Medicaid Reform Efforts: The Trends and the Impact on Health Centers

Medicaid Reform Efforts: The Trends and the Impact on Health Centers State Policy Report #46 September 2013 Introduction Since its inception in 1965, the Medicaid program has provided health coverage support for disabled and low-income individuals and families. Due to economic and policy changes, as well as increases in medical price inflation, the cost of operating the program has increased over time. In 2012, Medicaid provided health coverage to about 56.7 million Americans at a total cost of approximately $432 billion, 57% of which was federal spending and 43% was state spending. 1 At a state level, Medicaid now accounts for close to 23.9% of total state expenditures. 2 As a result, attention has been focused on lowering the costs of the Medicaid program. Many efforts have been made, or are underway, to determine how to balance the demand for high quality health care with the limited available funds. This brief focuses on Medicaid (and CHIP) program reform efforts at the state level to lower costs and improve beneficaries health. The first section focuses on methods by which states can implement reform, while the second section focuses on specific reform efforts, the likelihood of reforms being approved by the Centers for Medicare and Medicaid Services (CMS), and the opportunities and risks for Community Health Centers (CHC) associated with the reforms. State Reform Strategies States have some flexibility in designing their Medicaid programs, and may change aspects of their program at any time 3 as long as they receive prior approval from CMS. There are some basic requirements that every state Medicaid program must follow, and CMS has a role in making sure those requirements are met. States utilize different methods to alter their Medicaid program, four of which are discussed in greater detail below. The first two Medicaid State Plan Amendments and Waivers have long been an available option for states to pursue. Two other avenues CMMI Innovation awards and Medicaid Expansion Approaches have been made available through the Affordable Care Act (ACA). Each of these methods has different requirements and approval processes, and gives states different latitudes with their program. State Plan Amendments Agreement between each state and the federal government for how that state will administer the Medicaid program in compliance with federal law, rules, and regulations and therefore, be eligible for federal funding is formalized and detailed in a State Medicaid Plan. This plan is unique for each state, as the plans are tailored to the needs of that state s residents and the fiscal commitments the state is prepared to make. If a state wishes to enact changes to its Medicaid program, it may file a State Plan 1

Amendment (SPA) with CMS for review and approval. 4 SPAs are used primarily to notify CMS of a proposed, standard change in the program, including changing provider payment rates, adding, reducing, or eliminating optional services, implementing managed care, and changing benefit structures such as cost sharing. SPAs may not be used to make changes beyond the program s scope provided under federal regulations. If a state wishes to deviate its Medicaid program from federal law and regulations, it must request a waiver as described in the next section. There are no budget neutrality requirements in conjunction with a SPA application, and amendments are usually not time limited. Connecticut received approval for a SPA in 2012 to begin its eligibility expansion in stages prior to 2014. Through its amendment, it gave previously not eligible non-elderly adults, eligible status if their annual income was at or below 55% FPL. Although this amendment is in preparation for a full expansion, the state receives its regular federal match rate, rather than the expansion-enhanced match. Rhode Island received approval for a SPA requesting an increase in the income limits for the medically needy population. It did not expand Medicaid coverage to a new population, but increased eligibility to a greater number of persons within the same population. Income limits were increased by 44.5%. In general, once a state has submitted a SPA to its CMS regional office, CMS has 90 days to review the request and either approve, deny, or ask for additional information. If additional information is requested, the clock is stopped and approval can be delayed. Once approval is granted, the effective date may be no earlier than the first day of the calendar quarter in which the SPA was submitted. If a SPA is denied, the state has 60 days in which to request reconsideration through a hearing process. There are some additional transparency requirements when a SPA seeks to change payment standards or methodologies. Certain assurances must be made to CMS 5 and a public notice posting of the change is required.in addition to the CMS requirements, each state will have administrative rule making procedures that must be followed. These procedures vary, but generally, public notice and comment periods are required for significant program changes. These processes may occur at the same time the CMS review process takes place. Waivers The largest distinguisher between a waiver and a SPA is that a waiver is a formal request to have certain federal Medicaid requirements waived in the state. There are different types of waivers, and a state may be operating under multiple waivers, including multiple waivers of the same type. This section focuses primarily on 1115 Research and Demonstration Project waivers, which give states authority to run pilot projects to test delivery or payment system reform. Some of the federal requirements include: 6 Limited timeframe. Generally approved for three to five years, but are often renewed. Budget neutrality. The waiver may not increase Medicaid program costs to the federal government. Purpose. It must be consistent with the Medicaid program goal of providing meaningful health insurance to qualifying low-income populations. 2

