State Medicaid Leaders Parse the Challenges of Healthcare Payment Reform

Dec. 4, 2017
During a health innovation conference sponsored by MIT’s Sloan School of Management, three state Medicaid leaders discussed their states’ progress to implement value-based payment models and the ongoing challenges of healthcare payment reform.

The U.S. healthcare industry is in the process of major transformation, and during a health innovation conference at the Massachusetts Institute of Technology (MIT) on Nov. 29, faculty, researchers, clinicians and practitioners addressed the challenges confronting the industry and the tools being brought to bear to address those challenges.

MIT’s Sloan School of Management’s Initiative for Health Systems Innovation (HSI) sponsored the “Innovating Health Systems: Digital Health Transformations” conference at the Cambridge, Mass.-based campus. The conference addressed issues such as how states are rethinking health delivery to their populations and where emerging digital innovations may transform health care delivery.

During a panel discussion focused on state models and population health, Retsef Levi, J. Spencer Standish Professor of Management at the MIT Sloan School of Management, the panel’s moderator, noted that, across the U.S., state Medicaid programs are responsible for 75 million patients, with most of those patients among the older, poorer and sicker in the population. “It’s fair to say that state governments have a major role in driving innovation in value-based payment schemes and health care system reform.”

During that panel discussion, three senior leaders representing state Medicaid programs for New York, California and Massachusetts provided overviews of their states’ progress to transition from fee-for-service to value-based payment models to transform population health, as well as the challenges that still exist in their work to reform healthcare payment and healthcare delivery.

Michael Wilkening, undersecretary, California Health and Human Services Agency, detailed the state’s work to transition more of the 14 million MediCal beneficiaries, who represent about a third of the state’s population, into a managed care environment (MediCal refers to the state’ Medicaid program) and shifting the program into a more patient-centered approach. With a MediCal 2020 waiver, the state developed a Whole Person Care pilot program that helps to drive incentive payments toward designated public hospitals to focus on better coordinating care management to improve the health and wellbeing of high-risk individuals, avoiding duplication of services and reducing inappropriate utilization of hospital emergency rooms and inpatient services. (A Healthcare Informatics profile of the Whole Person Care pilot in L.A. county, which is part of the statewide pilot, provides more details about the program).

“We’re looking to shift from hospital-based care and inpatient care to more preventative and outpatient care. And, we’re focused on the integrating other services, such as behavioral health and social services, that provide other types of services to keep people from coming into the hospital, and to provide the service in the least restrictive, least cumbersome method for people,” he said.

Jason Helgerson, Medicaid director, State of New York Department of Health, said that the state is about halfway into its five-year initiative to restructure the healthcare delivery system through its Delivery System Reform Incentive Payment (DSRIP) Program, which received $6.42 billion in funding. New York’s Medicaid program serves 6.6 million people with an annual budget of $68 billion, the second largest program in the country,

“We’ve seen some positive results as far as reductions in avoidable hospital use in the ER and admissions and readmissions, but there is still quite a bit of work to get this large and complex sector of our economy to work together in a collaborative way,” he said. He noted, “The challenge with healthcare is it’s the least customer-friendly sector in our economy. Much of the onus is on the patient to go and get care, regardless of how complex sick or disabled they may be, and the services are offered at the convenience of the provider not at the convenience of patients or members. At the end of day, if we’re going to be successful in making this thing we call healthcare affordable, effective and meeting the needs of an aging population, we have to make it more responsive and centered around the individual than it is around the provider.”

Helgerson said New York’s Medicaid program is on a path to have 80 percent of payments to providers be value-based payments by the end of the decade. “That is not pay-for-performance, that is providers taking on risk. We’re at 40 percent of those reimbursements right now,” he said, adding, “We believe, at the end of the day, you need a combination of payment reform and delivery system reform in order to get to a point where we’re talking about radically improved outcomes at very affordable prices.”

The state of Massachusetts was an early adopter of managed care, however, Daniel Tsai, assistant secretary, MassHealth, and the Medicaid director for the commonwealth of Massachusetts, says one of the challenges facing the state is that the fundamental structure to the Medicaid program hasn’t changed in 25 years. “We have health plans working with us, but underneath those contracts, you still have providers being paid on a volume-based, fee-for-service context,” he said.

