Bending the Medicaid Cost Curve
By Debra Miller, CSG Director of Health Policy
U.S. health care costs are likely to be around $2.8 trillion in 2013. In 2010, U.S. spending on health was 17.6 percent of gross domestic product; for comparison, the Netherlands spent 12 percent of GDP, the next highest spender of developed nations. The Centers for Medicare and Medicaid Services expects health spending to hit $4.6 trillion by 2020—19.8 percent of GDP. While spending growth has slowed in recent years—it has been near 4 percent for about four years and has reached a 14-year low—many believe the spending levels are unsustainable.
State governments bear some of the burden. The biggest health care expense for states is their share of the Medicaid program, which provides health insurance for low-income individuals. In 2011, total Medicaid spending was $407.7 billion. The program has surpassed K–12 education as the biggest state budget expenditure.
Those are some of the reasons states are looking for ways to contain costs. Here are four examples where states are attempting to do just that.
Tying Health Care Costs to State Inflation Rate
Massachusetts is widely acknowledged as a pioneer in state health care reform—its 2006 reforms are credited for the fact that 97 percent of the state’s residents now have health insurance. The Massachusetts model for expanding health insurance coverage is often cited as the blueprint for much of the Patient Protection and Affordable Care Act, and the Commonwealth Connector is the precursor of the state health insurance exchanges.
But the state didn’t stop there. It’s also tackled health care costs.
“We have been working toward it (cost containment) since the original reform that expanded access in 2006,” said Sen. Richard Moore, a principal architect of the 2006 and subsequent health reform laws. “We are certainly confronting it head-on with the most recent legislation passed in 2012.”
This time, lawmakers tied the rise in health care costs to the growth of the state’s economy. Moore said the goal is to keep the rise in health care costs to something like 3.5 percent per year, about half the current growth in health care expenditures.
The bill holds the annual increase in total health care spending to the rate of growth of the state’s gross state product for the first five years. For the next five years, the rate of growth will be cut to half a percentage point below GSP growth, and then back to GSP growth thereafter. The estimated savings over 15 years totals $200 billion.
In signing the bill, Gov. Deval Patrick said the savings translated to an additional $10,000 in take-home pay, per worker, and a savings of $40,000 in health insurance premiums, per family, over 15 years.
Even while the state is trying to cut health care spending, officials are mindful that it can have a downside.
“We are trying to be careful not to impact quality or our economy since health care is such an important part of the economy,” Moore said. “The economy is on a rebound and we don’t want to throw it back into recession.”
But Moore said bending the cost curve is definitely doable.
“Experts suggest elimination of waste and duplication, medical malpractice reforms, monitoring the practice of defensive medicine, and improving coordination all can make a difference. In addition, we are pushing big time on prevention and wellness, because obviously if you don’t get sick or injured, health care is cheap,” Moore said. “The steps we have taken are based on evidence where we can find it and then based on faith too.”
Moore said the Massachusetts law does not depend on rate or price setting.
“We want to let the industry make the decision where to invest and where to cut. We are trying to give them tools and then let them be judged on the quality of care they provide.”
A new Health Policy Commission will conduct cost and market impact reviews to ensure that providers can justify price variations.
For instance, Moore said Boston has higher end-of-life care than other parts of the state. The bill passed in 2012 will focus on reducing the cost disparity while monitoring quality.
It also addressed malpractice reform, providing more mediation to reduce litigation. When providers apologize to patients for medical errors, as the literature suggests reduces malpractice litigation, the apology will not be used against them if the case goes to trial. Moore said the history in his state of consulting with all the stakeholders resulted in lawyers and doctors coming to agreement on malpractice and that the legislature kept the changes exactly as they proposed them.
Moore’s advice to states just jumping on board health care reform: “Be reasonably bold. Don’t wait for the perfect as there is no silver bullet. You will need to make adjustments along the way.”
Moving from Volume-Based to Value-Based Payment
The $42 million Arkansas just received from the federal government under the State Innovation Models Initiative is certainly welcome, but officials say they were already well on their way to totally changing the state’s health care payment methods.
Arkansas is implementing a system of episode-based payments for treatment of certain time-limited acute care conditions. An episode is defined as a collection of care provided to treat a particular condition for a given length of time.
