On Thursday, March 11, during the third and final day of the National Health Policy Conference Online, a virtual conference, the leaders of the Washington, D.C.-based America’s Health Insurance Plans (AHIP), presented a session on the future of Medicaid policy, and implications of current policy developments for the nation’s health plans.
Elizabeth Goodman, executive vice president of government affairs and innovation at AHIP, moderated the discussion, in a session entitled “Health Policy Priorities for Medicaid.” Her two additional panelists were Darin Gordon, founding partner of Speire Healthcare Strategies, LLC, and Cindy Mann, a partner in Manatt Health at Manatt, Phelps, and Phelps, LLP.
For background on this subject, readers might be interested in perusing a brief authored by Elizabeth Hinton and MaryBeth Musumeci and published on Sep. 9, 2020, by the Kaiser Family Foundation. In it, the authors write: “Under federal law, payments to Medicaid managed care organizations (MCOs) must be actuarially sound.3 Actuarial soundness means that “the capitation rates are projected to provide for all reasonable, appropriate, and attainable costs that are required under the terms of the contract and for the operation of the managed care plan for the time period and the population covered under the terms of the contract.” The 2016 final rule on Medicaid managed care significantly strengthened the standards that states must meet in developing actuarially sound capitation rates and that CMS [the Centers for Medicare and Medicaid Services] will apply in its review and approval of rates. Payments made to Medicaid managed care plans vary depending on the scope of services and populations covered by the plan. Unlike fee-for-service, capitation provides upfront fixed payments to plans for expected utilization of covered services, administrative costs, and profit.”
In addition, the KFF authors write that, “In developing actuarially sound rates, states must follow accepted actuarial methods and specific federal requirements outlined in regulations and other guidance. Plan rates, usually for a 12-month rating period, are set using baseline utilization and cost data based on historical FFS claims, health plan services and utilization data (i.e., encounter data), and/or health plan financial data for the populations enrolled. Baseline spending data is trended forward to determine per member per month payment amounts and must take into account/adjust for factors such as medical cost inflation, expected changes in utilization, and state Medicaid program changes (e.g., changes to eligibility, benefits, cost-sharing, FFS payment rate changes (if state bases managed care rates on FFS rates)).” Importantly, they note that “Rates may take into consideration the use of plan risk sharing mechanisms including risk corridors, stop-loss, or reinsurance. Under risk corridor arrangements, states and plans agree to share profit or losses (at percentages specified in plan contracts) if aggregate spending falls above or below specified thresholds (two-sided risk corridor). Stop-loss and reinsurance arrangements protect plans from losses beyond a specified threshold.”
In any case, AHIP’s Goodman asked her panelists this question at the outset of the panel: “Federal rules require that states pay rates actuarially sound for managed care Medicaid. Several states have made significant rate cuts, have implemented narrow or asymmetric risk corridors, or have eliminated some quality measurements. What are your thoughts about the impact of these actions?”
“There have been a lot of issues relating to rates and the payments under those rates, because of COVID,” Cindy Mann said. “COVID continues to be a major disruptor. At the beginning of the pandemic, utilization through Medicaid dropped tremendously, in some cases, as much as 80 percent early on in the pandemic. And early on, states were worrying about those drops in utilization and maintaining access to coverage. They were also concerned over whether plans were sitting on dollars. And some of them moved quickly to take action: some did directed payments, some, risk corridors, etc. CMS had its own concerns. There was a lot of concern about wanting states to do risk corridors. And they were worried about pent-up demand that might surge later. So they were also attentive to risk corridors and directed payments.”
Mann continued, “[Patient] demand has surged back, mostly to where it was, except still down in pediatrics by about 24 percent. Meanwhile, providers have had to sustain COVID-related losses. And this volatility will continue. Plus, what do we do about rate-setting in the future? Because we rely on past rates to set rates. I think the Biden administration will probably pursue this as a matter of ensuring patient access, and I know that that will be a big focus for the Secretary and others in the Administration. But patient access obviously requires stability and sustainability of plans. So I think it’s finding that sweet spot of making sure the doors are open to welcome patients, and that the plans are strong enough to move forward. We’re not quite sure what the future will look like. So it will require all of us to be more nimble, and more collaborative than perhaps has been the practice until now?
