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New Insights on Medicaid Spending: An Analysis of Disaggregated Managed Care Spending

Medicaid is a federal/state health insurance program that served more than 86 million lower-income people in fiscal year (FY) 2021. The combined federal and state spending for Medicaid totaled $717 billion that year, $420 billion of which was spent on providing care to Medicaid managed care organization (MCO) members, and $297 billion on services provided to fee-for-service enrollees.

While the role of managed care in Medicaid has grown tremendously over the past decade, with MCOs covering nearly three-quarters of Medicaid enrollees, detailed cost information has not been estimated for the people with MCO coverage. These data historically have been available only for fee-for-service (FFS) Medicaid because of limitations on federal data sources.
This lack of data blocks our understanding of the relative magnitude of the cost drivers in the program and contributes to an uninformed debate about policy reforms to control the growth of spending and improve quality of care.
Obtaining and using cost data by provider type for MCOs can help answer questions such as how much funding do MCO enrollees with diabetes, asthma, and/or hypertension consume? Of these patients, how many also have behavioral health conditions? How many MCO enrollees have six or more emergency department (ED) visits during a year and/or multiple inpatient hospital stays, and what does their resource consumption look like?

Health Management Associates (HMA) has developed a reliable methodology that can be applied to all 50 states, which approximates spending for the major categories of health services that MCOs cover, including: inpatient and outpatient hospital care, physician and other professional services, skilled nursing facilities, clinics, pharmaceuticals, and other services. HMA can determine prices for these services, which, combined with data on the number of encounters, yields reliable cost figures. These cost estimates will be useful in identifying unmet medical needs, gaps in our delivery systems, and areas of high spending where efficiencies and timely care management can be added to slow the growth in total health spending.

Workforce Solutions Partnerships: Call to Action to Build a Sustainable Behavioral Health Workforce

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The Workforce Solutions Partnership, a collaboration of The National Council for Mental Wellbeing, The College for Behavioral Health Leadership, and Health Management Associates has worked since 2021 to create both short and long-term solutions addressing the behavioral health workforce crisis. In this whitepaper, we issue a Call to Action to partners across all sectors to join us in this effort to drive pervasive change and ensure the future of behavioral health care. We need you to help us create and define the future of the workforce and envision a new system of care. This paper outlines the problem and highlights the efforts developed by our partnership, and mechanisms that can help to address the problem.

HMA Prepares Health and Human Services Assessment for the City of Watertown

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On Tuesday, February 25, 2025, the Watertown City Council unanimously endorsed the recommendations of a year-long health and human services assessment prepared by HMA for the City of Watertown, Massachusetts. The report, released in November 2024, included a qualitative and quantitative assessment of the community’s health and human service needs and recommended resources to fill those gaps. As part of the project, HMA facilitated extensive community outreach and data gathering efforts in 2024 to elicit a range of community perspectives including 20 interviews, 8 focus groups, and 2 community-wide meetings resulting in 9 recommendations for organizational and program efficiencies and enhancements.

Through engagement and analysis, key community priorities emerged with a focus on programs and services relating to housing security, food security, wellness promotion, disability supports, older adult supports, communications and language access, immigrant supports, veterans’ services, public health, physical and behavioral health, and diversity, equity, and inclusion. Health and human services were considered through an intersectional lens, recognizing their overlapping qualities and characteristics that reflect how real people experience their own unique needs and seek support from a multitude of public and private supports.

On Rare Disease Day, HMA releases new report analyzing federal spending on Orphan Drugs

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Rare Disease Day is observed globally each year on February 28 to raise awareness, access, and diagnosis to therapies for people with rare diseases. Today HMA releases a report titled Analyzing the Impact of Policies to Exclude Certain Orphan Drugs from the Drug Price Negotiation Program of the Inflation Reduction Act, that examines how many orphan drugs the ORPHAN Cures Act might affect and the percentage of Medicare Part B and Part D spending that is attributable to these drugs. Using that information, we estimated how the legislation would affect federal spending, applying the same assumptions and methodology that the Congressional Budget Office (CBO) uses in a 10-year budget score.

State Cost Growth Benchmarking Programs: An Evaluation of Eight States’ Experiences and the Lessons Stakeholders Have Learned

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Background

In 2024, Health Management Associates (HMA) evaluated programs implemented by eight states (California, Connecticut, Delaware, Massachusetts, New Jersey, Oregon, Rhode Island, and Washington) aimed at controlling healthcare cost growth. In recent years, these states have tried to address the trend of escalating healthcare costs using an approach referred to as cost growth benchmarking (CGB). This is the act of setting a target for annual healthcare cost growth and measuring actual performance against the target. Since 2018, the Peterson-Milbank Program (PMP) for Sustainable Health Care Costs has invested in state-based CGB efforts by funding program development, implementation, and technical assistance. HMA evaluated the Peterson Center on Healthcare’s cost growth benchmarking efforts across the eight states.