Prior to submitting an application to CMS, a state must have at least a 30-day public notice and comment period. The notice must include a detailed description of the waiver, including: Program description, goals and objectives to be implemented, and beneficiaries to be impacted. Delivery system, eligibility requirements, benefits, and cost-sharing information. Expected changes in enrollment and budget data. Demonstration hypotheses and evaluation parameters. Waiver and expenditure authority needed by the state. The state must conduct at least two public hearings in two different locations on different days, 20 days prior to the waiver s submittal to CMS. In states with federally recognized Tribes, Indian Health facilities or Urban Indian health programs, the state must also engage in a Tribal consultation process prior to submittal. Written documentation of the state s compliance with the public notice, a report of the issues raised and how the state considered those comments when developing the demonstration application, and documentation of the state s consultation activities, including issues raised and potential solutions, must be included in the demonstration application. Oregon s 1115 Demonstration Waiver In 2012, Oregon received permission from CMS under an 1115 waiver to manage its Medicaid program through coordinated care organizations (CCOs). A CCO is a local network of providers that provide physical health care, addictions and mental health care, and, in some cases, dental care. These providers have agreed to work together to serve Medicaid enrollees. They are governed by a partnership among the participating health care providers, community members, and health system stakeholders. These partnerships are financially responsible for their patients and, as such, are risk-bearing entities. CHCs have the opportunity to get involved and be a participant in CCOs. The State is projecting a savings of $3.1 billion over five years and close to $11 billion over the next decade from implementing this project. Once the comment period has ended, the state may submit the application to CMS. Within 15 days of receipt of the application, CMS will determine application completeness, and a mandatory 30-day federal public notice and comment period begins. CMS has a minimum of 45 days to make a decision on the state s submittal. Waiver application statuses are posted on CMS website. CMMI Demonstration The Center for Medicare and Medicaid Innovation (CMMI) was created by the ACA, and is tasked with developing and funding demonstration projects to reduce program expenditures while preserving or enhancing the quality of [patient] care. 7 The center is currently focused on the following priorities: Testing new payment and service delivery models, Evaluating results and advancing best practices, and Engaging a broad range of stakeholders to develop additional models for testing. 3

The CMMI has 41 innovation models organized into seven different categories, one of which is the Medicaid and CHIP Population. Awards for these projects have been received by providers, payers, local and state governments, public-private partnerships, and multi-payer collaboratives, among others. One of the largest endeavors of CMMI is the Innovation Awards. These awards are designed to test innovative payment and service delivery models that are specifically targeted on improving and reducing the cost of care for Medicare, Medicaid, and/or CHIP enrollees. In recognition of the role that states can play in planning, designing, testing, and supporting large scale health system transformation, one of the Innovation Award categories is the State Innovation Model (SIM) Initiative. This initiative supports the development and testing of state-based models for multi-payer payment and health care delivery system transformation with the aim of improving health system performance for residents of participating states. Six states have received SIM funding to test state innovation models. An additional 19 states were awarded funds to develop state innovation plans, for pre-testing assistance, and for further development and refinement of their plans. Plans are required to focus on multi-payer payment and health care delivery system reforms. Each state innovation plan is unique, but some common strategies being tested include alignment of strategies across multiple payers, alternative payment methods, integration of care, development of health data infrastructure and analytics, and regional and community collaboratives. Indiana s Alternate Expansion Plan Indiana recently proposed using its 2008 1115 waiver as the basis for a Medicaid expansion. The waiver expanded Medicaid to two additional populations: custodial parents and childless adults, with income below 200% FPL, who have been uninsured for six months, and do not have access to insurance through their employer. This expansion program is known as the Healthy Indiana Plan (HIP). Medicaid Expansion Approaches As originally enacted in the ACA, expansion of Medicaid eligibility to all adults age 19 64, who are not otherwise eligible for Medicaid and with incomes below 138% of the Federal Poverty Level (FPL), would have constituted the single largest eligibility expansion since the Medicaid program was established. 8 The U.S. Supreme Court decision in 2012 made the Medicaid eligibility expansion optional and state legislatures and governors offices have since debated its adoption. Some states were quick to adopt or reject the expansion, while the debate continues in other states. As of late August 2013, it appears that 26 states plus D.C. are likely to expand Medicaid in 2014. Most of the states opting into the expansion at this time are planning on traditional expansions (i.e., expanding HIP-eligible individuals are enrolled in one of three health plans, two of which are pre-paid, capitated plans, and the third is an Enhanced Service Plan for enrollees with significant health needs. Enrollees are provided with a Personal Wellness Responsibility (POWER) account, which operates similar to a basic HSA account. It is used to pay deductible expenses, and is funded through a combination of enrollee, state, and federal contributions. Enrollees contribution amounts are scaled by household income and range from 0% to 5%, based on the enrollees income. Unused POWER account funds roll over year-to-year (assuming the enrollee has met all program requirements), providing incentives for members to obtain annual preventive care requirements first (which are provided at no charge to enrollees). Because POWER accounts are capped any funds that are rolled over effectively reduce the enrollee s account contribution amount in the following year. If an enrollee uses services in excess of the cap, the State covers the excess costs. Research has found that this program incentivizes the use of preventive care, minimizing the use of unnecessary or more expensive treatments. 4

