How Managed Care Organizations work — and potentially reduce health care services for Oklahomans

Last week, Gov. Kevin Stitt issued a press release announcing the Oklahoma Health Care Authority (OHCA) will seek proposals from managed care organizations (MCOs) to provide health care services through Oklahoma’s Medicaid program, known as SoonerCare. The MCO’s contracts will require them to share the financial risk associated with providing care to members. The request for proposals is expected to be released this fall.

Risk-based MCOs are health plans — health insurance companies — that contract with the state to provide Medicaid benefits to enrolled beneficiaries for a preset per-member, per-month (PMPM) premium, or “capitation payment.” Once the MCO makes a deal with the state, it enters into agreements with health care providers to provide the services. The MCOs are at financial risk for the Medicaid services specified in their contracts. If the rate the MCOs receive in the state contract is adequate, the MCO makes money. If not, it loses.

While some claim risk-based MCOs have certain flexibility and accountability advantages, they are primarily used as cost containment measures. Oklahoma used this managed care model in the 1990s, and it did not work out then. The MCOs could not make a profit at the rate they were able to negotiate with the state, so they left the state. There was quite a bit of turmoil in the system, and OHCA went back to the fee-for-service model it now uses. 

Just because managed care failed then does not mean it will always fail. It may have been structured poorly. On the other hand, there is no free lunch. To provide health care to Medicaid recipients at the current cost to the state, plus make a profit for the MCO, either provider rates, services or administrative costs will have to be cut. OHCA administrative costs are remarkably low and would be hard to beat. That leaves lower provider rates or less health care services. That may be why managed care for Medicaid has come up in the Legislature numerous times in the past few years and never passed.