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.

Study finds weak results for outcomes-based drug contracts

There is no evidence that outcomes-based pharmaceutical contracts lead to less spending or higher quality health care, according to a study conducted by the Commonwealth Fund. The limited impact of outcomes-based reimbursement may be due to the fact that the reimbursement model is only used for a small subset of drugs which offers limited metrics to evaluate the model’s effectiveness. The Commonwealth Fund suggested that voluntary testing and more rigorous evaluation could lead to better understanding of outcomes-based pharmaceutical reimbursement.

Outcomes-based

Following the trend towards value-based reimbursement in health care, some pharmaceutical manufacturers and private payers have made a push towards an outcomes-based pricing model in the prescription drug market. Outcomes-based models attach rebates and discounts to the health care outcomes observed in the patients who receive certain drugs. The purported goal of such arrangements is to improve the value of pharmaceutical-based care by paying more for drugs that work and less for drugs that do not. The reimbursement model appeals to manufacturers and payers as a means to increase the scope of formularies and coverage while reducing prices.

Restrictions

The outcomes-based model is limited by the fact that the model cannot apply to pharmaceuticals that do not have reliable outcomes measurements. Additionally, the outcomes measurements that do exist typically rely on claims data and exclude significant clinical outcomes. In other words, the outcomes-based contracts may not lead to optimized value because the actionable outcomes are limited to those that can be measured. Thus, while outcomes-based pharmaceutical reimbursement has the potential to increase the value of pharmaceutical treatments, greater evaluation of the model’s effectiveness and implementation is necessary to determine its true benefit.

Unit prices for drugs rising rapidly; more competition needed

Drug costs for hospital inpatients increased more than 38 percent per admission between 2013 and 2015, with unit pricing increasing both low- and high-volume branded and generic drugs, according to a report by the University of Chicago commissioned by the American Hospital Association (AHA) and the Federation of American Hospitals (FAH). Almost half of the drugs evaluated for the study had no generic competition.

The researchers conducted a survey of all U.S. community hospitals and analyzed the results of 712 that responded. Additionally, two group purchasing organization (GPOs) representing more than 1,400 community hospital contributed price and spending data on a subset of drugs to the study. Of the drugs sampled, many were high-volume drugs, and in most cases the drugs were not new entrants into the market.

Increases in unit prices outpace Medicare reimbursement

Between fiscal years 2013 and 2015, annual inpatient drug spending saw an increase of 23.4 percent on average—a per-admission increase of 38.7 percent. More than 90 percent of the hospitals involved in the study reported that the price increases had a moderate or severe effect on the ability to manage the cost of patient care overall; one-third reported that the effect was severe. Growth of the unit prices for drugs, and not volume, was the primary cause of the increase in drug spending. The report noted that, because of delays in updating the pharmaceutical index, Medicare reimbursement cannot keep up with the rapid rise in drug prices, and the method of reimbursement for hospitals—based on a single prospective amount for all non-physician services—compounds the impact of rising drug costs. In these cases, hospitals must absorb the excess costs.

AHA’s recommendations

To address these issues, the AHA recommends an increase in generic competition, improved transparency, the adoption of a value-based payment model for drug purchasing, increased access to needed drugs, and the alignment of incentives toward high value. With the goal of increasing generic competition, the federal government should appropriate additional resources to the FDA to process new drug applications and consider fast-tracking generic applications when no or limited generic competition exists. The AHA also recommends deeming pay-for-delay tactics presumptively illegal. Additionally, the lack of information available regarding drug pricing challenges payers’ abilities to make decisions regarding coverage and pricing. To address the issue, the AHA suggests increasing disclosure requirements related to drug pricing, research, and development at the time of application. Consumer- and provider-facing reports on drug pricing would help providers and consumers to make informed decisions.

The AHA argues that a value-based payment model for drug purchasing, under which payment varies for a drug based on clinical effectiveness for the indications for which it has been approved, would help drugs become more affordable for patients and providers. Thus, a comparative effectiveness evidence base would be critical to supporting providers in making care decisions. To improve access to needed drugs, the AHA recommends that the government allow providers and patients to reimport drugs that were manufactured in the U.S. and sent to other countries for sale and distribution and require mandatory, inflation-based rebates for Medicare drugs. Finally, the AHA argues aligning incentives toward high value by implementing stricter requirements on direct-to-consumer advertising, removing tax incentives for drug promotion activities, and developing prescriber education and clinical decision support tools.