Medicaid coverage to the newly eligible under a traditional Medicaid benefit plan or alternative benefit plan). However, a few states, including Arkansas, Alaska, Iowa, Indiana, New Hampshire, Tennessee, and Wyoming are looking into alternative models that would provide coverage to the expansion population and utilize the enhanced federal dollars, without covering the population through traditional Medicaid programs. For example, Arkansas has proposed a model that will cover the expansion population through private insurance purchased through the health insurance exchanges with premium assistance. Other states are looking at models that incorporate health savings accounts (HSA), health and wellness plans, and/or increased cost sharing. As these methods are approved and tested, more states may start migrating to similar models. Premium Assistance. Premium assistance helps Medicaid-eligible individuals and families purchase qualified commercial insurance (either individual insurance or employer-based coverage). Under existing Medicaid rules, the purchase of premium assistance must be cost-effective, meaning Medicaid s premium payment to commercial plans plus the cost of additional services and cost-sharing assistance would be comparable to what it would otherwise pay for the same services. 9 Premium assistance arrangements must also provide Medicaid-eligible enrollees with access to all Medicaid benefits and cost-sharing protections. HHS has indicated that it will consider a limited number of premium assistance demonstrations for the purchase of qualified health insurance through an exchange s individual market. It has stated that it will only consider proposals that: Provide beneficiaries with a choice of at least two qualified health plans (QHPs); Make arrangements with the QHPs to provide any necessary wrap-around benefits and cost sharing along with appropriate data ; Are limited to all individuals in the new Medicaid adult group who must enroll in benchmark coverage and are not described in SSA 1937(a)(2)(B)[i.e., the medically frail] ; End no later than December 31, 2016. Starting in 2017, State Innovation Waiver authority begins which could allow a range of state-designed initiatives. 10 More information on premium assistance may be found in NACHC s Spotlight on the States #5, Medicaid Premium Assistance and Health Insurance Exchanges from May 2013. States Using Premium Assistance for the Medicaid Expansion Discussions on premium assistance were initiated with HHS by Arkansas whose legislature was looking for a compromise on the Medicaid expansion provision. The State has proposed using private insurance to cover lowrisk, uninsured adults by purchasing commercial insurance with enhanced federal funds through the exchange for the State s expansion population. Cost sharing will be restricted to amounts that do not exceed Medicaid costsharing limitations, and children are to be enrolled in the same plan as their parents to the extent possible. Iowa has also developed a proposal for a premium assistance plan allowing the expansion population to purchase private insurance through the exchange. Medicaid will pay the enrollees premiums and ensure that the health plan options provide the required benefits, provider network, and out-of-pocket costs (i.e., the same benefit and cost-sharing requirements as those covered under the State s coordinated care program). The State is also expanding premium assistance to include individuals with access to cost-effective employer sponsored insurance. 5

Reform Trends Some reoccurring themes exist among state reform efforts. These efforts have been developed both in conjunction with ACA guidelines as well as part of separate state-based initiatives to improve the Medicaid program and reduce costs. Many states have migrated toward managed and integrated care models, developed new payment models and financing mechanisms, created incentivizes for healthy behaviors, and used data to evaluate and bolster their reform efforts. Each of these initiatives is described briefly below. Managed, Integrated, and Collaborative Care Moving to Medicaid managed care models, particularly commercial managed care, has been the trend among states over the last several years. However, more recently states have begun to develop managed care models that differ from traditional commercial managed care organizations (MCO) and primary care case management (PCCM) models. In both FY 2012 and FY 2013, a number of states began implementing a range of initiatives to coordinate and integrate care. Many of these initiatives are focused on improving care for populations with chronic and complex conditions, aligning payment incentives with performance goals, and building accountability into the delivery of high-quality care. 11 Examples of such coordination strategies include health homes, patient-centered medical homes, and Accountable Care Organizations (ACOs) as well as initiatives to coordinate physical and behavioral health, and long-term care and acute care services. Many of these initiatives are being used to improve care for Medicaid populations with complex health needs as well as persons with mental health and substance abuse treatment needs. In some states, there have been even more recent efforts to integrate oral health and public health strategies. Examples of states implementing these different strategies are provided. Managed Care. Florida recently received approval from CMS to operate a Statewide Managed Medical Assistance program under an 1115 waiver. The program requires most Medicaid-eligible individuals to enroll in a managed care plan. Participation is mandatory for Minnesota s Accountable Health Model In February 2013, Minnesota was awarded up to $45 million through CMMI to implement and test its Accountable Health Model, which focuses on improving health and lowering costs for individuals with complex health needs while moving the majority of health care in the State to shared savings/shared risk payment arrangements. This model expands the State s current Medicaid ACO demonstration, and supports the development of up to 15 Accountable Communities for Health. 10 FQHCs came together to participate in the State s model, and formed one of the nation s first safety-net ACOs. The ACO s delivery system has nearly 40 service sites across seven counties, and is estimated to cover roughly 22,000 Medicaid beneficiaries. The served population is culturally diverse and economically disadvantaged; 94% of the patients have incomes below 200% FPL. Additionally, four of the FQHCs have previously obtained health home certification. Medicaid savings for the Accountable Health Model is estimated to be $90.3 million over a three-year period. TANF-related populations and the aged and disabled, with some exceptions. One key component gives allowance to capitated health plans to create customized benefit packages with risk-adjusted premiums. They must cover the services outlined in the state plan, but may alter the amount, duration, and scope of coverage to reflect the needs of the plan s target population. 6