Methodology

HMA’s evaluation for the Peterson Center on Healthcare included a detailed landscape review for each of the eight states and interviews with 45 state officials, providers, payers, and other stakeholders in these states. The HMA team synthesized findings from the landscape review and the key informant interviews and produced an internal evaluation report.

Analytic Approach

The landscape review captured the state’s CGB program chronology, governance structure, growth targets, enforcement authority, and performance against the target. The interviews examined the contextual factors, stakeholder influence, implementation developments, capacity to control costs, facilitators and barriers to developing cost control capabilities, and the lessons learned based on the states’ experience. The interview discussion guide included a scoring component which enabled quantitative analysis in addition to the qualitative findings. HMA analyzed these findings by state, category of interviewee (state officials, payers, providers, or others) and implementation stage (early vs. more recent adopters).

Findings

States’ efforts to engage and gather stakeholders, establish cost growth targets, collect and report data, and identify cost drivers have been successful, but states have had challenges to date in developing policies aimed at containing costs.

Utility

The findings from this analysis can be useful to the existing states in enhancing their CGB programs and to states interested in launching new CGB initiatives.

Medicare Hospital Inpatient Device-Intensive Payment Policy

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Medicare’s fee-for-service (FFS) payment system includes payment policies that support providers’ use of innovative medical device technologies. The continued evolution of these policies is necessary to keep pace with current and future medical innovation. In this report, HMA summarizes models testing the implementation of a newly proposed policy for the hospital inpatient system which aims to eliminate systemic bias that may slow hospitals’ adoption of innovative technologies. HMA concludes that targeted policies that eliminate the use of the hospital wage index to standardize device costs can result in more accurate reimbursement for hospitals and increase beneficiary access to innovative technologies.

HMA helps navigate dQM to improve health outcomes

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The healthcare industry is undergoing a seismic shift in how quality data are collected and reported, creating opportunities to use digital quality measures (dQM) to significantly improve health outcomes and efficiency. Starting in January 2027, new federal interoperability and prior authorization rules will promote widespread data exchange, enabling full digital quality measurement. Payers and providers must invest early to be well-positioned to undergo major strategic and operational changes to optimize healthcare data and transform their business processes.

This issue brief explains the federal policies and national changes that make digital quality measurement possible, explores challenges facing the health insurance industry, and highlights opportunities for payers and providers.

Our HMA dQM team helps health plans, providers, health & hospital systems, federal, state and local payers such as Medicare and Medicaid navigate the transformation to dQM and broader interoperability—from early planning through strategy development, implementation, and impact evaluation.

340B Duplicate Discounts: Enforcement Inconsistent and Weak Due to Lack of Data Transparency and Despite Federal Prohibition

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At the intersection of the federal 340B Drug Pricing program and the federal Medicaid Drug Rebate Program (MDRP), a potentially large set of Medicaid claims are generating duplicate discounts, which pharmaceutical manufacturers provide to eligible entities such as hospitals and health centers. These two complex federal programs were designed to reduce the costs of prescription drugs for providers that serve low-income patients, but both state Medicaid agencies and federal policymakers have been actively working to eliminate the unintended overlap of these two programs. To gain deeper insights into why duplicate discounts continue to occur, the scope of this concern, and to identify considerations of future policymaking, HMA conducted interviews with Medicaid officials and drug policy experts across several states.

Duplicate discounts occur when for a single sale a manufacturer is required to: (1) prospectively reduce the price of the product (a discount) they sell to a 340B covered entity in advance of the delivery of care to the patient; and (2) provide a retrospective payment (a rebate) to a state Medicaid program or managed care plan under the MDRP after care is delivered to a Medicaid enrollee. When duplicate discounts occur the manufacturer’s product is discounted twice for the same sale, contravening federal law, which prohibits duplicate discounts.

Despite the statutory prohibition, duplicate discounts remain a concern. Both state and federal policymakers have been actively addressing duplicate discounts but have been unable to identify clear and consistent policy solutions that neutralize this inefficiency. On the state level, Medicaid agencies and state legislatures have implemented policies to address duplicate discounts. On the federal level, the Health Resources and Services Administration (HRSA) and the Centers for Medicare & Medicaid Services (CMS) have conducted audits and published best practices for states to eliminate duplicate discounts. Nonetheless, duplicate discounts persist.

To gain deeper insights into how Medicaid agencies navigate duplicate discounts, Health Management Associates (HMA) conducted semi-structured interviews with former and current Medicaid directors and pharmaceutical policy experts in 14 states. Interviewees were asked about the frequency of duplicate discounts, the extent to which Medicaid agencies devote resources to tracking them, the policies states have implemented to address them, and the extent to which state or federal authorities are working to eliminate duplicate discounts.

Based on interviews, four key themes emerged:

Duplicate discounts remain a problem, the scope of the problem is unclear, and better data collection from covered entities is necessary.
The opacity and complexity of duplicate discounts create a burden for state Medicaid agencies, influencing the policies they implement, resulting in variable state policy strategies.
Contract pharmacies add an additional layer of complexity, exacerbating the burden that duplicate discounts create.
State and federal authorities could take more decisive action to address duplicate discounts.

