Despite uncertainty about ACA most states moving forward with Medicaid expansion

Although the future of Medicaid funding is unclear with the ongoing efforts to repeal and replace the Affordable Care Act (ACA) (P.L. 111-148), many states were still working to expand Medicaid services and benefits, according to a joint Kaiser Family Foundation (KFF) and Health Management Associates (HMA) report. In an annual survey collecting data about Medicaid policies in place or implemented in fiscal year 2017 and policy changes that will be implemented or are being discussed for fiscal year 2018 in each state and the District of Columbia, KFF and HMA noted that some of the biggest changes are occurring in eligibility policies, managed care reforms, and the expansion of benefits.

Eligibility and Premiums

In 2017, seven states made changes to expand Medicaid eligibility and in 2018 another seven are planning to implement eligibility expansions. These changes include eliminating the 5-year bar on Medicaid eligibility for lawfully-residing immigrant children or providing coverage for a new eligibility group of individuals who are chronically homeless, justice-involved, or in need of substance abuse or mental health treatment with an income below 5 percent of the federal poverty level. A few states are looking to make changes to restrict Medicaid eligibility by imposing work requirements and asset tests.

In recent years, many states have made changes to the way Medicaid coverage is handled when beneficiaries are in the criminal justice system. Some states have opted to suspend coverage when someone is incarcerated rather than terminate coverage, as they have done previously, so it is easier to reinstate coverage when the beneficiary is released. Additionally, some states have developed initiatives to work with and train criminal justice employees to assist with Medicaid applications after a person is released.

Managed Care

Twenty-nine of 39 states with risk-based managed care organizations (MCOs) reported that 75 percent or more of their Medicaid beneficiaries were in enrolled in MCOs as of July 1, 2017. Most states carve-out certain services, such as behavioral health services, from their MCO contracts. In 2017 at least six states took steps to carve in behavioral health services into their MCO contracts and ten states reported plans to work toward carving in behavior health services in 2018. Twenty-six of the 39 MCO states reported that they would use the funds available for inpatient psychiatric treatment or substance use treatment under the 2016 Medicaid Managed Care Final Rule; however, many states commented that the 15-day limit was too restrictive for the type of treatment that it was meant to cover. Sixteen states in 2017 and 17 states plan in 2018 to include specific initiatives to encourage MCOs that cover LTSS to expand access to home and immunity-based services (HCBS).

Benefits

Twenty-six states reported new or enhanced benefits in 2017 and 17 states plan to add or enhance benefits in 2018. These added benefits include mental health and substance use disorder services, alternative plain therapies, family planning and cancer screenings. Nineteen states reported new or expanded initiatives to expand dental access or improve oral health outcomes in 2017 or 2018. Additionally, 19 states reported initiatives to expand the use of telehealth in 2018 or 2019. For 2018, 22 states reported plants to adopt or expand initiatives such as patient-centered medical homes or accountable care organizations in an effort to encourage integrated care. Fourteen states in 2017 and 13 states plan in 2018 to report expansions and additions to the HCBS programs, including personal supports, supported employment, home delivered and medically tailored meals among others.

Although most states are continuing to look ahead to expand Medicaid benefits and eligibility, almost all states are still concerned about the negative fiscal consequences that they would face in the proposed limits on federal Medicaid spending. Medicaid directors from the 32 ACA Medicaid expansion states reported the states would not be able to continue providing coverage for expansion population, or the coverage would be at a substantial risk, if the ACA federal match was terminated.

States try to manage expectations for Medicaid managed care

When CMS updated regulations regarding Medicaid managed care in May 2016, it was the first significant update to these regulations since 2002. Over the past year, as speakers at the American Health Lawyers’ Association Institute on Medicare and Medicaid Payment on March 29, 2017, noted, states have started the multi-year process of complying with the new rules, while dealing with resources issues at the state level and political change in Washington, D.C.

About 80 percent of the 73 million Medicaid enrollees are in some kind of managed care program, according to Lindsey Browning with the National Association of Medicaid Directors. Thirty-nine states and the District of Columbia have contracted with managed care entities to deliver care to all or some of their Medicaid beneficiaries.

Four options

Prior to the issuance of the revised regulations (81 FR 27498, May 6, 2016) states had basically one option for putting a managed care plan in place—requesting a Medicaid state plan amendment from HHS. Under the revised regulations states now have four options to implement managed care waivers under various provisions of the Social Security Act: (1) a Sec. 1932 state plan waiver; (2) a Sec. 1915(a) waiver (waiving competitive procurement process); (3) a Sec. 1915(b) waiver, requiring all enrollees, including dual eligibles and children with special health care needs to enroll in managed care; and (4) a Sec. 1115 waiver (which may permit coverage of services not otherwise covered in Medicaid) (see CMS modernizes Medicaid managed care, Health Law Daily, May 6, 2016).

