Fit and Trim

NA-Not applicable 1-Delta Dent

Source: HCFAes contract. 2-State switching to Consultec after current contract expires. 3-Holds contract expiring Dec. 31. 4-Unisys provides some services.
5-Holds contract expiring Aug. 30. 6-SomeNA-Not applicable 1-Delta Dent

Source: HCFA

Fit and Trim

States Turn to Technology
For Fresh Approach
to Public Health Care

By Ed McKenna

Faced with swelling Medicaid programs, many states are relying on innovative contracting methods and new information technologies to cut costs and boost efficiency in their public health care programs.

Federal government efforts to devolve power to the states over the past few years have sparked significant changes in state Medicaid programs. With greater latitude over the management of these efforts, state officials are restructuring their Medicaid programs, transferring patients from costly fee-for-service to managed care programs.

Some states also are breaking up large health care management contracts into many smaller projects, hoping to ignite competition and attract new players with fresh ideas into the market.

In addition, a number of states, working with the Health Care Financing Administration, are installing sophisticated data analysis systems to better monitor their spending patterns and optimize service delivery.

These trends are shaking up the status quo and spurring new opportunities for information technology providers.

"For decades, Medicaid was
really a predictable, stable business with a set of requirements. But within the last couple of years, it has entered into a period of transformation," says Thomas Davies, vice president of state and local for Federal Sources Inc., a McLean, Va.-based market research firm.

The Medicaid IT market has been dominated by Electronic Data Systems Corp., Plano, Texas; Unisys Corp., Blue Bell, Pa.; and Consultec Inc., Atlanta. These companies, acting as fiscal agents for states, have implemented and maintained many of the states' federally certified Medicaid management information systems, which process claims.

Now as the states retool their programs, "You are seeing new companies [in the market] bringing in innovative technologies and solutions to address new needs that the traditional companies had not been well-positioned to address," Davies adds. These relative newcomers to the market include Birch & Davis Health Management Corp., Silver Spring, Md.; Maximus Inc., McLean, Va.; and the Medstat Group, Ann Arbor, Mich.

The chief drivers of the market changes have been higher costs and federal policy shifts. Rapidly escalating medical expenses, primarily in the Medicaid area but also for state employees, are squeezing monies available for other issues like education and fighting crime, says Davies, noting that Medicaid ranks first or second in spending in most states.

From 1991 to 1996, the number of Medicaid recipients rose from 28 million to 36 million, an increase of 28 percent. During the same period, Medicaid spending surged from $95 billion to $160 billion a year, an increase of 68 percent, according to HCFA.

While the federal government covered about half of the expense during that time, the states' share still ballooned from $52 million to just under $91 million during that six-year period.

Along with costs, federal legislation, such as the Welfare Reform Act of 1996 and the Health Insurance Portability and Accountability Act of 1996, introduced key changes to the program's eligibility and reporting regulations.

In addition, the Balanced Budget Act of 1997 instituted the Children's Health Insurance Program, which created "a new eligible population of children" who didn't qualify for Medicaid in the past, says Kim McMann, president of EDS state health care business unit.

"We have had our program up since September and have enrolled 26,000 uninsured kids," says Ray Hanley, director of the Division of Medical Services, Arkansas Department of Human Services. As a result, "we're now running the largest health insurance-type program in the state," he adds.

As the costs of the Medicaid program grew, states obtained waivers from the federal government, giving them greater flexibility in the design and implementation of their Med-icaid programs. Specifically, the states were looking to enroll their recipients in managed health care.

By switching to managed care, "states no longer are the managers of fee-for-service claims payment programs, [but rather] purchasers of health care," says McMann.

In other words, many states are no longer processing and paying doctor bills for each recipient, but are, like many private sector businesses, contracting with managed care companies to take care of the recipients' health needs. In this new regime, states have got "to be able to document that they are providing adequate access to care for their recipient population [and] high-quality care for the dollars they are spending," McMann stresses.

To facilitate those efforts, states began re-evaluating their relationships with their IT vendors. Many states have traditionally outsourced the back-office functions of handling Medicaid claims under a fiscal agent model begun in the mid-1970s when 100 percent of those claims were on paper, says Bob Carlson, global social services segment manager for IBM Global Government Industry, Bethesda, Md.

