This Open Source Solutions paper: 1) explores trends driving Medicaid’s efforts to “shift from volume to value” and the implications for federal payment of non-clinical services; 2) examines whether prevention-based savings from the effective use of value-based purchasing would “slide” Medicaid Managed Care Organization (MCO) revenue by a corresponding amount; and 3) considers outcomes-based funding options for health-related prevention and social welfare programs.
Overview of paper
This paper considers 3 specific questions: 1) To what extent does the 2016 Medicaid Managed Care Final Rule allow federal managed care funding to pay for non-medical (primarily social) services and interventions?; 2) Will future Medicaid managed-care rates fall if prevention programs reduce healthcare utilization and cost?; and 3) Does the Final Rule make Social Impact Bonds (SIB)/Pay for Success (PFS) financing mechanisms—in which private sector capital could be used to fund a non-medical social intervention—more attractive than managed care organizations (MCOs) paying for social determinants of health (SDOH) projects directly from their own funds?
Part I of this paper describes trends driving Medicaid’s efforts to shift from volume to value and the implications for federal payment of non-clinical services. Utilizing innovation waivers is a way to pay for services that address health-related social needs. In addition, alternative payment models (APMs) modernize compensation practices to make value-based purchasing more attractive to MCOs. Lastly, delivery system reform includes actuarially-sound capitation rates and quality improvement initiatives
This section also examines how MCOS are adopting alternative payment models (APMs). APMs modernize compensation practices to make value-based purchasing more attractive to MCOs. Federal and state Medicaid agencies can use 3 broad (and sometimes overlapping) categories of APMs to encourage MCOs to work with non-clinical providers to make upstream programs and services more widely available. In each case, payment adjustments are based on formulas for measuring health and financial outcomes contained in state contracts with MCOs. The 3 broad categories are bundled payments, shared risk, and shared savings
In addition, Part I of this paper discusses rate setting considerations that provide the scaffolding for delivery-system reform by regulating how MCOs generate revenue and become self-sustaining enterprises. Payments above the established rates or beyond their scope are generally not allowed. That’s how MCOs “assume financial risk” under Medicaid. But by embedding delivery system reforms within the approved managed care rates, the Final Rule provides broad latitude for MCOs to safely explore investments and reallocate funding as long as authorized spending stays under the rate ceiling
Part II of this paper examines whether prevention-based savings from the effective use of VBP would change MCO revenue by a corresponding amount. Successful SDOH investments that reduced excessive utilization of clinical and emergency services could also reduce the MCO’s baseline cost of providing care to its members. Lower costs of care could eventually lead states to lower the corresponding capitated rates (premium slide). But premium slide should be manageable because the managed-care rate setting process does not perfectly align with observed reductions in medical care utilization. It’s important to note that MCOs fear that revenue would decrease over time as utilization decreased with increased attention on prevention
Part III of this paper considers outcomes-based funding options for health-related prevention and social welfare programs and compares direct and third-party investment models
The Final Rule gives MCOs greater latitude to use federal and state Medicaid funds to pay for non-medical interventions targeting SDOH in order to improve the health of income-eligible beneficiaries at reduced cost—particularly “high utilizers” with complex but manageable conditions. It does so by broadening the scope of “covered services” to include socially-focused programs “in lieu of” clinical services and eligible “quality improvement initiatives,” and by sweetening the terms of risk-based payments
Per the earlier description, it is important to note that the second question is answered by highlighting that even if successful SDOH programs cause premiums to slide, rate reductions are likely to involve a slow and measured process that considers many factors beyond last year’s observed cost of care. Here, too, additional regulatory guidance isn’t necessary, since CMS recognizes that MCOs aren’t likely to make long-term upstream investments for short-term gains
Additionally, the answer to the third question is less clear because there appear to be compelling business opportunities at hand for both approaches, with the primary differences relating to MCO capacity, expertise, and available up-front funding. Social-impact investment likely offers greater working capital and dedicated project management resources, but at increased transaction cost and reduced net savings for MCOs after investors are paid. Which approach makes more sense can only be determined by undertaking feasibility studies and pilot projects for specific enrolled populations under particular State Plans and MCO contracts
Overall, the Final Rule provides promising ground for enterprising MCOs to proactively pursue VBP arrangements that support the broad expansion of SDOH programs and services