Policymakers should consider that the environment for addressing duplicate discounts may become more complex in the future, which may increase the need for a federally coordinated policy solution. The complexity of the environment may deepen due to the increasing presence of contract pharmacies, the increasing presence of managed care in Medicaid programs, and the implementation of the drug pricing policies of the Inflation Reduction Act of 2022. Policy action coordinated across the various stakeholders (e.g., HRSA, CMS, state Medicaid agencies, covered entities, and manufacturers) may represent the best opportunity for success in eliminating duplicate discounts.

Los Angeles County State of Children’s Health Report: Policy Briefs

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Informed by research and exploration of the on some of the most complex challenges facing children in a post-pandemic world, experts from L.A. Care Health Plan, the nation’s largest publicly operated plan, and Children’s Hospital Los Angeles (CHLA), one of the nation’s leading pediatric hospitals, unveiled their first-ever Los Angeles County State of Children’s Health report. The report, made up of four policy briefs, identified core issues impacting kids and teens and key recommendations to proactively address them.

The report originated from roundtables held in November of 2023 that convened expert stakeholders resulting in four distinct policy briefs and action plans. Recommendation highlights include establishing new school-based programs to improve mental health services within educational settings, launching an effort to dispel vaccine myths to improve children’s health, and addressing resource challenges that children and youth with complex chronic conditions and in social welfare system experience in Los Angeles County and beyond.

Health Management Associates experts in child welfare and behavioral health worked with the team of outside children’s health experts to prepare these four policy briefs with actionable solutions:

Vaccine Catch-Up and Misinformation: How can we improve access to and the provision of immunizations to promote children’s health?
Children and Families’ Resiliency: How can we improve the systems of care to improve well-being and address children’s mental health needs?
Supporting Children and Youth Involved in the Child Welfare System : How can we improve the quality, appropriateness of supports, and ease of access to care to address the unique needs of children involved in the child welfare system?
Children and Youth with Complex Medical Needs Transition to Adulthood: How can we facilitate the continuation of critical support as children with complex medical needs age out of care eligibility?

You can access the comprehensive reports and video series here.

Substance Use Disorder in California – A Focused Landscape Analysis

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HMA found that the substance use disorder treatment system, which sits outside of specialty mental health and mild-to-moderate mental health services, results in an inconsistent and siloed system. The delivery of programs and services across the state vary because of differences in geography (rural, suburban, and urban densities) as well as county participation in the Drug Medi-Cal Organized Delivery System (DMC-ODS). This landscape analysis provides a deeper exploration into the challenges and opportunities specific to addressing substance use disorder.

The analysis was produced with support from the California Health Care Foundation.

State Approaches to Managing the Medicaid Pharmacy Benefit

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Millions of Americans rely on Medicaid drug coverage to treat acute illnesses and manage chronic and disabling conditions. Though optional, all states provide pharmacy benefits under Medicaid but administer the benefit in different ways in accordance with federal guidelines. To better understand how states across the country administer the Medicaid pharmacy benefit, as well as states’ planned priorities and anticipated future challenges, HMA surveyed all 50 states and the District of Columbia in early 2024. A total of 46 states and the District of Columbia participated.

The report includes survey findings addressing a variety of topics including how states administer the pharmacy benefit and use of pharmacy benefit managers, state containment and utilization management strategies, payment and rebate approaches, value-based arrangements, planned policy changes, priorities and challenges in managing the pharmacy benefit in FY 2025 and beyond, and more. The HMA authors are Kathy Gifford, Aimee Lashbrook, and Constance Payne.

The report authors will also be discussing this paper and presenting their findings at a pre-conference workshop “Paying for Innovative Pharmaceuticals: State and Federal Trends Shaping Public Programs” at HMA’s Unlocking Solutions in Medicaid, Medicare, and Marketplace conference, October 7-9. Register today!

Economic Analysis of Opioid Use Disorder in the Medicare Fee-for Service Program

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This report quantifies the economic impact of opioid use disorder (OUD) specific to the Medicare fee-for-service (FFS) program, which covers approximately 51.6 percent of Medicare beneficiaries. We find that the cost to Medicare for managing these newly diagnosed patients was $29,669 more per patient than the propensity-matched control patients without OUD in 2022. We thus estimate that newly diagnosed OUD patients cost the Medicare program $4.3 billion in 2022. If these incident patient results were extrapolated into a 10-year budgetary impact analysis and if we assume constant rates of OUD incidence in the Medicare population, we estimate that the 10-year impact of OUD to the Medicare program would be $62.56 billion.

Our analysis demonstrates that OUD results in significant Medicare spending, including rising costs to beneficiaries through copayments and increased premiums. Additional work may be needed to determine whether the cost differential for incident patients with OUD generalizes to prevalent OUD patients as well. Though the 10-year budgetary impact figures require extrapolation and assumptions about future OUD use, they illustrate for policymakers the size of the fiscal challenge created by OUD in the Medicare population.

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