CMS strategies to reward Medicaid providers that improve care and lower costs

CMS has provided information for states interested in implementing Medicaid payment initiatives designed to reward providers that, for example, cut costs, improve access to care, or raise care quality. Under the Medicaid managed care rules, states are permitted to direct specific payments made by managed care plans to providers under certain circumstances, if the state first obtains CMS approval for the program (CMCS Informational Bulletin, November 2, 2017).

Managed care rules

Under 42 C.F.R. Sec. 438.6(c) there are three categories of state plans to implement delivery system and provider payment initiatives for managed care contracts:

1. Value-based purchasing models, which include bundled payments, episode-based payments, accountable care organizations, or other alternative models intended to recognize value or outcomes.
2. Performance improvement initiatives, which include pay-for-performance arrangements, quality-based payments, or population-based payment models.
3. Provider payment parameters, which include minimum fee schedules, a uniform dollar or percentage increase, and maximum fee schedules.

CMS approval

The regulation also requires that CMS approve these state-directed payment initiatives prior to implementation. To be approved, the initiatives must (1) be based on utilization and delivery of services to Medicaid beneficiaries covered under the contract and (2) contain payments that are directed equally, using the same terms of performance across a class of providers.

Plan components

The directed payments must advance at least one of the goals and objectives in the state’s Medicaid managed care quality strategy. States must also have a plan for evaluating whether the directed payment arrangement achieved the objectives. The evaluation plan should include: (1) identification of the performance criteria used to assess progress, (2) baseline data for performance measures, and (3) improvement targets for performance measures. States are generally free to determine which performance measures are most appropriate. If a state’s initiative is from either of the first two categories listed above (value-based purchasing models or performance improvement initiatives), the directed payments must make provider participation available across all payers and providers, using the same terms of performance and a common set of performance measures. In these two approaches, states cannot set the amount or frequency of the expenditures, nor can they recoup any unspent funds.

Multi-year arrangements

Directed payment arrangements cannot be automatically renewable, for example, annually, because CMS wants states to monitor the arrangements at least annually. CMS understands, however, that some states may want to implement multi-year payment arrangements to achieve longer-term goals. As a result, CMS has said that a multi-year arrangement will be permitted if the following conditions exist: (1) the state explicitly identifies the payment arrangement as a multi-year payment effort, (2) the state develops and describes a plan for pursuing a multi-year payment effort and the impact of the multi-year arrangement on the state’s goals, (3) no changes will be made to the payment methodology during the multi-year project, and (4) CMS approves the multi-year payment arrangement.

Plans not covered

Not all payment arrangements fall within the 42 C.F.R. 438.6(c) requirements. If a payment arrangement does not meet the regulations criteria, it need not, of course, obtain CMS approval. CMS has provided two examples:

1. States implementing a general requirement for managed care plans to increase provider reimbursement for services to Medicaid beneficiaries, as long as the state is not mandating specific payment methodology or amounts, and managed care plans retain the discretion for the amount, timing, and method for making provider payments.
2. States contractually implementing a general requirement for managed care plans to use value-based purchasing or alternative payment arrangements but the state does not mandate a specific payment methodology, and managed care plans retain the discretion to negotiate with network providers on specific terms.

Compliance date

The compliance date for obtaining 42 C.F.R. 438.6(c) approval is the rating period for Medicaid managed care contracts beginning on or after July 1, 2017. If states use a preprinted form that CMS has prepared, CMS commits to process the request within 90 calendar days of receipt.

Pilot program

The 42 C.F.R. 438.6(c) approval process has already been implemented in a pilot program. Three examples of state programs that were approved under the pilot program are:

1. A state plan to require managed care plans to pay an enhanced minimum fee schedule for professional services provided to Medicaid beneficiaries in an academic medical center by faculty physicians through a sub-capitated payment arrangement, to ensure that all Medicaid managed care enrollees have timely access to high-end specialty care.
2. A state plan to require managed care plans to pay quality incentive payments to acute care hospitals rendering services to Medicaid beneficiaries, to reduce potentially preventable readmissions.
3. A state plan to require managed care plans to pay Accountable Care Organizations (ACOs) operating in their networks a per-member per-month rate for Medicaid beneficiaries, to incentivize providers to form ACOs that will be accountable for the total cost of care and the quality of care.

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