A new wave of opportunity for Medicaid innovation

Health Care Current | April 11, 2017

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.

My Take

Despite changing political waters, there may be waves of opportunity for Medicaid

By Jim Hardy, specialist executive, State Health Transformation Services, Deloitte Consulting LLP

Efforts to repeal and replace elements of the Affordable Care Act (ACA) appeared adrift last month after House Republicans determined they didn’t have the votes to move the American Health Care Act (AHCA) forward. Recent reports indicate that Republican leaders are continuing conversations on reform options.1 Regardless of whether repeal and replace legislation sinks or sails, states will likely have latitude to chart their own courses for Medicaid under the new administration, and as a result, opportunities and challenges for states, health plans, and providers may lie just beyond the horizon.

In a March 15 letter to the nation’s governors, US Department of Health and Human Services (HHS) Secretary Tom Price, MD, and US Center for Medicare and Medicaid Services (CMS) Administrator Seema Verma, suggest they will give states more freedom to experiment with their Medicaid programs (see the March 21, 2017 Health Care Current). They also underscore a willingness to work with expansion and non-expansion states to improve their Medicaid programs.

States have used state plan amendments, 1915 (b) and (c), and 1115 waivers to innovate and transform their programs for many years. However, state leaders have long expressed concern that the existing CMS approval process is too long and too resource intensive. In response, Price and Verma are vowing to knock down some regulatory barriers, and develop a fast-track approval process for waivers and demonstration projects.

The new HHS leadership seems to envision consumer financial responsibility among Medicaid beneficiaries, and has expressed support for making Medicaid parallel private insurance more closely, which could result in new approaches to benefit design.

So what might states do to change up their Medicaid programs? Some have expressed interest in redefining eligibility requirements for non-disabled childless adults. A non-expansion state, for example, might opt to expand eligibility, but only up to 100 percent of the federal poverty level (FPL), rather than the 138 percent of the FPL called for by the ACA. Expanding eligibility to 100 percent of FPL could eliminate the existing coverage gap, and could channel some low-income residents to the individual market where they can purchase federally subsidized coverage through an insurance exchange. States might follow Arkansas’ model, which taps Medicaid funds to allow some beneficiaries to buy subsidized commercial coverage through an exchange. Other states might consider establishing or expanding premium support for low-income individuals who have access to employer-sponsored coverage.

States might introduce co-payments, cost sharing, and premium payments into their Medicaid programs to encourage more price sensitivity of Medicaid consumers in managing their health care needs. They may also consider work requirements for able-bodied beneficiaries – something HHS has not previously allowed. Price and Verma are encouraging such ideas, which they say they hope will boost employment among Medicaid beneficiaries. Under the previous administration, CMS denied 1115 waiver requests from Arizona, Indiana, and Pennsylvania that included work requirements, saying that those requests were inconsistent with the overarching goals of the Medicaid program. Arizona and Kentucky have waivers pending with CMS that include work requirements. Arkansas has recently signaled interest in amending its waiver to include a work requirement.

States will likely continue to experiment with or expand value-based care models, and could further increase the role of managed care in Medicaid. They might continue to seek CMS support for strategies that address the social determinants of health.

These strategies have the potential to improve aspects of Medicaid programs and outcomes for Medicaid beneficiaries – all 73 million of them.

Balancing cost and other program goals in Medicaid is something many states have grappled with since the program’s inception. While Congress and the new Administration are concerned about reducing federal Medicaid spending, states have always had to balance their budgets, and the pressure of Medicaid spending on those budgets will likely only increase as Medicaid enrollment grows. States will need CMS’s support as they implement new strategies in Medicaid. The challenge for many states will be how to leverage these strategies, working in concert with the health plans, providers and other stakeholder communities, to improve performance of the programs and manage costs.

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1 Tim Jost, “ACA Round-Up: Negotiations To Revive AHCA, Alexander-Corker Bill, And Risk Adjustment,” Health Affairs, April 14, 2017

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In the News

CMS increases payments rates to MA plans and delays move to encounter data for risk adjustment

Last week, CMS said it will increase payments to Medicare Advantage (MA) plans by 0.45 percent in 2018. After accounting for other adjustments, the average MA plan is expected to get a 3 percent payment increase in 2018.

