Medicaid Payment and Reimbursement

Building a Resilient Managed Medicaid Program in the Face of Uncertainty

April 3, 2018 10:51 am

A provider-sponsored health plan in Kentucky has worked to establish itself as an exemplary Medicaid plan in its area.

Although the provider-sponsored health plan (PSHP) Managed Medicaid model has generated considerable interest, few existing programs have achieved enough longevity to provide demonstrable learnings regarding the requirements for long-term success. In many regions, the concept is still in its early stages as states initiate legislation to encourage PSHP Medicaid plans. One PSHP Medicaid plan in Kentucky, however, having begun with a temporary legislative waiver in 1997, has worked to become a well-established partner, with the depth of experience to exemplify how such a plan can offer vastly improved care outcomes. Passport Health Plan, a not-for-profit, community-based health plan in Louisville, Ky, has weathered political and economic shifts to continue its mission to improve care and reduce costs for disadvantaged Kentuckians.

In April 2017, Passport acquired a 20-acre property in the economically disadvantaged, urban west end of Louisville to support local initiatives, create a state-of-the-art Health and Wellness Campus and house its 500 employees in a new corporate headquarters, and further strengthen its ongoing relationship with multiple government and independent agencies collaborating on the future of health. This move to the heart of a community Passport serves has enabled the health plan to build a resilient Managed Medicaid program and become a recognized leader in provider-led Medicaid.

Overcoming Initial Inertia

Passport was founded in 1997 under a Centers for Medicare & Medicaid Services (CMS) waiver demonstration program by five Louisville-based hospitals and provider organizations: University of Louisville Physicians, Norton Healthcare, Jewish Heritage Fund for Excellence (formerly Jewish Hospital), University Medical Center, and the Louisville-Jefferson County Primary Care Centers (including Family Health Centers and Park Duvalle Community Health Center). At the time, the concept of a not-for-profit, provider-led Medicaid plan was brand new; thus, the organization faced an uphill battle to gain acceptance with both the state and providers. 

Despite the roughly 20 percent of Medicaid lives nationally enrolled today in provider-led Managed Medicaid PSHPs, these health plans are only now hitting the radar of provider groups and state governments. PSHPs have multiple benefits for participating hospitals and systems. Because the plans are provider owned and have lower administrative costs, providers may receive incrementally better payment rates than with commercially run plans. More important, being involved in Managed Medicaid PSHPs enables providers to be more closely aligned with their states on intergovernmental transfers and payment programs, especially in regard to teaching programs, thereby putting the providers in a better position to help their states see opportunities that bureaucrats may not have recognized. 

From a financial perspective, providers have a seat at the table in how care management and utilization programs are run. Participating providers have greater insight into utilization management policies and which claims will be paid, resulting in fewer denials and, in turn, a more favorable statistic for days in accounts receivable. This increased financial stability offers an improved credit profile and, therefore, a lower cost of debt for future initiatives. 

Despite these advantages, Passport had to overcome two key challenges in its earliest stages. First, it battled the market perception of its lack of qualifications, experience, and infrastructure to manage care as part of a managed care organization (MCO). Second, because the plan would be responsible for both managing providers and distributing the state’s payments to them, leaders had to develop a thoughtful strategy for reducing total cost of care while preserving the integrity of the relationships among the plan, providers, and patients.

Passport’s founders were key to overcoming the first obstacle. By bringing together a large multispecialty practice, a large health system, children’s hospital, and federally qualified health centers (FQHCs), Passport demonstrated that its partners had the clinical expertise and breadth of experience to address the Medicaid population. From the beginning, the Passport team has worked with state regulators, who examine proposed projects, such as waiver programs, in terms of the projects’ financial viability and ability to benefit Medicaid recipients. Passport also engaged with an experienced third-party administrator (TPA), which allowed the health plan to focus on its core mission rather than on administrative duties. 

Passport also worked closely with the state to address the perceived conflict of interest by collaborating on the payment structure. The state prepared an actuarial analysis for the Medicaid program’s cost and proposed an upside/downside risk arrangement in which providers were expected to manage to 95 percent of the projected costs, keeping any savings and being at risk for any overages. Provider systems also contributed capital to Passport to demonstrate their commitment to the program. With providers’ financial contributions at stake, the state felt comfortable that the founding members were fully committed to the new health plan. 

