State Medicaid Directors Driving Innovation: Payment Reform July 20, 2013

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1 State Medicaid Directors Driving Innovation: Payment Reform July 20, 2013 The National Association of Medicaid Directors (NAMD) is engaging states in shared learning around how Medicaid directors can drive payment and delivery system innovations. Many states are facing ongoing budget challenges that put pressure on Medicaid Directors to find cost savings in their programs wherever they can. To a large extent, states have addressed the inefficiencies in their programs. To fill growing budget holes, states have turned to more blunt instruments, such as cutting benefits, cutting eligibility, and cutting provider rates. Instead, states are looking for more sustainable reforms that allow the Medicaid program to provide high-quality services while reducing the share of health care programs consume in state budgets. Medicaid directors are poised to leverage their influence as state leaders to dramatically reform the provision of health care to millions of beneficiaries of public programs, but often lack the resources to effectuate these improvements. To aid in implementing these initiatives, NAMD supports networking among Medicaid directors on current delivery and payment reforms in their states. 1 States shared their experiences, including challenges and lessons learned. Payment Reform Models There are a wide range of innovation models and implementation approaches in Medicaid, with payment reforms standing at the heart of many of these efforts. Through targeted reforms, states can ensure the wide-spread implementation of policy and procedural changes in health care delivery that can save money while also improving health outcomes. States identified five general categories they are currently considering or pursuing, specifically: 1. Targeted payment adjustment policies, 2. Managed fee-for-service, 3. Bundled payments, 4. Managed care initiatives, and 5. Health homes. None of these models exist in a vacuum, but rather serve as one tool for supporting delivery system improvements. Furthermore, states often pursue multiple reforms concurrently. All US states, territories, and the District of Columbia have their own 1 NAMD conducts a range of technical assistance and dissemination efforts around delivery system and payment reforms. Project support is provided by The Commonwealth Fund. 444 North Capitol Street, Suite 309 Washington, DC Phone:

2 reform goals as well as unique market and program contexts, resulting in a myriad of possible pathways for achieving successful payment and delivery reforms. To accommodate these variations, each Medicaid director will consider a range of criteria as they approach such reform efforts, including: Administrative burden the state faces in terms of reporting and oversight, Flexibility available to the state to tailor its reform components, Prevalence of either fee-for-service (FFS) or managed care payment structures, Ability to roll out statewide or target reforms to certain populations, Potential risk involved, and Potential savings achievable. In choosing a policy to implement, states must weigh the different reform models against the readiness of their Medicaid programs, their unique state political environments, and their policy goals. Other remaining considerations that cross-cut all reform models include which federal authorities to utilize and how to measure value in terms of the quality of healthcare services and outcomes beneficiaries see compared to the costs invested and savings accrued to the state. 1. Payment Adjustment Policies One category of reforms that states are implementing or considering implementing is nonpayment or payment adjustment policies to reduce the occurrence of potentially preventable events or unnecessary services. In this model, the Medicaid program sets a policy whereby the state does not pay or adjusts payment for services resulting from reasonably preventable conditions or events, such as hospital-acquired conditions or medical errors. With this reform model, states face limited risk and substantial savings as a result of payment adjustments, while providers are incentivized to increase quality of care by reducing preventable events that result in negative health outcomes for beneficiaries. Texas Texas has accomplished its reforms outside of waiver or state plan amendment (SPA) pathways. Billy Millwee, Deputy Executive Commissioner for Health Services for Texas, described his state's implementation of a policy that prohibits payments for elective inductions prior to the 39 th gestational week. The state is considering deeming as not payable other services or practices that contribute to a bad health outcome or are inconsistent with evidence-based health care. Texas Medicaid has also implemented the same reimbursement denials or reductions as Medicare for hospital acquired conditions (HAC) identified with the present-on-admission indicator submitted with the claim. The requirement was implemented in September 2010 for FFS and in September 2011 for managed care. The state also began to identify and report potentially preventable readmissions (PPR) to hospitals for reduced payments. Page 2 of 9

