Managed care: “of the people, by the people, and for the people”?

Listen carefully, quiet, shh … did you hear? New York State is  approaching bankruptcy. 

And Gov. Cuomo, with the cooperation of the state Senate, the Assembly and every New York State resident is attempting to avert a Greece-like collapse of the state’s credit status and governmental system of providing necessary services in a fiscally responsible manner.

For the record, I am a lifelong baby-boomer Democrat, and a fiscal conservative. Yes, one does not have to be a Republican to be anointed with a conservative fiscal bias.

On Jan. 14, Gov. Cuomo released his 2012-13 state budget proposal, which is due to be approved by the above referenced legislative bodies by April 1, 2012, the beginning of the state’s fiscal year. From a 10,000-foot view, the budget is impressive. It offers the first back-to-back total spending reductions in decades, with total spending proposed at 

$132.5 billion — down $225 million from the prior year.

For a state with a total population of just under 19.5 million in 2010 with a 2.1 percent increase in population from the 2000 census, New York has virtually no growth and, courtesy of the Great Recession, more demands for services than tax revenue can support.

My focus, after 37 years of professional, volunteer, and philanthropic service to charitable organizations, is on the tax-exempt health and human-services sector. Decades of service to, and experience with, these organizations has demonstrated that tax-exempt organizations provide valuable and needed services to vulnerable populations, generally at a cost much less than their government counterparts. However, as the governor knows, the current cost of these services cannot be supported or sustained.

Managed care

So, this year’s budget continues the aggressive approach of applying managed-care principles to New York’s most vulnerable populations. Individuals with disabilities, mental health, substance abuse, and the elderly must all embrace the concept of managed care. 

I should say that those of us who experienced the managed-care initiatives of the 1980s, 90s, and early 2000s know that it is a euphemism for rationing, reduction of cost, restructuring of delivery systems, reallocation of resources, and transfer of financial risk from the payer (government/insurer) to the provider. Fundamental structural change of this nature must be implemented, but traditional managed-care principles are doomed to failure, if we fail to recognize the need for flexibility in care delivery and financing of services.

Basic principles of managed care applied to the health-care sector date back to the Kaiser Corporation of the 1930s. Four fundamental characteristics must exist in order to have managed care achieve the desired result of a healthier population at a lower cost with greater efficiency:

1) The people covered under managed care must have a direct interest in and concern for their health and well-being;

2) The people covered must have a direct financial interest in the cost of services they consume as these services are provided;

3) The individuals covered must have the ability to influence and control their utilization of health and human services with particular emphasis on maintaining a healthy life style;

4) The managed-care population must be of sufficient size and numbers (generally in the tens of thousands) to provide for the spreading of the financial risk associated with “high-cost outliers.”

This is where the details of the governor’s budget proposal diverges from the reality of the populations being forced into “managed-care plans.”

Ten observations from me to you, the governor, and the legislative rule-makers in this managed-care restructuring must be addressed now in order to avoid a managed-care “train wreck” several years from now.

First of all, don’t shoot the messenger. Gov. Cuomo is, in my opinion, taking a great risk in proposing a solution to a problem that has existed for decades. We must work in a cooperative manner, with give and take and reasonable compromise, to develop a system of health and human-service delivery that can be a model for others to emulate.

Next, be even handed and do not discriminate in the restructuring of the delivery and financing systems. For example, when you know that the greatest cost savings can be achieved by privatizing services provided by state employees, share the sacrifice appropriately in both the public and private sectors. Most citizens do not know that state-provided services to the vulnerable populations mentioned above routinely cost 30 percent to 50 percent more than the same comparable services in the voluntary tax-exempt sector.

In 2011, the governor implemented a masterful stroke of political genius called the Medicaid Redesign Team (MRT). He appointed private-sector employers, health and human-service providers, government representatives and others to develop a series of 79 recommendations for government consideration. In doing so, he deflected the traditional process of stalemate and inertia in the much desired direction of looking for solutions.

However, if you read the recommendations, they are long on objective ideas and short on specifics for achieving desired savings. As is true with any major service delivery restructuring by government, the “devil is in the details.”

One of the fundamental flaws of the managed-care initiative is the failure to address the excessive expectations of our citizens, both those that receive and those that provide care, whether through government or the private sector. This is what is known as shared sacrifice, something that this country has not demonstrated broadly since World War II. I am not optimistic that without a EuroZone-like credit crisis in New York State, the necessary call to action and rallying of the masses to “do what is right” will occur.

New York State now has more than 5 million residents eligible for Medicaid, or 26 percent of the population. These individuals and the millions of others at or below the poverty line have to make difficult decisions every single day. Where and how do I get my next meal? Do I feed myself or my children? And, dozens of other gut-wrenching questions that those of us who are fortunately employed never give a second thought to. The vast majority of the vulnerable Medicaid populations do not have the ability to make these decisions for themselves.

Ok, on to some ideas and solutions.

Fundamental to any managed-care structure is a managed-care organization (MCO). The state has designed four primary models of MCOs. Their names are self-explanatory. Health Homes for traditional health-care services, Behavioral Health Organizations (BHOs), Developmental Disabilities Individual Service Care Organization (DISCOs), and Managed Long Term Care (MLTC). 

These organizations must be a public and private-sector initiative including all stakeholders. If, as is true in most previous initiatives, these MCOs are left to the responsibility and control of the typical insurance company, forget it. Without a decision-making balance between the payer (the state), the manager of care (insurance company), and the service providers (tax-exempt hospitals, nursing homes, physicians, and other for-profit providers), managed care will not work.

In the absence of decision-making balance, compromise, and shared sacrifice, New York will experience what I refer to as the “chaotic dismantling” of the health and human-service sector that this state has built since the 1960s. Bankruptcies will be common place, service recipients will be pinballed or excluded from receiving services, and the “safety net” infrastructure could be destroyed. If my assessment is correct, then the result will include the loss of valuable service providers, success for certain providers who learn how to game the system, and, most importantly, a reduction in the volume and quality of services to the
vulnerable citizens of our great state.

So, before the government allows the proverbial managed-care train to leave the station, take a look in the mirror, revise expectations, involve all stakeholders, and, most importantly, balance the need for fiscal discipline with the needs of our citizens.

Finally, I applaud the governor for his bold leadership in his budget proposals. At the same time, government must remain “of the people, by the people, and for the people.” Traditional managed-care models do not measure up to this objective, particularly for vulnerable populations who have virtually no ability to advocate on their own behalf.      

Gerald J. Archibald, CPA, is a partner in charge of the management advisory services at The Bonadio Group. Contact him at (585) 381-1000, or via email at garchibald@bonadio.com