Health Homes. Several states use health homes has a way to provide coordinated care for patients with complex medical, behavioral, and long-term care needs. In its basic form, a health home is a care management service model in which all of a patient s caregivers communicate with one another either in person, electronically, or through paper transmittals to ensure that the patient s needs are efficiently and comprehensively addressed. In New York s Health Home program, care is managed through a care manager who oversees the patient s total care and provides the patient with access to providers, health plans, and community-based organizations. 12 In this case, the health home is a virtual health home, where care is provided at multiple locations, but coordinated by a centralized individual. Other states have implemented health homes that have more of a physical presence; medical, behavioral, and social service providers co-locate to provide a centralized model of care. The ACA includes a health home provision that provides states with an opportunity to build a personcentered system of care that achieves improved outcomes for beneficiaries and better services and value for state Medicaid programs. 13 The option is available to individuals with co-occurring chronic conditions who select a designated health home provider. 14 States that implement a Health Home State Plan Amendment will receive a 90% federal match rate for all health home services for the first eight fiscal quarters the amendment is in effect. Examples of eligible health home services include: 1) comprehensive care management; 2) care coordination and health promotion; and 3) comprehensive transitional care from inpatient to other settings, including appropriate follow-up care, among others. So far 12 states have CMS-approved Health Home State Plan Amendments. An additional 14 states have submitted SPAs to CMS or have an approved health home planning request. 15 Patient Centered Medical Homes. Similar to a health home, the patient-centered medical home (PCMH) is a model of care that emphasizes care coordination and communication among providers in order to treat the whole person. It typically focuses on primary care, including promoting prevention and wellness and meeting basic mental health care needs. Comprehensive care is provided through a team of providers, including physicians, advanced practice nurses, physician assistants, nurses, pharmacists, nutritionists, social workers, educators, FQHC/CHC role in Integrated Models and care coordinators. 16 The medical home also promotes patient engagement. Several states have implemented PCMH programs or pilots. Ohio, for example, is leading a statewide expansion of its PCMHs in order to control costs, improve health outcomes, and enhance the patient experience. 17 It has established a Patient-Centered Primary Care Collaborative to determine how to deliver care in a more effective way through enhanced communication, identification of best practices, and increased engagement of participating providers. FQHCS/CHCs in many states have seized the opportunity to become part of the integrated care movement by participating in ACOs, CCOs, and health homes. Examples include the states of Missouri, Alabama, and Oregon where FQHCs are playing a prominent role in the implementation of Medicaid health homes implemented under the ACA Section 2703 Health Home State Plan Amendment option. Participation may require expanding CHC traditional roles and careful crafting of payment strategies, but it also opens avenues to have a greater influence on the holistic care of their patients and a larger role in the health care system as it continues to transform. 7

Accountable Care Organizations. Oregon is implementing a managed care initiative through the adoption of regional Coordinated Care Organizations (CCOs), which are risk-bearing, community-based entities governed by a partnership among providers, community members, and entities taking financial risk for the cost of health care. 18 Oregon has already transformed its Oregon Health Plan (Medicaid) to CCOs and is spreading the CCO model to additional covered populations and payers such as Medicare and private plans covering state employees. The state will use CMMI innovation funds to create a Transformation Center to assist in, among other things, spreading the model into the qualified health plans of the health insurance exchange in 2014. Colorado is also pursuing the integration of physical and behavioral health at the practice level through Integrated Primary Care Providers within the framework of its existing Medicaid Accountable Care Collaboratives. The integration between physical and behavioral health is intended to be a starting point to broader integration with additional health care areas and specialties. Regional Collaboratives. One method being used by states to achieve greater coordination as well as test new delivery and payment models is to redesign health care systems at the community or regional level. Similar to the community-based models in Oregon, Colorado, and Minnesota, legislation enacted this year in Alabama will create Regional Care Organizations, which will be responsible for coordinating care for all Medicaid recipients. Texas has also established Regional Health Partnerships (RHP), which are led by public hospitals and local governments who elect to use their local resources, by way of Intergovernmental transfers (IGT), to fund the non-federal portion of health reform financing (for more information see Text Box on p. 9). Payment Models and Financing Mechanisms Payment Models. States have been implementing various payment models as they seek to transition from fee-for-service payment systems. These alternative methodologies have been piloted in Medicaid only models, in Medicaid and Medicare financial alignment models, and in multi-payer models involving Medicaid, Medicare and/or commercial payers. Among the efforts being tested are those in Arkansas to further institute and expand a system of episode of care payments for acute, procedural, or ongoing specialty care conditions. 19 Vermont plans to test three payment models: shared savings, bundled payments, and a pay-for-performance model. 8

