State Medicaid agencies have launched a wide array of payment and care-delivery reforms, some of which go further than the federal government's efforts.
While they hold out the promise of delivering higher-quality care, it's unreasonable to expect they will deliver lower costs, at least in the short run.
Why do I say that? Let's start with the basics. Nearly a quarter of Americans, almost 80 million people, now get their healthcare through Medicaid. About a quarter of them are elderly or disabled.
These dual-eligibles account for about 60% of all Medicaid spending. By contrast, children, who make up nearly half of the Medicaid population, account for only one-fifth of Medicaid spending.
In other words, about 25% of the population—all of them poor, most with special healthcare needs—gets by on only 16% of all healthcare spending.
Federal and state governments can get away with that for one simple reason. Medicaid, except in a few states, pays significantly less than Medicare, private insurers or self-pay patients.
The Kaiser Family Foundation estimates the nationwide average physician fee schedule for Medicaid patients is 66% of Medicare rates. In California, the nation's most populous state, it's 52%. Medicaid's hospital rates are a bit better, but still well below actual costs.
It's in that low-pay environment that state Medicaid directors are working with their insurer-run managed-care organizations, which now handle about 70% of all Medicaid beneficiaries. Or they are working through their own fee-for-service bureaucracies to establish a wide range of value-based payment and population health-management programs. A recent survey by the National Association of Medicaid Directors found there's an incredible amount of innovation going on.
Among the 34 states in the survey, 35% were experimenting with monthly per-patient payments to primary-care physicians to coordinate care, provide patient and family support, and make referrals to community-based agencies. These services are considered key to preventing overuse of emergency rooms or other acute-care services.
The survey identified three states—Arkansas, Ohio and Tennessee—that are already using bundled episode-of-care payments, and four more are developing such programs. Unlike Medicare, which last week launched its orthopedic bundled-payment program, these states are applying the bundles to a wider range of care episodes. In each of these states, providers are assuming some of the risk if they go over the bundled price.
Nine states, including California, Massachusetts and Oregon, are moving a portion of their Medicaid programs to population-based payments, where a physician group, hospital-led accountable care organization or integrated delivery system is given a set fee for meeting most of the healthcare needs of a preset patient population. They are using both shared-savings and shared-risk payment models, some with an eye toward moving to full capitation.
Medicare officials recently said they were ahead of schedule in moving 50% of the program's overall payments to some form of value-based reimbursement by 2018. Massachusetts, which is ahead of most of the nation in implementing Affordable Care Act-style reforms, plans to move 80% of its Medicaid payments to some form of value-based reimbursement within that time frame.
The experiments underway in state Medicaid programs need to be closely watched to determine what works well, what needs adjusting and what should be deep-sixed. These state-based programs are also an excellent way to prepare providers for the next generation of reforms the CMS will issue for its larger and faster-growing Medicare program.
The states are still the laboratories of democracy, to use Supreme Court Justice Louis Brandeis' famous phrase. It's notable that Medicaid experimenters include both blue and red states, many of which did not expand Medicaid coverage.
That suggests the steady move from volume-based to value-based payment isn't going away no matter what happens in the November election.