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Reform Care

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Enhance Medicaid risk-based managed care delivery

The Facts

The Institute of Medicine (IOM) estimates that the healthcare system "wastes" $750 billion nationally. Included in this number are unnecessary services, inefficient care, and prevention failures. Medicaid currently accounts for 70% of states' healthcare expenditures and is the first- or second-largest item in every state's budget.

Access to health insurance will soon expand considerably. At the same time, Medicaid costs are rising significantly. Now is the time to put America's healthcare system on a sustainable path.

Current Challenges

Under the Affordable Care Act (ACA), access to health insurance will expand considerably. An estimated 18 to 36 million individuals will be newly insured. Due to lack of cost controls, clinical integration, and focus on quality, fundamental changes are necessary to move the healthcare system to a sustainable path.

What Can be Done

The health of state finances will be determined, in large part, by how state Medicaid agencies move the healthcare system to a more sustainable model. This means adopting payment reform initiatives that transition from the predominant fee-for-service (FFS) model to payments that shift the focus toward value and create financial and administrative incentives for healthcare providers to deliver greater quality and value. Promising initiatives include expanding managed care to all Medicaid covered populations, supporting patient-centered medical homes and health homes for individuals with chronic conditions, bundling payment demonstration programs, promoting Accountable Care Organizations (ACOs), and reducing payment for potentially preventable re-admissions and complications. Because of accelerating and wide-spread reliance on Medicaid-managed care programs to deliver care to Medicaid consumers, Medicaid-managed care will be the primary "vehicle" in many states to implement these payment reforms.

Current State Efforts

Medicaid Managed Care 1.0

Many state Medicaid programs have incorporated managed care program design features that encourage quality and value-based purchasing. These programs include pay for performance (P4P) programs that reward health plans that score well in standardized clinical and administrative performance measures and "auto-assignment for quality" algorithms that offer potential for greater membership to high-performing health plans. Many states also seek to drive innovation and payment reform through quality and price-competitive procurements that limit the number of participating health plans in any given service area. Managed care organizations (MCOs) are also generally "at risk" and incented to implement novel programs to control costs and improve quality. Despite these reforms, there is a growing consensus that state Medicaid programs and their MCO-contracted partners must embrace more fundamental reforms to continue delivery value and bending the cost curve.

Reforms that can have a positive impact include:

Embracing proven payment reform models, including adoption of Patient Centered Medical Homes, Hospital Pay for Outcomes (P4O) reimbursement systems, bundled payment arrangements, and gain sharing based on attaining quality measures.
Encouraging Clinically Integrated Networks and/or ACOs to act as the coordinating vehicle for delivering healthcare services
Promoting and participating in multipayor reform efforts that recognize Medicaid is only one of many payors, and that measurement efforts and incentives should be aligned across as many payors as possible to successfully engage the provider community

These reforms are viewed by many states as a way to address the potential financial, access, and capacity issues resulting from Medicaid expansion. Other states are opting out of the ACA Medicaid expansion due to concerns about long-term state financing and arelooking for ways to maximize participation of low income and other individuals into Health Insurance Exchanges.

Implementing Medicaid Managed Care 2.0

States can use numerous strategies to implement these and other reforms within their Medicaid programs, depending on their managed care market, history, and experience with managed care, administrative resources, and political and provider environment. These is no "one-size-fits-all" solution.

A range of strategies worth consideration include:

