Inside Oregon's Medicaid lab

On a recent Wednesday morning, a hospital in Portland, Ore., paged Dr. Christina Milano, a family physician, to notify her that one of her patients was in the emergency room. Within a half-hour, another hospital called when the same patient showed up in its ER.

Not long ago, Milano might never have heard about those episodes. But during the past year, clinics, hospitals, county health departments, mental health agencies and other providers across Oregon have made unprecedented efforts to work together to identify patients with heavy ER and inpatient use and offer them health coaching, behavioral health support, pharmacists' help and timely preventive care through patient-centered medical homes. Now Milano has her patient, who had been visiting ERs up to a dozen times a week, working intensively with a clinic-based social worker.

“All provider entities are coming together (and) they are all recognizing that we have to be communicating about patients,” said Milano, who works at the Richmond Clinic, a federally qualified health center in Portland run by Oregon Health & Science University. “I'm starting to see a cultural shift within the medical community.”

Oregon policymakers and providers saw a disorganized and wasteful healthcare system that produced unsustainable Medicaid spending growth and poor quality of care. They came up with an ambitious reform model based on coordinated-care organizations, or CCOs, which bring together previously unaffiliated hospitals, physician groups, mental health agencies and others under a single contract. The Legislature and the Oregon Health Authority—which runs the state Medicaid program, the Oregon Health Plan—spent a year gathering public input at more than 75 public meetings before obtaining a federal waiver.

These new CCOs, some for-profit and some not-for-profit, will be responsible for providing nearly the full range of health services—medical, dental, psychiatric, addiction treatment, case management—for 627,000 people covered by Medicaid in Oregon. The CCOs initially are focusing their efforts on high-cost Medicaid beneficiaries with chronic health conditions, including those dually eligible for Medicaid and Medicare.

The CCOs will receive a per-capita monthly payment for all care during the five-year demonstration program, which ends June 30, 2017. Groups established under the state-organized accountable care system could eventually serve public employees and other Oregonians as well, state officials hope.

These leaders concluded there's no way to reduce spending growth and improve quality of care without moving away from fee-for-service payment and fundamentally transforming the state's fragmented healthcare delivery system to provide more seamless, cost-effective care. Preliminary data show inpatient and specialty physician utilization tapering off.

Policymakers and policy experts across the country are watching closely because states are trying to figure out how to expand Medicaid under the Patient Protection and Affordable Care Act without busting budgets.

“We've gone from trepidation to a lot of excitement,” Gov. John Kitzhaber said in an interview. “You can make changes and show people that there is a path forward and, hopefully, that's what we're doing. Every governor is faced with the same thing: Medicaid is probably the fast-growing item on their budget. So, governors have the ability to be quite creative in finding ways to keep access and control costs while improving quality.”

Oregon's move tests a key payment and delivery reform feature of the federal healthcare law—whether ACOs can reduce costs and improve coordination and quality. That has put the state in the national spotlight. “Can Oregon save American healthcare?” a Washington Post headline asked in January.

But everyone knows it's not going to be easy. Already, tensions have emerged among hospitals and physicians over payment levels and methods. Some hospitals fret about potential reductions in inpatient admissions. Patient advocates worry whether capitated providers will skimp on care. CCOs are struggling to connect their providers through interoperable electronic health records. And some observers question whether the reform model can meet its ambitious cost-saving targets.

“Oregon historically has had a pretty lean Medicaid program with a lot of managed care,” said Terri Coughlin, a senior health policy fellow at the Urban Institute in Washington. “Whether the state is going to be able to extract additional savings is hard to say.”

Kitzhaber and the Legislature designed the new system with the goal of reducing Medicaid spending in the current biennial budget period from a projected $7.44 billion to $6.57 billion or less, and saving more than $3 billion in five years. The plan took shape with extensive input from providers and the public and gained bipartisan support. Policymakers and providers say that without something like the CCOs, they don't have alternatives to make healthcare affordable other than cutting eligibility and provider payments. They've done that in the past and would rather not do it again.

A federal waiver granted in the summer of 2012 gives Oregon's CCOs unprecedented flexibility to decide how to spend Medicaid dollars. To obtain it, Kitzhaber—a former emergency physician and third-term governor who has led the state's healthcare innovations for nearly 25 years—struck a grand bargain with the Obama administration.

The CMS agreed to pay Oregon $1.9 billion over five years to fund the state's health system transformation. In exchange, Oregon promised to cut the per capita growth of Medicaid spending from the national 5.4% base rate to 4.4% in the first full year and 3.4% in each of the next three years. Oregon also committed to a number of quality milestones. If the state falls short, the penalty is substantial: up to $511 million lost in federal funding.

