The legislature will convene for a special session next week on health care to vote on two big questions, with billions of Medicaid dollars at stake: 1) Should the private option, which provides health insurance for more than 250,000 Arkansans, continue at the end of this fiscal year in July? 2) How should the state go about seeking reforms to certain high-cost populations in the traditional Medicaid program?

While the private option, the state’s unique version of Medicaid expansion, gets most of the headlines, the legislature will also take up another big question when it convenes for a special session on health care next week. With a billion dollars in Medicaid spending at stake, lawmakers will vote on whether to use managed care companies to enact reforms for certain high-cost populations in the program.


Here’s the background: Three quarters of spending in the traditional Medicaid program goes to covering long-term services and support for three major groups: long-term care for the elderly and the severely disabled, care for the developmentally disabled, and behavioral health. The Beebe administration enacted programs to incentivize more cost-effective care for other parts of the Medicaid program, but these populations remained outside of these efforts (largely thanks to the efforts of lobbyists for the relevant medical providers), and have continued to operate under the old fee-for-service system without any form of care management at all. The state’s consultant, The Stephen Group, concluded that this was a problem, and outgoing Department of Human Services Director John Selig agreed. Issues range from long-term care patients getting stuck in more expensive nursing homes when home-and-community-based care would be more appropriate, to behavioral health providers overbilling or overprescribing in ways that do not benefit patients. Meanwhile, a lack of care coordination may lead to less preventative care, unnecessary hospitalizations and redundancies or inefficiencies that increase costs without improving care (and sometimes make things worse for beneficiaries).

The state’s Health Reform Legislative Task Force came to broad agreement that better care management for Medicaid’s high-cost populations could lead to more cost-effective care that maintained (or in some cases improved) quality. When it came to just how to do this, however, the task force was bitterly divided.


One plan, backed by the governor and the Republican leadership on the task force, would employ a managed care company to push these changes for the developmental disability and behavioral health populations. The other plan, dubbed “DiamondCare,” would aim to implement the same slate of reforms, but would employ an administrative services organization (ASO) instead of a managed care company and would still have the state pay providers directly on a fee-for-service basis. DiamondCare is backed by a collation of providers’ allies in the legislature who vehemently oppose managed care — including Republicans like Sen. Missy Irvin of Mountain View and Rep. Michelle Gray of Melbourne and Democrats like Rep. Deborah Ferguson of West Memphis.

Both plans have the same big goals: more care coordination, more focus on primary care doctors, incentives for providers to provide cost-effective and high-quality care, and a “rebalancing” that would give more options for beneficiaries currently served by nursing home and other institutional settings to move into home or community-based care if those were more appropriate for their care. The big difference between the two plans has to do with who takes on the risk for potential cost overruns and how providers are paid.


Under the governor’s proposal, the state would negotiate a per-person cost with managed care companies to cover the beneficiaries in the behavioral health and developmental disability populations; if the managed care company beat that number, they would profit, but if costs went high the managed care company would be stuck with those cost overruns (this is known as “fully capitated risk”). Typically, managed care companies also pay providers with some form of capitated risk. Under DiamondCare, the administrative services organization (ASO) wouldn’t take on the same level of risk if cost targets were not met (and providers, who would still be paid directly on a fee-for-service basis, might not face any financial risk at all). The ASO would have to pay a flat fee if benchmarks were not met and could receive a share of the savings if costs were below benchmark; DHS would be tasked with monitoring the ASO to ensure that quality of care was maintained and would determine whether benchmarks were achieved. But other than collecting the fee from the ASO, if DiamondCare failed to meet its benchmarks, the state would be on the hook for cost overruns.

In both plans, the nursing homes have been carved out. Thanks to their powerful lobbyists, they have made a separate agreement with the state to implement reforms on their own, focused on transitioning beneficiaries who would be better served by home and community-based care rather than nursing homes (one area that would clearly both improve quality of care and save substantial amounts of money). They have promised $250 million in savings over five years; the draft legislation states that DHS will hire an independent actuary to confirm the savings. The governor has stated that if the nursing homes fail to meet their targets, they will be subjected to managed care.

Both proposals would also exempt the state’s human development centers, where some developmentally disabled beneficiaries receive services.

The Stephen Group estimated that the governor’s managed care proposal would save $1.439 billion over the course of five years (the state has to pay for around 30 percent of traditional Medicaid costs, so that would save Arkansas around $430 million). DiamondCare, meanwhile, would save $1.057 billion (or $317 million for the state) over the same period, according to The Stephen Group. Those figures are inclusive of the savings from the carved-out nursing home initiative (The Stephen Group projected that savings from nursing homes would nearly double if they were covered by managed care).


Opponents of managed care are clearly concerned about the impact on providers’ bottom lines (all five of the architects of DiamondCare are either medical providers or have family connections to medical providers). But they also argue that managed care would end up squeezing beneficiaries in order to achieve savings. Proponents note that Medicaid managed care would still have to cover Medicaid benefits by law and point to dramatically higher savings predicted by The Stephen Group. They also worry about whether DiamondCare would put sufficient pressure on providers, whether it would be too susceptible to the influence of lobbying, and whether state agencies and the ASO could deliver on results. Hutchinson said recently that Medicaid managed care had a track record, whereas DiamondCare was “riskier for the state.”

Hutchinson attempted to address the concerns of managed care opponents by including a “patients bill of rights” and a “provider bill of rights,” offering certain protections and guarantees, but opponents of managed care believe that the companies will be able to outmaneuver the state in contract negotiations.

Both plans promise to channel some of the savings back into the Medicaid program, aiming to reduce the waiting list for a waiver program for home and community-based care for around 3,000 developmentally disabled children as well as putting funds into a trust fund for potential costs for the private option down the line. However, neither plan has any hard guarantees about where the savings will end up, and Hutchinson and Republicans in the legislature are no doubt hoping for further tax cuts.

As the Times went to press, the governor announced that he will not allow a vote on DiamondCare during the special session (it is the governor’s prerogative to decide what bills to put on the call), infuriating opponents of his managed care plan. DiamondCare supporters do have some procedural options to get a vote on their plan, but Hutchinson’s move makes their prospects much more difficult.

Support for health care reporting made possible by the Arkansas Public Policy Panel.