Analyzing Medicaid Managed Care Organizations: State Practices for Contracting with Managed Care Organizations and Oversight of Contractors

Research examines how Medicaid agencies in 40 states select managed care organizations (MCOs) to contract with, how contract terms are set, and how performance is evaluated.

The Issue

In 2017, Medicaid agencies paid more than $232 billion to MCOs to manage the care of about 52 million people. The MCOs assume the risk that these payments will be adequate to cover utilization and spending on patient care, as well as administrative overhead and profit.

Key Findings

Medicaid managed care contracts are a business opportunity for managed care companies, and state Medicaid agencies work hard to set payment rates and contract terms and manage a procurement process that will attract strong competing bidders. Researchers interviewed dozens of leaders in state Medicaid agencies, MCOs, advocacy groups, provider associations, and others to gain insights on what has worked well for states in executing their contracting, evaluation, and performance oversight functions. Key findings include:

  • Procurement: State Medicaid agencies beginning a procurement process to select MCOs need to make a series of choices, including the timing of the procurement, the number of years of the contract, how many MCOs to contract with in each part of the state and how to evaluate the bidders.

  • Term Setting: States with years of experience in Medicaid managed care have developed contracts that spell out in detail the responsibilities of the MCO and standards for evaluating its performance while specifying the rights that the state reserves for itself.

  • Monitoring Performance: States report that robust oversight and evaluation is more feasible with a smaller number of MCOs under contract.


Although this research began well before the onset of the COVID-19 pandemic and the resulting economic downturn, the author’s analysis of how states administer their Medicaid managed care programs has gained new timeliness. As states begin to see a large increase in Medicaid enrollees, they will look for flexibility to adjust contracts, increase effectiveness, and even redesign managed care programs.


About the Author

Allan Baumgarten is an independent research analyst whose work focuses on health care policy, finance and local market strategies. He publishes Minnesota Health Market Review and reports in five other states analyzing trends and strategies for health care payers and providers. He works with a variety of organizations to help them analyze the market competition and policy issues they face and to develop business strategies to meet the challenges of dynamic markets and health reform. In 2017, he completed an analysis for the Robert Wood Johnson Foundation on the new cohort of provider-sponsored health plans, looking at their results and impact on competition in local markets. For more information, visit