3 Hospitals are required to distribute PPR information to health care providers that deliver hospital services. Payment reductions will be applied to each hospital based on their PPR rate. Payment reductions will be implemented by September 2012 for FFS and September 2014 for managed care. Texas Medicaid plans to also identify potentially preventable complications (PPC), provide hospital specific PPC reporting in Managed Care beginning in September 2013, and apply hospital claim payment reductions beginning in September Texas is also tracking potentially preventable events (PPEs), including PPAs, PPVs, PPS, PPCs, and PPRs, and reporting for PPEs will begin in both FFS and managed care in September 2013 with payment reductions for both programs beginning in September Under Texas plan, hospitals and managed care plans are held accountable for PPEs and so are incentivized to put innovations into operation. Since Texas is a heavily managed care state, engaging the HMOs was a critical component of the plan, and they achieved this by negotiating that 5% of the premium be placed at risk contingent upon reducing charges related to preventable events. In the first year, PPR identified $120 Million in savings, and the state expects even more savings for PPC. They found that mental health conditions were the most frequent reason for preventable readmissions. 2. Managed Fee-for-Service Other states have chosen to pursue managed FFS approaches that encourage and incentivize care management services on a practice-by-practice basis. These efforts, often under the title of Primary Care Case Management (PCCM) are designed to support a range of both clinical and non-clinical services that will enhance care and ensure better health outcomes. Increasingly, these models are paired with shared savings that further support strong primary care and prevention. However, because providers have limited influence over care provided outside their practice and typically bear no risk, the potential impact and savings may also be limited. This model also requires considerable infrastructure to support implementation. To further enhance the ideas of care management and accountability, some states are implementing or weighing their options for shared risk as well as shared savings. Through models like accountable care organizations, states hope to expand care beyond the boundaries of a specific clinician to more integrated care. Payment arrangements in this structure would entail the opportunity for shared risk and shared benefit, and incorporate are much broader range of services than current PCCM programs. Below are some of the efforts states are conducting along this care management spectrum. Connecticut Mark Schaefer, Medicaid Director for Connecticut, highlighted his state s Person-Centered Medical Home (PCMH) initiative. The state s PCMH Glide Path option provides financial and technical support for practices and clinics that require Page 3 of 9

4 technical and financial support to undertake practice transformation. Successful providers eventually qualify as PCMHs to serve recipients of Connecticut s Medicaid program and its Charter Oak Health Plan for uninsured adults of all income levels. Illinois Theresa Eagleson, Administrator for the Division of Medical Programs for Illinois, described her state's latest efforts to develop networks of providers, similar to an accountable care organization (ACO), called the Care Coordination Innovations Project, to coordinate care for Medicaid enrollees. Eagleson described Illinois as a very providerdriven state, which led to its unique approach to reform. Last year, the state implemented the first phase of an integrated managed care program for aged, blind and disabled (ABD) individuals in Medicaid. The plans have had some difficulty negotiating rates with hospitals and nursing facility providers, but the state is pushing forward with that model as well. However, the provider-based care coordination approach will give both providers and clients another choice of care coordination networks. Progress on these reforms has been delayed only slightly by the state budget crisis hit and reductions made this legislative session. To ensure that the state s proposal will actually create a quality product, Illinois is currently testing some payment models with mostly seniors and individuals with disabilities using a 50/50 split of savings between providers and the state Medicaid program. There are performance and quality metrics that would be required in order to share completely in any savings. This shared savings approach is still pending federal approval. Eagleson says that Illinois plans to pursue health homes funding in the future as well. Nevada The state is pursuing a managed FFS approach using pay-for-performance (P4P) to incentivize providers to improve quality of care. The state submitted an application for an 1115 waiver because it allowed for more state flexibility than other federal authorities. Officials from the state Medicaid agency say they wrote their 1115 waiver following a PCMH model. The state will start by enrolling beneficiaries with high-level care needs but plans to phase in dual eligibles over time. Oregon The state released an RFP for coordinated care organizations (CCO), the Center for Medicare and Medicaid Innovation (CMMI) conducted a site visit to the state in May 2012, and the first CCOs are set to launch in August According to the Oregon Health Authority, CCOs, similar to ACOs, are networks of all types of health care providers who have agreed to work together in their local communities for people who receive health care coverage under the Oregon Health Plan (Medicaid). They will have one budget that grows at a fixed rate for mental, physical and ultimately dental care. Washington The state is pursuing an accountable care organization (ACO) model and, similar to Massachusetts, an alternative quality contract (AQC), in which medical groups Page 4 of 9