Initially, Passport’s founding partner systems invested the start-up capital, but the long-term objective was for the organization to stand on its own as a not-for-profit, provider-sponsored entity. A Kentucky-specific arrangement allowed Passport to establish itself with more limited startup capital than might otherwise be required and build reserves over time, rather than demanding a large infusion of cash up front. This provision may not be available in other jurisdictions; however, it underscores importance for any new PSHP of reviewing the specific incentives offered by the state in which it operates. 

Passport’s status as a not-for-profit organization also contributes to its stability and growth—and ultimately, its resilience—because owners look at Passport’s financial projections over a longer horizon than they would if they were trying to pursue distributions and dividends. Passport’s CEO, for example, is evaluated on three-year operating margin results rather than the one-year results typical of a for-profit plan. This model allows for a greater focus on the strength of the balance sheet—and, thus, a greater focus on long-term health—than is possible with quarterly operations. 

Maintaining Momentum in a Changing Environment

For more than 15 years, Passport was the only plan in the Louisville area, serving 100 percent of the Medicaid population. However, the Medicaid program has changed rapidly. When Kentucky expanded Medicaid in 2013, membership was divided evenly among all competing managed care organizations (MCOs), and Passport lost nearly 75 percent of its membership. Since then, Passport has successfully recaptured its previous membership and increased it by nearly 50 percent through its differentiated brand and provider-led model. 

In 2016, like most states, Kentucky was evaluating its Medicaid program and eventually reduced Medicaid payment rates for all plans by 5 percent. As a not-for-profit entity, Passport was particularly challenged by this move. Not-for-profit PSHPs typically have a medical expense ratio (MER) around 90 percent. Administrative costs generally hover around 8 to 9 percent, leaving about a 1 percent operating margin. For-profit health plans target a lower MER to ensure a healthy profit margin, typically around 85 percent, and these plans can weather a 5 percent rate reduction for a period of time.  Passport, however, urgently needed to find about $100 million in annualized savings to reduce its MER by 7 percent and get back down to target range due to its lower overall operating margin. 

When evaluating changes of this magnitude, not-for-profit plans should assess multiple, strategic business levers for achieving financial goals. For example, although a rate cut to providers might seem like an obvious option, Passport did not want to reduce payment rates to prevent providers from serving Medicaid patients. so Instead, the organization identified three key areas of focus to get Passport’s finances on track: pharmacy; provider alignment and incentives; and plan operations, utilization management, and clinical programs.

Pharmacy. Passport switched its pharmacy benefits manager to a model closely integrated with its value-based care partner, updating its formulary, and updating and adding therapeutic guidelines. These changes alone eliminated more than 3 percent from its MER.

Provider alignment and incentives. To gain even more value from its efforts to offer value-based incentives to its providers, Passport analyzed its payment activity to determine whether its actions were driving the clinical outcomes it was seeking. Every MCO implements an incentive structure, but few delve to the specific level of determining which activities for engagement do the best job of preventing inpatient admissions and which activities help avoid more complex situations. Larger MCOs offer incentives for certain quality metrics, but Passport went beyond the norm—for example, by offering providers incentives to see patients three days after hospital discharge and to furnish outpatient transition support for patients discharged from inpatient behavioral health care. Passport challenged its existing incentive structure and developed a new structure based on specific interventions and targeted provider engagement. These changes resulted in a savings of nearly 1.5 percent on its MER.

Plan operations, utilization management, and clinical programs. Passport also evaluated and tightened its utilization management policies and, as a provider-led organization, worked closely to ensure that it struck the right balance between restricting unnecessary or inappropriate utilization and avoiding abrasive tactics that undermine provider trust. One area of special focus was Passport’s Lock-In program. Through utilization management, Passport established a program to manage patients who were physician- and pharmacy-hopping to obtain multiple opioid scripts. In this program, Lock-In members may obtain prescriptions and drugs only from designated providers. This program addressed patient safety while reducing costs and identified at-risk members for outreach.

On looking at which patients it was identifying for care management, Passport found that fewer than 10 percent of those selected were ideal candidates, and that about 15,000 members could be engaged and treated more effectively by redeploying care management teams into physician offices. Passport’s technology platform uses a broad range of data in identifying members most likely to respond to and benefit from intervention, including lab data; pharmacy and social determinants of health data; admission, discharge, and transfer (ADT) feeds from hospitals; and traditional health plan claims. It therefore can perform this analysis more effectively than can MCOs platforms that rely solely on claims data for analysis. Passport also uses a heat map of the identified patients in its coverage area to highlight where to invest its resources to maximize the impact of its interventions. Adopting this approach enabled Passport to knock another percent from its MER.