Lacking the necessary infrastructure to handle this high volume of claims, states turned to experts to process that information in an arrangement driven by operation rather than by IT, he adds. However, that has changed now as states are electronically getting most of their claims, and the shift to managed care is beginning to eliminate the whole fee-for-service billing process altogether, says Carlson.

As they move to managed care, states need more information to make decisions about which managed care providers and plans to select, says Shelby Solomon, vice president of marketing for the Medstat Group. States also must know how to negotiate rates with their health care providers and evaluate the quality of services they are delivering, he adds.

For the vendors, this change means "we are no longer [just] processing claims, but are having to bring in very sophisticated data analysis systems to help state administrators evaluate which health plans and providers are providing the best care both in quality and cost," adds Arthur McKay, director of health care marketing for Consultec Inc.

Consultec is the fiscal agent for six states and will add Colorado and Florida in the next year. It wrested away Florida from Unisys last month. The company also has contracts with eight states to implement data warehouse and decision support systems for their Medicaid programs.

EDS is by far the market leader with 17 fiscal agent contracts.

Some states are breaking up or "unbundling" their fiscal agent contracts and creating new procurement opportunities, says Terri Brown, vice president of Birch & Davis Health Management, and chair of the Technical Advisory Group, a private-sector group of about 40 health care companies that works with HCFA on health issues.

For example, "rather than having just EDS and three other companies bidding on a fiscal agent [contract], Texas unbundled its contract into five separate pieces, and for each one of those procurement slices there was competition," she adds.

When the contracts were awarded last year, Texas' former fiscal agent, EDS, maintained a foothold by winning two of the contracts for claims processing and monitoring fraud and abuse.

However, Birch & Davis also gained a share of the state's
Medicaid business. It was awarded a $50 million, 50-month contract to implement and operate the Texas Department of Health's STAR Health Plan, a hybrid fee-for-service and managed care alternative to health maintenance organizations.

Focusing strictly on health care consulting for 23 years, Birch & Davis helped HCFA develop regulations for managed care, Brown says.

"We're now taking our consulting expertise and moving into long-term operational contracts," Brown says.

Texas also awarded a contract to Maximus Inc. to oversee efforts to enroll its recipients in managed care plans.

Terri Brown
State Medicaid
Management System
The shift to managed care is a critical part of the health-care cost-cutting strategy in most states. The number of Medicaid recipients on managed health care programs shot up from 2.7 million in 1991 to 15.3 million or almost half of the Medicaid population in the last year.

To boost enrollment in managed care plans, Maximus uses its own proprietary database program, Maxstar, to perform high-volume enrollment, client notification and other functions. In addition to Texas, the company has similar contracts with California, Colorado, Georgia, Massachusetts, Michigan and New Jersey.

In a request for proposals issued in May, Georgia proposed perhaps the most radical contracting approach yet. The state has broken its fiscal agent contract into 13 separate pieces, including systems integration, payment processing, health services administration, quality management and a decision support system.

The contract will be awarded to a single prime contractor that will manage at least six subcontractors. The subcontractors will provide best of breed services in one or more areas.

In developing their new model, Georgia officials sought to bring new players and technologies into the market and shift the focus of the health care program from processing and paying claims to outcome analysis, says Bari Kerr, director of Medicaid management information systems procurement for Georgia's Department of Medical Assistance.

The state wants to be able to keep track of "what is happening to these people when they get the services that we're paying for," she says. "The current systems don't lend themselves to doing that."

In some ways, the new arrangement will just impose order on the state's current regime, Kerr says.

"We now have the traditional fiscal agent with EDS, and then we have multiple other contracts that we have executed along the way that support the Georgia Medicaid program," Kerr says. "It has become fragmented rather than comprehensive, so this [request for proposals] was an opportunity for us to make those components more comprehensive."

The new contract will replace Georgia's fiscal agent contract, valued at about $25 million a year, as well as other niche contracts, which cost an additional $9 million a year. The new contract will run 10.5 years, including an 18-month implementation period. Proposals are due by Sept. 30, with a contract award slated for Dec. 17. The system is scheduled to become operational July 1, 2000.

But not all the states have decided to abandon the fiscal agent model.

"We've thought about it, but candidly we've made no moves to do that," says Frank DeBernardo, chief of the California Department of Health Services' Medicaid management information system and decision support system project. EDS is California's medical fiscal agent, and Delta Dental is the state's dental agent.