Additional changes CMS finalized:

  • Moving to encounter data: CMS is delaying weighting encounter data more in the risk adjustment formula. Risk adjustment can raise and lower payments to health plans to account for differences in health status, measured by diagnoses. Risk adjustment reflects both differences among MA plans and between MA and the traditional Medicare program. In the risk adjustment formula, CMS uses a blend of diagnoses found in encounter data (25 percent) and submitted by MA plans to the Risk Adjustment Processing System (RAPS, 75 percent). CMS will lower the weight of encounter data for 2018, decreasing it to 15 percent and increasing RAPS to 85 percent. MA plans objected to CMS’s proposed plan to increase the percentage for encounter data, saying it would decrease payments and hurt their ability to cover care. The Government Accountability Office has found that CMS needs to make the encounter data more accurate and complete before incorporating it into the formula (see the February 7, 2017 Health Care Current).
  • Changes to the way MA plans bid on employers’ plans for retirees: In the 2017 Advance Notice, CMS had said it was going to start setting payments rates for MA employer group waiver plans (EGWPs) rather than accept the pricing arrangements that MA plans reach with employers. After health plans said this would significantly reduce revenue, CMS decided to create a transition period for this policy. CMS had originally planned to move entirely to using individual market plan bids to set payments in 2018, but said it will continue to use a blend of EGWP bids and individual market bids to slow the transition.

In keeping with the new administration’s emphasis on reducing regulatory burden, CMS also asked stakeholders to submit ideas for making the MA and Part D programs flexible and efficient and to encourage innovation in the programs. It suggested that submissions focus on ways CMS or plans could:

  • Be more flexible in benefit design
  • Allow for greater operational or network flexibility
  • Support the doctor-patient relationship
  • Enhance individual preferences
  • Change plan payment, monitoring, and/or measurement
  • Change when and how CMS releases regulations and policy changes
  • Simplify beneficiary, plan, and provider rules and/or policies

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MedPAC recommends limits to Part B drug payments

Last Thursday, the Medicare Payment Advisory Commission (MedPAC) voted to recommend that Congress limit the amount that CMS pays doctors for drugs administered under Medicare Part B. Specifically, it recommended that Congress change the law to limit growth in prices by requiring manufacturers to issue rebates when growth in the average sales price (ASP) is higher than a benchmark tied to inflation.

Currently, CMS pays physicians for drugs they administer in their offices the average sales price (ASP) of the drug, plus 6 percent. According to patient advocates, the current formula may offer incentives to prescribe higher cost drugs because then the payment rate will be higher.

Additionally, the Commission recommended using a common billing code for reference biologics and their biosimilar products to encourage use of biosimilars when appropriate.

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Clinicians in ACOs are more likely to score higher under MACRA

Under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), high-performing clinicians in the Medicare Shared Savings Program (MSSP) accountable care organizations (ACOs) could have higher Merit-Based Incentive Payment System (MIPS) scores than high-performing clinicians who do not participate in these ACOs, according to a recent analysis. Researchers looked at how CMS will provide performance incentives in the MIPs program and projected that high-performing clinicians with high costs will score 30 percent lower than clinicians in Track 1 of the MSSP.

The issue brief focuses on how clinicians participating in Track 1 of MSSP on MIPS payments may fare under this new payment system. About 40 percent of MIPS-eligible clinicians will likely be in MSSP Track 1 ACOs in 2018. While Track 1 of the MSSP does not qualify clinicians for MACRA’s advanced APM track, it does put them in the MIPS APM category. MIPS APMs have several advantages relative to with clinicians not in MSSP Track 1:

  • CMS will use ACO data submissions to calculate individual clinicians’ quality scores for MIPS: Track 1 ACOs have an average quality score of 92 percent, a near perfect quality score. As performance is measured on a curve, this high score will translate into greater payments.
  • MIPS APMs are exempt from resource utilization scores: Since they do not have to report the cost measures, CMS will reweigh the other measures: quality (50 percent), advancing care information (30 percent), and improvement activities (20 percent) to equal 100 percent. These weights are higher than for non-ACO MIPS participants (advancing care information is at 25 percent and improvement activities are at 15 percent). Moreover, clinicians in MIPS APMs will automatically receive full credit for the clinical practice improvement category.

Taken together, the researchers expect that:

  • Clinicians with average costs will score 15 percent lower than clinicians in MIPS ACOs
  • Clinicians with high costs will score 30 percent lower than clinicians in MIPS ACOs.

MACRA provides financial incentives for health care professionals based on their performance under two programs – MIPS and APMs (see Deloitte’s explanation on Going to school on MACRA: Building a foundation for success).

(Source: Barr & Hastings, “The impact of ACOs on MIPS payments for all eligible clinicians,” Caravan Health, 2017)

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Minnesota legislature passes state-funded reinsurance program

Minnesota became the second state after Alaska (see the March 21, 2017 Health Care Current) to establish a reinsurance program for health plans offering coverage in the individual market.

The two-year $542 million program, intended to limit premium cost growth, will help pay insurers for their most expensive enrollees. If an individual's claims exceed $50,000, the state will pay 50-80 percent of the costs. However, once claims exceed $250,000, the insurer will pay the total costs over that amount. An appointed board will administer the program.

