Reform Update: CMS won't limit flexibility of Oregon CCOs, state says

The CMS and Oregon are stepping back from an apparent clash over how the state is paying the managed-care organizations serving Medicaid beneficiaries in its nationally watched Medicaid demonstration. State officials and leaders of Oregon's coordinated-care organizations had expressed strong concern that the CMS was limiting their flexibility in providing services to keep patients healthy.

On Aug. 7, the CMS sent a letter (PDF) to the Oregon Health Authority, which oversees the state Medicaid program, criticizing the process by which the state sets capitation rates for CCOs. It gave the state until January to come up with a fix for the issue.

But this week, CMS Medicaid Director Cindy Mann said those issues would not get in the way of her agency's support of Oregon's Medicaid transformation plan, which the Obama administration hopes other states will learn from. “CMS' support for Oregon's approach to transform their healthcare delivery system by paying for better health outcomes remains steadfast,” Mann said in a written statement.

The Oregonian reported that Oregon's Democratic Gov. John Kitzhaber was involved in talks with the Obama administration over the issue.

In 2012, Oregon began to rely on coordinated-care organizations, or CCOs, to manage the care of most of the state's nearly 1 million Medicaid beneficiaries. That year the CMS approved the state's ambitious, five-year Medicaid waiver proposal, which covers both beneficiaries who previously were covered by Medicaid and those who joined the program under the Obamacare Medicaid expansion this year.

Under the waiver, Oregon agreed to cap the growth of Medicaid spending in exchange for $1.9 billion in additional funding to pursue the ambitious healthcare overhaul. Exceeding the caps carries significant financial penalties for the state.

In the program, managed-care plans receive per-capita monthly payments to serve Medicaid beneficiaries. The plans then give their healthcare providers a pot of money to provide whatever services the plan members need to keep them healthy. The CCOs, some for-profit and some not-for-profit, are responsible for providing nearly the full range of health services—medical, dental, psychiatric, addiction treatment and case management.

The idea was that the CCOs could provide services including nonmedical assistance, such as buying asthmatic patients a vacuum cleaner to keep their homes free of dust or buying patients with congestive heart failure an air conditioner to keep them safe in hot weather.

But in the Aug. 7 letter, Barbara Coulter Edwards, director of the CMS' Disabled and Elderly Health Programs Group, said the state's lack of patient encounter data has made it difficult to verify that the rates the state is paying CCOs are actuarially sound. Actuarial soundness measures whether the payments cover all anticipated medical costs, administrative costs, taxes and fees that a plan will be responsible for, as well as ensuring that health plans are not overpaid.

“Oregon's lack of encounter data remains a concern,” Edwards wrote. The “lack of reliable experience data is impeding the state's ability to set reasonable and accurate rates.”

The letter also said that the state, without sufficient justification, had built in a “higher profit/risk/contingency margin” on rates for newly eligible beneficiaries than for currently eligible beneficiaries. And it had assumed a higher rate of provider reimbursement for the newly eligible population, Edwards said.

The state would have to submit a corrective action plan for its “high-risk practices” no later than 120 days after receiving the letter, Edwards wrote.

CCO leaders complain that having to provide standard encounter data on each medical service offered would get in the way of the flexibility they need to meet beneficiaries' needs. “There are no codes for doing things like buying air conditioners or vacuum cleaners,” said Jeff Heatherington, CEO of FamilyCare, one of Oregon's CCOs.

CCOs and their providers have used the pot of money from the state to hire peer addiction specialists for plan members who suffer from substance abuse, and to hire care managers who oversee beneficiaries' social and medical needs. But there are no medical billing codes for these services, said Janet Meyer, CEO of Health Share of Oregon, another CCO. “The CMS wants us to incorporate tools that we used in the past when we were doing fee-for-service,” she said. “So we have to somehow recreate a methodology that reflects the past but also moves us towards the future. That's a heavy lift.”

After the Oregonian newspaper reported on the CMS letter last week, CCO leaders expressed worry that the CMS might deem inappropriate some of the alternative services they were providing and seek to recoup funds. But Oregon officials quickly assured them that wouldn't happen and that the CMS has no plans to end the global payment model.

“There is no risk of having to return the funds,” said Patty Wentz, a spokeswoman for the Oregon Health Authority. “CMS is not requesting that we transition from global payment to traditional capitated or fee for service. They are requesting more documentation and rigor and we are working with them on what that will be moving forward. The model is not at risk.”

Her comments were echoed by the CMS. “We are not backing away from the waiver in any way, we're working with the state to maintain program integrity,” said CMS spokesman Aaron Albright.

The scrutiny Oregon is receiving is likely the result of the CMS attempting to step up its oversight of how states around the country are setting rates for their Medicaid managed-care contractors, said Kathy Gifford, a managing principal at Health Management Associates. Other states should expect similar examination, she added.

Currently, 37 states and the District of Columbia contract with Medicaid plans, according to Medicaid Health Plans of America, a national trade association. The CMS has been criticized for years for being inconsistent in reviewing states' rate-setting for compliance with the Medicaid managed-care actuarial soundness requirements.

There have been reports that some plans received payments that were too high while others received payments that were too low. A 2010 Government Accountability Office report found that Tennessee, for instance, received approximately $5 billion a year in federal funds for rates that had not been certified by an actuary.

The CMS is drafting a sweeping new rule that will update managed Medicaid regulations. The document will be released by year-end. CMS officials believe the new guidelines are necessary given that most of the current rules were drafted in 1998.

Wyoming Republican Gov. Matt Mead appears to be softening to the idea of Medicaid expansion, and is now in talks with the Obama administration to make it happen.

It is unclear if he is considering a straightforward expansion of the program or an alternative model similar to Arkansas', in which federal Medicaid dollars are used to buy private plans through the federal exchange for adults earning up to 138% of the federal poverty level.

The GOP-controlled Wyoming Legislature has repeatedly refused to expand Medicaid to 17,600 low-income adults. But earlier this year the Legislature asked Mead to see if some kind of acceptable deal could be arranged.

The Wyoming Health Department has concluded that Medicaid expansion would save the state roughly $50 million. The state hospital association has supported expanding Medicaid, saying hospitals in the state cover more than $200 million a year in uncompensated care for uninsured residents.

The CMS said that comprehensive autism services must be covered for children under all Medicaid and Children's Health Insurance Program plans.

Some states already were providing limited coverage for certain age groups at capped amounts, but the new policy requires mandatory coverage for everybody under 21.

Some states are concerned about the new requirement because it's unclear how much it will cost to cover services related to autism, said Matt Salo, executive director of the National Association of Medicaid Directors.

Follow Virgil Dickson on Twitter: @MHvdickson