“It is definitely a two- even three-year effort, that was down the road even before the Affordable Care Act,” said Rhonda Hill, director of health care finance at the Arkansas Center for Health Improvement. “A multi-payer group—Medicaid and private insurers Blue Cross Blue Shield and QualChoice of Arkansas—were looking at unsustainable growth rates in health care costs and realized they have a problem they needed a joint solution to fix.”
Before, Hill said, providers tried to see as many patients and perform as many procedures as possible in an eight-hour day.
“Looking at value of care was not a priority,” she said. “We are shifting from volume to value.”
Arkansas has been covering three episodes—upper respiratory infections, perinatal care and attention deficit hyperactivity disorder—under this payment method since Oct. 1, 2012, and two others—congestive heart failure and total hip or knee replacement—since Feb. 1. Two more groups of episodes are slated for implementation this summer and fall.
A patient’s principal provider is responsible for providing all the care related to the episode, from diagnosis through treatment. The provider bills Medicaid or the two private insurers and also collects certain data to ascertain quality.
Providers in Arkansas are still paid fees for their services, but at the end of the year their billings are reviewed, unusually costly cases are subtracted, and their average billings are compared to a state threshold. Medicaid goes through a public process to set those thresholds and private insurers do so through their contracting process with medical providers.
The provider’s data allow calculation of an average cost per episode, which is compared to what the state deems “acceptable” and “commendable” levels of cost. If a provider’s cost is above the acceptable level, the provider could have to pay back a portion of the cost reimbursement. If the provider’s average cost is below commendable and met quality standards, he or she will share in the savings. Costs between acceptable and commendable are neither rewarded nor penalized.
The major providers in the state reached agreement around the definition of the episodes and the care to be provided, but each payer sets its own payment thresholds. Hill said this retrospective method of sharing risk and savings with providers was developed with considerable provider input.
“Two years ago, we considered a prospective bundled payment system, but we got immediate feedback from providers that the state wasn’t ready for that design at all,” she said.
Establishing Coordination at All Levels of Health Care
Minnesota will use a $45 million federal grant over the next 42 months to transform its health care delivery systems through payment and other reforms, with overall savings forecast to be $111 million over three years.
The next steps in health care reform feature real coordination—at the state level, within providers’ offices and within communities—not just lip service to the ideas of coordination and collaboration.
“The grant is an amazing opportunity at core to change not only the conversation about health reform but to change fundamentally how we do that in some ways that are grounded in common sense and lay language and community ownership and leadership. That’s why I’m particularly excited our department (of health) and the department of human services jointly pursued this,” said Ellen Benavides, assistant commissioner of the Minnesota Department of Health.
The Department of Human Services Medicaid accountable care organizations will link with the Department of Health’s public health—or population health—frame and workforce development. She said Minnesota is looking to broaden the more traditional health care frame and include an array of services including mental health, long-term care, human services, social services and dental health.
Minnesota is taking the patient-centered health care home model and broadening it to address such an array of services.
The state will create 15 accountable communities for health, which will integrate services at a local level, depending on the needs and health priorities of the community, Benavides said. Like health care homes, these communities will be responsible to coordinating care across agencies and organizations and improving health outcomes.
“The beauty of this innovation grant is to shift the locus of control,” she said.
Minnesota is also working to innovate in another high-need area—the health care labor force. It is the first state after Alaska to have dental therapists.
“They live in the space between a dental hygienist and a dentist and have a scope of practice much more advanced than a dental hygienist,” Benavides said.
The state also has developed the role of a community health worker, Benavides said, “a paraprofessional who is certified Medicaid reimbursable and who acts as a key member of the health team in kind of both translation and trafficking—an ally support for a patient.”
The state will expand its statewide health improvement program, where a community-led set of initiatives links schools, clinics, employer settings and other community resources to help build a healthier community. Employee wellness programs, community weight loss programs and farm to school food programs have been parts the improvement programs.
Benavides said the state wants to build on these programs “so that health services and other supports get woven together to really change some behaviors in really significant ways.”
Like health homes, these “accountable communities for health” will be responsible to coordinating care across agencies and organizations and improving health outcomes.
