Connie Perez

At a Glance      

  • As Medicaid enrollment continues to rise, hospitals and health systems could benefit from contracting with Medicaid managed care plans.  
  • Providers need to establish a Medicaid managed care strategy before beginning the contracting process.  
  • Revenue cycle leaders need to ensure that their front-end processes related to patient access, billing, and denials management are compatible with Medicaid managed care.     


Medicaid managed care enrollment continues to rise. In 2010, more than half of Medicaid's 54 million beneficiaries were enrolled in a managed care program, according to a Kaiser Family Foundation and Health Management Associates survey released Sept. 13, 2011. This trend, coupled with the expected increase of millions of people into Medicaid in 2013, will significantly affect hospitals across the country.

In their quest to find a way to do more with less, many state Medicaid programs are moving to the more comprehensive Medicaid managed care model in which patients are assigned to a health plan that is then responsible for delivering a broad range of services. The plans are paid on a fixed per-member-per-month basis and assume full or partial risk. By shifting the risk to the health plans, states are better able to predict and manage their costs. Significant cost savings are generally projected as plans leverage their infrastructure and resources to better manage care and to provide preventive care.

In response, hospitals should re-examine their Medicaid strategy. Providers might consider the following questions:

  • Does your hospital consider Medicaid a strategic payer or a necessary evil?
  • Do you believe Medicaid cash collections are so low that you forego the effort to collect?
  • Do you move the best business office resources to other payers because Medicaid dollars are so small?
  • Do you accept whatever Medicaid payment you receive, without pursuing denials because something is better than nothing?

Although these beliefs and practices are common, they are likely not sustainable. Success in a Medicaid managed care environment requires providers to understand that Medicaid could become one of their primary, most critical payers in the future. And providers need to be ready.

Exhibit 1


The Arizona Program

Arizona is the original waiver state operating in a Medicaid managed care organization environment for 20 years, with 95 percent of all Medicaid recipients assigned to a managed care plan. Finance executives in hospitals and health systems throughout the country can learn from the successful practices implemented in Arizona.

The Arizona Health Care Cost Containment System (AHCCCS) began in October 1982 as an alternative to traditional Medicaid. Before AHCCCS became operational, Arizona was the only state not participating in Medicaid.

The AHCCCS program is designed to provide managed care services through acute care health plans and long-term care contractors capitated by the state. The plans receive a designated dollar amount per member per month from AHCCCS, and then assume the risk for all care. As of Feb. 1, 2012, the AHCCCS population was 1,317,035.

AHCCCS is a separate state department, and the Arizona Department of Economic Security manages plan approvals. The basic Medicaid managed care model illustrated in the exhibit below is straightforward. Once eligibility has been determined, a member is assigned to a health plan that links the patient with a primary care provider and provides all listed services. Each county must offer at least two plans from which patients can choose.

The Kaiser Family Foundation recently ranked AHCCCS as the least expensive to operate of all 50 state Medicaid programs, citing the low cost per member per month. Overhead costs are among the lowest in the nation at only 3.3 percent, and provider-reimbursement rates are surprisingly competitive. Although the cost savings are significant, it is the potential long-term impact on the health of the population that is arguably the most important benefit because AHCCCS members are able to receive primary and preventive care.

Exhibit 2


Getting Started

Providers should have a Medicaid managed care strategy in place before beginning the contracting process and choosing their approach, which will be driven by the organization's unique situation. Providers should answer the following questions before determining their strategy:

  • Are you a rural provider with a community board? A part of a large system with a global strategy? A safety net hospital in which serving all in need is core to your mission?
  • What is your payer mix? How do you expect it to shift?
  • What are your market and conditions? Are you "the only game in town," or are you competing with others?
  • What are your service lines and service-line strategy? Do you want to attract Medicaid volume into one or more of the service lines?

For some hospitals, the magnitude of change associated with this strategy will require support and understanding from the highest levels of the organization, often including the board of directors.

The strategy for Medicaid managed care needs to be developed in the context of the mission and vision of the hospital and its role in the community, often requiring support from the board of directors in addition to senior leaders. Finance should play a major role in developing the strategy and translating that into the areas of contract management, case management, and all components of the revenue cycle chain.

Preparing for Contracting

To be chosen by the state, a health plan must demonstrate it has an adequate network to provide the contracted care. As a fundamental component of that network, hospitals need to recognize they are frequently in a position of strength when negotiating and may be courted by multiple plans.

Although some contextual adjustment is required, hospitals can achieve success by applying the same mindset to Medicaid that they apply to commercial managed care. They also need a thorough understanding of the state's requirements for the health plan, including what tenets are dictating the Medicaid managed care program and the specifics of payment. Providers often mistakenly assume that Medicare rules apply to Medicaid as well, which results in lost revenue. Details of applicable laws, regulations, and guidelines, such as a request for proposal that articulates plan requirements and details of Medicaid managed care legislation, and any precedent set by applicable legal rulings must be understood.

Medicaid managed care faces the same challenges and opportunities found in a commercial managed care environment, but the government overlay can be a strong tool for providers.

