Incentives in a Medicaid carve-out: impact on children with special health care needs.

Most state Medicaid agencies are turning to capitated prepayment to contain costs, to improve access to care, and to increase efficiency in the provision of services. However, there are concerns that the financial incentives accompanying prepaid care could affect services to chronically ill beneficiaries. To reduce financial disincentives for providing adequate care, Medicaid agencies are implementing a variety of prepayment strategies specifically for children with chronic conditions (Medstat Group 1997). For example, some policies exclude certain individuals (e.g., those with HIV) or exempt disabled beneficiaries from mandatory enrollment. These policies may affect children's access to care, but few impact studies have been carried out. California began a significant Medicaid managed care expansion in the mid-1990s. This produced a policy debate on how to preserve specialty care access for children with complex medical diagnoses while also improving access to primary care to the general population. California's planned expansion did not include any special financing provisions for the Title V Children with Special Health Care Needs program. Children who are eligible for the Title V program in California are those with serious medical diagnoses such as congenital anomalies, cerebral palsy, cancer, or other conditions associated with catastrophic medical expenses. Since 1935, the national Title V program has assured medical access to many children through direct payment of services, financial support of systems of care for children (e.g., special diagnosis-based care centers), and development of standards of care. Legislation was passed in 1994 in California to preserve specialty care access for children in Medicaid with Title V diagnoses by reducing the financial risk borne by the health plans. Most Title V-eligible children were still required to enroll in managed care for primary care services, but any services specifically required for a child's Title V condition were “carved out” of health plan contracts. Placing providers at financial risk for many medical services, with specific services excluded from their risk, creates an incentive to shift costs to the “carved out” funding stream. Theoretically, such a policy motivates the provider to refer children to the entity managing the carve-out services whenever eligibility is suspected. It also creates an incentive to identify services as related to a qualifying diagnosis. For example, providers might refer all children with heart murmurs to Title V rather than only those whose serious defects clearly would confer eligibility, or providers might debate who should pay for a pneumonia hospitalization for a child whose severe asthma confers Title V eligibility. Thus the Title V carve-out policy may affect both the number of children in Title V and the number of services identified as Title V-related. The first aim of this study was to determine whether the financial incentives of a carve-out policy increase “case-finding” of children with Title V-eligible conditions. The second aim was to determine how carving-out specialty services from a mandated managed care expansion affects total Title V expenditures. In the next section, I discuss the policy framework and background relating to children with special health needs and managed care and describe the evaluation opportunity that California's managed care expansion provides. The third section describes the methods, and the fourth section provides the results. The fifth section concludes and discusses the implications of the findings.