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.