Medicaid and Alternate Payment Models

With Medicare’s new MACRA reimbursement system looming, there is a lot of activity around alternative payment models.  A report from Deloitte explores their use in Medicaid programs.  (Deloitte Report)   Medicaid is a big federal and state budget problem, covering 70 million Americans at a cost of $575 billion a year.  The federal government in some administrations, including the one before this, has limited states’ ability to design their programs as they best see fit to control spending.  The current administration has promised to give states greater leeway.  Some of the methods currently used by states include medical homes that include some value-based or at-risk payment, accountable care organizations and espisode or bundled payments.  Medical homes are the most common.  CMS has provided funding for states to do demonstrations of alternate payment models.

One problem Deloitte notes in regard to Medicaid alternate payment models is that there have been few formal evaluations so it is hard to know what the cost or quality implications are.  Most evaluations just examine whether the program achieved it operational objectives, not whether it saved money or improved quality.   Some medical home evaluations find modest spending reductions and inconsistent effects on quality.  When the cost to a practice of being a medical home is included, it is unlikely there are net savings and if the practice has to eat those costs, that can be a real disincentive to participate.  Episode of care or bundled payments likewise had no clear evidence of savings and inconsistent quality effects.  The same can be said for ACOs, and here again, there are significant operating costs associated with those entities.  Many of these Medicaid ACOs do not yet place providers at financial risk, which means their effect is probably going to be limited.  States are exploring the financial risk models.

Whatever happens in Medicaid likely has little impact on providers, because for most of them it is a small part of their practice, if they accept it at all.  These alternate payment models are even less meaningful because almost three-quarters of Medicaid enrollees now must enroll in a managed care plan, so FFS Medicaid is fairly uncommon.  Some states required Medicaid managed care plans to use APMs, but most do not.  In any event, the plans are generally at full risk and have every incentive to manage utilization and costs aggressively.   As the Medicare alternative payment models roll out in the next couple of years, what would make the most sense is for the programs to coordinate and put providers in the same model for beneficiaries of both programs.  That would get more providers’ attention and be more likely to create meaningful effects.