State Medicaid programs are saving money and improving quality by adding risk-based reimbursement and care models that wrap around patients. The states to watch are Oregon, Arkansas, Vermont and New York.

With many in the hospital field looking to Washington, D.C., for guidance on how health care reform will unfold, they might want to start paying more attention to what’s happening in their own backyards.

State Medicaid programs are becoming leaders in devising and implementing risk-based care and reimbursement models. In many ways, the Great Recession and an inconsistent recovery have forced the hands of state policymakers. They are eyeing rising costs, have limited borrowing ability, and those states that expanded health coverage are now responsible for insuring thousands of more lives.

To save money and improve quality, state Medicaid programs are adding risk-based reimbursement and care models, which, in turn, seems to be raising the importance of Medicaid programs in the broader health reform effort.

“Medicaid has for a long time been sort of the stepchild in the health care system, and I think unfairly so,” says Heather Howard, lecturer in public affairs at Princeton University. “States can’t deficit-spend like the federal government can. So, states were seeing both costs and enrollment go up during the economic downturn.”

They needed to do something to get out of their fiscal holes. As a result, “you’re seeing interesting innovation in a number of states,” she adds.

Medicaid programs already have plenty of experience with risk-based care. More than half of all beneficiaries nationwide receive most or all of their care from risk-based managed care organizations that provide comprehensive services, according to the Kaiser Family Foundation. Kaiser estimates that 39 states, including the District of Columbia, have contracts with comprehensive Medicaid MCOs, and all but three have some form of managed care.

Although the results are mixed for Medicaid managed care, familiarity with the concept is leading to refinements and a move to more sophisticated models.

Some states are carving out populations for more expanded case management, such as behavioral health, says Catherine Sreckovich, managing director in health care for Navigant Consulting, Chicago.

Twenty-two states offer primary care case management, 13 of which do so with a risk-based MCO, according to Kaiser.

Kaiser numbers also show that 26 states planned to grow Medicaid managed care in fiscal 2014 and, including some of the same states, 23 plan to do so in fiscal 2015.

“Virtually every state, whether it’s an expansion state or a non-expansion state, is looking at reforming Medicaid payment and delivery systems,” says Deborah Bachrach, a partner with Manatt, Phelps & Phillips LLP.

CCOs in Oregon

Oregon has captured a lot of attention for its all-in approach to reform, adopting a global payments model that could make or break the state’s Medicaid program.

Lumping Medicaid with state-backed coverage for children, state employees and teachers, Oregon apportioned care to 16 Coordinated Care Organizations. The broader Oregon CCO program is beginning its third calendar year in 2015 and its second under the Medicaid expansion. As of Sept. 15, roughly 975,000 Oregonians were in a coordinated care organization, according to the Oregon Health Authority, the state agency overseeing the reforms.

The basic approach is that each CCO is given a lump sum to provide care in the region assigned to it. Two percent of that lump sum is held back by OHA, potentially to be awarded based on quality performance.

For 2013, the latest period for which data were available, full payment of the 2 percent was awarded in 2014 if the CCO hit 12 of 17 quality metrics for absolute or improvement levels, if the electronic health record benchmark improvement target levels were met and if at least 60 percent of its members were enrolled in a patient-centered primary care home.

Eleven of the 15 received full payment for quality and bonus money that came from unearned quality payment funds. Quality payments that are unspent are disbursed among those CCOs that hit their targets.

On the clinical side, Oregon affords CCOs a fair amount of latitude in determining how to allocate resources. For example, if a CCO provider sees a patient who is frequently being seen for heat exhaustion, a treatment option would include paying for an air conditioner for that patient.

Ray Gibbons, president and CEO of Saint Alphonsus Medical Center, a rural hospital in Baker City, Ore., says the CCO model so far is working for them operationally, financially and with regard to quality. The Eastern Oregon CCO has about 55,000 Medicaid covered lives, according to Gibbons. The CCO got a majority of its withheld amount back, but not all of it.

“I think we’ve moved the dial, and a big part of that is working together,” says Gibbons, who sits on the board for the Eastern Oregon CCO. “That’s the frontier spirit to work together and get things done.”

The Eastern Oregon board determined how to split the quality payout among the various providers. The hospitals divided their portion for 2013 equally, Gibbons says.

