• How States Are Redesigning Healthcare Delivery

    Policy: Lola Butcher Apr 27, 2016

    Some of the boldest experiments in healthcare payment and delivery reform can be found in individual states that are responding to their unique mix of challenges and opportunities.

    In Arkansas, mandatory bundled payments for hip and knee replacements have been standard for years. In Maryland, hospital pay is unrelated to the volume of admissions. And in Oregon, Medicaid patients can get free air conditioners "prescribed" by their physicians if their medical condition warrants it.

    While the federal government and commercial health plans experiment with new ways to pay for healthcare services, some innovative states are pursuing payment and delivery reform initiatives of their own.

    Even as it pushes its own ideas, the Centers for Medicare & Medicaid Services (CMS) is supporting state-led reforms in the hope that everyone can learn from each other. After all, states are responsible for administering Medicaid programs and providing health coverage for their workers, making them collectively the second- largest healthcare payer in the country. And states oversee private payers that sell insurance to residents, giving them another huge point of influence.

    "From CMS's point of view, the hope is that states will be partners in terms of innovation," says Tony Rodgers, a principal at Health Management Associates. "If states are engaged, they could be another part of the equation and push delivery system reform much quicker than if just Medicare is involved."

    Arkansas provides an example. Its Arkansas Health Care Payment Improvement Initiative introduced episode- of-care payments for total joint replacements in 2012. CMS's Comprehensive Care for Joint Replacement Model, a mandatory program that is scheduled to launch in 67 markets this year, largely mirrors the Arkansas program (although Arkansas assigns the surgeon to be accountable for the quality and cost of care, whereas CMS holds the hospital responsible).

    "CMS very often watches what's happening at the state level and then incorporates, adapts, and adopts things at the national level," says William Golden, MD, medical director for Arkansas Medicaid. "You can almost take what we did here two or three or four years ago and layer it right on top of what they are doing nationally in Medicare."

    William Golden, medical director of Arkansas Medicaid.

    William Golden, MD, medical director of Arkansas Medicaid, notes similarities between the state’s episode-of-care payments for total joint replacement and a Medicare program that is about to start nationwide.

    Likewise, states watch what CMS and other payers are doing. As Minnesota was designing its Medicaid accountable care organization (ACO) program, three provider organizations in the state were getting ready to participate in Medicare's Pioneer ACO program. "We were getting a lot of feedback that they really wanted the state to create some level of alignment in terms of what Medicare was doing and also what some of the commercial payers were doing," says Marie Zimmerman, Minnesota's Medicaid director. "So we were very mindful of that in our design."

    Minnesota was the first state to receive federal approval for a Medicaid shared savings program—and CMS liked the state's approach. "In some ways our model influenced the guidance that CMS put out advising states on how to develop these models in Medicaid," she says.

    Trail Blazers vs. Orioles vs. Razorbacks

    At the broadest level, the states are attempting the same feat as every other healthcare payer: reduce unsustainable costs while improving care, with the ultimate goal of improving the health of the population. But the variety of approaches showcases American regionalism. (For additional details of four state-based initiatives: States Go Bold in Healthcare Redesign.)

    "We're not out selling the Maryland model, and we're not proselytizing," says Carmela Coyle, president of the Maryland Hospital Association. "This is what works for us in Maryland."

    She refers to the state's unique all-payer, global budget payment model. Hospitals receive fee-for-service payments, but annual revenue is capped—each hospital's revenue budget reflects the previous year's budget with adjustments for performance incentives, market shifts, and other factors.

    When CMS approved the waiver authorizing the model, it required that every hospital move to some type of value-based payment arrangement within five years; in fact, every hospital moved to the global budget system within six months.

    Coyle attributes that "all in" embrace of a new payment system to Maryland's unusual healthcare history. "We are the only state where all hospital charges are set by the state—and we are the only state with an all-payer system, meaning that all payers pay the same amount for the same service in the same hospital," she says. "And those two things have gone on for some 40 years."

