Medicaid and CHIP Risk-Based Managed Care in 20 States. Experiences Over the Past Decade and Lessons for the Future.. Procurement Approaches.


Federal requirements are not very specific concerning how Medicaid or CHIP programs select their risk-based MCOs. Study results reveal that states have developed two basic contrasting methods (with variations on these two themes). The first is competitive contracting, whereby states have a periodic solicitation for plans, request proposals, and select plans to participate based on these proposals. A plan’s response to the state’s solicitation may be both a technical response and a price bid, or only a technical response (in which case the state would set or negotiate the plan’s capitation rate). For example, the technical response would specify which parts of the state and populations the plan proposes to serve and how it will meet the state’s quality and network adequacy standards. States do not necessarily take all bidders with this approach.

A second approach is any-willing-provider contracting. With this approach, the state provides the contract terms and requirements, and sets an actuarially sound rate range of rates within rate cells such as age groups or geographic regions. Any health plan meeting those requirements and willing to provide the contracted services within the rate range may do so.

Appendix B, Table 3 indicates which of the study states are using each type of contracting approach for their Medicaid and CHIP programs in 2011. The competitive approach is used in all but five study states (Florida, Maryland, Minnesota, New Jersey, and Virginia) for Medicaid. California also uses a competitive process except for its County Organized Health System (COHS) counties.9 Wisconsin uses a competitive approach only in one region of the state, with any-willing-provider contracting elsewhere. One state (Ohio) procures MCOs separately for the TANF-related and SSI-related populations.

In most states, the contracting approach is identical for Medicaid and for CHIP. However, in California, Florida, Michigan, and Pennsylvania, Medicaid and CHIP programs use different approaches. The CHIPRA provision that mandates a choice of plans poses new challenges to these separate CHIP programs that must now cover the whole state, including rural areas, with at least two plans when risk-based enrollment is mandated.

While generally the bidding process when it is competitive is behind closed doors, two states use a remarkably open process. For example, in the Florida CHIP program, bidders who have met the minimum requirements in the RFP present their proposals to a committee composed of state staff from multiple agencies. These presentations are open to the public, including the plan’s competitors. After the contracts have been awarded, all proposals as well as the scoring tools used in the grading of those proposals become public documents. Similarly, in Arizona, the scoring tools used to assess each bidder during the selection process are made publicly available on the state agency’s web site after contracts have been awarded.

Early in Medicaid risk-based managed care contracting, several state officials said that a competitive process was often used to obtain a "price bid," and plans with the lowest bids were selected. However, with the requirement from the BBA to have actuarially sound rates , this approach is less common (although bids are taken and sometimes negotiated within the actuarially sound rate range). The federal requirement for actuarially sound rates does not apply to CHIP, so separate CHIP programs may still use the price-bid approach, especially in times of economic stringency in the state.

Appendix B, Table 3also shows the periodicity with which states have solicited proposals over the past decade when they have a competitive approach. Solicitations are relatively rare; only three states have solicited three times: Florida (CHIP only), Michigan (Medicaid only), and New Mexico. All other states have solicited only once or twice in the decade. Some state officials indicate a preference for less frequent procurements because of the staff resources needed to solicit and review proposals, and because it takes time to develop a collaborative relationship with plans.

It can take a while to bring a new contractor up— it takes them a while and then when they get comfortable, it’s time to rebid already…. I wish it would be longer than a four-year contract period. I would be very comfortable with six years. (State Official)

Table 5: Advantages and Disadvantages for Competitive versus Any-Willing-Provider Contracting Approaches in Medicaid/CHIP Managed Care
  Advantages Disadvantages
Source: Interviews with state officials.
  • Ability to get better (lower) capitation rates
  • Ability to control the number, quality, and geographic distribution of plans
  • Initially administratively burdensome
  • May lead to more turnover in plans and instability for program enrollees
Any Willing Provider
  • Not as administratively burdensome initially
  • May result in more plans which leads to more beneficiary choice and back-up if plans drop out
  • Little ability to control the number and geographic distribution of plans
  • No guaranteed market share for health plans

Medicaid and CHIP officials described the inherent advantages and disadvantages to competitive and any-willing-provider contracting. Some of these are summarized in Table 5. On the one hand, a competitive process increases the state’s ability to control the number, quality, and geographic distribution of health plans serving program enrollees across the state. The process can also provide a vehicle through which the state can assert more quality control via requirements specified in the RFP. One state official commented on why the state switched from any-willing-provider to competitive contracting:

An impetus [for switching to competitive procurement] was that the quality measures in one area were not as high as the rest of the state, so we were looking for ways to raise that area up to improve its performance compared to others. (State Official)

The main advantage of any-willing-provider contracting is greater initial administrative simplicity. The process of releasing an RFP, reviewing proposals, and selecting health plans is burdensome, requiring a significant investment of staff time for both the state and plans. Another advantage of this approach is that it can encourage new entrants into the program, an advantage if there are too few plans to assure continuity if plans leave the program.

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