Theory v. Practice, Managed Care, MCOs, and the Impact on Public Behavioral Healthcare

Kedar Dange, B.A.
ILPPP Research Assistant
MPH Candidate, Class of 2019

Kevin Farrelly, MPP
ILPPP Research Specialist

The following post provides an overview of managed care organizations and how they have been used in Virginia and in other states. It also describes concerns relating to the effect of managed care organizations on public behavioral healthcare, which have emerged in Virginia in the past year.

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Note: Much of the content for this blog entry is derived from interviews with CSBs. We acknowledge that other stakeholders may have viewpoints that contrast with those expressed here. We do not put forth specific policy recommendations in this post, but report stakeholder concerns as issues that bear further investigation by policymakers and administrators.

What is a Managed Care Organization?

A Managed Care Organization (MCO) is an entity that provides managed care health plans and delivers services via a provider network. Managed care is a system of health service delivery that is designed to control the costs of delivering services by limiting beneficiaries to a defined network of providers and by closely managing the utilization of services. MCOs are commonly used to administer Medicaid services. In such an arrangement, a state Medicaid agency contracts with an MCO, which is then responsible for reimbursing providers for services. A key advantage of Medicaid managed care is that it offers cost certainty. Medicaid agencies agree to pay MCOs a set monthly rate per beneficiary, known as a capitation rate. The MCO is then responsible for administering those funds, but should health care costs exceed capitation rates, those costs accrue to the MCO and not the state agency. As of July 1, 2017, 39 of 50 states had this type of risk-based arrangement with MCOs. (1) According to the Centers for Medicare and Medicaid Services (CMS), Medicaid managed care can help states reduce costs, manage utilization more effectively, and improve health care quality and outcomes. (2) 

The Commonwealth has a long history with Medicaid managed care, but recent significant changes to the program have brought new concerns to light in the area of behavioral health. Medicaid managed care in Virginia dates back to 1993 with the implementation of the Medallion primary care case management (PCCM) program. It covered elderly, blind, and disabled Medicaid beneficiaries alongside children and low-income adults and was expanded statewide in 1995. This was updated to Medallion II in 1996 with the addition of several other services, including behavioral health, and was further expanded in 2014 with Medallion 3.0, contracting with six health plans with upgraded enrollment processes. In December 2017, Virginia began to implement Medallion 4.0, which adds additional services and introduces flexible delivery systems and payment models. Implementation is expected to be completed in late 2018. (3)

A new managed care program, Commonwealth Coordinated Care Plus (CCC Plus) was launched in August 2017, and was designed to help coordinate care for dual-eligibles. “Dual-eligible” individuals receive both Medicare and Medicaid benefits, and in general, have more complex care needs and require more care coordination than a regular Medicaid beneficiary. CCC Plus is the second iteration of a program that began in 2014. Although MCOs are popular due to their potential to control costs and coordinate care, they have proven to be sources of major concern in recent years, especially for CSBs.

Medicaid and MCOs in Other States

State Medicaid managed care programs differ significantly in terms of total spending, the number of MCOs, and the jurisdictions of those MCOs. Two primary factors that drive Medicaid spending levels include 1) demand (i.e., the number of individuals who qualify for Medicaid in a given state), and 2) policy decisions, such as reimbursement rate setting and the scope of covered services. As of FY2014, North Dakota spent the most per Medicaid enrollee, at over $10,392. Virginia ranked 17th with $6,909, and Nevada ranked last at $3,620 per enrollee. (4)

In addition to spending levels, states also vary in terms of geographic coverage areas assigned to MCOs. In Virginia, all six MCOs contracted with the state are responsible for the entirety of the state. By contrast, in other states like Michigan, each MCO is given responsibility for a specific region, in which it is the sole provider of Medicaid managed care. Other states follow models similar to Virginia, in which multiple MCOs cover the entire state, and compete with each other for customers. Variations also exist in the number of MCOs; populous states like California, Texas, Florida and New York all have upwards of 10 MCOs, while the majority of the others have fewer than five.