James Golden, director, Division of Managed Care Plans at CMS, noted that full implementation of the revised regulations will take three to five years, and that the key to success is how well states work with affected stakeholders—both managed care entities and beneficiaries. “CMS expects the states to take the lead in setting standards,” Golden said.

State challenges

Browning highlighted two key challenges that states face – setting up adequate networks of providers so managed care beneficiaries can actually access health care; and limited staff capacity to drive expansion of Medicaid managed care alongside a number of other Medicaid related regulations.

Impact of new administration

A further complication, Browning noted, is the new Trump Administration and new leadership for HHS and CMS. She noted that the new CMS Administrator, Seema Verma, indicated an interest in re-examining all recent rules related to Medicare and Medicaid during her confirmation hearing. Browning also pointed to the Executive Order issued by President Trump which requires all agencies to create a Task Force to review existing regulations with the goal of repealing many of them. Browning noted that both Verma and HHS Secretary Tom Price are interested in increased state flexibility around health programs.

In addition, Browning said that any changes to the Affordable Care Act (ACA) (P.L. 111-148) may impact the new Medicaid managed care regulations, for example, she noted that a key goal of the managed care rule was alignment with qualified health plan requirements under the ACA. Would this change if the ACA’s health insurance Exchanges are eliminated? Finally, she said that any structural changes to Medicaid would likely require revised managed care rules.

Hospital-owned physician practices continue to grow, but integration has issues

“The Affordable Care Act and changing economic conditions have encouraged an increase in the integration of physicians with hospitals,” according to a study conducted Marah Short, M.A., Vivian Ho, Ph.D., and Ayse McCracken, MBA, CPA for the James A. Baker III Institute for Public Health at Rice University. The Rice University study found that hospitals with physicians on salary rose from 44 to 55 percent between 2008 and 2013 and noted that a growing number of hospitals are employing primary and specialty care physicians, as well as hospitalists. The authors  concluded that the data showed an overall trend of increasing integration, but stated that many hospitals are transitioning to lower levels of physician-hospital integration. The study examined the trends in hospital integration over time designating four forms of integration based on the type of contractual relationship a hospital has with physicians.

Number and impact of hospital-employed physicians

The number of physician practices owned by hospitals/health systems rose 86 percent between 2012-15, with the percentage of physicians employed by hospitals or health systems increasing in every region of the country, according to a study prepared by Avalere Health and released September 7, 2016, by Physicians Advocacy Institute (PAI). This study also found that by mid-2015, one in four medical practices were hospital owned and 38 percent of U.S. physicians were employed by hospitals and health systems. In 2015, hospitals employed more than 140,000 physicians. In addition, from 2012 to 2015, hospitals acquired 31,000 physician practices. PAI noted that the acquisitions typically involve the acquisition of the services of multiple physicians through employment contracts, as well as the practice’s physical building and equipment.

Kelly Kennedy, PAI executive vice president, stated that “The shift toward more physicians employed by hospitals could mean higher costs for the entire health system. For patients, it impacts both where they receive and how much they pay for care.” Robert Seligson, PAI president and chief executive officer of North Carolina Medical Society, added that “Payment policies from governmental agencies and health insurance companies heavily favor large health systems and [that] makes it challenging for independent physician practices, especially smaller practices to survive.”

Accountable care organizations and payment innovations

“Through integration, hospitals could better control physician practices to increase efficiency and decrease costs,” by reducing duplication of services, providing clinical benefits, and improving communication and coordination of care between hospitals and physicians, the Rice University study explained. The authors further noted that the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) encouraged the integration of physicians with hospitals when it established accountable care organizations with the goal of reducing health care costs while encouraging  doctors, hospitals, and other health care providers to come together voluntarily to give coordinated high quality care to their Medicare patients. ACOs and medical homes will continue to spur integration in coming years, the study predicted.

Regulations mandated by the ACA have offered various payment innovations and opportunities for physicians and hospitals to participate in value-based contracting. These options provide better solutions with less operating and financial risks for hospitals and physicians, the study noted, perhaps allowing hospitals and hospitals to forgo integrating. Hospitals can form a successful ACO, while physicians can maintain their private practice and both benefit from the shared savings. However, hospitals seeking to participate as a Medicare ACO must build relationships with primary care physicians (PCPs) and will have better control of hospital referrals for inpatient and outpatient care if the PCPs are hospital employees, according to the Rice University study.

