Title: Spending Under Medicaid Managed Care is Growing Rapidly--Here's
Why

Description: Medicaid is the government's program that helps low income,
medically needy, populations receive health care services. Within
Medicaid, managed care allows beneficiaries to receive these services
from a network of approved providers. Spending under managed care
represents more than half of the $800 billion spent under Medicaid. And
recently, this spending grew by almost $40 billion and is expected to
continue growing. GAO's Catina Latham tells us why. 

Related GAO Work: GAO-24-106202, Medicaid Managed Care: Rapid Spending
Growth in State Directed Payments Needs Enhanced Oversight and Transparency

Released: December 2023

[MUSIC]

[Catina Latham:] These new payments are growing rapidly, and the
government doesn't have visibility.

[Holly Hobbs:] Hi and welcome to GAO's Watchdog Report. Your source for
fact-based, nonpartisan news and information from the U.S. Government
Accountability Office. I'm your host, Holly Hobbs. Medicaid is the
government's program that helps low-income, medically needy, populations
receive health care services. Within Medicaid, managed care allows
beneficiaries to receive these services from a network of approved
providers. Spending under managed care represents more than half of the
800 billion spent under Medicaid. And recently, this spending grew by
almost $40 billion, and is expected to continue growing. In a new
report, we looked at what's causing this increase and what can be done
about it. Joining us to tell us more is GAO's Catina Latham, an expert
on Medicaid. Thanks for joining us. 

[Catina Latham:] Thanks for having me, Holly. 

[Holly Hobbs:] Catina, do we know why the cost of Medicaid managed care
increased so much in recent years? What changed? 

[Catina Latham:] Well there are a variety of factors that's contributing
to this increase in managed care cost. For example, more states are
adopting managed care. In 2013, we have about 36 states. Fast forward to
2022, there were 45 states. Also, states are now enrolling more of their
higher cost populations or higher need populations into managed care. So
that's driving up the cost. And then lastly, there are these new type of
payments. States are now using directed payments. And these new types of
payments allow for circumstances in which states pay providers more for
certain types of services. In fact, in 2022, State directed payments
were up to $40 billion, and that's expected to continue to grow.

[Holly Hobbs:] So Medicaid, this is a joint federal and state program.
How has this change affected how much the federal government or
taxpayers pay versus the states? 

[Catina Latham:] Well, yes, you're right. It is a partnership, which
means the federal government pays its share and the state government
pays its share. However, with the state directed payments, what has
changed is the reliance is now heavily on taxes and other sources, and
not so much the state general revenue fund. In fact, 40% of the state
director payments in 2022 were financed entirely through funds from
providers, local governments and the federal government. And no
contribution from the state general funds, which usually is the primary
source for how states pay their share of the cost. 

[Holly Hobbs:] I see. So, state coffers aren't really feeling the impact
of these spending increases. If the impact is only really to federal
government costs, it seems like the states would have a limited
incentive, right, for controlling this spending?

[Catina Latham:] That's right. When states put up their general funds to
finance their share of the payment, that gives them incentives to sort
of track those dollars and be good purchasers. We're like that ourselves
with our own funds. With these state directed payments, states often are
having to pull from that state general fund. They're not pulling from
their own purse, so to speak. And then there goes the incentives to be
the purchasers. Medicaid is supposed to be that partnership between
states and federal governments. But without it, the incentives to be a
good purchaser--it just kind of breaks that partnership down. 

[Holly Hobbs:] What about the Centers for Medicare and Medicaid
Services, CMS? It's oversees Medicaid managed care. Does it have a role
in controlling costs? 

[Catina Latham:] CMS, in terms of controlling costs, they actually don't
have clear parameters around what's an acceptable size or amount for the
payments. Some of the states where we were looking into were allowing
managed care plans to pay providers well above what Medicare would have
paid for the same services. So, without the agency setting the limits on
directed payments and setting the limits on cost, you don't have that
lens or that knowledge of how much you're paid to then control the
costs. And also CMS doesn't consider the results of the payments when
they approve states for additional years. So that's sort of two
pronged--not having a knowledge of what the limits and the costs should
be. And then not having the knowledge of are the results what you
desired.

[Music break]

[Holly Hobbs:] So Catina just told us that while spending under Medicaid
managed care has increased dramatically and is expected to continue to
grow, oversight and transparency of this spending is limited. So,
Catina, what more do we think the Centers for Medicare and Medicaid
Services should be doing to help control costs?

[Catina Latham:] Well, we included several recommendations in the
report. Specifically, we recommended that CMS enhance its fiscal
guardrails, so the fiscal bumpers so to speak, for improving state
directed payments. And that is thinking about how they define what is
reasonable and appropriate for that state directed payment. It is
important to have those clear definitions so then those states can be
held accountable for this payment. That sort of gives CMS that road map
that they would need for that accountability. 

[Holly Hobbs:] And last question, what's the bottom line of this report? 

[Catina Latham:] Bottom line, the federal government should have a sense
of what they're getting for their dollars. These new payments are
growing rapidly, and the government doesn't have visibility or know what
the outcomes of those payments are. And that's a large blind spot. 

[Holly Hobbs:] That was Catina Latham talking about GAO's new report on
Medicaid managed care. Thanks for your time, Catina.

[Catina Latham:] Thank you so much, Holly. 

[Holly Hobbs:] And thank you for listening to the Watchdog report. To
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