Building a ‘longer lever’ could help lower costs and elevate quality outcomes in Medicaid

Health Care Current | August 28, 2018

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My Take

Building a ‘longer lever’ could help lower costs and elevate quality outcomes in Medicaid

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

The Greek mathematician Archimedes said he could move the world if he had “a lever long enough, and a fulcrum on which to place it.” Improving quality and reducing costs in Medicaid might be more feasible than lifting the entire the world, but it won’t be easy, and it won’t happen unless we can find the right lever…or combination of levers.

State Medicaid programs tend to rely on a variety of levers to encourage health plans and providers to reduce costs and improve quality outcomes. On their own, none of these levers have appeared to be consistently effective. However, combining and harmonizing them could help Medicaid programs move the fulcrum in the right direction.

Lever #1: Quality-based incentives/penalties for managed care organizations (MCOs): To encourage health plans to meet quality benchmarks, a growing number of Medicaid programs are withholding a percentage of their capitated payments to the MCOs, which the MCOs can earn by meeting or exceeding benchmark targets. However, the jury is out as to whether such programs are effective at driving sustained improvements in quality in Medicaid managed care programs.

Medicaid MCOs tend to be good at increasing immunization and health-screening rates among their members. But that doesn’t necessarily lead to improved health outcomes. Case in point: In 2016, about 86 percent of diabetic Medicaid MCO members completed HbA1c (blood glucose) screening, according to NCQA’s 2017 Health Plan Report of Medicaid MCOs (see table, below). That same year, just 34.6 percent of beneficiaries had healthy blood-glucose levels of less than 7 percent.

This gap was reported at about the same time that many states were trying to boost MCO quality and outcome performance. In 2017, 29 states had quality-related capitation withholds for their MCOs, according to the Kaiser Family Foundation (KFF). Withholds range from less than 1 percent of capitation payments to 5 percent. States typically tied the re-payment of withholds to specific benchmark targets and/or year-over-year improvements.

Selected measures graphs

Lever #2: Value-based purchasing (VBP) strategies: Some state Medicaid programs are actively pursuing value-based-purchasing (VBP) strategies for providers. For example, 34 states participated in the US Centers for Medicare and Medicaid Services (CMS) State Innovation Model (SIM) program.1 About half of those states received health system and payment reform implementation grants. State initiatives have included bundled payments, accountable care organizations (ACOs), and patient-centered medical homes. While care coordination improved among six states that received the first round of testing grants, there was no corresponding decrease in emergency room (ER) visits or in inpatient utilizations, according to CMS’s four-year evaluation. There also was no notable improvement in care quality.2

Seven states have also implemented Delivery System Reform Incentive Payment (DSRIP) programs through Section 1115 demonstration waivers, which have allowed states to invest in their infrastructure to promote integration and quality and to support the transition from volume to value-based payment. An interim analysis of the DSRIP programs in California and New Jersey found inconsistent performance related to three studied measures: ER visits, follow-up visits after an ER visit, and diabetes testing.3

Lever #3: Beneficiary incentives to promote healthy behaviors: Some state Medicaid programs have implemented, or are considering, commercial-like models that use benefit design to influence behavior. Such states are using benefit-design changes such as higher copayments for non-urgent ER use and special accounts (or monthly premium deductions) that reward members for healthy behaviors. So far, there is limited evidence that such incentives have led to healthier behaviors among Medicaid beneficiaries.

Can these levers be combined?
A number of states are using more than one of the levers above to improve quality and outcomes among beneficiaries. Some are introducing VBP for providers while also maintaining their managed care programs. Massachusetts, for example, recently launched a Medicaid ACO program that sits alongside its managed care program (see Deloitte’s report, Medicaid alternative payment models).4 Other states are also beginning to require their MCOs to implement VBP arrangements with their provider networks. According to a recent study, 18 states now have mandatory VBP targets for their MCOs, and 13 states tie MCO incentives to VBP targets based on the percentage of providers with VBP arrangements. Another 10 states require MCOs to participate in specific VBP initiatives, but aren’t consistently aligning MCO and VBP measures.5

What seems to be missing from these programs is the alignment of these incentives around the same quality goals and benchmarks across MCOs, providers, and beneficiaries. For example, while many states are setting VBP targets for their MCOs, they do not appear to require the MCOs to focus their VBP strategies on the same conditions and benchmarks that are part of the MCO quality withhold program.