Shared Savings, Bundled Payments, and Pay for Performance Shared Savings: In shared savings payment models, growth in spending for a group of patients is compared to a target growth rate. If actual spending is less than the target rate, then providers receive a share of the savings that were generated. Payment models can be developed with upside risk sharing (providers receive the shared savings, but are not responsible for any loss in savings) or downside risk sharing (providers pay a portion of any loss of savings). CHCs are eligible to participate in the federal Medicare Shared Savings program (MSSP) as a single organization or in partnership with other organizations. Bundled Payments: In bundled payment arrangements, providers share one fee paid for treating all aspects of a specific condition. The purpose of the bundled payment is to encourage all participating providers to work together to control costs, eliminate unnecessary care, and improve quality and outcomes. Arrangements may be related to a clinical episode of care or related to treating a specific condition over a defined period of time. Some CHCs receive a bundled payment from Medicaid if they provide all related services. CMS established a Bundled Payments for Care Improvement initiative, in which organizations enter into payment arrangements that include financial and performance accountability for episodes of care. Use of bundled payments is also being considered in the MSSP and other accountable care arrangements. Pay for Performance: In a pay-for-performance arrangement, providers are compensated based on an evaluation of their performance. Evaluations measure the quality of services provided and/or how cost effective the providers are in treating patients. Payments can also be used to encourage certain clinical behaviors and provide incentives for demonstrating improvement in performance. Compensation is typically awarded as a bonus payment on top of the providers usual compensation. Pay-for-performance can be paid on an individual provider basis or based on the performance of a provider group. CHCs may be eligible to receive pay-for-performance bonuses offered by state Medicaid programs. These payments can be made through both fee-for-service and capitated models. Financing Mechanisms. As part of their research and demonstration waivers, some states have proposed that CMS make additional funding available for costs that would not otherwise be eligible for a federal match, including: Investments in organizations to build infrastructure to enable delivery system transformation. Investments to enhance the infrastructure of the state s behavioral health safety-net system to support efforts to provide coordinated care for individuals who have mental illnesses and substance use disorders. Provider Payment Transition Pools to support hospitals in the transition from per diem to APR-DRG payment systems. Quality of Care Pools for incentive payments outside of the capitation rate for achieving target quality outcomes. 9

Funding Pools: Texas The Texas 1115 waiver allows the State to replace some of the current hospital funding mechanisms with a funding pool made up of federal funding and IGT transfers. Total federal funding received by the end of 2016 is expected to reach $29 billion. The funding pool will include two specific components: Uncompensated Care (UC) Pool: Funding from this pool will be used to compensate hospitals and other eligible providers for uncompensated costs. Delivery System Reform Incentive Payment (DSRIP) Pool: The DSRIP Pool is used to support health reform efforts channeled through Regional Healthcare Partnerships (RHP). RHPs are led by public hospitals and local governments who elect to use their local resources in the form of IGTs to fund the non-federal portion of reform effort financing. To achieve these goals, each RHP allocates DSRIP funding for projects in the following four categories: 1. Infrastructure Development 2. Program Innovation and Redesign 3. Quality Improvements 4. Population Focused Improvements Over 1,500 projects have been developed in total by the RHPs. While the overall goals of the projects are the same, the projects being proposed have a range of scope from enhancing access by increasing the number of PCPs and support staff and utilizing telemedicine services, to establishing a registry of patients with chronic care conditions. Several of the projects have ties to CHCs, including establishing primary care/behavioral health care clinics in tandem with FQHCs to create an integrated system of health care, subcontracting with existing FQHCs to provide primary care and behavioral health care services to uninsured populations, providing FQHCs with electronic health record capability, and developing a referral process between hospitals and FQHCs. Incentivizing Healthy Behaviors State and federal leaders, charged with holding down costs while maintaining access to or quality of medical services, generally agree with data suggesting costs can be better contained if all people are practicing healthy life behaviors. 20 In an effort to encourage healthy behaviors, three states (Florida, Idaho, and West Virginia) have taken the first steps in developing incentive programs to encourage positive health behaviors in Medicaid populations. Unfortunately, only Idaho has built an evaluative component into its services, so much is still left to be learned when creating best practices. However, some lessons learned from these first attempts at incentivizing behaviors suggest: It is difficult to engage participants in complex behaviors that are not clearly delineated (e.g., smoking cessation, weight management, increased exercise, etc.) using an incentive program. 21 It is easy to engage participants in simple behaviors involving office visits (e.g., vaccinations, screenings, wellness programs, etc.); 22 It is easy to engage parents in behaviors which provide benefit to their young children (however, these activities involved office visits so there may be some confounding variables); 23 If money is used as an incentive it needs to be immediately available to the participant to be considered of value; 10