"There are so many trade-offs when you go to multiple contractors," DeBernardo says.

California is reaching beyond its fiscal agents to upgrade its information systems, however. It has, for example, signed the Medstat Group to a $34 million contract to join a growing number of states that are implementing data warehouses and decision support systems for their Medicaid programs. A decision support system essentially overlays the data warehouse to provide easy access to data.

According to HCFA, 17 states reported in summer 1996 that they had a data warehouse and decision support system in place or were in the process of implementing one.

These data systems make up for the data access shortcomings of Medicaid management information systems.

"The flaw in the MMIS is it is easy to get data into it, but difficult to get it out, particularly if it requires special programming," says Consultec's McKay.

The data warehouse and decision support system Medstat is installing in California is about 40 percent finished, says DeBernardo.

To build the new system, "we took a feed from the existing transaction or claims payment system, and then built a separate database," says Medstat's Solomon.

Medstat is implementing data warehouse and decision support systems in eight states. The company also provides what it calls managed care information services for state Medicaid agencies helping them develop their information infrastructures, he adds.

IBM served as a subcontractor to Medstat on the California project, which is using an OS 390 DB2 platform. For IBM, this represents part of a strategy to build a presence in the Medicaid market.

Acknowledging a lack of experience in the market, Carlson says the company is "taking a fairly measured approach to getting into this marketplace."

"We're really looking at how we can be successful, add value and build the credentials required to be a sustained vendor in this marketplace," he says.

State Fiscal Agent Contract Start Contract End With Extensions
Alabama EDS 10/1/93 9/30/99
Alaska First Health Services Corp. 1/1/88 12/31/99
Arizona State-operated NA NA
Arkansas EDS 1/1/97 12/30/02
California EDS 1 6/1/93 6/30/00
Colorado Blue Cross/Blue Shield 2 7/1/89 9/30/98
Connecticut EDS 11/1/93 12/31/03
Delaware EDS 7/1/90 6/30/00
Florida Unisys 2 7/1/94 6/30/99
Georgia EDS 7/1/92 6/30/00
Hawaii Blue Cross/Blue Shield 12/28/90 6/30/99
Idaho EDS 6/1/95 12/31/03
Illinois State-operated NA NA
Indiana EDS 3 1/1/99 12/31/04
Iowa Consultec Inc. 7/1/97 6/30/05
Kansas Blue Cross/Blue Shield 11/1/96 6/30/07
Kentucky Unisys 1/9/95 11/30/00
Louisiana Unisys 1/1/98 12/31/03
Maine State-operated NA NA
Maryland State-operated NA NA
Massachusetts State-operated 4 NA NA
Michigan State-operated NA NA
Minnesota State-operated NA NA
Mississippi EDS 5/2/94 12/30/00
Missouri GTE Data Services 7/1/93 6/30/00
Montana Consultec Inc. 7/1/96 6/30/06
Nebraska State-operated NA NA
Nevada Blue Cross/Blue Shield 5 9/1/98 8/30/03
New Hampshire EDS 2/1/93 6/30/01
New Jersey Unisys 10/1/89 11/28/00
New Mexico Consultec Inc. 12/20/94 12/31/01
New York Computer Sciences Corp. 5/1/91 4/30/99
North Carolina EDS 7/1/89 6/30/00
North Dakota State-operated NA NA
Ohio State-operated NA NA
Oklahoma Unisys 7/1/96 6/30/03
Oregon State-operated NA NA
Pennsylvania EDS 6 1/1/93 6/30/02
Rhode Island EDS 12/1/92 6/30/00
South Carolina State-operated NA NA
South Dakota State-operated NA NA
Tennessee EDS 10/1/95 9/30/00
Texas EDS 9/1/89 8/31/98
Utah State-operated NA NA
Vermont EDS 7/20/92 6/30/01
Virginia First Health Services Corp. 7/1/88 12/31/01
Washington Consultec Inc. 10/1/89 12/31/00
Washington, D.C. First Health Services Corp. 10/1/92 1/31/99
West Virginia Consultec Inc. 7/1/93 6/30/01
Wisconsin EDS 1/1/92 12/31/01
Wyoming Consultec Inc. 2/1/93 6/30/01

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