Can three levers lead to a tipping point?
On their own, it doesn’t appear that incentives for MCOs, providers, or beneficiaries have been able to improve health outcomes or improve care quality among Medicaid beneficiaries. It might make sense to use a “tipping-point” strategy where the state Medicaid program encourages all stakeholders—MCOs, clinicians, and beneficiaries—to focus on the same condition-specific goals. A diabetic beneficiary, for example, might need to achieve an HbA1c of 8 percent or less. The MCO and clinicians might use financial incentives that encourage exercise and healthy eating.

This type of strategy could help states determine if harmonizing and harnessing all three levers could create a new lever that is more than the sum of its parts.

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Note: The Health Care Current is taking a break for the Labor Day holiday, but we’ll be back September 11, 2018. See you in two weeks!

1 CMS:
3 Mathematica:
4 Massachusetts Health Policy Commission
5 Manatt:


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In the news

CMS awards $8.6 million to help stabilize markets in 30 states

On August 20, CMS announced that it awarded $8.6 million to insurance regulators in 30 states and the District of Columbia. The agency says this funding will help states strengthen their health insurance markets via innovative measures that support market reform and enhance consumer protections. According to CMS Administrator Seema Verma, the grants can help states stabilize and improve their individual health insurance markets. States can use the funds for activities such as:

  • Conducting economic analyses of their markets to assess and expand the number of affordable insurance options for consumers
  • Examining plan policies, procedures, and claims data for behavioral health and substance use disorder (SUD) treatment services, including opioid treatment

Every state that applied was awarded a grant. The budget and project period will run until August 19, 2020. The $8.6 million is part of a $250 million State Rate Review Grants fund, which the Affordable Care Act (ACA) provided to help state administrators review proposed insurance rates.

Senate passes major spending package

On August 23, the Senate passed an $857 billion spending package for fiscal year 2019 (H.R. 6157 (115)) to fund two-thirds of government operations. The House and Senate have the next five weeks to merge different versions of the bills. The legislation includes $2.3 billion in increased funding for the US Department of Health and Human Services (HHS), with a 5.4 percent increase for the National Institutes of Health (NIH). Funding to combat the opioid epidemic is also included.

Also included in the package is a bipartisan amendment on drug pricing from Senators Chuck Grassley (R-Iowa) and Dick Durbin (D-Ill.). The amendment requires drug companies to disclose the price of drugs in television advertisements, an idea that was included in the “American Patients First” drug-pricing blueprint in May (see the June 19, 2018 Health Care Current).

The current funding package is set to expire September 30.

Study: Drug company rebates have limited impact on spending

A lack of competition has a far bigger impact on drug costs than the rebates pharmaceutical manufacturers offer to health insurers and pharmacy benefit managers (PBMs), concludes a Milliman study commissioned by the trade group America's Health Insurance Plans (AHIP). According to the study, as competition decreased, so did rebates. Using 2013-2016 Medicare Part D cost and utilization data from CMS, in addition to 2016 manufacturer data provided by contributor health plans, the study made the following observations:

  • 81 percent of all Part D drugs and 64 percent of brand drugs analyzed do not offer rebates. However, drugs that include rebates make up more than half of all Part D spending and approximately three-quarters of brand-name drug spending.
  • Of the 706 brand-name drugs analyzed in the study, the drugs with direct brand competition had discounts of nearly 40 percent.
  • In 2016, rebates made up 22 percent of Part D brand-name drug spending.
  • Some of the biggest rebates were for drugs for which a generic is produced by at least three other manufacturers. For this group, rebates for brand-name drugs made up about 34 percent of the gross cost.
  • Antiretrovirals, immunosuppressants, antidepressants, and antipsychotics had the lowest average rebate—14 percent.
  • Overall, health plans received average rebates of about 30 percent of the total drug spending.

