Sustain in tough times

In Medicaid managed care, a plan's performance strategy depends heavily on the environment in which it operates. Pamela Morris, president and CEO of Dayton, Ohio-based CareSource believes in taking the strategic long view. Given that she's operating the nation's fourth-largest Medicaid managed care plan in the recession-plagued state of Ohio during the worst economic climate since the Great Depression, that's probably wise. The short-term outlook isn't pretty.

"Commercial plans can raise premiums, they can raise copays or make their formularies more restrictive," she says. "We don't have any of those tools to use. Our revenue stream is set by the state, and we are at risk to manage within that revenue stream."

Given the restrictions of the Medicaid business model, CareSource has no choice but to be "very efficient understanding our costs, understanding consumer behavior and focusing on improving the outcome of care. For us, our long-term focus has always been on the outcome of care."

The recession has been brutal in the two states. According to the Bureau of Labor Statistics, Ohio and Michigan have lost a combined 848,000 jobs since December 2007. In March, seasonally adjusted unemployment hit 11% in Ohio and 14.1% in Michigan. By comparison, the national rate was 9.7%. The demand on Medicaid is growing at the most inopportune time.

Job losses have sent enrollment soaring. Ohio's Medicaid rolls increased by 10.6% between February 2009 and February 2010, the most recent data available, and Medicaid now covers more than 2 million poor and disabled Ohioans. That translates to about one of every three children and roughly one of every five residents overall.

CareSource's rolls have increased even more rapidly. Between December 2007 and March 2010, CareSource enrolled 230,000 members in Ohio alone. Morris, who refers to the plan's nearly 16% increase in total enrollment last year as "incremental growth," has a knack for understatement.

The tight economy and uncertain outlook have forced CareSource to scour its already lean operations-about 5% of its revenues go toward administrative and overhead costs-in search of additional efficiencies. For example, last year, the plan consolidated several far-flung offices into a single downtown office. Renting space in a building owned by the Dayton Port Authority saved the insurer roughly $4 per square foot in rent.

It redoubled efforts to ensure members with another source of insurance-such as children who are covered by an absentee parent's plan-have their primary coverage billed first. By contracting with a new pharmacy benefits manager, $90 million was shaved from the plan's $450 million pharmacy budget.

But with Medicaid, of course, the state always has the final say in how its money is spent. In February, soon after CareSource had adopted its new pharmacy program, the state mandated a pharmacy carve out. In addition to erasing the efficiency gains CareSource had just realized, the carve-out model resulted in an unpopular copayment requirement for many beneficiaries.

"If they have problems getting a prescription filled, they have to call the state of Ohio instead of their managed care plan, and they're now being charged copays for some of their prescriptions," Morris says.