State Medicaid officials told a Senate committee that reprocurement of the Commonwealth’s managed-care organizations (MCOs) will require an estimated $2.5 million to $2.8 million in administrative spending and additional IT and implementation work.

The estimate came during questioning about Senate Bill 13 at a meeting of the Senate Appropriations and Revenue Committee. “When we procured last time…that’s how much we spent: $2,500,000,” Lisa Lee, commissioner for the Department for Medicaid Services, said of the 2018–19 procurement. Steve Bechtel, the department’s chief financial officer, added the agency applied about 10% growth to that historic figure and rounded to $2.8 million to arrive at the current estimate.

The department said the cost estimate covers reworking the request for proposals (RFP) document, additional oversight staff and procurement consultants, and IT system modifications to accept encounter data and integrate new or replacing MCOs. “We have to bring on additional resources to assist us in modifying that RFP…making sure that we have adequate protocols to oversee the managed care organizations,” Lee said.

Why it matters: the current managed-care contract cycle and federal rule changes are driving a larger procurement effort. Committee members pressed whether the expense is a new, bill-driven cost or a routine programmatic cost the department would incur regardless. “It doesn’t matter if we have 1, 3, 10, 20, I still gotta do the work,” Lee said, adding that the department’s baseline was fiscal year 2023 and that any new administrative request would need a separate budget ask.

Key budget and program details: the department said the administrative costs of reprocurement are treated as administrative activities and therefore are eligible for a 50/50 federal-state match. By contrast, capitation payments for benefits carry the standard 80/20 federal match for benefits. The department said the 2018–19 RFP development contract cost approximately $2,000,000 and that the agency spent roughly $1.9 million on that effort.

Committee members raised additional cost uncertainties. Lawmakers asked whether reducing the number of MCOs (for example, from five to three) would produce administration savings that offset procurement costs. Officials said some administrative savings could occur, but other costs — member transitions, provider negotiations and potential market consolidation — could offset or exceed savings. “There is going to be a 40% reduction no matter what happens,” a department official said, referring to a hypothetical reduction in the number of MCOs, and added that member transition costs and rate negotiation risks are difficult to quantify in advance.

Timing and scope: department staff said RFP development and procurement can take six to eight months depending on required changes and that new Centers for Medicare & Medicaid Services (CMS) managed-care final rules released in mid-2024 must be incorporated into the RFP. Officials said they plan to carve out specialized populations — for example, foster-care services — into separate procurements rather than a single omnibus RFP as was done previously.

What the committee recorded: no formal committee vote on Senate Bill 13 occurred during the session covered by this transcript. Committee members asked the department to return with more precise timelines and a formal budget request; staff indicated any formal administrative appropriation would be requested in the next biennial budget process.

Ending: Committee members thanked department staff for the briefing and requested follow-up information tying specific cost elements to procurement milestones.