The state’s Medicaid program covers just shy of 30 percent of lives in the state, but accounts for 40 percent of the state budget. MassHealth is in the process of moving toward full accountable care, at-risk adoption, and starting March 1, 80 percent of lives in the Medicaid program will be in fully capitated models with 17 accountable care organizations (ACOs) across the state.

Tsai cited examples of some of the highest-cost MassHealth beneficiaries who are homeless individuals and are often admitted to the ED just to get a hot meal. “It’s terrible from a cost standpoint, terrible from a quality of care standpoint and it’s terrible from a health outcomes standpoint. There must be a better way we can think about structuring the care delivery system and payments to get at that; that’s part of what we’re trying to do by moving to new value-based payment structures,” Tsai said.

All three panelists acknowledged that moving new payment models is necessary, but not sufficient, to transform the healthcare delivery system. Healthcare reform requires a concerted focus on integrating care between hospitals and primary care practices, Tsai said.

“How do we get care to be integrated? Just changing to an at-risk payment model doesn’t solve that. In Massachusetts, the ACO model we rolled out had a bunch of carrots and sticks with it. We defined three at-risk models; almost of all the ACOs are going into a fully capitated model that we pay on a per-member, per-month risk-adjusted number. And, with all the new dollars, as we negotiated with the federal government for $1.8 billion in funding over five years, the way we rebalance the hospital and primary care calculus is that we said the new funding follows lives in primary care practice,” Tsai said. “We have a lot of requirements in the contracts to get funding; you have to have different parts of the health system coming together. The point there is, you can design the perfect risk-adjusted payment model and change the way cash flow moves across the system, but still have nothing that actually helps to improve the way folks experience care.”

Levi questioned the senior healthcare leaders about whether the strategies employed by their respective states were sufficient to drive transformational change. “There are some who say that this is just another attempt to impose capitation on the market. Will this new pressure lead to the change that we need, or are we just tweaking around the edges?” Levi asked.

All three acknowledged that they have learned lessons from previous attempts at value-based care and payment models at the state level. MassHealth’s Tsai noted an earlier value-based payment pilot initiative that involved a patient-centered medical home model within primary care practices and shared savings incentives. “What we found when we evaluated it is that we had primary care doctors had no leverage in figuring out how to work with specialist and hospitals in rejiggering workflows. So, the doctors ended up focusing on stuff that they could control, but then you’re not getting at the things that require providers to fundamentally change their workflows and have different folks start to integrate," he said.

“We will not have success with all 17 ACOs,” Tsai said. “In my mind, I think there is significant risk, but no other choice before us but to move in this direction. From a practical standpoint, if we don’t start to do some of these things, which we’ve built into our pricing and put savings there, we’d be looking immediately at cutting rates, cutting benefits and cutting eligibility to manage the Medicaid program.”

Tsai added, “I expect we’re going to have some folks who are not going to be able to financially sustain and make the improvements necessary all five years of the program. I think that is the right bar to set things at. If we set it so that we know every single ACO will succeed, without a doubt, we’ve probably set it far too low.”

One challenge, Tsai noted, is that at a granular level, there is significant variation among the different ACOs when it comes to understanding cost drivers and the appropriate quality performance measures. “But, I think we are taking a hands-on approach where we’re not just putting in a payment model and handing the keys over,” he said. “The only way you can manage a Medicaid program is you have got to get the contract and the payment model right, you need to have a vision and desire for where you want the delivery system to be and you have to articulate that with providers.”

Helgerson agreed that he does not expect all 25 “ACO-like entities” participating in the New York DSRIP to achieve equal success. “The difference between what we’re trying to do now and what we tried to do when managed care came before is we’re saying that, at the end of the day, the incentive alignment that needs to occur has to go down to the frontline provider.”

He said the goal was to move to a healthcare delivery model where health systems focus their efforts, resources and money towards better managing the needs of high-risk individuals rather than maximizing fee-for-service reimbursement. “And I think the only way you get there is with value-based payment, but I think it’s not enough for CEOs to understand the incentives; if they don’t change the way they reimburse their employees and people on the front line of the system, then we’re not going to get the change.”

Wilkening also sees promise in the current value-based payment and care initiatives in California. “I think if we’re setting up the right infrastructures, getting the right people together, and focused on providing patient care to people in the least restrictive environments and building up the support around them, then that’s going to lead to better outcomes for people and should do so at a lower cost. But, it requires a lot of players coming together to figure out how to set up the incentive infrastructure so everybody is moving in the same direction.”