Conflicting interests in integration

Conflicting interests played a role in the choice to integrate or de-integrate, the study explained. Hospital employment of physicians is influenced by a variety of factors, including preparation for value-based contracting and the attraction of certain specialists that generated a significant patient volume. Hospitals studied were uncertain whether to employ highly compensated specialists or primary care physicians. Specialists considered the risk of declining incomes and sought partnerships with hospitals because reimbursement for ancillary services are paid at a higher rate when billed as the service of a hospital provider organization than when provided in private practice.

Other issues facing the integration of a hospital and an independent physician practice include payer contracting for Part B services; billing, coding, and collections process; staffing costs, policies, and procedures; and supply chain management. The differences in operation between the two may result in increased clinic operation costs along with pressures on physicians to contain costs. The differences in operation between the two may result in increased clinic operation costs along with pressures on physicians to contain costs.  The study recommends that hospitals create a governance structure with strong physician leadership and experienced practice administrators to address  and assimilate the practices into the hospital’s infrastructure.

The study noted that “a successful partnership requires physicians and hospitals to have aligned goals and strategies consistent across the organization.” When determining whether to integrate, the study recommended that hospitals and physicians consider whether there is both a cultural and financial fit and expectations of the physician and the hospital need to be clearly defined and aligned. While physician practices operate as small businesses, hospitals function as more sophisticated business entities, the study explained.While physicians may expect few changes in the way they do business, hospitals likely will expect physicians to operate their clinics in alignment with hospital systems, processes, and policies, and align referrals with its medical staff and outpatient services. .

Highlight on Delaware: First State missed rebates for physician-administered drugs

By not billing manufacturers for some rebates for physician-administered drugs dispensed to enrollees of Medicaid managed-care organizations (MCOs), Delaware missed out on rebates worth $230,000 ($127,000 federal share), according to a report from the HHS Office of Inspector General (OIG).  Although the state agency properly billed for most MCO drug utilization samples, it did not have valid National Drug Codes (NDCs) for other data submitted, and did not bill manufacturers for those rebates. The Delaware state agency told the OIG that it has no reasonable means for researching and identifying the specific products and NDCs because the MCO that submitted most of the utilization data without valid NDCs is no longer contracted with the state; the OIG responded that the state agency’s contract with MCOs provided access to records to support claims for at least five years after the claim was submitted (OIG Report, A-03-15-00202, December 30, 2016).

Drug rebate program

For a covered outpatient drug to be eligible for federal reimbursement under the  Medicaid program, the drug’s manufacturer must enter into a rebate agreement with CMS and pay quarterly rebates to the states; these rebates offset the cost of prescription drugs.  MCOs contract with states to provide specific services to enrolled Medicaid beneficiaries; in return, they receive a predetermined periodic capitation payment, which may cover physician-administered drugs. States report to CMS the capitation payments made to MCOs, but these reports do not identify specific types of services provided. States then submit drug utilization data containing NDCs to the manufacturer in order to receive the rebates. Most states require MCOs to submit NDCs to the state so the state can perform its reporting requirements. Failure to comply with federal requirements for capturing NDCs and collecting rebates can make a state ineligible to receive federal reimbursement for covered physician-administered outpatient drugs.

Delaware drug rebate program

A contractor manages Delaware’s drug rebate program for the state Medicaid agency, which is responsible for billing and collecting Medicaid drug rebates for physician-administered drugs. In 2013, Delaware paid MCOs more than $1 billion, including expenditures for physician-administered drugs. For that year, the OIG audit found that the state agency did not fully comply with requirements for billing manufacturers for rebates. Although most MCO drugs were properly billed and submitted for rebates, some physician-administered drugs did not have valid NDCs; the state agency did not bill manufacturers for rebates for those drugs. The MCO submitted its utilization data without valid NDC information, and the state failed to ensure that it submitted the information.

OIG recommendations and state response

The OIG made three recommendations to the state agency; the state did not concur with the first two. The recommendations were that the Delaware Medicaid agency:

  • work with CMS to determine the correct NDCs for the drug utilization data missing this information, bill the manufacturers for the rebates, and refund the federal share of rebates collected;
  • work with CMS to resolve drug utilization without valid NDCs for which the OIG was not able to determine an estimate, determine the correct NDCs and rebates due, bill manufacturers for the rebates, and refund the federal share of rebates collected; and
  • ensure that MCOs submit drug utilization data containing NDCs for all physician-administered drugs.

Delaware said that it has no reasonable means for researching and identifying the specific products and NDCs that were missing from utilization data because it no longer is under contract with the MCO that submitted the incomplete data. However, the OIG noted that the state agency’s contract with that MCO requires access to records for at least five years after a claim is submitted; therefore, the OIG believes that its recommendations are valid.

Delaware provided the OIG with information on actions it planned to take to address the third recommendation.