Governor Mark Dayton said he did not support the majority of the funding for the program coming from the state’s general fund and Health Care Access Fund, an account that funds the state’s Medicaid program, MinnesotaCare. He declined to sign the bill because the bill did not include a tax on health insurers or a requirement that insurers commit to selling plans in the individual market. But, Minnesota law allows a bill to become law after three days if the governor does not veto it.

Premiums in the Minnesotan individual market have increased more than 50 percent since 2016. The program is eligible for federal cost-sharing of up to 30 percent, but the state needs to apply for the funding. It is unclear whether the federal government will pay.

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Massachusetts seeks flexibility in health care programs

Massachusetts sent a letter to CMS Administrator Seema Verma requesting immediate relief from certain federal rules and requirements in Medicaid. The state is seeking approval to restructure its 1115 waiver and requesting reprieve from certain federal regulations after HHS Secretary Tom Price and Administrator Verma expressed support for greater state flexibility (see the March 21, 2017 Health Care Current).

The letter outlined the types of reforms the state will request under a future waiver application. These include:

  • Restructuring Medicaid benefit design, including managed care, pharmacy benefits, and behavioral health, and benefits for dual-eligibles
  • Replacing the federal employer mandate with a state-administered employer mandate
  • Continuing Massachusetts’s merged non-group and small-group market and state specific rating factors

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Senate Committee supports quick reauthorization of FDA user fee package

Last week, the Senate Committee on Health, Education, Labor and Pensions (HELP) held its second and final hearing on the US Food and Drug Administration’s (FDA) user fee agreements.

The hearing covered the Prescription Drug User Fee Act (PDUFA) and its amendments governing user fees for the approval of medical devices (MDUFA), biosimilars (BsUFA), and generic drugs (GDUFA). Witnesses included: Biotechnology Innovation Organization (BIO), Advanced Medical Technology Association (AdvaMed), Association for Accessible Medicines (formerly the Generic Pharmaceutical Association), and Alliance for Aging Research.

Witnesses outlined progress made under the last user fee agreements. For example, the FDA has shortened the timeline from product application to approval, which witnesses said is the most relevant metric to measure the success of the user fee agreements. The witnesses also discussed how the proposed updates in the new package of agreements would help each industry.

Stakeholders and the FDA negotiate these agreements but Congress must reauthorize them before the last agreements expire this September. According to Committee Chairman Lamar Alexander, all parties support reauthorizing PDUFA by August.

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Senate Committee questions FDA nominee on his goals and priorities

Last week, the Senate HELP Committee held its first hearing to consider the nomination of Scott Gottlieb as Commissioner of the FDA. Gottlieb has been a practicing physician, health policy advisor, and held positions within the FDA. Many lawmakers expressed support of his nomination.

During the hearing, Gottlieb noted his key priorities if confirmed as Commissioner:

  • Implementing the 21st Century Cures Act: The legislation aims to enhance the FDA workforce and allows for the redesign of clinical trials to better address patient needs. Gottlieb stated that he is dedicated to establishing the infrastructure needed to support the enhanced regulatory pathways defined in Cures.
  • Strengthening the biosimilar approval pathway: Gottlieb said that market exclusivity of several biologics currently on the market will expire soon and that he expects an increase of biosimilar applications in coming years. He said it will be important to build the necessary infrastructure to move products quickly through the approval process to increase patient access to biologic therapies and products.
  • Addressing the opioid epidemic: In his testimony, Gottlieb said he supports shortening market exclusivity protections for abuse-deterrent opioids. According to Gottlieb, increasing the amount of generic abuse-deterrent drugs in the market will increase affordability and access to these medications and help to curb the opioid abuse epidemic. Further, he recommends investing in alternative pain management treatments to decrease the need for opioid prescriptions (e.g., medical devices that can deliver localized therapies to patients without the need for pharmaceutical intervention).

Some lawmakers said that Gottlieb could face challenges as Commissioner, including the federal hiring freeze. Gottlieb will need to hire the workforce to effectively implement the 21st Century Cures Act and strengthen product approval pathways.

Congress has not yet scheduled a vote to confirm Gottlieb, but it is expected within the month.

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CMS announces participants for its Accountable Health Communities model

The CMS Innovation Center selected 32 participants for the Accountable Health Communities (AHC) model that will begin on May 1, 2017. The AHC model aims to connect clinical and community services to the health care providers of Medicare and Medicaid beneficiaries to address social determinants of health.

Funds are going to two groups:

  • Assistance groups: organizations that provide community service navigation to high-risk beneficiaries,
  • Alignment groups: organizations that ensure community services are available and responsive to the social needs of beneficiaries.

