With over half of all Medicaid beneficiaries receiving services through managed care organizations (MCOs), the guidelines regarding how these organizations finance and deliver Medicaid services are regularly updated to ensure maximum benefit to both provider and patient. With the ongoing efforts to increase quality and cost of care, one of the essential tools made available and promoted by CMS has been the alternative payment options that have been developed.
Each year, CMS introduces new guidelines to make these alternative payment methodologies easier to implement for providers and easier to use for patients. Alternative Payment Methodologies (APMs) is the term used by CMS that refers to payment models focusing on quality and cost of care instead of using the more traditional pay-for-volume or fee-for-service payment models. APMs are delineated into two main categories:
- Pay-for-performance (P4P) – also referred to as “value-based purchasing.” This model offers financial incentives or penalties for meeting or failing to meet specific performance measures. Incentives are generally offered to physicians, hospitals, MCOs, and other care providers for meeting measurable performance standards, such as medication adherence, post hospitalization follow-up, and mental illness screenings. Penalties can be determined by poor outcomes, medical errors, or increased costs.
- Value-based payments – this method ties provider payments to improved performance by care This form of payment holds health care providers accountable for both the cost and quality of care they provide while attempting to reduce inappropriate care and to identify and reward the best-performing providers.
Currently, 38 state Medicaid programs use at-risk capitated contracts with MCOs to finance and deliver Medicaid services. Of those states, 22, or 58%, include some form of requirement for MCOs to reimburse provider organizations by using APMs. In 2016, only 16 states had such requirements. Those that recently adopted these guidelines include Florida, Massachusetts, Nebraska, Pennsylvania, West Virginia, and Washington. The below photo indicates what states had APM requirements in 2017:
A recent analysis of Medicaid MCO requirements for APMs determined there are many variables associated with each state’s move to alternative payment methodologies. These variables include how the state defines APMs, how the state measures an MCO’s progress in moving to APMs, and the requirements placed on the MCO. States requiring the use of APMs have each taken a unique approach while adopting the general APM framework and guidelines developed by the Health Care Payment Learning & Action Network (HCP LAN). The guidelines developed by HCP LAN is the basis for most state Medicaid program APM initiatives. The framework they developed consists of four levels, and some states require their MCOs to meet varying degrees of requirements within each of these different levels. The four levels are:
- Level 1 – typical fee-for-service arrangement with no conditions linking it to quality or value.
- Level 2 – this level describes typical pay-for-performance arrangements and is linked to quality and value.
- Level 3 – this level describes value-based payment arrangements with increasing levels of risk and includes APMs built on the fee-for-service architecture.
- Level 4 – this level features a population-based payment model that incorporates value-based payment arrangements.
As noted, 6 states have adopted APM requirements within the last year to govern their MCOs. The trend is driven by several factors, including a disproportionate number of patients using the majority of health care resources, an increase in integrated health management and corresponding increases in technology enabling this cooperation, an increased need for transparency, and a larger number of patients being served by MCOs.
As state Medicaid programs move to APMs, they are using a variety of tools, including patient-centered medical homes, delivery system incentive reform payment (DSRIP) programs, multi-payer models, contractual requirements, and health homes. Mapping state Medicaid APMs can be difficult due to the flexibility they are afforded in customizing their plans to their unique populations and objectives. Other variables associated with each state’s switch to alternative payment options include how they choose to define APMs or other payment models, how they will measure the shift to APMs, and the requirements they place on their MCOs.
For states that have Medicaid MCO requirements for the use of APMs, some have made recent changes during the end of 2017 or early 2018. States that made changes and the changes they made include:
- Arizona & Rhode Island – in addition to modifying their definition of APMs, they are increasing the various percentages used in measuring their target populations and provided care, and have adopted a continuous schedule of increasing rates through 2021.
- Pennsylvania and South Carolina – they are adopting similar percentage increases as Arizona & Rhode Island, but on different timetables and in the case of Pennsylvania, they are still determining where they want they percentage increases to occur.
- Delaware – modified their APM requirements for MCOs to have 80% of their members to receive care through value-based payments within five years. They also adopted more quality of care metrics and patient experience metrics to determine bonuses and incentives.
- Florida – they have developed guidelines to implement a value-based purchasing program designed to reduce costs associated with potentially avoidable events and improved birth outcomes.
- Washington – 30% of provider payments must be through value-based arrangements as defined by Level 2 guidelines of the framework developed by HCP LAN.
Given the benefits seen by both patients and providers in the states where MCOs have pursued these new APM methodologies, it is more than likely that the number of states with APM requirements will continue to increase. These efforts will continue to be directed by general guidelines within a framework broad enough to still allow for unique application among diverse populations and unique environments between different MCOs and their patients.