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State Medicaid Leaders Parse the Challenges of Healthcare Payment Reform

December 1, 2017
by Heather Landi
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The state Medicaid leaders agreed that new payment models are necessary, but not sufficient, to transform the healthcare delivery system
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The U.S. healthcare industry is in the process of major transformation, and during a health innovation conference at the Massachusetts Institute of Technology (MIT) on Nov. 29, faculty, researchers, clinicians and practitioners addressed the challenges confronting the industry and the tools being brought to bear to address those challenges.

MIT’s Sloan School of Management’s Initiative for Health Systems Innovation (HSI) sponsored the “Innovating Health Systems: Digital Health Transformations” conference at the Cambridge, Mass.-based campus. The conference addressed issues such as how states are rethinking health delivery to their populations and where emerging digital innovations may transform health care delivery.

During a panel discussion focused on state models and population health, Retsef Levi, J. Spencer Standish Professor of Management at the MIT Sloan School of Management, the panel’s moderator, noted that, across the U.S., state Medicaid programs are responsible for 75 million patients, with most of those patients among the older, poorer and sicker in the population. “It’s fair to say that state governments have a major role in driving innovation in value-based payment schemes and health care system reform.”

During that panel discussion, three senior leaders representing state Medicaid programs for New York, California and Massachusetts provided overviews of their states’ progress to transition from fee-for-service to value-based payment models to transform population health, as well as the challenges that still exist in their work to reform healthcare payment and healthcare delivery.

Michael Wilkening, undersecretary, California Health and Human Services Agency, detailed the state’s work to transition more of the 14 million MediCal beneficiaries, who represent about a third of the state’s population, into a managed care environment (MediCal refers to the state’ Medicaid program) and shifting the program into a more patient-centered approach. With a MediCal 2020 waiver, the state developed a Whole Person Care pilot program that helps to drive incentive payments toward designated public hospitals to focus on better coordinating care management to improve the health and wellbeing of high-risk individuals, avoiding duplication of services and reducing inappropriate utilization of hospital emergency rooms and inpatient services. (A Healthcare Informatics profile of the Whole Person Care pilot in L.A. county, which is part of the statewide pilot, provides more details about the program).

“We’re looking to shift from hospital-based care and inpatient care to more preventative and outpatient care. And, we’re focused on the integrating other services, such as behavioral health and social services, that provide other types of services to keep people from coming into the hospital, and to provide the service in the least restrictive, least cumbersome method for people,” he said.

Jason Helgerson, Medicaid director, State of New York Department of Health, said that the state is about halfway into its five-year initiative to restructure the healthcare delivery system through its Delivery System Reform Incentive Payment (DSRIP) Program, which received $6.42 billion in funding. New York’s Medicaid program serves 6.6 million people with an annual budget of $68 billion, the second largest program in the country,

“We’ve seen some positive results as far as reductions in avoidable hospital use in the ER and admissions and readmissions, but there is still quite a bit of work to get this large and complex sector of our economy to work together in a collaborative way,” he said. He noted, “The challenge with healthcare is it’s the least customer-friendly sector in our economy. Much of the onus is on the patient to go and get care, regardless of how complex sick or disabled they may be, and the services are offered at the convenience of the provider not at the convenience of patients or members. At the end of day, if we’re going to be successful in making this thing we call healthcare affordable, effective and meeting the needs of an aging population, we have to make it more responsive and centered around the individual than it is around the provider.”

Helgerson said New York’s Medicaid program is on a path to have 80 percent of payments to providers be value-based payments by the end of the decade. “That is not pay-for-performance, that is providers taking on risk. We’re at 40 percent of those reimbursements right now,” he said, adding, “We believe, at the end of the day, you need a combination of payment reform and delivery system reform in order to get to a point where we’re talking about radically improved outcomes at very affordable prices.”

The state of Massachusetts was an early adopter of managed care, however, Daniel Tsai, assistant secretary, MassHealth, and the Medicaid director for the commonwealth of Massachusetts, says one of the challenges facing the state is that the fundamental structure to the Medicaid program hasn’t changed in 25 years. “We have health plans working with us, but underneath those contracts, you still have providers being paid on a volume-based, fee-for-service context,” he said.

The state’s Medicaid program covers just shy of 30 percent of lives in the state, but accounts for 40 percent of the state budget. MassHealth is in the process of moving toward full accountable care, at-risk adoption, and starting March 1, 80 percent of lives in the Medicaid program will be in fully capitated models with 17 accountable care organizations (ACOs) across the state.


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