Many states are broadening their use of private managed-care plans to control Medicaid spending and are pushing plans and providers to work more closely together to coordinate care across all services. But Oregon is the first to obtain a federal waiver that allows it to set a fixed rate of per capita cost growth for Medicaid. And Oregon has gone further than any other state by making local provider networks, rather than managed-care insurers, bear the financial risk of caring for the entire Medicaid population, meeting quality measures and staying within a global budget.

Sixteen CCOs have formed since August 2012, each run by a board composed of local healthcare providers and community members and advised by a local consumer council. Some are aligned closely with hospital systems, others evolved from physician independent practice associations and a few have insurers or mental health organizations in the lead. Capitated payments currently average about $320 per member a month, adjusted for the health status of each CCO's enrolled population. Long-term care, including nursing homes and home- and community-based support and services, is not included. Capitated health plans already served more than three-quarters of Oregon's Medicaid population, but mental health and dental care previously were carved out.

More than 90% of Oregon's Medicaid and Children's Health Insurance Program members have been automatically transferred into a CCO. Most of the state's low-income seniors and disabled younger people dually eligible for Medicaid and Medicare have also transitioned to their local CCO, but they can opt out and stay in traditional fee-for-service Medicaid and Medicare. The CCOs expect to take on thousands of additional low-income Oregonians starting in January, when the ACA opens Medicaid to people who earn up to 138% of the federal poverty level (the current eligibility threshold is 100% of poverty). It's estimated that 240,000 more people will join the program by 2016.

A recent New England Journal of Medicine commentary asserted “there is a distinct possibility that (Oregon) will fail.” The author, Dr. Eric Stecker, a cardiologist at Oregon Health & Science University, said the plan relies on disease-management programs, behavioral health services and improved care coordination that have not been shown to reduce costs.

Another major concern is that Oregon's new CCOs lack the experience of integrated health systems that have spent years coordinating care and developing patient-centered medical homes. In addition, they are being evaluated on quality measures that involve changing patient behavior and overcoming access barriers related to poverty and low education levels. It's also not clear whether CCO contracts will add up to large enough chunks of providers' income to stimulate broader delivery system reforms. Hanging over all this is that somehow each CCO must harmonize the efforts of rival providers under one roof.

Primary-care doctors say the persistence of fee-for-service reimbursement is holding back progress. And the CCOs have a long way to go to get diverse, geographically dispersed provider organizations interoperable on EHRs, especially in rural parts of the state where many don't have EHRs yet.

“It's going to be a tough transition,” said Andrew McCulloch, president of Kaiser Permanente's Northwest Region. Kaiser and five other health systems have affiliated with Health Share of Oregon, the state's largest CCO, which serves nearly 152,000 Medicaid members in the Portland area. That transition will require reversing the mindset that gives greater priority to increasing revenue through delivering more pricey, high-tech services than to keeping patient populations healthier through primary and preventive care.

“Accountants in big hospitals, they're looking at a model predicated on a certain amount of growth every year,” Kitzhaber said. “It's very interesting to watch the old accounting model deal with the new reality.”

That transition could take years. “We have to make sure we exercise enough patience with the amount of change we have to create,” McCulloch said.

Conflicts over money already have erupted. Salem (Ore.) Hospital filed a lawsuit late last year seeking higher reimbursement from Willamette Valley Community Health, a CCO aligned with a physician independent practice association serving about 65,000 Medicaid members. After mediation and pressure from the state Legislature, the parties settled the lawsuit. But other potential conflicts simmer.

Some consumer groups in Oregon also have questioned the adequacy of safeguards to prevent providers from stinting on care to stay within the CCOs' fixed per-capita budget. These groups pushed for administrative rules that strengthened the grievance and appeal process for Medicaid members. “It's still to be seen how adequate that system is,” said Janet Bauer, health policy analyst with the Oregon Center for Public Policy.

Oregon's deal with the CMS requires progress on 33 quality and access measures. Among them: reducing preventable hospital admissions for asthma, congestive heart failure and diabetes; increasing the share of patients receiving appropriate screenings for cancer, substance abuse and chlamydia infections; and making sure children get a follow-up visit within a month after receiving a new prescription for medication for attention deficit and hyperactivity disorder. CCOs stand to lose incentive payments if they fall short.

Other states are following Oregon's lead. Colorado has started transitioning Medicaid beneficiaries into regional care collaborative organizations. Alabama this year passed legislation forming community-led networks to coordinate the healthcare of Medicaid members. (See related story, p. 7.) Officials from those states and others have sought advice from Oregon officials on setting up similar systems, said Tina Edlund, chief of policy for the Oregon Health Authority.

Kitzhaber has announced he'd like to see CCOs expand to take on healthcare for public employees. CCOs will be allowed to bid on the 2014 contracts for the state's Public Employees' Benefits Board, and, if successful, will be offered as a plan choice. That has put pressure on physician specialists and hospitals to participate in their local CCO.