Informing potential participants of the availability of the incentive program is of utmost importance; 24 Programs using the physician as a gatekeeper may have limited effectiveness as the physician may not be willing or able to adequately participate in this role; 25 Enrollment in incentivized programs requires action from the participant (as opposed to default assignment) in order to better educate and motivate the participant; 26 and A voucher program will not be successful if other barriers exist that prevent the participant from using the voucher (e.g., vouchers provided for gyms cannot be used because of difficulties regarding childcare and transportation). More recently, 10 states that were awarded CMMI demonstration grants plan to develop, test, and evaluate ways to encourage healthy behaviors in Medicaid recipients whose life habits most often lead to chronic disease. These 10 states California, Connecticut, Hawaii, Minnesota, Montana, New Hampshire, New York, Nevada, Texas, and Wisconsin are each tackling complex behaviors traditionally linked to reducing chronic disease: smoking cessation, weight loss, diabetes management/prevention/ detection, and using exercise and/or nutrition to improve health. 27 As these states implement and evaluate these new programs they will begin to produce valuable and heretofore missing information regarding the efficacy and cost efficiency of incentivized plans in the Medicaid populations. Health Data While not an explicit reform effort itself, many states have made efforts to improve and transform their health data infrastructure in order to achieve full coordination and integration of care. Vermont, for example, has received innovation funding for improved clinical and claims data transmission, integration, analytics, and modeling; [and] expanded measurement of patient experience of care among other technology and data enhancements. New York is targeting information technology areas such as expanding provider access to data. Washington proposes to utilize its existing quality collaborative to develop and promote the adoption of a common set of transparent, evidence-based quality and utilization metrics and evaluation criteria among multiple payers, providers, and others. CMS Approval Trend As mentioned above, states have quite a bit of flexibility in designing and reforming their Medicaid programs, but must receive approval from CMS in order to make significant changes. Waivers CMS has approved, as well as FAQs it has issued in the past 12 months indicate the types of reforms CMS would likely approve in an 1115 waiver demonstration, and what areas it would likely not provide flexibility on. Precedence for Approval Increased Cost Sharing. There is precedent for CMS to waive certain cost-sharing provisions for optional expanded populations. 28 For example, CMS recently approved higher copayments for Arizona s expanded adult population. In its April 8, 2013 approval letter to Arizona, CMS acknowledged several key factors in its approval, one of which is that some cost sharing is necessary in order to prevent the state from implementing other, more severe and in our view, worse alternatives, such as covering fewer people in this population by lowering the qualifying federal poverty level (FPL) percentage limit, reducing benefits for the currently covered population, or eliminating coverage of this expansion population entirely. 11

Other Cost Sharing. On a very limited basis, CMS has also approved the use of copayments that penalize poor healthy behaviors. For example, in the Arizona waiver request, CMS approved $3 fees for parents and childless adults who miss scheduled appointments (and live outside of certain counties). Health Savings Accounts. In the past, CMS has approved the use of HSAs to help optional expansion populations pay for cost sharing and to incentivize positive healthy behaviors. For example, the Healthy Indiana Plan, which covers adults not eligible for the traditional Medicaid program, provides enrollees with Personal Wellness Responsibility (POWER) accounts. These accounts are similar to HSAs, and are funded through a combination of enrollee, state, and federal contributions (for more information see the Text Box on p. 4). Personal Responsibility. In addition to HSAs, CMS has indicated an interest in working with states to promote initiatives that are specifically aimed at promoting healthy behaviors. CMS is particularly interested in ideas that promote value and individual ownership in health care decisions as well as accountability tied to improvement in health outcomes. 29 CMS stated that increased flexibility will be provided to designs that focus on optional expansion populations above 100% FPL. Coordinated Care Initiatives and Global Payments. Several states are implementing coordinated care initiatives, which include elements of global or capitated payments. Oregon s CCOs are an example of this type of initiative that has received approval from CMS. Funding Pools. CMS has approved the use of funding pools in several states, including California, Texas, and Florida. The purpose of these pools is to support safety net and other providers that supply uncompensated care to Medicaid, underinsured, and uninsured populations. These pools typically have a maximum allotment that is made up of both state and federal dollars. Providers also must meet predetermined milestones in order to receive their designated allotment from the pool. Milestones are generally associated with improving health care infrastructure or developing health care reform projects. Areas Not Likely to be Approved Enrollment Caps. In FAQ s published in April 2013, CMS indicated that it will not approve enrollment caps or periods of ineligibility in section 1115 demonstrations. 30 Providing Enhanced Funding for Partial Expansions. CMS has clearly stated that it will only provide the enhanced federal match rate to states that expand eligibility to adults, age 19 64, with income up to 138% FPL. It will not provide funding for a phased-in or partial expansion from 2014 to 2016. 31 This includes alternative expansions that involve premium assistance models. Providing Enhanced Funding for Delivery System Change Demonstrations. The April 2013 FAQ also indicates that demonstrations that only focus on changes to the delivery of health care services, such implementing managed care, will not be eligible for the increased federal match. To receive the enhanced match, these demonstrations must be coupled with expanding eligibility to adults, age 19 64, with income up to 138% FPL. 12