Generally, he says that within the CCO, he was watching to see if each hospital member’s voice was heard and understood. “That’s gone surprisingly well,” Gibbons says.

Moving forward, Gibbons says that data collection needs to improve, especially as care delivery shifts toward a population health approach. Additionally, more needs to be known about expected outcomes.

“Tell me, with the interventions we’re doing today, what’s the quality of life five years out?” Gibbons says. “I don’t think anyone has that data.”

The Razorbacks’ Edge

While not a usual suspect when it comes to health care innovation, Arkansas has the attention of policy wonks and policymakers.

“We have done some very innovative things here in Arkansas when it comes to the Medicaid program,” says Roxane Townsend, M.D., CEO of the University of Arkansas for Medical Sciences Medical Center in Little Rock.

The state’s Medicaid expansion strategy is unusual, but potentially desirable and replicable in other states. While agreeing to expand coverage, state officials aren’t interested in expanding the actual Medicaid program, Townsend says. Policymakers devised a way to spend Medicaid expansion funds on private coverage through the state’s health insurance marketplace.

Under terms of its federal waiver — the formal permission from the government to try something new — Arkansas has to purchase at least Silver-level coverage in the exchange for its Medicaid members.

The Medicaid expansion added an estimated 220,000 people to the rolls, roughly 180,000 of whom were enrolled in a private-option plan, according to Townsend.

The added coverage is helping to ease some of the financial pressures at hospitals like UAMS. Before the expansion, 13.5 percent of patients at UAMS were uninsured, as measured by patient charges. The next month it fell to 11 percent and for the most recent three months the rate has been below 4 percent.

“It’s been tremendous for UAMS, and other hospitals have experienced similar results,” Townsend says.

There is a catch in terms of keeping the program running smoothly. A supermajority of 75 percent of the members of both state legislative houses has to approve the program each year. A potential trigger point will hit in 2017 when the terms of the waiver call for the state to pick up 5 percent of the cost of the premiums paid by the federal government.

Still, Arkansas’ success so far has not gone unnoticed.

“We understand that several states, especially some of those with Republican governors, are looking closely at Arkansas to see how this works for us, and to consider similar kinds of waivers,” Townsend says.

Coordination Implementation

In addition to covering more lives, Arkansas is following the lead of a handful of other states in aggressively expanding care coordination for patients, including a focus on frequent users of the health care system.

“One of the things that is of most interest to states is the care coordination piece, especially integrating behavioral and physical health, recognizing that a lot of the higher utilizers of health care services are in a more complex population with social needs,” says Tara Oakman, program officer, Robert Wood Johnson Foundation.

Arkansas’ coordinated care model combines patient-centered medical homes, health homes for members with special or higher-level needs and bundled payments targeting 14 episodes of care. The medical home features shared risk on the upside and downside.

Similarly, Vermont continues to be an innovation leader, with medical homes and accountable care becoming integral to Medicaid. “We have a history of wanting to do things differently,” says M. Beatrice Grause, R.N., president and CEO of the Vermont Association of Hospitals and Health Systems.

The state’s Medicaid program has seen 80 percent of its primary care practices certified by the National Committee for Quality Assurance’s medical home certification group, says Kara Suter, director of payment reform and reimbursement at the Department of Vermont Health Access, part of the Agency of Human Services.

The state organizes care coordination groups known as community health teams, although the structure and makeup of each team is created at the ground level. The team includes clinicians, care coordinators, nutrition specialists and social workers.

“What’s really innovative about the program is that all of the decision-making is concentrated at a regional level within the state,” Suter says. “Think of it as an extension service to primary care.”

Suter notes that a next step for the medical homes is to try to extend it to other providers, such as mental health and long-term care. Vermont also is adding accountable care organizations to the Medicaid mix, opening up its patients to three ACOs, with two of them agreeing to participate.

Waivers for Redesigning Care

New York in April became one of seven states to receive permission to take money designated to help fund safety net care for Medicaid patients and divert it into redesigning how health care is provided. Part of the goal is to boost clinical and population health outcomes, according to the Kaiser Family Foundation.

The approach, called a Delivery System Reform Incentive Payment program, is offered as part of Medicaid Section 1115 waivers. Over five years, New York expects to receive more than $6 billion in DSRIP money, second only to Texas’ expected $11 billion, according to Kaiser.

