While federal payment reform efforts often dominate the headlines, states have also been key players in experimenting with new payment models. Lessons learned from states offer leaders—health system executives and policymakers alike—opportunities to better understand how to approach delivery and payment system reform moving forward.
We've created a series of short white papers to highlight how six states—Arkansas, Colorado, Indiana, Maryland, New York, and Utah—are transforming the way they deliver and pay for health care services for Medicaid enrollees and, in some cases, broader patient populations. Each paper covers a brief history of the state's reform efforts, the unique model the state chose to implement, results to date, and how the state plans to enhance the model in the future. We've also highlighted key items for providers to watch in each state.
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While there is considerable variation in how each state approaches its health reform efforts, we've observed some common themes across the six states studied. Below, we've highlighted five preliminary insights and takeaways for providers—with the caveat that most state-based models, like their federal counterparts, are fairly early in their implementation and have limited results thus far.
Key themes in state transformation efforts
1. Demonstrations are increasingly shifting accountability to payers, providers, and even patients
States are using three main tactics to encourage or even require other entities to take more accountability for health care spending:
- Managed care reforms that shift accountability for coverage and cost to private payers (such as in Utah). While this is a long-standing approach, the newest development in this space is tying managed care payments to quality—both in payments from states to managed care entities and from managed care entities to providers.
- Delivery system reforms that attempt to reduce utilization and improve quality by giving providers new incentives to coordinate care and manage population health (such as in Arkansas, Colorado, Maryland, and New York). Democrat- and Republican-led states alike are testing new delivery and payment models across the entire spectrum of value-based care options—including patient-centered medical homes, bundled payments, ACO-like entities, and capitated models.
- Consumer-focused reforms that seek to slow cost growth and limit utilization by shifting accountability directly to Medicaid enrollees (such as in Indiana). While this is the newest approach, an increasing number of states are likely to follow in Indiana's footsteps, and the Trump administration has expressed interest in allowing states to implement additional reforms, such as work requirements, that had been prohibited by the Obama administration.
It remains to be seen which, if any, of these approaches will lead to higher-quality care at lower cost.
2. Federal funds have been a crucial resource and enabled states to pursue larger transformations
The federal government has offered states additional funding for health care reform efforts through State Innovation Model grants and waiver agreements such as the Delivery System Reform Incentive Payment (DSRIP) program. Many states see these programs as a necessary supplement to local funds, allowing them to make upfront investments or cover populations that are not usually eligible for Medicaid.
This additional funding is usually contingent on the state generating savings for CMS. For example, New York's DSRIP waiver agreement has promised future savings to CMS in exchange for funding from the federal government. Maryland's Section 1115 waiver for its all-payer model pledges that the state will reduce cost growth and spending over five years in return for higher Medicare and Medicaid payments.
Learn more about Maryland's all-payer model and its implications for providers
3. States are approaching transformation incrementally
The six states profiled in our white papers are all testing models for Medicaid reform. Two of the profiled states (Maryland and Arkansas) have also begun to incorporate Medicare and private payers, expanding the number of patient populations covered and aligning value-based incentives for providers. But even states that have large-scale multi-payer initiatives started small and expanded over time. In general, states are approaching transformation incrementally—starting with one payer, population, or group of physicians and expanding after some initial success.
For example, Arkansas began experimenting with patient-centered medical homes in 69 practices through CMS's Comprehensive Primary Care (CPC) initiative. The state then expanded the model to a select number of Medicaid pediatric practices before establishing its current full-scale multi-payer model. In addition, Colorado and Arkansas have ambitions of including more complex patient populations—such as chronically ill individuals and dual eligibles—in future iterations of current models or through separate care delivery demonstrations.
Early lessons for providers
4. Providers should pursue demonstration funding and take a proactive role in shaping state models
Many of these demonstrations offer a significant amount of funding to states and, in turn, to providers. Health systems should take advantage of available dollars to help fund new transformation efforts and expand existing ones.
Additionally, participation in these models may offer providers an opportunity to align their Medicaid strategies with the value-based approaches many are taking with Medicare or commercial payers. For those organizations pursuing Advanced APM Track qualification in MACRA's Quality Payment Program, participation in value-based Medicaid models can also count towards qualification through the All-Payer Combination Option.
Finally, because these models are iterative, it's important for providers to be involved in discussions with state officials in order to shape model development early on.
5. Regardless of model, providers must focus on cost reduction and quality improvement
One key goal of any state reform is to reduce Medicaid spending while maintaining, if not improving, care quality. While the targeted stakeholders will vary by state, each model we've studied attempts to modify incentives to avoid unnecessary utilization and control costs. Providers that work to reduce costs by maximizing internal efficiencies, minimizing per-unit costs, and shifting patients to lower-cost settings will be well-positioned for success regardless of the specific approach their state chooses to pursue.
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Next, get profiles of state-level health care transformation
Check out our white papers on some of the most innovative initiatives that states have undertaken to transform how they deliver and pay for health care services for their Medicaid population and, in some cases, broader populations.
Download the White Papers