Medicaid as a Service Part II: The State’s Perspective

Harrison Schramm, CAP, PStatThis article is the second in a series of four proposing a revolutionary new direction in Medicaid Management Information Systems (MMIS) structure and pricing. MMIS, broadly, the set of computers and algorithms that are used to administer the Medicaid Program, collect data and perform financial accounting. Our first article, outlining the general scheme, may be read here.

To summarize, we propose that states treat MMIS as a service, as opposed to treating it as a procurement. Put another way - MMIS is a verb (Something you do) vice a noun (something you possess). In the current paradigm, individual States (to include the District of Columbia) create independent, stand-alone MMIS platforms with long contract lead- and execution- times. We propose that State governments change their thinking by procuring MMIS as a service, with a flat per-member monthly fee. We make these recommendations concrete and consider the benefits to the States in this article.

The first benefit is that States do not have to make a large, ‘lump sum’ payment to procure computer equipment and applications. States currently obligate large amounts of Federal and State funds for the replacement of aging equipment. A fixed ‘buy-in’ requires time and political will to assign the funds to improve the system. This is particularly problematic because the advantages of improved infrastructure are not apparent until the infrastructure is improved, lowering the impetus to replace infrastructure.

Lengthening the time between technology refreshes has the added effect of putting the systems many generations behind current technology. If we subscribe to ‘Moore’s Law’ on computing, which states that (empirically) computing power doubles every 18 months. That means that at the end of a 9-year contract, a states’ computers will be 64 times less powerful than current systems. Again, these disadvantages are not apparent when looking ‘forward’ from outdated systems, but are instantly in view when looking ‘backwards’.

Leaping multiple generations of computing power in a single step can be jarring for organizations, and is acutely difficult for Government. States can find themselves in a ‘double jeopardy’ with their workforce; unable to hire sufficient talent to handle the new technology, and need to find continuing work for their legacy skill sets. For example, we are aware of states MMIS systems that are programmed in COBOL or other legacy languages, in stark contrast to modern architectures like Python, Java, and Ruby. Furthermore – and important to the States – there will be no ‘trough of transition’, where the old (legacy) system is still being used, and the improved system is not yet up and running.

Verbus CountsHow does MMIS as a Service solve these problems?

Shifting to a Service paradigm moves the political, State finance and workforce problems from the State to a private provider, who can be more agile in pursuing a solution. The upfront procurement costs are driven to near zero for the State, and the system – which will have already been built before the states sign up – is up and running from Day One.

Those of us who have worked with management systems understand that no matter how well it is designed, you will not truly know what you need before you actually start using it. The MMIS-as-a-service allows States the flexibility to increase – or decrease – the parts of the system that they are over (or under) utilizing. This reduces costs for both the Service Provider as well as the State, and also allows for the States to take advantage of economies of scale while only getting the pieces of the MMIS Ecosystem that they truly need.

The preceding argument leads to a broader point – states are in the Administration and Governance business, not the Hardware and Software business. MMIS as a service moves all of the issues of physical infrastructure from the States to the Private provider – although they can still regulate security of the Data System – means that to the state, it all looks like ‘cloud’. Getting out of the Hardware business means that smaller States – who might not need their own fully dedicated system – can move from a discussion about the fixed price for hardware to a variable cost of subscriber per month. We expect that this will result in marginal savings for the largest states (from a Medicaid Perspective) such as California and New York but may generate substantial savings for smaller states like Wyoming.

The cloud model has been used by industry – notably Amazon, Facebook, and others – and the basic science has been developed to the point that true ‘no downtime/minimal maintenance’ can be achieved’.

Because a provider will respond to market forces they will naturally be incentivized to keep quality high and costs low. Because they are in a market with competitors, they will be further incentivized to stay closer to the cutting edge of technology and infrastructure. Because they will be based in the Cloud, these improvements may be made piecemeal and continuously, avoiding the ‘shocks’ that happen when a state undergoes a major, infrequent upgrade. Finally, because the upgrade process is continuous, the learning, recruitment, and transition of the MMIS workforce will be a natural part of the ecosystem; specifically, the workforce will match the capabilities of software, and will both drive and be driven by innovation.

Perhaps the most important improvement that shifting to MMIS-as-a-Service allows is the ability for States to take advantage of Economies of Scale in the sense that each state can take advantage of the infrastructure built for other states as part of a common ecosystem. Perhaps more importantly, deeper insights will be available because of the greater volume of data – both in the number of cases viewed as well as geographically – will lead to new and different insights.

One area where these insights might be particularly useful is in the detection of fraud, waste, and abuse in the systems..

In this piece, we have laid out some of the reasons from the State’s perspective as to why shifting to Medicaid-as-a-Service is the right move. Our next article, to be published mid-summer, will consider why this move is advantageous from the Healthcare Provider’s and from the Member's Perspectives.

  • They are not identically zero because any provider would most likely have a ‘minimum service agreement’ length.