Opportunities, Risks and Uncertainties for Community Health Centers The following section outlines possible opportunities and risks for CHCs associated with various statelevel reform efforts. However, uncertainties regarding the exact nature and impact of some reforms can blur the line between opportunity and risk. As a result, the perceived opportunities and risks are detailed below. Individual CHCs can use this information to help determine whether the specific reform efforts in their states represent an opportunity or risk for their organization. Perceived Opportunities Increased Market Share. As states expand Medicaid coverage, or implement expansion alternatives, a greater number of currently uninsured individuals will have access to health coverage, giving them the opportunity to seek medical care. Because CHCs currently target these specific populations, they already have established care models tailored to the populations needs and geographies. Individuals within these populations will likely seek CHCs for their care due to geography, availability of needed services, cultural understanding, and multilingual availability. Revenue Sources. CHCs currently serve many uninsured individuals, but as states expand Medicaid or develop alternative coverage models, a greater number of these uninsured individuals will have access to publicly funded health care coverage. Other currently uninsured CHC patients will be eligible for subsidies to obtain coverage through either state or federally administered insurance exchanges. As such, a greater number of delivered services will be subject to reimbursement either through Medicaid or a private plan. Lead in Integrated Care Models. More focus is being placed on managed and integrated care models, including ACOs, regional networks/collaboratives, and health homes. New payment models are testing the use of care coordination fees and shared savings strategies to improve the quality and efficiency of care. The decision to lead or participate in these new models of care provides numerous opportunities for CHCs to directly influence health care reform at a community, state, and national level. Perceived Risks Challenges to Prospective Payment System (PPS) Reimbursement. As states pursue Medicaid and multi-payer payment reforms, attention is often focused on the CHC PPS reimbursement system and how that system fits with reform efforts. Of particular note, this question has arisen in the context of alternatives to the Medicaid expansion through premium assistance approaches. Potential Loss of State and Local Monetary Support. 35 states currently appropriate additional state dollars to CHCs for the care of the uninsured. After reaching a high of $626 million in total state appropriations in FY 2008, the level of appropriations declined in the past five years, reaching a level of only $287 million in FY 2013. 32 This decline coincides with reduced state revenues and budgets during the Great Recession. It is not clear, however, whether the downward trend will end or even rebound as state revenues increase. Additionally, when portions of the ACA go into effect in 2014, there will be fewer uninsured, and a greater number of individuals covered under Medicaid. Fewer uninsured patients may heighten calls for reduced state appropriations for CHCs. However, it is important to note that while the number and rate of uninsured in Massachusetts decreased with its health reform implementation, the number of uninsured who sought care through CHCs actually increased. 33 13

Increased Competition. In 2014, many of the currently uninsured individuals will obtain health coverage either through Medicaid or through the exchanges. This new coverage will broaden their network of possible providers, potentially leading them to seek services outside the CHCs where they were previously receiving care. In addition, as states migrate toward managed and integrated care service delivery models, and greater continuums of care are developed, competition will increase as managed care patients are directed toward providers who are part of the managed care networks. Also, as states continue to implement health homes, CHCs choosing not to participate may face a reduction in patient numbers as the state directs those individuals toward designated providers. Conclusion The scope of health care reform efforts affecting safety net populations and the providers that serve them is both broad and complex. Participating in these reforms, and more importantly, influencing them opens up both opportunities and risks for CHCs. Understanding the methods by which states implement reform, as well as specific state reform efforts and the likelihood of the reforms being approved by CMS, will allow CHCs to take advantage of the opportunities and mitigate the possible risks. 1 United States Department of Health and Human Services, CMS, Office of the Actuary (2012). 2012 Actuarial Report on the Financial Outlook for Medicaid by Truffer, C.J., Klemm, J.D., Wolfe, C.J., Rennie, K.E., & Shuff, J.F.. 2 This includes the funding received by states from the federal government. National Association of State Budget Officers (December 20, 2012). State Expenditure Report. 3 As part of Maintenance of Effort (MOE) requirements, states may not make it more difficult to enroll in coverage than before the ACA was enacted. This includes, but is not limited to, frequency of redeterminations, paperwork and documentation required for application, uninsured waiting periods, and premiums or enrollment fees. The MOE requirement remains in effect until Jan 1, 2014 for adult Medicaid coverage and October 1, 2019 for children s Medicaid and CHIP coverage. 4 Section 430.12 of the Code of Federal Regulations defines the process for submitting a SPA. 5 Specifically, states must assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area. 6 Families USA (June 2012). State Plan Amendments and Waivers: How States Can Change Their Medicaid Programs (Issue Brief) by Mahan, D.. 7 Section 1115A of the Social Security Act, as added by section 3021 of the ACA. 8 138% FPL is roughly equivalent to $15,000 for an individual and $30,000 for a family of four. New federal match rates will provide 100% federal funding for the care of the newly eligible Medicaid population for three years (2014 2016). After 2016, the funding will gradually be reduced to 90% by 2020 and, by law, will hold at 90% thereafter. However, this enhanced funding is only available for the expansion population. States will receive only the regular match rate for those Medicaid enrollees who are found to be eligible for traditional programs. 9 Centers for Medicare and Medicaid Services, CMS (March 2013). Medicaid and the Affordable care Act: Premium Assistance. 10 Ibid. 11 The Henry J. Kaiser Family Foundation (2012, October). Medicaid Today, Preparing for Tomorrow: A Look at State Medicaid Program Spending, Enrollment and Policy Trends, Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2012 and 2012 (Publication #8380). 12 New York State Department of Health. Medicaid Health Homes. Retrieved on August 27, 2013 from http://www.health.ny.gov/health_care/medicaid/program/medicaid_health_homes/ 14

