State officials have abandoned a plan to transform Medicaid in Alabama from a fee-for-service model into managed care system led by local healthcare organizations due to uncertainty about funding and high start-up costs.
The change, which was authorized by a 2013 law, would have reorganized Medicaid around Regional Care Organizations (RCOs). Unlike traditional managed care, which pays insurance companies a set rate for each patient, the fees would have gone directly to medical providers as an incentive to provide more efficient care and improve patient health. The state won a waiver from federal regulators and up to $700 million in grants to help implement the program, which was set to launch in about a third of Alabama’s counties in October.
Implementation of the program has proven to be expensive, and state lawmakers recently earmarked more than $105 million from the BP oil settlement to Medicaid. Some of that money would have gone toward RCOs. The funding boost would have only lasted until 2018, creating uncertainty for 2019 and beyond.
Medicaid Commissioner Stephanie Azar said in a statement that the decision to drop RCOs was partially driven by potential changes to Medicaid funding that have been discussed in Congress.
“It is highly likely that federal healthcare changes are on the horizon,” Commissioner Azar said. “While the financial implications could be challenging for our state, the new flexibilities and waiver options that the Trump Administration is willing to consider gives our state Medicaid program new options to accomplish similar goals without incurring the same level of increased upfront costs associated with the RCO program.”
State Senate Majority Leader Greg Reed (R-Jasper), one of the sponsors of the 2013 legislation, said in a statement that the decision to discard the plan is the right one. He said the creation of RCOs was driven by the passage of the Affordable Care Act, and that changes in Medicaid regulations could make the transformation unnecessary.
“The Regional Care Organizations were a smart mechanism for the delivery of Medicaid care under the Affordable Care Act during the era of the Obama administration,” Reed wrote. “The goal of the RCOs was to bend the cost curve down for Alabama taxpayers and improve healthcare outcomes for Medicaid recipients.”
No changes to the Affordable Care Act have yet been made by Congress, but some proposals championed by Republican lawmakers would include major changes to the Medicaid program. Proposals could cut funding, but also provide more flexibility for states.
“I believe with the new presidential administration we can accomplish the goals of the RCO initiative via a different path and without the upfront costs it would take to fund a transition to the RCOs,” Reed wrote. “Pursuing new options with the Trump administration for Medicaid is the right call for Alabama.”
The goal of the RCO plan was to reduce increases in Medicaid costs. The cost of the program has increased every year, but proponents of Regional Care Organizations argued the increases would be slower under the new system.
But the transformation to regional care organizations has been stymied by the departure of major hospital systems. The CEO of UAB Health System, Will Ferniany, said earlier this year the system favored out-of-state managed care companies over Alabama hospitals. He also cited funding uncertainties as a reason to withdraw UAB from the program.
At the time of its creation, many officials hoped the RCO system could become a model for managed care. Almost all states use some form of managed care for Medicaid, according to the Kaiser Family Foundation, and Alabama is one of just a few that mostly pays on a fee-for-service basis.
“The RCO model didn’t fail,” said Gov. Kay Ivey in a statement, “instead the alternative is a recognition that the circumstances surrounding Medicaid have changed, thus our approach must change. Our end goal is clear – to increase the quality of services provided and protect the investment of Alabama taxpayers.”