The Affordable Care Act and state Medicaid reform efforts present opportunities to reengineer health care payment and delivery systems to promote higher performance. This opportunity will be squandered, however, unless Medicare and Medicaid work collaboratively to develop a common framework for providers. This report explores how state Medicaid agencies might align with and build on the Medicare Shared Savings Program, which rewards groups of providers that meet cost and quality benchmarks by working together to coordinate patients' care in accountable care organizations (ACOs). While the Shared Savings Program applies only to fee-for-service Medicare beneficiaries, federal policymakers recognize that the ACO infrastructure can be leveraged to other populations. Indeed, ACOs are most likely to succeed if they deploy care management strategies across all patient populations. Medicaid beneficiaries could benefit from payment and delivery system reform initiatives aligned with the Shared Savings Program, and state Medicaid programs could reap considerable savings.
Both the federal and state governments are adopting new payment and delivery system models aimed at improving the quality of health care services and reining in costs. In addition to a wide range of reforms enacted in the Patient Protection and Affordable Care Act, there are several state policies supporting these goals. An emerging challenge for policymakers is to create alignment among these initiatives so that the proliferation of payment and delivery system models does not lead to conflicting financial incentives and burdensome reporting requirements for providers, thus undermining the goal of achieving coordinated, effective, and efficient care.
Medicaid could play a significant role in harmonizing the various delivery system reform initiatives and driving change that fosters greater accountability and improved performance across the health system and across payers. First, the sheer size of Medicaid—by 2019, up to 25 percent of Americans could receive coverage through the program, and it could account for as much as 20 percent of national health care spending—makes it vitally important to the success of any initiative. Second, states have a financial imperative to contain Medicaid costs: Medicaid accounts for over 70 percent of states’ health care expenditures, and is the first- or second-largest item in every state’s budget. Implementing coordinated, accountable delivery systems could help contain costs and achieve better outcomes for Medicaid beneficiaries.
The Centers for Medicare and Medicaid Services (CMS) recognizes the importance of having state Medicaid programs align with other payment and delivery system reform efforts, as evidenced by the recent Center for Medicare and Medicaid Innovation (CMMI) State Innovation Models initiative, which provides funding for states to design and test multipayer delivery system and payment reforms. Medicare and Medicaid must articulate a shared vision and adopt policies that are aligned in their support of providers working together to maximize the value of care they deliver to their patients and communities.
This report focuses on the Medicare Shared Savings Program (MSSP) as an example of how Medicaid might build on delivery system and payment reform programs in Medicare. While the MSSP program is designed to create accountable care organizations (ACOs) for fee-for-service Medicare beneficiaries, CMS has explicitly recognized that the ACO infrastructure can be leveraged to care for Medicaid populations, and that ACOs will be most successful if they deploy their infrastructure across all of their patient populations. In this report, we propose a policy framework for states to create ACOs for their Medicaid populations.
Landscape for Payment and Delivery System Reform in Medicaid
The Medicaid program has taken several steps to strengthen primary care, which is the essential foundation for any delivery system reform efforts. First, under the Affordable Care Act, Medicaid must pay providers at least the Medicare payment rate for primary care services provided during 2013 and 2014. The additional payments will be fully funded by the federal government, resulting in an estimated investment of $8.3 billion.
Second, at least 17 states have launched patient-centered medical home initiatives in their Medicaid programs that provide incentive payments to primary care providers that act as medical homes. Through the Affordable Care Act, several other states are also creating “health homes” in which providers receive a per member per month fee to provide care coordination services for patients with chronic conditions. Medicare is also taking steps to strengthen primary care for its beneficiaries through programs such as CMS’s Multipayer Advanced Primary Care Practice Demonstration and CMMI’s Comprehensive Primary Care Initiative, both of which promote alignment of Medicare, Medicaid, and commercial payers to improve care coordination for Medicare beneficiaries. Such programs are examples of federal support for multipayer delivery system reform efforts.
Finally, several states already have taken steps to establish ACO programs for their Medicaid populations. For example, Oregon has launched coordinated care organizations for its Medicaid population and plans to transition all beneficiaries currently enrolled in Medicaid managed care plans into these ACO-like entities.