13 CMS (November 16, 2012). Letter to State Medicaid Directors Regarding Health Homes for Enrollees with Chronic Conditions. 14 The chronic conditions described in section 1945(h)(2) of the Social Security Act include a mental health condition, a substance use disorder, asthma, diabetes, heart disease, and being overweight (as evidenced by a body mass index over 25). However, the Act also authorizes the Secretary to expand the list of chronic conditions. Additional chronic conditions, such as HIV/AIDS, will be considered. Ibid. 15 States with approved Health Home SPAs include Alabama, Idaho, Iowa, Maine, Missouri, New York, North Carolina, Ohio, Oregon, Rhode Island, Washington, and Wisconsin. States that have submitted SPAs or have an approved health home planning request include California, Nevada, Arizona, New Mexico, Kansas, Minnesota, Illinois, Arkansas, Mississippi, West Virginia, New Jersey, Maryland, Vermont, and the District of Columbia. CMS. Approved Health Home State Plan Amendments. Retrieved on August 27, 2013 from http://www.medicaid.gov/state-resource-center/medicaid-state-technical-assistance/health-homes-technical- Assistance/Approved-Health-Home-State-Plan-Amendments.html 16 Agency for Healthcare Research and Quality. Patient Centered Medical Home. Retrieved on August 27, 2013 http://pcmh.ahrq.gov/portal/server.pt/community/pcmh home/1483/pcmh_defining%20the%20pcmh_v2 17 Ohio Department of Health. Patient-Centered Medical Homes. Retrieved on August 27, 2013 http://www.odh.ohio.gov/landing/medicalhomes/pcmh.aspx 18 CMS. State Innovation Models Initiative: Model Testing Awards. Retrieved on August 27, 2013 from http://innovation.cms.gov/initiatives/state-innovations-model-testing/index.html 19 Health Care Payment Improvement Initiative. Episodes of Care. Retrieved on August 27, 2013 from http://www.paymentinitiative.org/episodesofcare/pages/default.aspx 20 BMC Public Health (2012). Making the economic case for prevention a view from Wales. 12 No. 1. Hale, J., Phillips C., & Jewell T.. New England Journal of Medicine (2007). We can do better improving the health of the American people. 357 No. 12. Schroeder, S. A.. 21 American Journal of Preventive Medicine (2004). A structured review of the effect of economic incentives on consumers preventive behavior. 27. Kane, R. L., et. al.. New England Journal of Medicine (2007). We can do better improving the health of the American people. 357 No. 12. Schroeder, S. A.. 22 American Journal of Preventive Medicine (2004). A structured review of the effect of economic incentives on consumers preventive behavior. 27. Kane, R. L., et. al.. Medical Care Research and Review (2008). Impact of targeted financial incentives on personal health behavior: A review of the literature. 65 Sup. 6. Sutherland, et. al.. 23 West Virginia University, Bureau of Business and Economic Research (2009). Mountain Health Choices Beneficiary Report. Gurley-Calvez, T., et. al.. Medical Care Research and Review (2011). Using consumer incentives to increase well-child visits among low-income children. 68 No. 5. Greene, J.. 24 Medical Care Research and Review (2008). Impact of targeted financial incentives on personal health behavior: A review of the literature. 65 Sup. 6. Sutherland, K., et. al.. 25 West Virginia University, Bureau of Business and Economic Research (2009). Mountain Health Choices Beneficiary Report. Gurley-Calvez, T., et. al.. 26 Health Affairs (2013). Medicaid incentive programs to encourage healthy behavior show missed results to date and should be studied and improved. 32 No. 3. Blumenthal, K. J., et. al.. 27 Ibid. 28 While the adult ACA expansion group was originally a mandatory population, due to the Supreme Court ruling, it is technically now an optional population. 29 CMS (December 10, 2012). Frequently Asked Questions on Exchange, Market Reforms, and Medicaid. 30 CMS (April 25, 2013). Affordable Care Act: State Resources FAQ. 31 CMS (December 10, 2012). Frequently Asked Questions on Exchange, Market Reforms, and Medicaid. 32 National Association of Community Health Centers, NACHC (May 2013). State FY 2013 Funding for Community Health Centers. State Policy Report #42. 33 Kaiser Commission on Medicaid and the Uninsured (March 2009). How is the Primary Care Safety Net Faring in Massachusetts? Community Health Centers in the Midst of Health Reform. Data further show that while the overall number of uninsured individuals in the country grew by 28% between 2001 and 2011, the number of uninsured 15

served by CHCs grew by 84%. NACHC (2013). A Sketch of Community Health Centers: Chart Book 2013. Available at http://nachc.com/client//chartbook2013.pdf 16

COPYRIGHT September 2013 October, 2010 National Association of Community Health Centers, 2013 State Policy Report #46 Medicaid Reform Efforts: The Trends and the Impact on Health Centers Contributors: Leavitt Partners, Center for Medicaid Intelligence National Association of Community Health Centers 1400 I Street, NW, Suite 910 Washington, DC 20005 For more information about this publication, please contact: DaShawn Groves Assistant Director, State Affairs Department of Federal and State Affairs dgroves@nachc.org 202.296.3800 9