Roughly half of American children receive their health care through Medicaid or CHIP. These programs were legislated to cover them, and the choice has been made (repeatedly, across decades and both parties) not to fund them at the level their aims require. Pediatricians did not make that choice and should not stop saying it is the wrong one.

However, that choice, and the confines it creates, defines the real-world conditions in which we practice. Pediatricians and Medicaid managed care plans are now sharing the care of the same children and families, without clear relationship practices, common principles of collaboration, or mutual accountability.

That absence has a specific shape. Two parties with authority for medical necessity determinations but applying different thresholds and criteria. One can see the financial constraint the other is operating inside; the other cannot; neither was given a shared vocabulary for the disagreement, so the disagreement is conducted through denial letters and appeals, the two least efficient instruments available.

I’ve spent my career working in executive leadership roles on both sides of the practice/payer divide, and learned that is a design flaw, not a villain. It does not resolve by one side being more reasonable. It resolves, partially, when both sides can see the same picture.

What pediatricians cannot see

Under managed care, the state does not pay claims. It pays each plan a fixed per-member-per-month capitation rate, set prospectively by actuaries, and the plan then must deliver contracted services from that allocation. If costs run higher, the plan absorbs the loss. This risk transfer is the entire policy rationale for managed care: It converts open-ended state spending into a budgeted line item.

The implication is rarely visible from the exam room. The plan is not deciding how much to spend on children. It is spending an amount the state decided in advance. A plan cannot approve its way past its capitation any more than a physician can bill beyond a fee schedule.

Nor is overspending quietly absorbed. It drives the following year’s certified rates, which legislatures answer by trimming eligibility, benefits, or provider payment. Plans under margin pressure tighten prior authorization and narrow networks. Plans facing financial challenges exit the program, imposing discontinuity and disruption on families, roughly 600,000 enrollees displaced annually. The cost of this year’s overspending is paid by next year’s child.

Routinely misunderstood, the medical loss ratio (MLR) is the share of the financial allocation a plan spends on care and quality improvement; federal rules require that capitation rates be set so plans can reasonably achieve 85 cents of every dollar going to care. The remaining 15 percent is not profit; it covers administration, taxes, reserves, and required capital, as well as margin. Most states go further than federal rule requires: More than three-quarters of managed care states recover the difference when the minimum is missed, others through experience rebates or risk corridors. The upshot: A dollar not spent on a preventable ER visit does not simply become profit; in most states it is spent on another child or returned to the state.

Where that margin goes differs by ownership, and pediatricians should know which kind of plan they work with. Roughly half of national Medicaid enrollment sits with publicly traded companies, whose retained margin becomes shareholder return and leaves the state that raised the taxes. Margin retained by a nonprofit or provider-sponsored plan stays as reserves, reinvestment, and local capacity. The evidence on plan-type differences in access and utilization is mixed; this is a fact about where public dollars go, not about how care is managed.

What plans cannot reach

The traffic runs both ways, and here pediatricians hold a lever they rarely recognize. Capitation is not a flat rate per child. States assign each member a risk score built from historical claims, the diagnoses, chronic conditions, complexity factors, and procedures that clinicians submit; actuaries use those scores to set the funding attached to the population. Clinical documentation is therefore not merely a billing artifact. It is the input to the state’s estimate of what a population needs.

When significant diagnoses or complexity are missing from claims, a child’s risk score understates their needs and the capitation attached to them falls below what their care requires. That gap does not land on the plan alone; it lands on the pool every enrolled child draws from. This is not an argument for coding more. It is an argument for documenting accurately: Overstatement and understatement distort the same picture, and a state can only fund what its data describe.

Pediatricians therefore play a substantial role in ensuring those data reflect the true needs of the population.

Different denominators

Most disagreements over medical necessity are not disagreements about clinical facts. Adverse determinations cannot be issued by nonclinical staff; the reviewer is generally a credentialed physician with the record in hand. The gap is rarely information and rarely competence.

It is denominator. The pediatrician’s denominator is the child in the room, and the question is whether a service would benefit that child. The reviewer’s denominator is the enrolled population, and the question is whether the service is necessary, because the state’s allocation must reach the next child. Both obligations are legitimate. Neither is the whole picture. And neither party chose the arithmetic that puts them in tension.

Naming the difference does not dissolve it, but it changes what a productive exchange looks like: from “Why are you denying my patient?” to “Here is why this crosses from beneficial to necessary for this child,” which is an argument both can act on. Requests built to the standard that will be applied are approved more often, which yields fewer peer-to-peer calls, fewer appeals, and fewer fair hearings. Not because anyone conceded, but because the disagreement was manufactured by mismatched framing.

The reciprocal obligation is real. Plans provide cross-provider visibility, care management for shared families, and insights into population. Pediatricians supply what the guidelines can’t see. Both are owed transparency: published criteria on one side, documented reasoning on the other.

Necessary before beneficial

Every enrolled child has a claim on the same pool. A fixed financial allocation forces a question that everyone would rather avoid: What does each child need, as distinct from what would help?

Under fiscal constraint, necessity for every child has the first claim. Benefit for some comes after, not because benefit does not matter, but because a system that funds maximum benefit for the children whose clinicians advocate hardest will exhaust itself before reaching the children whose clinicians did not. A child with cancer requiring substantial resources is risk adjustment working as intended. A service line consuming a disproportionate share of a child’s allocation without commensurate benefit creates pressure on the rest of the population. This is arithmetic inside a fixed pool, not an indictment of any modality or profession.

None of this asks pediatricians to withhold entitled care. EPSDT remains a legal mandate: Any medically necessary service identified through screening is covered through age 21, irrespective of a plan’s financial position. Stewardship operates inside that entitlement, not against it.

Medicaid dollars are largely directed by physician order. The money was always being managed by pediatricians; the only question is whether it is managed deliberately. Until this country funds Medicaid to its purpose, the dollars are shared, which means the stewardship must be shared as well.

Steven Merahn is a pediatrician, health care executive, writer, and advocate for human-centered, clinically integrated care. He serves as enterprise chief medical officer for Perimeter Healthcare, where he leads initiatives focused on children and adolescents with complex behavioral health needs, including autism, intellectual and developmental disabilities, and other neurodevelopmental conditions. He is also the founder of Child Insights, which works with service providers and the health policy community to design systems of care that promote children’s developmental potential.

Throughout a career spanning public health, clinical practice, health system leadership, population health management, and value-based care, he has worked to improve outcomes for vulnerable populations across the life course. A Fellow of the American Academy of Pediatrics, he serves on national committees focused on autism and developmental disabilities.

Dr. Merahn is the author of Care Evolution: Essays on Health as a Social Imperative and writes frequently on health care transformation, behavioral health, systems-based practice, and the human experience of care, including on his Substack. His recent scholarship includes “Treating Invisible Wounds: The Case for Trauma-Informed Care in Autism” in the Journal of the American Academy of Child and Adolescent Psychiatry and “Pediatric Residential Treatment as Early Intervention?” in Child and Adolescent Psychiatry and Mental Health. His work explores the intersection of medicine, policy, ethics, and storytelling.