Meanwhile, small rural hospitals are bracing for the effect of fewer admissions and the potential loss of the cost-based reimbursement they've received for years from Medicaid.

“I'm supportive of the CCO concept. On the other hand, I am worried,” said Dave Harman, CEO of Wallowa Memorial Hospital, a 25-bed critical-access hospital in Enterprise, a cattle town in eastern Oregon. Medicaid accounts for about 10% of its patient-care revenue. A state law maintains cost-based payment for rural hospitals through July 1, 2014. It's unclear what happens after that.

Wallowa Memorial has no ownership stake or board representation in the Eastern Oregon Coordinated Care Organization. “We are going to have to figure out how to live with whatever payment form they offer,” Harman said. “Honestly, I don't know where it's going to go. We are not willing, at this point, to give up on cost-based reimbursement.”

At larger urban hospitals, executives seem less concerned about reduced admissions, even though Medicaid is a substantial source of revenue for some. Oregon Health & Science University in Portland accounts for 19% of the state's Medicaid spending on inpatient care. But Dr. Joseph Robertson, OHSU's president, said the CCO strategy dovetails with OHSU's efforts to focus on the most complex cases and develop telemedicine and other means of support to help community hospitals avoid unnecessary transfers to tertiary medical centers.

Open disagreements within the CCOs have been rare and haven't stopped them from moving rapidly on some fronts, such as integrating behavioral and physical healthcare. Doctors' offices and clinics across the state have added behavioral health professionals to help care for the many patients who present with physical health complaints that are complicated by depression, mental illness, or alcohol and substance abuse.

Daren Ford, a clinical social worker who joined the staff at the OHSU Richmond Clinic in April, said many of the patients he works with have gone for years without reliable access to healthcare. They've resorted to using the ER because they've seen no other choice. “When we say, 'How can we find a more effective way of getting your needs met?' they are relieved,” he said. “A little of that support goes a long way.”

Robin Henderson, a psychologist at St. Charles Health System in Bend, said patients feel less stigma receiving psychological help at a medical clinic than at a mental health center. She said it's saving money by helping people better manage chronic health conditions and avoid unnecessary ER visits.

In other signs of progress, some CCOs are pushing to integrate dental care ahead of schedule. And a number of CCOs are implementing the primary care-oriented, patient-centered medical home model. Statewide, more than half of CCO members are in medical homes, while in three CCOs, more than 80% of members are in medical homes.

“Before, it was mostly reactionary medicine,” said Joyce Torrence, manager of the Legacy Clinic St. Helens (Ore.), a rural clinic that's part of the Columbia Pacific CCO. Since adopting the medical home model, the clinic's team of physicians, nurses, medical assistants and a social worker systematically tracks patients, tries to anticipate needs and reaches out when patients are due for preventive services and medication adjustments.

Preliminary data show Oregon's Medicaid population appears to be using less inpatient and specialist care since the CCOs took over. In August, the Oregon Health Authority reported that the annualized rate of inpatient days for surgical, psychiatric and substance abuse treatment was down more than 25% at the end of the first quarter of 2013 compared with the overall rate for 2011, while outpatient primary-care visits were up 24%. Willamette Valley Community Health reported that its focus on high utilizers produced a 12% drop in ER visits after one year.

But utilization could turn out to be substantially greater than reported because of lags in collection of encounter data. State officials expect to release more definitive financial trend data in November.

Kitzhaber said it “would be a very powerful sign of success” if the state's CCO reform model keeps Medicaid spending to the budgeted 4.5% increase this year and a 3.5% increase next year. “We're making slow, but relentless progress,” he said.

Primary-care physicians say it's crucial that CCOs speed up the adoption of payment methods that move away from fee-for-service and reward them for keeping patients healthy. CCOs are developing plans for paying case-management fees to primary-care doctors and looking for ways to compensate providers for nursing interventions, counseling by phone and e-mail, and screening for substance abuse.

But Dr. Melinda Muller, clinical vice president for primary care at Legacy Health, a hospital system based in Portland, said progress on alternative payment models has been too slow, partly because of concerns about loading too much financial risk on individual providers or creating incentives that discourage them from accepting Medicaid patients.

Milano, the OHSU family physician, said she's optimistic about CCOs but far from certain they'll succeed. She said the CCOs depend heavily on the close alignment of primary-care doctors with specialists, hospitals and other providers that are vying for a share of the same global budget.

“I think that's where the rubber meets the road,” she said. “Can we be in alignment around the well-being of the patient, while at the same time not feeling that our economic vitality is threatened by the model?”

—with Andis Robeznieks

Joe Rojas-Burke is a freelance journalist in Portland, Ore.