CMMI selected 12 participants for the assistance track and 20 for the alignment track to promote clinical-community participation. The participants will bridge the gap between clinical and community services by serving as local community hubs. Oregon Health & Science University, for example, will coordinate AHC model activities in nine rural counties in Oregon through the Oregon Rural Practice-based Research Network.

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Report: Mandatory PDMPs can reduce opioid prescription for Medicaid beneficiaries

States that require providers to register for their prescription drug monitoring programs (PDMPs) saw a 10 percent reduction in opioids prescriptions in population-adjusted numbers, according to a recent study published in Health Affairs. In states without mandates, the average number of opioid prescriptions was 15.3 per 100 patients, compared with 13.9 per 100 patients in states with PDMP mandates. In addition, opioid spending from 2011-2014 was $537 per 100 patients per quarter in states without mandates, compared to $477 per 100 patients per quarter in states with mandates.

Many states require providers prescribing opioids or other controlled substances to register with and/or use their state’s PDMP database. Researchers looked at how these PDMP mandates affect opioid prescriptions and spending among Medicaid patients. The number of opioid prescriptions and spending was significantly lower in states with a registration mandate or a registration and use mandate, compared with states without either. Though having a registration mandate alone cannot guarantee providers’ use of PDMPs, it may raise their awareness of opioid abuse among their patients. Possibly because researchers looked at data from 2011-2014, when use mandates were largely limited in scope, the data did not show that having a use mandate alone decreases opioid prescriptions or spending on opioids.

The findings suggest that mandatory PDMPs have been effective in the fight against opioid abuse. However, provider use of PDMP remains low. For it to be effective, states need to include mandates for providers to register and/or use PDMPs.

Wisconsin was the latest state launch a mandatory PDMP for providers when prescribing opioids and other controlled substances (see the April 4, 2017 Health Care Current).

(Source: Wen et al., “States with PDMP mandates saw a reduction in opioids prescribed to Medicaid enrollees,” Health Affairs, April 2017)

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Breaking Boundaries

DNA-based Zika virus vaccine moves forward in US

The Zika virus that has caused an epidemic of birth defects in parts of Latin America and the Caribbean receded from the headlines here in the US once cooler weather rolled in last fall. But, as certain parts of the country gear up for mosquito season, public health officials are reminding residents and travelers to prepare and take precautions, while forging ahead to develop the first vaccine to protect against the virus. Zika typically causes only mild symptoms, but the virus can cause several serious birth defects when pregnant women become infected and pass the virus to the fetus.

The National Institutes of Health (NIH) has launched a two-part vaccine study with the goal of enrolling more than 2,000 participants in Texas, Florida, Puerto Rico, and five other at-risk countries. The first volunteer received the experimental vaccine two weeks ago at the Baylor College of Medicine.

The experimental vaccine is very different from traditional vaccines, where a dead or weakened virus is injected into a person to train the immune system to recognize and fight the infection. The experimental Zika vaccine is DNA-based: It is made with a piece of DNA carrying genes from the Zika virus. Currently, there are no DNA-based vaccines approved for human use in the US.

Once injected into the body, the DNA makes particles that resemble Zika so the body can learn to fight it, but cannot cause infection. The experimental vaccine has cleared safety studies and produced a strong immune response in 40 people in the first phase of testing. This phase of the study is testing the appropriate dosage in 90 participants. Once researchers decide on the dosage, the next phase, which will begin this summer, will be to test the vaccine in a larger population. Researchers will track the volunteers for two years to see if there is continued protection from the virus.

Analysis: As of the end of March, the US Centers for Disease Control and Prevention (CDC) is reporting more than 5,000 cases of Zika virus in the US. Most of these cases are from travelers returning from other affected countries, while just over 200 appear to be acquired through local mosquito-borne transmission in Florida and Texas. Researchers are modeling scenarios to identify high risk areas for Zika transmission in the US in the coming months, based on the presence of Aedes aegypti mosquitos and other factors, including the number of women of child-bearing age, and focusing on surveillance, mosquito control, and prevention education.

In addition to the DNA-based vaccine, the NIH is testing the safety of some more traditional Zika vaccine candidates as well. The DNA vaccine was the first ready to advance to this second stage of human testing. DNA-based vaccines may have significant advantages over traditional vaccines. They have the potential to more closely resemble parts of the virus that are altered by manufacturing of live attenuated or killed viruses and could be more effective at stimulating an immune response. DNA-based vaccines also have the potential to be safer than live virus vaccines, especially in immunocompromised patients. Finally, DNA-based vaccines may be designed to include genes against several different pathogens and could decrease the overall number of vaccines necessary to fully immunize children.

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