March | April 2017

Coordinating Care to Cut Costs in Medicaid

By Mary Branham, CSG Managing Editor
Oregon Gov. John Kitzhaber, a physician, says his state’s new approach to Medicaid under a federal waiver has fundamentally changed the way health care is organized and delivered. It established coordinated care organizations, which are moving away from a fee-for-service model.

Oregon is making big changes in its Medicaid program under a federal waiver.
What is it about this new plan that gives you confidence it will work?

“The traditional way states have dealt with increased costs in the Medicaid program is to either drop people from coverage, which just swells the ranks of the uninsured and sends those folks into the ER, or cut provider reimbursement—doctor payments, hospital payments to the point that doctors won’t participate—or cut benefits. None of those addresses the real underlying driver of medical inflation, which is the business model essentially around which health care is organized.” 

What is Oregon doing differently?

“What we’ve done is redesigned the way health care is organized and delivered with a focus on patient-centered medical homes, care coordination, integration of dental, mental, physical health services (and creating) a direct link to the community to make sure that people with chronic conditions that account for the vast majority of costs in the system are managed when they are out the of the hospital, rather than just bouncing in and out of the hospital. It’s really a coordinated delivery model and we’ve got 15 coordinated care organizations up and running in Oregon and covering over 93 percent of our Medicaid population.”

With those changes in reimbursement, what are you doing to get the
necessary buy-in from providers?

“I think most physicians and a lot of hospitals recognize that the current system is simply not sustainable. Medical inflation is growing way faster than revenue growth in both the public and private sector. I think they’ve recognized the way that the states and employers deal with the high medical costs are those three issues—they either drop people from coverage or they shift costs onto providers or cut benefits. The opportunity to test out a new delivery model on a portion of the population—Medicaid is about 16 percent of our population—was very appealing to a lot of physicians. We actually got strong endorsement of this from the Oregon Medical Association as well as the Oregon Hospital Association.”

How will this affect other areas of the health care marketplace?

“The fact is that we’re expecting to save about $5 billion over the next decade—$3 billion in state funds about $11 billion in total funds—but that’s money that comes out of the health care economy so, all things being equal, those costs will be shifted to private employers through increases in their premiums. Now, step 2 is to take this care model and list it on our health insurance exchange as a high-quality, low-cost option for public employees and public school teachers, which begins to move it into the private sector. We’re also having conversations with private employers about aligning their purchasing power with that of the state to make this care model available to private employers as well.”

What markers will be you be looking for to determine success?

“The first three markers we’ve already passed. We opened applications last year and as I said we’ve had 15 certified coordinated care organizations up and running around the state that are covering over 93 percent of our Medicaid population. We get the leadership of those coordinated care organizations together every month in a learning collaborative. Their attitudes are extremely positive. They’re very excited about the work. People are really leaning into it, learning from each other, committing to make it work. From an organizational and delivery standpoint, I think it’s working very well. Later this month (April), we’ll actually have our first empirical data on health outcomes. We’re expecting those to show that we’re actually improving health outcomes through this new model.”

Will success lay the groundwork for more adoption?

“I think it already has laid the groundwork. We’ve had very productive conversations with the State Employees International Union, which is one of our larger public employee unions. They’re very interested in moving in this direction. The cost of health care is squeezing out, at the bargaining table, wage increases and all these other things. They are very supportive of this move.”

As a physician and as a governor, what do you see as the biggest benefit
of this plan?

“I think there’s a number of them. First of all, there’s a lot of things that doctors do today that could be done equally as well, if not better, by a nurse practitioner or a physician assistant, so this will allow doctors to practice at the top of their license, essentially, doing things that only they can do. … It will give them a very predictable, stable revenue stream instead of wondering what the government is going to reimburse them from one year to the next. They’re in a global budget that grows at 3.4 percent per year. The care coordination allows them to become part of the larger team so they’re not out there all by themselves. They’re working with primary care specialty, other community health workers, social workers, so it’s a much more collaborative approach. Finally, and I think this is very important to most doctors, particularly when you’re dealing with complicated situations with multiple chronic illnesses, this actually is going to help improve the care and quality of life of those individuals.”

What advice would you offer other states?

“We’ve got a real life example of an approach that really gets to the underlying issues rather than just moving the deck chairs around. I had the opportunity to make a brief presentation at the end of January at the National Governors Association in Washington, D.C., about this care model. There is a lot of interest in this care model. We are currently trying to develop a six or seven state collaborative to try to work together with the Obama administration to see if we can bring this care model to other states as well.”

What would be involved with that effort?

“We’ve got to identify willing governors and we’re interested in getting three or four Democratic governors and three or four Republican governors. We want states that have decided to expand under the Affordable Care Act because that’s a very important part of this. We would probably have an initial meeting together with the administration and go over the care model in some detail. I think every state might develop something that looks a little bit different but the three significant components are, one, federal flexibility and how we use those dollars. Secondly, an upfront investment in federal resources to get the program started, and third, a commitment by the states that they will deliver on a set of health outcome metrics on cost and quality and patient satisfaction. We’re not there yet, but we’re in active conversation with seven or eight governors right now as well as the administration on what this would look like.”

How important was the Affordable Care Act in being able to carry through
some of the changes you have made in Oregon?

“We were moving in this direction anyway and we actually had passed legislation to establish the health insurance exchange and these coordinated care organizations even before Supreme Court ruled on the constitutionally of ACA. Particularly, the expansion under ACA will be very, very helpful to us. With the insurance exchange and with that expansion, we will be able to reduce the number of people without insurance in Oregon to about 5 percent in about two years, which is quite remarkable. That wouldn’t happen without he federal government financing, the expansion of Medicaid under the ACA and also the series of tax credits available to individuals and small businesses to come out of the exchange. We think that what’s necessary for the ACA to work is a delivery model like the one we’ve set up here that grows at a fixed rate so state budgets don’t get overwhelmed by the increased number of people who are now covered.”


Mike Boneto, Kitzhaber’s senior health care policy adviser, provides some background on the Oregon model. 

What is the concept behind the coordinated care organizations Oregon will be
using under the Medicaid waiver? 

“The concept is focused on better health, better care and lower costs by following the principles of a fixed rate of growth, local flexibility to drive innovation and accountability to outcomes.”

How will this new delivery model help to contain health care costs?

“We have contained costs by utilizing a fixed rate of growth while at the same time providing local flexibility so communities can operate outside the traditional health care system to achieve better health.”

How is this plan different from what Oregon and other states have done
in the past?

“We are focused on realigning incentives to actually improve health while lowing per capita costs. Three strategies have traditionally been employed by states in the past: reduce what they pay for health care—cutting provider reimbursement; reduce the number of people covered; and/or reduce the covered benefits. While these strategies allow states to reduce their short-term exposure to medical inflation, none are effective because uncompensated costs are simply shifted back to private payers and reflected in increased premiums. Oregon’s efforts at health care reform attempt to break this cost-shifting cycle.”

What are the consequences if the plan doesn’t meet the goals as laid out in the
waiver agreement with the U.S. Department of Health and Human Services?

“Oregon will lose future investment from the federal government and could potentially risk our entire agreement that allows local flexibility to meet health outcomes.”

What are some potential negatives from this change and what will the state
do to try to minimize those negatives?

“Providers need to transition from a delivery model that rewards volume—i.e. number of procedures and office visits—to one that rewards outcomes. One strategy is the state becoming an innovator and collaborator to spread best practices across CCOs.”

What are some of the challenges in implementing such a plan?

“The main challenge is having the health care system transition to a new business model with new partners that have not traditionally been accountable to each other for success.”