Managed care organization (MCO)

This entry covers the Medicaid meaning defined in 42 CFR 438.2. Under that rule, an MCO is an entity that holds, or is seeking, a full-risk contract with the state: one that covers inpatient hospital services plus at least one other listed service, such as outpatient hospital, physician or nursing facility care, or any three or more of the listed services. The state pays it capitation, a periodic amount for each enrolled member at an actuarially sound rate, owed whether or not that member uses any services¹. Medicaid.gov describes managed care the same way, as contracts between state Medicaid agencies and MCOs that accept a set per member per month payment².

MCOs are one of several managed care types. A prepaid inpatient health plan takes capitation for a narrower set of services that includes inpatient or institutional care, and a prepaid ambulatory health plan takes it for services that do not¹. CMS uses managed care plan as the umbrella term for MCOs, both prepaid plan types and primary care case management entities³. States can set these programs up through a state plan amendment under section 1932(a), which needs no periodic renewal, or through 1915(b) waivers, whose approval is limited to two years⁴.

For a provider, the MCO is the payer. It sets the network contract, the fee schedule, the prior authorization list, the claim edits and the timely filing limit, and it sends the remittance. The state stays in the background, so a claim for an MCO member sent to the state’s fee-for-service system is in the wrong place. Verify which plan covers the member on each date of service, because members move between plans and between managed care and fee-for-service.