Texas Deserves High-Performing MCOs In Medicaid

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The Competitive Market in Texas
The Competitive Market in Texas
Mandatory Contracts
Mandatory Contracts

Managed Care Organizations, or MCOs, are insurers paid with taxpayer dollars to connect Medicaid members with doctors, clinics and hospitals.

  • Some are underperforming in ways that are bad for Texas taxpayers, Medicaid members and providers.

Here’s the obvious truth:

  1. Some MCOs perform better than others.
  2. The state is better off working more with high performers and less with low performers.
  3. Texas should pass laws clarifying that Medicaid contracts will be awarded based on transparent, objective, data-driven metrics covering quality, customer satisfaction and costs.

The Texas Health & Human Services Commission — the state agency charged with administering Medicaid managed care — works hard, with great competence and integrity, to operate a managed care system that is as good as it can be under current law, and officials have made great progress in the last year. Only the Texas legislature can fix these issues.

Creating a competitive field

Texas Medicaid managed care is a competitive field with no markers and unclear rules.

  • Amerigroup, an Anthem company, is working to put stripes and goal posts on the field and ensure there are clear rules for the players.
  • MCOs need to know where the playing field is, what it looks like, and what they need to do.
  • Texas can achieve this with laws creating transparent, data-driven metrics and clear consequences, both in procurement and post procurement processes.

The Texas Legislature is working to fix Medicaid managed care, taking up legislation to:

  • Create a transparent procurement process that uses objective metrics around quality, customer satisfaction and cost.
  • Pass measures that hold insurance companies accountable when they fail to meet basic benchmarks.
  • Encourage processes that carefully and strategically phase low-performing health plans out of the market, thereby improving state oversight and preserving competition.
  • Ensure that only high-performing MCOs serve Texas Medicaid members, eliminating legal provisions that award mandatory contracts to some MCOs regardless of performance.

Click here to read more about the proposal by Amerigroup, an Anthem company, to improve Medicaid managed care.

Key Facts

Data reported by MCOs themselves to the state show that:

Taxpayers spend too much money for underperforming MCOs.
  • Over the last eight years, a large group of insurers contributed to at least $612 million in losses.
  • Common sense strongly suggests those losses caused state Medicaid payment rates to rise.
  • Texas has paid more than $1 billion over the past four years alone to several underperforming MCOs without necessarily getting better health outcomes.
Contract procurement should be more transparent.
  • The state’s procurement processes produce an unlevel playing field: they do not spell out standards that MCOs should work to achieve.
  • The process does not provide adequate indicators of past or expected future performance, as required by law.
  • The state cannot show measurements it uses to justify how contracts are awarded.
It is too difficult for HHSC to police the system.
  • There are nearly twice as many Texas managed care contracts as there were in 2005, and managed care contracts are now the state’s largest.
  • Procurement, management and oversight of those contracts have not kept up: four Medicaid procurements have had to be cancelled in the last three years.
  • One high-ranking state official testified that the proliferation of managed care products and contracts represents a “huge organizational shift” that can be better reflected in its staffing levels and budget.
State law encourages poor performers to enter and remain in the market.
  • The state’s system brings more MCOs into managed care, even when they can’t compete on cost, quality or customer satisfaction.
  • This “everybody gets a trophy” system emphasizes quantity over quality, allowing non-competitive entities to still get eight- and nine-figure Medicaid contracts.
  • The system’s financial structure essentially pays low-performing MCOs more money to continue serving Medicaid members despite track records of losses, inefficiency and poor customer satisfaction.
The state needs stronger protections against MCO losses that affect taxpayers.
  • Texas has been a national leader in protecting taxpayers from excessive profit by MCOs, but the state does not have similar protections against excessive MCO losses and inefficiencies.
  • As just one example, courts have ruled that current law requires HHSC to award contracts to some MCOs regardless of their performance (see “Mandatory Contracts” below).
  • Consistent and significant losses among for-profit MCOs also help drive up Medicaid costs for the state and for taxpayers.

The Past

More than 20 years ago, Texas created a Medicaid managed care system that was a model for the nation. It used market-driven competition and innovation to deliver better care to Medicaid patients and reduce costs for taxpayers.

Private-sector MCOs are key to managed care’s effectiveness. But over the program’s history, MCOs have delivered different levels of value to Texas. And the legislature has been working to address these issues for years:

Embracing these goals — and implementing them in tangible ways — would:

  • Deliver the performance that Texas wants.
  • Relieve administrative burdens for doctors and other providers.
  • Reform the contract procurement process in critical, overdue ways.
  • Provide reliable care and service that Medicaid members need.

The legislature has made clear over and over that it wants to move the Medicaid program to a higher level of performance. There is no question that managed care is generally good for Texas. But everyone — including the health plan associations — should also agree that the system can be improved and the legislature is key to improving it.

Decisions made in the 87th Legislative Session will help determine whether managed care will be the competitive, multi-faceted system leaders imagined when they created it a generation ago, or whether it will remain a participatory market that stresses only the quantity of MCOs, not their overall performance on behalf of Texans.

Only the legislature can fix laws mandating that contracts be awarded to certain MCOs regardless of their performance. And only legislators can address procurement in ways that end the ongoing threat of contractual protest and litigation.

Mandatory Contracts

“This deprives the Commissioner not only of the discretion, but the duty entrusted to her by the Legislature, necessary to protect the health and welfare of disabled and senior Texas citizens from unqualified and incompetent MCOs.”
— State of Texas Petition for Review in the Supreme Court of Texas, filed 9/28/20

There are 17 Medicaid MCOs. Four of these 17 receive mandatory contracts.

  • In the early years of Medicaid managed care, the state issued guaranteed contract awards to certain MCOs only for basic Medicaid products like STAR and CHIP; these programs had members who were mostly healthy.
    • Certain MCOs with little to no practical programmatic experience in complex Medicaid products — especially those that serve the aged, blind, disabled, medically fragile children, and foster care children — wanted to expand their market share, with no assessment by the Health & Human Services Commission of their capabilities to serve these sensitive populations.
  • In 2019, the state decided not to award a Medicaid managed care contract to a Houston-based MCO after the organization received a very low score in the state’s procurement process.
    • This MCO should have worked to improve its services in ways that would help Medicaid members and create savings for taxpayers — such improvements would have helped the MCO do better in Texas’ competitive market.
    • Instead, in perhaps the most aggressive market share play that Medicaid managed care has seen in its 25-year history in Texas, this MCO sued the state, alleging officials did not have the right to deny them business.
    • The case has risen to the Texas Supreme Court; in its brief, the state argued that this reading of the law “deprives the Commissioner not only of the discretion but the duty entrusted to her by the Legislature, necessary to protect the health and welfare of disabled and senior Texas citizens from unqualified and incompetent MCOs.”
  • In spite of clear legislative direction, Texas courts have since ruled in favor of this underperforming MCO, saying state law requires certain organizations to get Medicaid business regardless of their performance or the state’s standards.
    • While hundreds of public hospital districts help the state contribute to the draw-down of federal Medicaid funds, only four get the special privilege of guaranteed business as Medicaid managed care organizations.
  • Only the legislature can address this situation by changing laws regarding mandatory managed care contracts. This matter is currently awaiting review by the Texas Supreme Court.