Reform Update: Illinois tackling Medicaid with aggressive ACO model

The development of Medicare and private accountable care organizations has led many states to adopt similar approaches to managing care and costs for their Medicaid populations. In Illinois, provider groups are starting one of the most aggressive state-sponsored projects in which they will eventually bear all financial risk.

Medicaid accountable care entities are provider-governed networks that take care of new Medicaid enrollees—including low-income children, those children's family members and adults—under the Patient Protection and Affordable Care Act.

The new Medicaid networks in Illinois are blending aspects of HMOs of the past with ACOs of the present. Last month, the state's eight accountable care entities, or ACEs, officially launched and started enrolling members. What makes the ACEs different is that eventually the providers will be taking on full risk for their patients, both medically and financially.

“We were very interested in testing some other models besides traditional managed care,” said Julie Hamos, director of the Illinois Department of Healthcare and Family Services, which oversees Medicaid.

The ACE initiative started because of a 2011 Illinois law. It mandated that by Jan. 1, 2015, at least half of the state's 3 million Medicaid beneficiaries had to be enrolled in some type of a managed-care plan. The state has created a variety of ways to accomplish this, such as traditional managed-care organizations led by private health insurers. But Illinois wanted to include hospitals and doctors as part of the solution, Hamos said.

Under the ACE model, the participating provider groups agreed to contract with Illinois for three years to care for defined Medicaid populations in a specific geography.

During the first 18 months of operation, hospitals and physicians will receive two types of payment from the state. Illinois Medicaid will still reimburse all medical claims on the usual fee-for-service basis, but the state will also give ACEs a care-coordination fee of $9 per member, per month.

In the second half of the contract and after it ends, providers will bear full financial risk under an undetermined capitated payment.

Providers will be responsible for every service that needs to be rendered for enrollees—hospital, skilled nursing, pharmacy—and they have to persuade members to get care in their respective networks. After the third year, ACEs will continue to be reimbursed with full-risk, capitated payments.

Many providers view the 18-month trial period as a critical feature. That time frame allows them to maintain their normal stream of Medicaid revenue initially. The extra capitated payments allow for the right investments in large-scale Medicaid care coordination, said Ben Fisk, assistant vice president of business services at NorthShore University HealthSystem, Evanston. NorthShore is part of the Community Care Partners ACE, along with Vista Health System, Waukegan; Erie Family Health Center, Chicago; and the Lake County Health Department.

“That money will help us set up the infrastructure and set up the staff,” said Fisk, who anticipates NorthShore's ACE will cover 40,000 to 55,000 Medicaid patients.

For Dr. Carrie Nelson, a family physician who is the clinical lead for Advocate Health Care's ACE, the Medicaid demonstration fit well with Advocate's emphasis on higher-quality, lower-cost care. The Downers Grove, Ill.-based health system, which is merging with NorthShore, already has ACOs with Medicare and Blue Cross and Blue Shield of Illinois.

Because healthcare reform is incentivizing providers to push patients more toward primary-care services, Nelson said Advocate viewed the ACE program as another extension of that process. That goal is especially relevant for Medicaid populations, who generally face more socio-economic barriers in receiving healthcare, she said.

“We saw this as an opportunity to roll those patients into the same model of care we are providing to our other ACO populations,” Nelson said. She expects Advocate's ACE will cover 50,000 to 75,000 people.

Hamos of the Illinois Department of Healthcare and Family Services said ACEs are far from a guaranteed success. For example, many groups are not accustomed to playing the role of health insurer and provider simultaneously, and they will have to learn quickly to do both if they want to reap any savings from their capitated payments. NorthShore's Fisk said he also is concerned about the network's ability to effectively manage the care of Medicaid patients, who have more health risks.

Perhaps one of the biggest hurdles for providers: the right information technology infrastructure. Hamos said systems will have to invest in the right IT and data tools to track and share each Medicaid patient's clinical history.

“ACEs that succeed are the ones that are really going to master data analytics and use the data to understand and better manage their clients,” Hamos said. “You cannot do care coordination through paper.”

Illinois is emphasizing the health IT component with several requirements (PDF), such as being part of the Illinois Health Information Exchange, a private platform in which providers can securely share patient data.

Many observers believe Illinois' Medicaid ACE program is primed to be more successful than failed managed-care reforms of the 1990s because of the focus on high-quality preventive care and lower costs for the population. Niyum Gandhi, a partner at consulting firm Oliver Wyman who tracks ACOs, said this full-risk model encourages providers to find those who need the most care—for example, Medicaid patients who enter the emergency room likely need a good handoff to a primary-care doctor—and then get them on the right path to recovery.

“They're actually intentionally going after the sickest population because they believe there is the most opportunity there,” Gandhi said. “It's a complete opposite sort of situation of what you saw 20 years ago when there was a lot cherry-picking of healthy patients.”

A new study in the Annals of Family Medicine found that a Medicaid primary-care demonstration saved Illinois at least $1.46 billion from 2007 to 2010 due primarily to reductions in inpatient services. Additionally, avoidable hospitalizations among Medicaid patients dropped by double digits, and quality measures improved in nine out of 10 categories. The program was similar to the first 18 months of ACEs, in which physicians receive fee-for-service payments as well as capitated payments to manage patient care.

The high price of Sovaldi has led Arizona's Medicaid program to put restrictions on which Medicaid enrollees can receive full coverage for it. Sovaldi, a hepatitis C medicine that costs $84,000 for a 12-week treatment, has been a boon for its manufacturer, Gilead Sciences. But state Medicaid departments have said its lofty price tag is straining their budgets. In Arizona, officials said Medicaid will cover the drug only for Medicaid patients who are in the late stages of the liver disease, and patients must have a clean drug history. Oregon and Illinois have similarly put limitations on Sovaldi coverage in recent months.

Follow Bob Herman on Twitter: @MHbherman