Kentucky has since recalibrated rates and reinstated certain of the payments it had cut, but Passport continues with the programs it tapped to keep MER down and increase the plan’s long-term financial stability. 

The Political Winds of Change

Passport recognized the importance not only of getting back on track financially but also of staying relevant as political winds shifted and the Medicaid program changed, which required maintaining relationships across political lines. From the beginning, Passport has employed an ongoing communications strategy that transcends politics while appealing to politicians’ individual goals. 

As rate cuts were enacted, Passport was able to draw on a successful 15-year track record. But it also was able to rely on its long-standing approach to political communication when the state administration changed in fall 2015 with the election of a Republican governor, an office historically held by Democrats. Because Passport had been established under a Democratic administration, the new administration appeared to feel that Passport did not align with its conservative focus. Passport established an ongoing channel to engage in regular exchanges with the new governor’s office and leadership to explain its efforts, how legislative initiatives affect the plan and its members, how the plan compares with other national carriers operating within the state, and how Passport’s work aligns with the administration’s goals for the state. These exchanges consist of both formal presentations and informal, ongoing conversations. 

Passport also engages in ongoing discussions with the Kentucky Department for Medicaid Services. Engaging individuals at both the executive level and within the department allows Passport to bring in the community organizations with which it works—and which are essential to serving complex Medicaid populations—to discuss their successes, challenges, and next steps and their symbiotic relationships. 

Passport believes it has a fiduciary responsibility to the state and to taxpayers as customers—a belief that served as the foundation for its approach to the partnership with Kentucky’s Department for Medicaid Services. Even though Passport is no longer in the partnership model of its original 1115 CMS waiver, it maintains many of the governance components of that waiver, including a partnership council of 35 providers that oversee matters such as primary care payment, quality initiatives, and therapeutics. The council comprises representatives from primary care, home health, hospice, health departments, emergency transport, and other organizations. This level of governance isn’t required under the current 1915 CMS waiver, but Passport has kept it as an element of its partnership with the state. The 35 providers have become advocates for Passport with the state because of their positive experience collaborating with the plan.

Because of its success over time and across multiple administrations, Passport has furthered its mission by reinvesting in the community. It has bolstered its provider network by addressing gaps—a shortage of provider options in a geographical area, for example—by enhancing payment rates to encourage physicians to move into that area or by paying more for physicians to hold extended hours to ensure patient access. Passport also uses grants as part of its strategic approach to position personnel and financial resources where they are most needed by the community. 

The Continual Education Effort

Passport’s largest reinvestment effort is in West Louisville, an area of the city that is struggling economically. In West Louisville, medical spend is higher and life expectancy is only 70 years compared with 83 years across the rest of the city. Similarly, medical costs are 62 percent higher. These factors combine to create a more-than-$100-million opportunity for improvement in reducing costs of care. When Passport began to outgrow its headquarters, it realized that moving to West Louisville would enable it to do much more than expand the footprint of its offices; the move could improve the quality of life of residents in the area. 

Passport identified the 20-acre property that formerly housed a Phillip Morris cigarette plant. With a plot of this size, the conversation shifted from merely office space to opportunities to reinvest in the community beyond traditional medical services. The initial plan calls for Passport offices to occupy 25 percent of the property, with the remaining portion available for its population health initiatives such as supportive housing and job training programs, and for innovative tactics such as a farmers’ market to address the local food desert. Although the community programs are not yet finalized, Passport has received widespread support because of its years of collaboration with Louisville-based community organizations. Passport has connected with job training programs, the public-school system, the University of Louisville, Simmons College, and other community organizations. Passport broke ground on the campus in March and plans to occupy the new building by the end of 2019.

Passport built its resilient Managed Medicaid program by developing unique relationships with its partners and government administrators and pulling a variety of business levers while maintaining a singular focus on improving the health of its members. Although for-profit plans might struggle to make the level of community reinvestment that Passport has because of their fiduciary responsibility to their shareholders, all Managed Medicaid PSHPs can capitalize on the same opportunities that arise in times of change to build their own resilient, adaptive programs to improve the health of their communities.

Mark B. Carter is CEO, Passport Health Plan, Louisville, Ky., and a member of the Louisville Chapter of HFMA. Twitter: @_markbcarter.

Mike Minor is national Medicaid president, Evolent Health, Arlington, Va.


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