5 receive fixed payments for patient care plus rewards based on savings generated and quality-based performance targets reached. 3. Bundled Payments Bundled payments can be either prospective or retrospective payments to providers that cover multiple services provided during an episode of care, which may last longer than a single visit or procedure. The goal with bundled payments is to incentivize the appropriate services and coordination to achieve the best outcomes in the most efficient manner for one acute episode of care. This model is most frequently seen with acute services and procedures with well-defined boundaries rather than for chronic disease care. However, states remain interested in testing bundles for less-discreet services. Bundled payments can be viewed as a method that falls between managed fee-for-service and full capitation for an individual s care. Arkansas Andy Allison, Medicaid Director, shared that his state began the process of promulgating proposed policy changes to begin episode payments for three episodes: Acute Ambulatory Upper Respiratory Infections (URIs), Attention Deficit Hyperactivity Disorder (ADHD), and Perinatal care. In parallel, the state has submitted a State Plan Amendment (SPA) to CMS. The state plans to expand the number of medical and behavioral episodes paid through bundling in the future. Arkansas Medicaid s retrospective bundled payment program will provide an upside and downside incentive to the designated Principal Accountable Provider (PAP) who is expected to coordinate care and is held accountable for outcomes across the full episode. If the average episode cost is better than a commendable level, the PAP will receive an additional payment from the payor as a gain share; otherwise they will share a portion of the excess costs. Arkansas bundled payment initiative targets episode-level variation and inefficiencies nested within a population model, which provides the umbrella for total cost and quality accountability for the state. Some of the issues the state is hoping to monitor and address in this initiative include whether implementing bundled payments motivates providers to change their behavior; the perceived fairness of the new payment system; the potential to positively or negatively impact access to services; the potential to catalyze larger delivery system transformation through this payment reform; the state s ability to scale up the reform model; and overcoming the complexity of the model to communicate to and engage stakeholders. Arkansas will assess these potential challenges to reshape its efforts over time. 4. Managed Care Initiatives Page 5 of 9

6 Some states have expressed renewed interest in managed care as a tool to reshape the Medicaid payment and delivery systems. States are considering expanding their existing managed care programs to new populations (aged, blind and disabled) or new service types (long-term care and behavioral health). By contracting with managed care organizations to provide benefits, the state Medicaid agency can closely prescribe the services and provider networks that beneficiaries access, with the goal of proactively managing care rather than just paying claims. Because the state generally pays MCOs a capitated rate, the state faces limited risk while the MCO is incentivized to coordinate care to prevent cost overruns, both acute and long-term. As such, efforts to more closely manage incentives and payments in managed care are a critical tool in payment reforms aimed at service delivery improvements. States are looking at their managed care oversight strategies as they expand enrollment to ensure these delivery system reforms are occurring. Louisiana Don Gregory, former State Medicaid Director for Louisiana, reported the state received approval from CMS in March 2012 for Bayou Health, their 1932(a)(1) State Plan Option to use managed care, as well as conditional approval for a shared savings (SS) proposal. Medicaid recipients subject to mandatory enrollment must select either a Medicaid MCO or a Medicaid Primary Care Case Management (PCCM) entity. The SS methodology includes a five percent limit on the amount of any savings that can be paid to the two PCCM entities. The state pays an enhanced monthly management fee of $11.81 for children and parents and $18.16 for people with disabilities and pregnant women. The two entities participating in the SS program stand to share up to 60% of total savings and are at risk for paying back up to 50% of the monthly enhanced PCCM management fee if savings are not achieved. The savings benchmark established by the state is risk adjusted. 5. Health Homes Some states are moving forward on implementing the Health Homes (HH) option, promulgated in section 2703 of the ACA, to coordinate care for Medicaid beneficiaries who have chronic health conditions. According to CMS, health homes providers will integrate and coordinate all primary, acute, behavioral health, and long-term services and supports to treat persons diagnosed with one or more chronic conditions as elected by the state. In return, states will receive 90% federal matching payments for individuals enrolled in these HH programs for up to eight quarters. States have some flexibility to build in incentives for providers participating in the health homes program. Several states already have implemented health homes, including Missouri, North Carolina, and Oklahoma, while others are planning to start soon with a variety of implementation plans. Ohio plans to submit an HH SPA to roll out services for individuals with serious mental illness (SMI) as geographic regions become ready. West Virginia plans to do regional HHs, although CMS said the state would need multiple SPAs, one for Page 6 of 9