“Darin, what do you think about the prospect of rate changes?” Goodman asked Darin Gordon. “I agree with the points that Cindy has made,” he said. “Risk corridors are tools used for periods of uncertainty, as with now. And as is always the case, the devil’s in the details. The retroactive nature of it has added some concerns. And you’ve seen subsequent retroactive adjustments. If you think about it as a plan, if you’re continuing to see retroactive adjustments coming, there will be this chilling effect, you’re waiting for the next shoe to drop, and I’m concerned that the system will seize up in those markets, and we won’t see the kinds of innovations needed, when plan leaders are concerned about what their revenue picture looks like. So we need this balance, as Cindy described, where we’re not being too aggressive about all the things we’d like to see that improve the member experience, etc. With lack of certainty, you’ll see in many cases a lack of investment.”
“Cindy, you said that you think the focus will be more on access than actuarial soundness, under the new Biden administration?” Goodman asked. “I was looking at that tension between actuarial soundness versus state flexibility, and saying that I don’t think that’s how the Biden administration will look at this,” Mann said. “They do want to make sure there are sound rates—not paying too much or too little. CMS has historically been reluctant to allow retroactive adjustment in plan rates, because of the disruption that that can cause for plans and for patient access. They’ll want to keep actuarial soundness in mind, but it will be hard to know what will be actuarially sound, particularly with regard to the last year or so, in terms of setting rates. So there will be a lack of data about the past as an indicator for the future. So it will require some flexibility in how to manage things. And I think ongoing dialogue between plans and their states about what’s really happening, will be important. I don’t think that states want to be confrontational; they want strong, healthy plans, they are their delivery system for Medicaid.”
“Your experience is deep in plan-state partnerships,” Goodman said. “How would you recommend that plans pursue the rate negotiation discussion?” “You can be in a situation as a state regulator and you’re listening to actuaries who don’t understand your local market as well as you do,” Gordon said. “And if the state doesn’t push back in some areas—it’s about understanding whether something is truly sustainable—then I fear you’ll have situations where plans will have a problem staying in a particular market. So plans need to share with states what’s happening on the ground. And again, waiting for that other shoe to drop—you can’t have multiple retroactive rate adjustments and say, I want you to invest in this and that area. I use this example: can you imagine if you were a state government and you were told that you have to address a deficit from a prior fiscal year, which is already closed; that would mean as a state that you would start out with a deficit. And you can’t look at a health plan and say, just pull resources from the commercial side; that just doesn’t work. I think it’s really about trying to bring facts and data to concerns, and the mid- to longer-term impact of prior actions.”
“The Obama administration focused on supplemental methodologies, and the Trump administration subsequently looked at FMAP issues. How will the Biden administration address this?” Goodman said, referring to the “Federal Medical Assistance Percentage (FMAP),” which “is computed from a formula that takes into account the average per capita income for each State relative to the national average,” as a Kaiser Family Foundation “State Health Facts” brief explains.
“There’s long-term concern around supplemental payments, and how they’re distributed and what their basis is. We’ve had longstanding GAO and MACPAC reviews of these issues,” Mann said, referencing the General Accounting Office of the U.S. Congress, and the Medicaid and CHIP Payment and Access Commission. “MFAR, on the other hand,” she said, referencing the Medicaid Fiscal Accountability Regulation (MFAR), introduced by the Trump administration in 2019, “took us in the direction of potentially imploding a large chunk of our financing system for the Medicaid program, and also leaving a lack of clarity. So that proposed legislation has been withdrawn. But the interest and concern around supplemental payments will continue. And there’s a part of the law that requires supplemental reporting. And reporting requirements can be informative or useless or misleading. So interest in these supplemental payments is not going to go away; and thinking about how the reporting could be useful, will be an important step forward. But the issue will come up soon. And CMS has discretion. So plans need to get in there and talk to CMS about how burdensome the reporting will be, and what it’ll look like. And will it be useful, useless, misleading? It’s a little bit of a sleeper issue.”
“The way that I look at MFAR, this is kind of a primitive way of describing it, but within the rule, it talked about how there was not a lot of transparency; yet it suggested pulling all these levers,” Gordon responded. “Just as a matter of good policy, you try to decrease your gap in understanding or visibility around what’s going on before pulling policy levels, to avert unintended consequences. We’ve been talking about this at MACPAC for some time. And numbers on a page won’t tell the whole story. So this is a step in getting the transparency there, but I think that a lot of dialogue will have to happen. Transparency is the smart thing to do. How long that will take—it will probably be later rather than sooner; but this is the start of a journey.”
