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.

Wrap-around Medicaid gives states administrative headaches

Medicaid premium assistance, where Medicaid acts as wrap-around coverage for a private health insurance plan, is administratively complex for states and may not work well. In an issue brief, the Kaiser Family Foundation (KFF) considered what is known about wrap-around Medicaid coverage, and looked at financial implications of such a program.

Wrap arounds

According to KFF, states with Medicaid premium assistance programs use Medicaid funds to purchase private coverage for Medicaid beneficiaries. Federal law requires these programs to make the purchased private coverage on par with what the state’s Medicaid program would cover, but private insurance generally covers less than Medicaid and requires more out-of-pocket payments. Therefore, states with these programs must provide supplemental benefits and cost-sharing protections, known as “wrap arounds,” to insure that cost sharing does not exceed Medicaid limits. In general, states with these programs have low enrollment rates, and therefore, there is limited data available to determine how well the programs work.

Administrative complexity

States have found that Medicaid premium assistance programs require a lot of administrative work to determine exemptions, track and manage cost sharing under multiple private plans, and track wrapped covered benefits. The administrative burden led multiple states to discontinue Medicaid premium assistance programs and to merely use their own managed care delivery systems. However, that burden can be minimized. When Arkansas created its Medicaid premium assistance program under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), it contracted with a limited number of standardized plans. The standardization made it easier for the state to track and manage the wrap-around payments.

Financing

KFF looked at legislative proposals that would expand wrap-around Medicaid coverage and noted that, in order for such a program to be effective, it would need adequate federal funding, because such programs are required to be cost effective compared with traditional Medicaid coverage. It also noted that, if these programs were done under a waiver program rather than through traditional Medicaid, the funding would be limited in duration and amount, leaving it uncertain whether the program would be able to continue in the future.

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.