Contracts need to be constructed at a very detailed level. Too often, hospitals "contract away" their rights related to timely filing deadlines or responsibilities such as discharge planning/case management, which may belong to the plan. Language such as "Hospital agrees to comply with the UM, QM criteria used by the health plan in review" can have tremendous downstream implications.

Although the contract may be the base for maximizing payment under Medicaid managed care, success is incumbent on organizations having in place solid revenue cycle practices that integrate clinical, technical, and legal aspects from beginning to end. Characteristics of a successful revenue cycle include:

  • Front-end processes to ensure eligibility, notification, and authorization
  • Dedicated clinical support for concurrent authorization
  • Timely and precise billing processes able to manage all requirements, even if the reason is not apparent
  • Follow-up performed regularly by knowledgeable staff
  • Denials management, including clinical and legal perspectives, integrated as a regular part of the process

Preparing Front-End Processes

Solid front-end processes are a primary driver of overall success and require shifting from a reactive to a proactive perspective. Once a Medicaid managed care strategy is in place, patient financial services staff need to be aware that Medicaid payment will come from multiple entities that need to be identified and managed. Organizations need Medicaid managed care processes for patient access, billing, and denials management.

Patient access. Staff who are knowledgeable about all potential sources of payment, only one of which is Medicaid, should conduct daily, on-site eligibility screenings of inpatients and outpatients who lack insurance coverage. Completing applications, procuring documents, and submitting applications while the patient is in house helps to maximize the timeliness of payments. Also, structured, daily communication between case managers and eligibility specialists/financial counselors contributes to efficient, correct placement of an account once a payer has been identified.

Moving from one Medicaid program to multiple Medicaid plans is a significant adjustment for registrars and schedulers. After identifying the payer source, the staff should make sure that information is accurately reflected in the patient account system, including whether patients have a copay or deductible responsibility.

Air-tight notification and authorization processes are critical and generally extend beyond the front end. Similar processes are needed for clinical communication with payers to ensure that every patient day is authorized. Clinical resources beyond discharge planning and typical utilization management functions need to be allocated, which can be a challenge for many organizations.

Giving clinical staff responsible for authorization access to the patient accounting system is an easy way to ensure that critical information is available wherever needed along the revenue cycle

Billing. Billing and follow-up will be affected by the implementation of Medicaid managed care. Billing staff need to understand and aggressively manage billing timelines. Those involved with contracting need to understand the importance of ensuring that the contract includes maximum time allowed. The nuances of billing requirements for the Medicaid program overall and for each payer need to be articulated. Contract management systems need to correctly calculate the expected payment for every account.

Follow-up should be conducted by seasoned, informed staff. In the Medicaid managed care environment, revenue cycle leaders should educate payer staff about why additional payment is required. Documenting communications about actions and results of attempts to enhance payment is essential. Especially when a new Medicaid managed care program is implemented in any state, there will be appeals and legal challenges to some components or practices. Attorneys have used comprehensive and accurate documentation many times during court proceedings to help hospitals receive the revenue they deserve as well as to establish precedent for payment going forward.

Denials management. Effective denials management is another critical component of the Medicaid managed care revenue cycle, with denial prevention efforts at the forefront. The first step in a denial management strategy is to determine how and with whom to communicate about a denial or potential denial. Phone calls, faxes, and letters can be initiated and received anywhere in the organization. Healthcare organizations would benefit from putting a process in place to manage communication with payers about denials. Dedicating resources, especially clinical resources, to managing concurrent review and authorization will prevent many denials.

Conducting detailed, timely remittance advice reviews is important to identifying both denied claims and payments that are less than the amount due to the provider. Focused management of identified denials driven by contracted timelines can be effective, especially when specific accountability for working the denial is assigned and clear. A denials management team with representation from multiple disciplines and functions can be an effective approach, especially when data about reasons for denials are defined and acted upon.

Claims are increasingly being denied for reasons related to medical necessity and level of care, and these claims are often associated with high-dollar claims. Without a dedicated clinical resource throughout the denial management process, organizations risk having retrospective denials moved to the bottom of the priority list for case managers or utilization review staff who are focused on resolving current issues. Dedicated clinical resources, ideally reporting to revenue cycle leaders, can be a prudent investment.

Thinking Medicaid

As hospitals work to define their strategy and develop these processes and systems, they need to remember that the Medicaid population is indigent. These patients do not have access to the same level of resources as others. Some do not have a home or a community of family or friends they can rely on. When hospitals develop a strong strategy and work cooperatively with health plans, Medicaid managed care can make a tremendous difference in their patients' lives and in their communities.

Connie Perez, FHFMA, is CEO, Adreima, Phoenix, and a member of HFMA's Arizona Chapter (


Publication Date: Monday, April 02, 2012

Login Required

If you are an existing member, please log in below. Username and password are required.



Forgot User Name?
Forgot Password?

If you are not an HFMA member and would like to access portions of our content for 30 days, please fill out the following.

First Name:

Last Name:


   Become an HFMA member instead