7 each region, unless it decides to roll out services statewide. Others should monitor the successes and lessons learned in these states. Considerations in Selecting a Reform Path As identified earlier, each state s current environment and reform agenda will influence which of these models are the most feasible and appropriate. In addition, states must engage stakeholders, assess their health care markets, and accommodate local variation in scaling up their efforts. The considerations below represent opportunities for core decision-making that Medicaid directors interested in implementing payment and delivery system reforms must confront. State Readiness and Political Environment A state must assess its readiness and the local political climate as to whether it will help or hinder implementation of one or more of these payment policies. For example, if a state s provider market is only loosely affiliated across the care spectrum, then implementing a strict accountable care model may meet resistance from local stakeholders. Likewise, if a state has only recently implemented managed care expansions, then major payment shifts may need more time to develop. Each state must consider its unique situation when weighing the pros and cons of each reform option. Federal Pathway Another consideration for a state is to choose from a range of federal authorities to implement whichever reform model it chooses to achieve its specific policy goals. Available federal authorities through CMS do not always completely correlate with the payment models states seek to implement. Some reforms, such as those under the health home model, may also be implemented using different authorities. Terminology also does not always align consistently, and states need to ensure that definitions they use will fit the federal regulatory requirements. Some authorities, such as the 1115 waiver, can be used to implement multiple reforms simultaneously, but also often take longer to achieve approval. Some states have run into challenges in their attempts to fit their current patient populations and provider networks into the above frameworks. One state felt the health homes option did not meet its needs because it is not allowed to target services to beneficiaries by age or diagnosis. The state also found the health homes authority too rigid and too administratively costly. Another issue states have encountered with the health homes option is they were not allowed to carve out managed care as they wanted in order to avoid duplicating payment for populations that are already getting care coordination services from managed care organizations. Another state wanted to try a medical home model but found the federal definition of health homes too expansive, incorporating more of a health neighborhood perspective, than the state is prepared to implement at this time. The shared savings expectations are Page 7 of 9

8 also too ambitious for the state right now, so they pulled back from this approach. They felt a disconnect between states and the federal government s expectations for the health homes option. They see the federal government s understanding of the program is to provide a small number of additional benefits tacked on to a larger system, whereas many states see it as an opportunity to roll out big picture transformations. CMS has begun providing increased support and guidance to states seeking to reform their Medicaid programs. CMCS issued policy guidance on available authorities within which states may implement integrated care models (ICMs) with their fee-for-service populations, and the Innovation Center released grants through a state innovation models (SIM) initiative to design and test a range of payment and delivery system reform models. These efforts appear to demonstrate a growing interest in state innovation in Medicaid, which presents added opportunities for states looking to transform their existing heath care systems. Quality Measurement Developing a plan to measure the impact of payment reforms is a significant consideration for states, in terms of assessing the quality of healthcare services and the health outcomes beneficiaries receive as well as the costs and savings to the state Medicaid agency. States are in various stages of evaluating their reform models. States must be deliberate and thoughtful in this arena, ensuring a sufficient oversight structure while not incurring an excessive measurement burden on providers and plans. In Texas, the state provides hospitals and HMOs with a report of their data for how they are doing on its non-payment measures, and they have a year to share the data with individual providers and work to improve and negotiate before the fees kick in. However, most HMO providers there are salaried, which causes problems for measuring utilization because individual services do not each get a separate claim. The state s actuaries are working to figure out how to get at encounter data, and they anticipate it should not be too difficult to use financial statistics reports to back out the data for each service provided. Texas Medicaid will also be implementing all patient refined diagnosis related grouping (APR-DRG) in FFS in September Currently, the state uses Medicare severitydiagnosis related group (MS-DRG) as the basis for payment of inpatient claims. APR- DRG software will allow for comparison of hospital service lines, individual physician performance, and patient outcomes through the use of severity adjustment that creates a common measurement across disparate patient types. Unlike MS-DRG, quality initiatives and operational improvement can be targeted with APR-DRG. Illinois is tracking quality using such measures as how often a patient follows up with primary care provider (PCP) after discharge from the hospital. All measurements are tied to managed care rates, and savings are calculated according to a risk-adjusted trend line over time. Nevada s P4P system is designed to track providers on HEDIS quality measures, including the number of days between discharge and PCP follow-up as well as Page 8 of 9

9 transitions between mental health and medical providers. Washington state is trying to decide how many quality measures to use and which kinds, i.e. process-oriented vs. patient satisfaction measures. The state is working to incorporate quality measures, such as emergency room reductions, hospital readmissions, and other high cost services, into managed care contracts. And finally, quality measurement will continue to be a challenge as more states move toward managed long-term care services and supports, for which there are no standard measures. Conclusion Operationalizing payment reforms remains a difficult challenge facing state Medicaid directors but also an imperative for the sustainability of the program. Medicaid directors are actively working with their federal partners, both within the CMS Medicaid office and with the Innovation Center. NAMD remains committed to furthering this conversation and to helping state Medicaid directors leverage their purchasing power to improve quality and efficiency in health care for millions of Americans. In the future, state Medicaid directors will consider expanding their efforts within these models, as well as drawing lessons learned from payment reform models used in the private sector. Only by learning from each other states and other sectors can Medicaid directors continue to drive improvements in health care delivery and cost-containment, and states can lead in these innovative efforts. Page 9 of 9

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