of Medicaid-managed care programs resulted in cost savings; however, the savings ranged from only 0.5 to 20 percent. Moreover, Medicaid-managed care programs led to higher enrollee satisfaction and improved access. The report concluded that the savings are generally attributed to reductions in inpatient utilization and prescription drug expenditures. In an attempt to control escalating costs and improve the Medicaid system, the Florida Legislature authorized a demonstration that would become known as “Medicaid Reform” in Senate Bill 838. A Section 1115 waiver was sought and approved in 2005. The demonstration began on July 1, 2006, and was approved for initial pilot implementation in two counties. Broward and Duval counties were selected for the initial pilot implementation because of the large number of Medicaid enrollees in those counties and their willingness to participate in the demonstration. The reforms to Florida's Medicaid program were based on empowering consumers to take control of their health care, providing more choices for consumers, and enhancing the health status of Medicaid enrollees through increased health literacy and incentives to engage in healthy behaviors. Furthermore, a key objective of Florida's Medicaid demonstration included making the delivery of medical care in Medicaid more reflective of the processes and approaches operative in the private sector. The reforms required Medicaid enrollees to choose either a Health Maintenance Organization (HMO) or a Provider Service Network (PSN), which were allowed to offer customized benefit packages. The benefit packages were subject to tests of actuarial equivalency and benefit sufficiency. Medicaid enrollees in the nonreform counties could voluntarily choose between an HMO or fee-for-service (FFS) primary care case management (PCCM) within 30 days of initial enrollment in Medicaid, but they were automatically assigned to either an HMO or PCCM if they had not voluntarily enrolled within 30 days. Medicaid beneficiaries in residential care facilities, children with special health care needs, and enrollees who also received Medicare benefits were not required to select a managed care plan. HMOs participating in the Medicaid demonstration are paid a capitation payment that is risk adjusted to reflect the relative health care status of their enrollees. Reform capitation rates are based on specific principles and policies applied to FFS historical data in identifiable areas. That rate is then risk adjusted to reflect the medical circumstances of a particular plan's enrollees, based on the enrollees' age, gender, and use of prescription medications that serves as an indicator of certain chronic diseases. The technical approach to this adjustment is based on the calculation of risk scores using the Medicaid Rx risk adjustment model devised by researchers at the University of California, San Diego (Gilmore et al. 2001). For the first 2 years of the demonstration, a risk corridor was mandated so that risk adjustment was limited to ± 10 percent of the original base rate. PSNs participating in Florida Medicaid are paid on an FFS basis. In order to facilitate enrollee selection of a health plan, Florida Medicaid created the Choice Counseling process. Choice Counseling is a comprehensive counseling program designed to provide the education and outreach necessary to assist Medicaid enrollees with making a health plan choice that best fits their specific needs and to promote healthy lifestyles in order to reduce minority health disparities. Another key element was the creation of an Enhanced Benefits Rewards (EBR) program, which offered financial incentives to participate in specific health promotion and illness prevention activities such as dental visits, vision exams, wellness visits, PAP screening, mammography screening, and colorectal screening (Agency for Health Care Administration 2009). When enrollees complete an EBR activity, funds are placed in their account and can be utilized for purchasing certain over-the-counter items at any Florida Medicaid participating pharmacy. A key goal of the demonstration has been to achieve greater predictability in Florida's Medicaid expenditures, with the ultimate objective of improved capacity to manage program costs (Agency for Health Care Administration 2005; Snipes 2009;). The objective of this study is to assess the degree to which Florida's Medicaid reform initiative has impacted per member per month (PMPM) expenditures.