    Meanwhile, Arkansas is using two strategies: episode payments and patient-centered medical homes. Minnesota has a network of Medicaid ACOs. And Oregon has divided the state into coordinated care organizations (CCOs)—independent organizations responsible for the cost and quality of care delivered in a discrete geographic area.

    The variety of approaches reflects the fact that health care is organized differently in different parts of the country. That diversity challenges the Medicare program and national insurers when they try to introduce reform initiatives nationwide, Golden says.

    "They have a one-size-fits-all approach as opposed to what's happening in Arkansas or Oregon, which are having successful payment reforms that reflect their own geographic constituencies and needs," he says.

    Who's Got the Answer?

    Barry Ronan, president and CEO of the Western Maryland Health System (WMHS) in Cumberland, Md., exudes more confidence than many of his peers around the country about the direction in which health care is moving. WMHS operates a 275-bed hospital that is the sole provider in its market.

    Barry Ronan, president and CEO, Western Maryland Health System.

    Barry Ronan, president and CEO, Western Maryland Health System, says Maryland’s global budgets for health systems represent “the future of health care.”

    "I really do think that we're working on the future of health care," he says, referring to global budgets for health systems. The state's All-Payer Model launched as a five-year demonstration in January 2014, but WMHS was one of 10 participants in a similar initiative that started three years earlier.

    For WMHS and all other Maryland hospitals, revenue from all payers is 100 percent fixed. That means they have completed the journey from volume-based to population-based payment that most provider organizations are just beginning.

    WMHS had a rough go financially in the second year of global budgeting but since has done "exceedingly well," Ronan says. But that is not what makes him most enthusiastic.

    "Could I ever work in an environment other than value-based health care? The answer to that is 'No,'" he says. "I never imagined four years ago that I would be saying that, but seeing the difference in the care of our patients is just unbelievable."

    With financial support from the state, WMHS tripled its care coordination staff and acquired real-time information systems necessary for population health management. Its approach to care delivery has been turned inside out because the hospital is now a cost center rather than a revenue engine. This transformation has prompted a 25 percent decrease in inpatient admissions over four years while health outcomes for high utilizers and patients with chronic conditions have improved.

    Western Maryland Health System
    Four-year results of Western Maryland’s participation in a state-led global budget healthcare initiative.

    While global budgets might work elsewhere—indeed, Patrick Conway, director of the Center for Medicare & Medicaid Innovation, has suggested global budgets may work well for rural hospitals nationwide—Maryland's all-state model has not yet proved itself to Coyle, who heads the state hospital association.

    "We had great first-year results—Maryland's hospitals hit the ball out of the park," Coyle says. But a home run does not mean the game is won. Still to come: moving physicians away from fee for service to align their incentives with those of the hospitals and creating a statewide data infrastructure, an essential tool for care coordination and population health management.

    "We have much more to learn and to evaluate over this first five years to understand if this model is successful and sustainable over a long period of time," she says. "But if other hospital leaders think that the move toward value-based payment is directionally correct, we hope that there will be lessons to be learned from the Maryland model."

    Meanwhile, global budgets at the hospital level might be hard for Oregon leaders to even imagine. That state pays a fixed budget—covering Medicaid beneficiaries only—to its CCOs, which manage and pay for care for patients in a given geographic area.

    Chris DeMars, director of systems innovation at the Oregon Health Authority's Transformation Center, thinks the idea could work in some other states. "I would say there is a ton of interest out there and we are asked quite frequently about our model," she says. "I wouldn't be surprised if it catches on in other states."

    That same optimism is found in Arkansas, Minnesota, and other states that have made progress in reducing costs and improving quality. In sum, no one has found a universal solution yet—but several states are demonstrating different ways that the value of healthcare delivery can be improved.

    What Everyone Agrees On

    Despite the variation in reforms from one state to the next, payment and delivery reform leaders agree on one thing: Reform is easier if all payers are aboard the same train.