“It’s really about what do we need to do collectively to improve the health of the population so that we collectively can bend the cost curve,” Benevides said. “When we focus on the 10 percent slice of the pie, we’re focusing on the patients in the old-style health care system instead of moving upstream to address population health.”
MEDICAID MANAGED CARE
Almost All States Are In
In its annual survey of state Medicaid programs, the Kaiser Foundation asks states about their use of managed care. In its October 2012 release, “Medicaid Today; Preparing for Tomorrow,” Kaiser reported that only Alaska, New Hampshire and Wyoming do not operate managed care programs. In 1991, 9 percent of Medicaid beneficiaries were in managed care, increasing to 51 percent in 2000, and to about two-thirds today.
As states have moved to managed care, especially contracting with managed care organizations, they are looking for immediate savings from increased coordination inherent in managed care.
“Generally speaking, based on WellCare’s experience, a state converting from Medicaid fee-for-service to a new managed care program can expect to see an initial cost savings of up to 5 percent in the first year,” said Dan Paquin, president of national health plans for WellCare Health Plans.
Paquin maintains, however, “the real benefit to managed care is not only cost savings, but the increased value delivered by the Medicaid program when it utilizes managed care. State governments who use (managed care organizations) enhance the quality of care while keeping costs predictable.”
The budgeting benefit of using managed care organizations and providing predictable capitated rates cannot be underestimated. Medicaid programs, like all other health insurance programs, face inflationary increases in cost that are nearly impossible to predict and can be much larger than overall inflation.
Paquin said Georgia has achieved such budget predictability with managed care. The state has kept Medicaid expense growth below national averages without benefit reductions or provider reimbursement reductions. The result is a cost savings of 7.8 percent four years into the program.
The so-called dual eligible—people who are eligible for both Medicare and Medicaid—is the next frontier for managed care. The nation’s 9 million dual eligibles account for 15 percent of states’ Medicaid enrollment but nearly 40 percent of the spending. Those numbers explain states’ interest in achieving savings. The federal government is in for its matching share for Medicaid as well as for all Medicare spending.
The federal government has issued a number of planning grants for states to tackle better coordination of care and lower costs, and has awarded major grants to California, Illinois, Massachusetts, Ohio and Washington. All except Washington will use managed care organizations. California will be the largest test.
Connecticut purposely has veered off the managed care course, using the principles of care coordination and monitoring quality indicators, but bypassing contracts with managed care organizations. When the state moved to managed care in 1995, it expected to save money. Connecticut started with 14 managed care organizations and initially granted rate increases in line with medical inflation rates.
Ellen Andrews, a health consultant for CSG East and a member of the medical advisory committee for Connecticut Medicaid, said a secret shopper survey was the beginning of the end for Connecticut managed care.
Only one of every four doctors on plans’ provider lists would make a patient appointment. The others said they were not seeing Medicaid patients. At the same time, the number of participating plans fell to three and they asked for larger rate increases, leaving the state little negotiating room. A 2009 audit by actuarial firm Milliman found the rate increases for Connecticut managed care organizations were higher than those for similar Medicaid populations in other states. The audit also found that the organizations were not held accountable for care management standards designed to lower costs.
Connecticut now contracts with one of its old managed care organizations—the nonprofit Community Health Network—to provide care coordination, including intensive case management for the aged, blind and disabled population. Connecticut is participating in the federal dual eligible grant program and expects a large implementation grant soon.
The transition, which began in 2012, has been smooth and provider networks have remained robust.
“The fear that providers only participated in Medicaid because the (managed care organizations) brought them other business didn’t turn out to be true,” Andrews said.
Savings from the move from managed care were budgeted at $41 million in 2012. In 2013, the move is expected to slice $80 million off the state’s $4.6 billion Medicaid budget. Andrews said it is too early to verify all the savings, but in the last six months of 2012, the Children’s Health Insurance Program for low-income children has documented 23 percent annualized savings.
Connecticut learned a lot with its move to, and from, managed care, Andrews said.
“States must monitor everything—the network, access, provider panels, utilization rates, but especially the money,” she said. “Don’t make assumptions, monitor.”
Finally, in what may be universal advice to policymakers, Andrews said, “If you do this (managed care), make a commitment to do it right.”