Payments are tied to meeting performance measures for such things as quality and process, which include data reporting requirements. States have to kick in funding as well.

Montefiore Medical Center, New York City, is active in the DSRIP, as well as other Medicaid innovations, such as health homes and offering a comprehensive care model. It manages about 5,000 high-need patients through so-called health homes, which are like medical homes that take on broader responsibility for a patient’s health, and typically target the chronically ill.

“These are folks that are most on the margin,” and the health home program is designed to bring them closer to the health care system, says Lynn Richmond, executive vice president and chief of staff for the president and CEO of Montefiore.

In its close to 20 years of trying to revamp how Medicaid-covered care is provided, Montefiore has developed a model using a centralized care management function that includes risk stratification, workflow interventions and analytics coupled with a transformation of what happens at the delivery system level, says Richmond.

“The thing we’ve learned over the years is that you really need to have a menu of interventions that can work around patients,” she says. “You can’t just have 9-to-5 care managers call, because many of our patients work two jobs. You have to call them at 11 o’clock at night when they get home.”

It should reduce high-cost events like readmissions and emergency department visits, she says. “All these things you’re doing help them manage their own health.” 

Paul Barr is senior writer, Hospitals & Health Networks, Chicago.

The Board’s Medicaid Primer

Like any federal program, figuring out what’s happening in Medicaid requires an understanding of key terms and a slew of acronyms. But as the Medicaid program gets larger through the Affordable Care Act expansion, knowing the basics is becoming even more important. These are a few of the terms to know.

Section 1115 demonstration waiver

The standard bureaucratic process for making a change to how a state structures its Medicaid program. Eleven-fifteen demonstration waivers are expected to expand eligibility, provide services not typically covered by Medicaid or use an innovative delivery system. The catch: “Eleven-fifteen waivers are pretty complicated and take time,” says Molly Collins Offner, director of policy development for the American Hospital Association.


An increasingly common reform vehicle that requires a Section 1115 waiver and is formally called a Delivery System Reform Incentive Payment program. Initially, DSRIP proceeds were slated for safety net hospitals but, over time, the list of eligible providers has expanded.

State Medicaid director letters

Some changes to a Medicaid program don’t require the effort that a Section 1115 waiver does, and the Centers for Medicare & Medicaid Services has outlined many of them in a series of letters to state Medicaid directors.

Managed care organization

Traditionally, a managed care organization was an insurer hired to cover a portion of the program’s patients. Over time, some have adopted reform components. MCOs also have attracted increased scrutiny from HHS’ inspector general’s office, according to Navigant Consulting.

Coordinated care organization

Like an accountable care organization, Medicaid Coordinated Care Organizations take on the risk of caring for a given Medicaid population, more so than an MCO.

Source: American Hospital Association, Centers for Medicare & Medicaid Services, Kaiser Family Foundation, National Association of Medicaid Directors and Navigant Consulting.

National Focus on State Programs

States are not alone in trying to promote innovation in Medicaid programs. Federal and private organizations are contributing to state-level innovation by providing funding, coordination and data assistance.

The Centers for Medicare & Medicaid Services has set aside hundreds of millions of dollars to promote innovation at the state level for Medicaid, Medicare and the Children’s Health Insurance Program.

One of CMS’ primary efforts is through the State Innovation Models Initiative, which in the first round awarded $300 million to design and test improvements to their public and private health payment and delivery systems. In the second round, $730 million will be awarded to existing model states and for partnerships with additional states to accelerate reform. And, of course, CMS is heavily involved in the Medicaid waiver process in which it gives the thumbs up or down to state proposals to alter their programs.

The American Hospital Association is poised to offer state-level guidance in Medicaid expansion and reform work through a committee of association leaders from the field called the Allied Advisory Committee on Medicaid.

The committee members just finished a broad examination of Medicaid, trying to identify where states are in the process, says M. Beatrice Grause, R.N., president and CEO of the Vermont Association of Hospitals and Health Systems and chair of the committee.

“Moving forward, we’re going to be looking at how we provide more concrete help to states as they look at Medicaid expansion and Medicaid reform within the context of their overall state reform strategy,” Grause says.

The Kaiser Family Foundation offers a significant amount of data and analysis at the state level, including a managed care market data tracker, information on where states are with expansion and even a Medicaid quiz. — P.B.