    In Maryland, Coyle says, "I think there is something very critical in our all-payer approach here that allows us to create the alignment necessary to make global budgets work. It would be much more difficult to try to create economic alignment among various providers for just a subset of their patients."

    In Arkansas, Medicaid and the largest commercial insurers support both reform initiatives: per member per month payments to support overhead and practice transformation for medical homes, and episode-of-care payments that offer shared savings if the accountable physician meets quality and cost criteria.

    "We have a multi-payer approach where everybody is doing much the same kind of things with the same metrics," Golden says.

    Minnesota tried to align its Medicaid ACO program with initiatives from CMS and private payers to make life easier for the state's provider organizations. But the reform efforts do not encompass Medicare Advantage enrollees and workers covered by large self-insured employers. Zimmerman says greater multi-payer support is needed for the ACO model to achieve its full potential.

    "I think providers are sort of wondering what the tipping point is," she says. "When does this really move from being a demonstration into a larger systematic change?"

    Growth of Minnesota’s Integrated Health Partnerships Program
    Enrollment and participation in Minnesota’s Integrated Health Partnerships program, a type of accountable care organization.

    Another consensus of state-level reformers: Rigid rules do not work.

    Minnesota designed its reform program to provide flexibility in ACO formation, risk level, and quality measurement. "We were looking for the broadest participation possible, so we wanted to create an overall framework that had enough flexibility to allow that," Zimmerman says.

    The state's ACOs—called Integrated Health Partnerships—come in a wide variety. One was created through a 12-county joint powers agreement in which the counties contract with physician practices, federally qualified health centers (FQHCs), community mental health centers, and hospitals in their region; one is a group of 10 FQHCs; and others are health systems.

    For participating providers, the level of financial risk and the specific quality measures are flexible.

    "Yes, we want a core set of measures they all use," Zimmerman says. But some providers serve more people with disabilities, for example, so they have measures that are particularly relevant to their patient population. The state allows providers to propose specific measures that are meaningful for their organization.

    Oregon's CMS waiver offers a different kind of flexibility—and one that DeMars considers important to successful outcomes. CCOs can provide "flexible services" that are not typically covered by Medicaid if a provider believes such services are needed to promote an individual's health. These may include exercise shoes or a gym membership to support a fitness plan; air conditioners for patients with chronic obstructive pulmonary disease; and short-term, transitional housing for patients who are discharged from the hospital with nowhere to go. "We pay for outcomes and let the CCOs figure out how to get there," DeMars says.

    State policymakers are responsible for payment reform, not delivery reform, Golden says.

    "We're not telling people how to structure their businesses; we are telling them, 'Here are the new incentives. You can design your own local system to meet those incentives,'" Golden says. "So far, that appears to be much more engaging than setting out rules and getting people to react to them."

    State Initiatives in Context

    Although a few states are boldly leading the way in payment and delivery reform, many more are just getting started—or have already given up.

    "Reform takes time, and when you have changes in political leadership, sometimes that affects your ability to have consistent effort behind these delivery system changes," Rodgers says. "We have seen states jump out there with delivery system models, but after a couple years, kind of slow down."

    "I think that there are states out there that are discouraged and feel like, 'Gosh there's so much we need to do,'" DeMars says. "You have to be really concrete, see what it is the state can manage, and build from there."


    Lola Butcher writes about healthcare business and policy topics for several HFMA publications.

    Interviewed for this article: Anthony Rodgers, principal, Health Management Associates, Phoenix.

    William Golden, MD, medical director, Medicaid, Arkansas Department of Human Services, Little Rock, Ark.

    Marie Zimmerman, state Medicaid director, Minnesota Department of Human Services, St. Paul, Minn.

    Chris DeMars, director of systems innovation, Oregon Health Authority Transformation Center, Portland, Ore.

    Carmela Coyle, president, Maryland Hospital Association, Elkridge, Md.

    Barry Ronan, president and CEO, Western Maryland Health System, Cumberland, Md.

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