While states have taken steps to strengthen primary care and experiment with accountable care strategies, the far more dominant trend is for states to expand their use of managed care to try to control costs and improve quality in their Medicaid programs. Nationally, as of 2010, 48 percent of Medicaid beneficiaries are enrolled in a fully capitated managed care plan. This will increase to 62.4 percent by 2019. States are also using managed care and ACO-like models to improve quality and reduce costs for their dually eligible populations.
The Roles of ACOs and MCOs in Medicare and Medicaid
Policymakers have largely viewed ACOs and managed care organizations (MCOs) as distinct approaches, even though both seek to provide high-quality, cost-effective care. ACOs and MCOs may be viewed as two poles on a continuum: at one end, a managed care organization receives a monthly capitation payment and oversees patients’ comprehensive care through a contracted network of participating providers; at the other end, an accountable care organization takes on responsibility for a designated patient population and receives fee-for-service payments, shares in any savings from meeting spending targets, and in some cases takes on risk for exceeding targets. While a range of models exists on the spectrum between these two poles, there is a “sweet spot” where the entity bearing financial risk is successfully integrated with the delivery system; well-known examples include Kaiser Permanente, Geisinger Health System, and Denver Health. This point can be achieved regardless of whether the starting point is an ACO or MCO; the challenge for states is to ensure that providers are supported, given appropriate incentives, and held accountable for achieving integrated, efficient, and effective care.
Policy Recommendations for Building an ACO Framework in Medicaid
This report offers the following policy framework for states to establish ACOs in their Medicaid programs by building on the MSSP model, adapting program requirements where appropriate to accommodate the unique characteristics of the Medicaid population, the needs of Medicaid providers, and market conditions.
1. Getting the strategy right. At the outset, states should develop a core strategy for achieving their goals of containing costs and improving quality in Medicaid and decide whether supporting ACO formation is central to this strategy.
2. Translating strategy into action. States will need to ensure that fee-for-service and managed care policies are aligned within their Medicaid programs, as well as with Medicare policies to the extent possible. States using primarily fee-for-service payment structures may want to model their ACO programs on the MSSP. States with sizable Medicaid managed care programs may want to adopt contracting guidelines governing the relationship between MCOs and ACOs to support a more integrated care model. Over time, states will want to minimize their use of fee-for-service contracts and develop payment models that combine quality metrics with capitation or shared savings that reward providers for high performance.
3. ACO certification. States should adopt a streamlined certification procedure that builds on the MSSP certification process and accounts for the needs of the Medicaid program, which provides care to a vulnerable patient population. States may facilitate certification of Medicaid ACOs by several means, including: deeming ACOs participating in the MSSP certified for the purposes of Medicaid ACO participation; creating a supplemental certification process; or creating a parallel state certification process for providers not applying for certification as a Medicare ACO. States also may consider working with an outside accreditation body to develop certification criteria that bridge the requirements of both Medicare and Medicaid.
4. ACO governance and ownership. States should align any ACO governance and ownership requirements with those set forth in the MSSP in order to avoid imposing conflicting standards on providers participating in both programs. While one such requirement is that clinical providers lead and own a majority stake in the ACO, the success of ACOs depends on the formation of partnerships with entities having expertise in areas such as information technology and care coordination. ACO implementation requires significant capital investments to put these elements in place. States should consider how to support safety-net organizations, in particular, in their efforts to form ACOs.
5. Assignment to an ACO. For Medicaid fee-for-service patients, it may make sense to follow MSSP’s lead and assign patients retrospectively, based on where they receive a majority of their primary care in each year. However, retrospective assignment may not be ideal in Medicaid since fee-for-service beneficiaries are not restricted to a fixed network of providers, and since Medicaid beneficiaries experience more frequent disruptions in insurance coverage than do Medicare beneficiaries. Retrospective assignment also may be less effective for treating Medicaid beneficiaries who have complex medical and behavioral health needs. States may want to consider prospectively assigning individuals with complex needs to ACOs in order to reach out to and closely manage these individuals. States also may want to use a prospective assignment system for Medicaid managed care beneficiaries, based on enrollees’ assigned primary care provider.
6. Opt-out. To avoid imposing conflicting standards for beneficiary notification and consent on organizations participating in both Medicare and Medicaid ACO initiatives, states should not allow Medicaid beneficiaries to opt out of assignment to an ACO.
7. Exclusivity of primary care providers. States will likely want to follow Medicare’s lead and limit primary care providers to participating in only one ACO for each tax identification number under which they bill Medicaid. However, states should ensure that this requirement does not impede access to care for Medicaid beneficiaries.