Adopting contract provisions that require alignment of FFS and MCO value-based provider reimbursement methodologies—States may want to consider contract requirements that ensure alignment between their FFS and managed care delivery systems. In New York, for example, MCOs are contractually required to provide enhanced payments to medical homes certified by the National Committee for Quality Assurance and contract with health homes to coordinate care for individuals with certain chronic conditions.
Implementing contract provisions that encourage and/or require movement to value-based purchasing—Ohio, for example, has adopted model contract language from the nonprofit Catalyst for Payment Reform Organization. This model contract language is designed to require MCOs to adopt fundamental payment reforms over time. The language specifically requires each contracted MCO to ensure that 20% of aggregate net payments to providers are value oriented by 2020.
Implementing policy guidelines or requirements that establish the relationship between Medicaid MCOs and ACOs—Limiting ACOs to the FFS population may hamper developing ACOs in Medicaid and among hospitals serving a large numbers of Medicaid patients. To encourage ACO development, Medicaid agencies must develop approaches that govern the relationships between Medicaid managed care plans and ACOs. In New Jersey, for example, MCOs have the option of contracting with Medicaid ACOs.
Developing contract bid processes that provide preferential scoring to MCOs that promote integrated care—States are also beginning to see the benefit of contracting with MCOs that operate in a manner that relies on clinical integration and accountable care for serving its members. Some states, such as Wisconsin, have implemented bid processes that give preferential scoring to MCOs that can demonstrate their network is aligned as an integrated delivery system.
Implementing adjustments to managed care rates to encourage MCOs to implement value-based payment methodologies within provider contracts—State Medicaid agencies and their actuaries often make efficiency adjustments to MCO rates to promote state policy goals. Specific adjustments can be made that account for the benefits of value-based purchasing and integrated care and provide explicit incentives for MCOs to adopt these payment models.
Refining state capitation rate setting methodologies to reward MCOs for reducing the rate of healthcare cost increases—Since most states rely on MCO encounter data as the basis for capitation rate setting, the more efficient MCOs become, the greater likelihood that rates are reduced. Many states are seeing MCOs selectively leave markets as the value proposition is no longer sustainable. States should consider shared savings approaches that reward MCOs for reducing healthcare costs and improving quality. Such policies would retain MCOs in difficult markets, encourage long-term collaborative partnerships, and discourage MCOs from entering and leaving markets based on financial results.
Promoting multipay or payment reform efforts—A key challenge for policymakers is creating alignment among value-based purchasing initiatives to ensure the proliferation of payment and delivery system models does not lead to conflicting financial incentives and burdensome reporting requirements for providers. Several states have implemented successful multipayor efforts that can be adopted with success by other states. Promising healthcare initiatives includes expanding managed care to all Medicaid covered populations, supporting patient-centered medical homes and health homes for individuals with chronic conditions, bundling payment demonstration programs, promoting ACOs, and reducing payment for potentially preventable readmissions and complications. Sign up for updates.
Continuing to implement new, value-based payment models within FFS programs—MCOs often use and rely on state FFS methodologies in their contracting relationships with network providers; adopting these reforms in FFS delivery systems help encourage development and implementation of these models within Medicaid managed care programs. It will also drive increased competition, as providers often play Medicaid managed care payment policy off against Medicaid FFS in the legislative and member advocacy arena.

Move Forward

As states move forward with expanding Medicaid managed care delivery models, it is critically important for Medicaid agencies to effectively monitor and review the performance of healthcare delivery. They must also ensure MCOs meet their contractual obligations, provide quality and access to care, and continue delivering cost-effective management. In a managed care environment, states can and should play a centralized role in measuring and reporting performance, administering pay-for-performance programs, identifying opportunities for improvement, and monitoring utilization to identify potential fraud and abuse across MCO networks. To effectively perform all these functions in a managed care model, states must establish and/or transform their Medicaid Management Information System (MMIS), changing it from a system focused primarily on paying claims to a comprehensive quality management infrastructure that effectively processes and uses encounters submitted by MCOs. An effective MMIS permits standardization and centralized storage for cost efficiency and enables better data analysis and decision-making supporting clinical integration and quality outcome improvement objectives. A transformed IT environment and enhanced MMIS may include consolidated data centers, hosted infrastructures, virtualization, managed applications, or IT outsourcing. In all cases, healthcare IT systems should address concerns about data security and privacy, identity, and access control. As states grapple with implementing new requirements for data management and integration under the ACA and take stock of their IT capabilities and gaps, they should be prepared to process and support parallel MCO technology core functionality. These include electronic medical records, disease registries, decision support tools, case management systems, aligned incentives, predictive modeling, advanced data and informatics and data mining, and patient health and wellness interactive capabilities. MMIS functionality will increasingly drive and help ensure provider quality and support disease management initiatives for providers and patients. State Medicaid agencies are also legislatively required to provide Medicaid program services to eligible members. Retaining the core capability to offer FFS programs in the event of unplanned contract terminations or rely on comparative FFS encounter claims data cost information during the MCO rate setting and negotiation process helps ensure the continued prudent provision of state responsibilities. This enables flexibility in delegating responsibility to MCOs to achieve the programmatic improvements in cost efficiency, clinical integration, and quality improvement. The future MMIS under Medicaid 2.0 can also serve as the enhanced IT infrastructure central hub for consolidation and coordination of healthcare information analytics, irrespective of the various delivery mechanisms selected at any point during the continued evolution of the state healthcare ecosystem.

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