A discussion of the social determinants of health
“State Medicaid plans have used a wide range of strategies and tactics to support their members around the social determinants of health,” Goodman stated. “What would you recommend that the authorities provide plans with?”
“It’s still very early on in the journey” around the social determinants of health, Gordon emphasized. “Many health plans have done some pretty creative things in this space. That said, there’s still a lack of clarity about how far they can go. While the administration put out some guidance, much of it was stuff we already knew. So I would suggest that the new Administration provide some vehicle for states and plans to have a place where they can ask questions like, if I really want to go out on the edge, how far can I go? I know of situations where states had great ideas, but they were afraid on the regulatory level as to how it would be perceived. So I think we need additional clarity to allow for room for creativity. I think a lot of people would like North Carolina-like waivers, even though we might not see that. But value-based purchasing and SDOH are inextricably linked. So as VBP advances, we have to figure out how to reward those providers that are making better connections in that area, but we’re still very early on in the journey.”
“I do think we’re still very early on in the journey, but we’re still further along than we were three or four years ago,” Mann said. “At Manatt, we do a 50-state survey of Medicaid managed care plans, and in terms of the contracts’ requirements around SDOH, you do see a strong movement forward, and those were put in place last year, pre-COVID. And we’re seeing plans, providers, and states, just intuitively, understanding that the kinds of situations that people are finding themselves in, whether homelessness, food insecurity, isolation, which have become so common during the pandemic, are so integral to issues around ensuring better health. So I do think we’ll see a big jump forward among states and in CMS in terms of interest around this. But as I always say, Medicaid can’t do it all,” she added.
“I think that Medicaid can do more than it’s doing; we need some more clarity,” Mann continued. “I agree with Darin that the guidance that was issued really didn’t tell us anything new. But people are wondering, will the North Carolina waiver be replicated? And duals are such an important part of the Medicaid program and increasingly of the plan portfolios. How do you think about the social determinants of health when you have more flexibility around them in Medicaid but less in Medicare? And a lot of SDOH investments were driven by projections around ROI. And the interest in this sits not just with those high-need adults; but it’s hard to get return on investment per kids, it’s the wrong-pocket problem of someone down the line getting the benefit from current investment. But we do need some technical support to plans and states on this. And as Darin said, you sometimes need real-time advice from CMS around what’s OK and not OK, not something seven months later; we need real-time answers.”
“Do you see new opportunities with the new Administration in terms of creative funding, or a whole-of-government approach?” Goodman asked. “I don’t think we’ll see different pots of money from different sources all coming together in some mythical place,” Mann said. “However, there could be greater clarity in terms of how states and plans can use different pots of money. I do think that the federal government can provide a roadmap on that, as well as greater clarity around exchanges of information. And I would love for there to be a coordinated federal response to the desire to do social determinants investment, but it’s a bit of a fool’s errand to believe we’ll have a blended pot of dollars to draw on.”
And, Gordon added, “We can make a lot of progress around risk adjustment and factoring in SDOH elements; Massachusetts has been advancing in that area. And second, looping back to something said earlier, when you have a lot of retroactive rate adjustments, in this context, that’s like talking out of both sides of one’s mouth. We have to have some balance there. I think the interest level is very, very high; and I look forward to efforts to incorporate health equity and social-determinants-of-health elements into all of this.”
“Increasingly, states are using contracts to innovate programmatically,” Goodman observed. “As managed care contracting is evolving, as states get a handle on some of the basics around the regulatory framework they’ll have and how they’ll engage with their plans, that will allow for some creativity,” Gordon responded. “There are contracts that are so specific—and I say to states, you have to allow plans room to innovate. For me, it’s less about incorporating language into contracts but rather, providing for flexibility. You want clarity around expectations, but also room to innovate. A lot of where innovation comes up involves two contracting cycles. And there has to be better integration of physical and behavioral health, and better integration of dual eligible, and other forms of integration—you have to get that framework at the payer level better aligned, and that creates tremendous opportunities; and we’re seeing that. “