8. Financial model. To make participation in a Medicaid ACO program more appealing to providers, particularly safety-net providers who may have limited resources to invest in ACO infrastructure, states should follow the MSSP approach in developing a financial model that allows ACOs to be eligible for shared savings, but not shared losses, during their first three-year contract with the state. States also should consider the extent to which they share savings with providers and MCOs. For example, states should permit Medicaid ACOs to share in the first dollar of savings, so that ACOs may recoup their investments in ACO infrastructure. States also should require MCOs to share a portion of their savings with the state, so that Medicaid programs benefit from greater efficiencies in care.
9. Benchmark calculation and trending. In order to compare actual ACO spending to a benchmark—an estimate of what would have been spent on the ACO’s assigned beneficiaries—states may want to adapt three core features of the methodology used to calculate benchmark expenditures in the MSSP. First, the MSSP uses claims data from beneficiaries who are not necessarily assigned to the ACO, which will pose challenges for Medicaid programs that are expanding to the newly eligible population of childless adults with incomes below 133 percent of the federal poverty level. For this reason, states may want to exclude the newly eligible populations for the first year to avoid inaccurate benchmarks. Second, the MSSP methodology risk adjusts benchmarks based on beneficiaries’ health status. States that do not risk adjust Medicaid managed care capitation rates should develop a risk adjustment methodology for the Medicaid ACO program that adjusts benchmark expenditures to account for the health status of individuals. If this is not technically feasible, states could adjust the benchmark using only demographic and geographic factors. Third, in calculating benchmarks the MSSP uses trend factors based on the growth in national health care spending for Medicare beneficiaries. States should apply statewide trends in Medicaid spending to adjust the benchmark in their Medicaid ACO programs.
10. Compensation of ACO participating providers. The MSSP gives ACOs considerable flexibility in determining how to distribute shared savings (or shared losses) among providers. States should follow this lead in order to encourage innovation and collaboration among providers participating in Medicaid ACOs. States also may want to require that ACOs distribute a fixed percentage to safety-net providers to further Medicaid’s mission of ensuring access to care for low-income individuals.
11. Quality metrics. The MSSP and Medicaid ACO quality metrics should be aligned to the extent possible to ensure consistency across programs and to enable ACOs to create systemwide quality improvement initiatives. States should adopt relevant MSSP quality metrics and add additional metrics for core services provided to Medicaid beneficiaries, such as measures assessing the quality of pediatric, obstetric, and behavioral health care.
12. Health information technology and exchanges. Although the effective exchange of health information is indispensable to the success of ACOs, the MSSP does not require that ACOs participate in health information exchanges in their states. States thus have a unique opportunity to promote the interoperability of electronic medical records by building requirements into the Medicaid ACO certification process related to data sharing and use of public health information exchanges to support care coordination. Special consideration must be given to safety-net organizations, which may lack the capital needed to invest in a robust health information technology infrastructure. States should consider whether additional support is needed to ensure that safety-net providers can meet certification requirements related to data sharing and use of health information exchanges.
13. Federal fraud and abuse provisions. Fraud and abuse waivers remove several barriers to creating an ACO for entities participating in the MSSP, and they apply to all arrangements between MSSP ACOs and other payers. States can request that CMS and the Office of the Inspector General extend the same waivers to Medicaid ACOs to reduce barriers to participation among groups that are not also participating in the MSSP.
14. Antitrust guidance and the state action doctrine. To protect Medicaid ACOs from antitrust scrutiny for actions taken to further the ACO’s efforts, states may request that the Department of Justice and the Federal Trade Commission extend antitrust provisions in the MSSP program to Medicaid ACOs. Alternatively, states could employ the “state action doctrine,” which would protect ACOs formed under a state-created ACO program from federal antitrust scrutiny, provided the state maintains an active role in overseeing the ACOs.
15. State laws and levers. States should examine which state laws pose roadblocks to the implementation of Medicaid ACOs and follow the federal lead by issuing waivers or establishing guidance that supports ACO development and growth. States also should consider whether Medicaid supplemental payment policies or their certificate of need programs need to be restructured to align with the goals of Medicaid and Medicare payment and delivery system reform.
D. Bachrach, W. Bernstein, and A. Karl, High-Performance Health Care for Vulnerable Populations: A Policy Framework for Promoting Accountable Care in Medicaid, The Commonwealth Fund, November 2012.