Similar to Virginia, many states have experienced difficulties in implementing managed care programs. Nebraska, for example, experienced problems with slow authorization for Medicaid services. For this and other reasons, Nebraska’s Department of Health and Human Services has had to impose sanctions on private contractors at least eight times. (5)

Common CSB Concerns

Through communications with CSB executives and staff during the past year, the ILPPP has learned that many CSBs have experienced difficulties in doing business with MCOs. The most salient issues include delayed reimbursements, delayed authorization of service, increased competition for qualified staff, and administrative burdens.

As contractors of the Division of Medical Assistance Services (DMAS), one of the key functions of MCOs is to reimburse providers like CSBs for services provided to their beneficiaries. Many CSBs have reported significant delays in receiving reimbursements, with some owed into the hundreds of thousands of dollars for claims as old as 10 months. These reimbursement backlogs put some CSBs under significant financial strain.

Another common issue arises from competition for CSB staff. CSB executives report that many MCOs have hired away CSB clinical personnel because they are able to provide more competitive salaries, leaving many CSBs short staffed. CSBs have complained that MCOs are slow to provide authorization of services and are not transparent in denial of payment, which creates financial burdens that fall on CSBs and have some providers worried about being able to stay afloat financially. Denial of service authorization has also raised concern that some patients are not receiving adequate care, resulting in more crises, and costing more money in the long term.

Additional CSB concerns stem from requirements to comply with regulations geared toward the private sector. Approximately 80% of Medicaid funds for mental health go to the private sector. Accordingly, regulatory changes are often made in response to instances of private sector wrongdoing. Providers in the private sector, however, often have the flexibility to discontinue offering services that become less profitable due to the accumulation of regulatory burdens. As safety net providers, CSBs do not have that same flexibility, often leaving them to bear a disproportionate share of regulatory burden and associated administrative costs.

DMAS does have some ability to hold MCOs accountable for the difficulties that many CSBs are reporting. The primary oversight mechanism appears to be a corrective action plan (CAP), which DMAS has issued to at least two of the six MCOs as of July 2018. A CAP, according to the CCC Plus contract, is devised and delivered as follows:

“The CAP gives the Contractor the opportunity to analyze and identify the root causes of the identified findings and observations, and to develop a plan to address the findings and observations to ensure future compliance with this Contract and State/Federal regulations. The Contractor’s first step in preparing a CAP is to review the specific findings/observations noted in the communication received from the Department and determine the root cause of the deficiency. CAPs must always include the necessary information and be submitted in the method as required in the CCC Plus Technical Manual. If a CAP does not contain the necessary information, an additional sanction or violation point value may be assessed.” (6)

It remains to be seen whether this method of contract enforcement will be effective in ensuring that beneficiaries receive timely and appropriate services and that providers receive timely and appropriate compensation for those services.

In the view of many CSBs, MCOs have caused significant administrative burdens and strained the ability of CSBs to deliver services. Although MCOs are intended to add efficiency and cost savings to the system, they appear to have thus far engendered inefficiency and financial uncertainty. Medicaid expansion and the associated reductions in state general funds have introduced another layer of uncertainty and, according to many CSBs, could pose further risks to the system.    


1. Gifford, K., Ellis, E., Edwards, B. C., Lashbrook, A., Hinton, E., Antonisse, L., et al, 2017. (2017, October 19). Medicaid Moving Ahead in Uncertain Times: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2017 and 2018 - Managed Care Initiatives. Retrieved December 6, 2018, from

2. Managed Care. (n.d.). Retrieved December 6, 2018, from

3. Coming Soon: Medallion 4.0 Medicaid / FAMIS Health Care Coverage. (2018, July 19). Retrieved December 6, 2018, from

4. Medicaid Spending per Enrollee (Full or Partial Benefit). (2017, June 9). Retrieved December 6, 2018, from

5. Nebraska’s new Medicaid system got off to a rocky start, but state says “growing pains” are healing. (2017, December 17). Omaha World-Herald. Retrieved from

6. Commonwealth Coordinated Care Plus MCO Contract for Managed Long Services and Supports. (2018, January). Commonwealth of Virginia, Department of Medical Assistance Services. Retrieved from