Milliman’s study follows a report released early this summer that found a 77 percent increase in government spending on Part D drugs between 2011 and 2015. According to HHS’s Office of Inspector General (OIG), Part D drug spending rose 62 percent, and manufacturers more than doubled the amount of rebates they offer for those drugs. OIG concluded that a high volume of prescriptions and lack of competition contributed to the spending surge.

(Source: Milliman, “Prescription Drug Rebates and Part D Drug Costs,” July 16, 2018)

New analysis shows Part D donut hole spending as it closes

On August 21, KFF released a data note examining the latest information and trends related to the Medicare Part D coverage gap known as the “donut hole.” Enrollees who reach the drug benefit’s donut hole must pay a greater share of the prescription drug costs.

The data note outlines several trends in the Part D donut hole and discusses recent and proposed changes affecting out-of-pocket costs for Part D enrollees who reach the gap, including the following:

  • In 2016, more than 5 million Part D enrollees without low-income subsidies (LIS) reached the coverage gap. These enrollees spent an average of $1,569 out-of-pocket and received an average manufacturer discount of $1,090.
  • Provisions of the ACA helped lower average out-of-pocket costs among non-LIS Part D enrollees who reached the gap between 2010 and 2011. Those costs have increased somewhat in recent years.
  • Under the Bipartisan Budget Act of 2018 (BBA), Part D enrollees’ out-of-pocket costs for brands in the gap are projected to decline from 35 percent in 2018 to 25 percent in 2019. The BBA also increased manufacturer discounts from 50 percent to 70 percent in 2019. These changes are predicted to reduce Medicare spending by $11.8 billion during a ten-year period, from 2018 to 2027.
  • The annual out-of-pocket spending threshold—the amount beneficiaries must spend before the coverage gap ends and catastrophic coverage begins—is projected to increase by $1,250 between 2019 and 2020.
  • Beginning in 2019, there will no longer be a coverage gap for brand-name drugs. Part D enrollees will pay a coinsurance of 25 percent for brands in the gap—the same share of costs paid for these drugs prior to reaching the gap. For generic drugs, the coverage gap will be closed by 2020.

The initial design of the Part D benefit included the coverage gap to help reduce its total 10-year cost. Legislative changes to the coverage gap, including modifying Part D enrollees’ share of total costs and requiring manufacturers to provide price discounts for brand-name drugs, have contributed to the gap’s reduction, according to the report.

(Source: Kaiser Family Foundation, “Closing the Medicare Part D Coverage Gap: Trends, Recent Changes, and What’s Ahead,” August 21, 2018)

HSAs now hold more than $50 billion in assets

As of July 1, more than 23 million health savings accounts (HSAs) held an estimated $51.4 billion in assets—a 20 percent increase from the same period a year ago, according to new data from Minnesota-based Devenir Group, LLC. A decade ago, HSAs held about $5.5 billion in assets. The latest findings are based on a survey of banks and other HSA administrators. HSAs, which were established in late 2003 as part of the Medicare reform law, must be paired with an HSA-qualified high-deductible health plan (HDHP). Devenir projects that by the end of 2020, the HSA market will approach $75 billion in HSA assets covering more than 29 million accounts.

A 2017 report from the Deloitte Center for Health Solutions looked at the growth of HSAs in the individual market and estimated that 78 percent of HDHP-HSA enrollment was in the large-group market. Employers often pair HDHPs with HSAs and make contributions to the accounts for employees to use when they need services.

During the first half of 2018, 32 percent of all HSA dollars were contributed by an employer, and the average contribution was $658, according to Devenir. Employees who invested in their accounts contributed an average of $1,086. Employers aren’t required to contribute to the accounts, but if they do, the IRS requires that HSA contributions are made equally to all employees.

(Source: Devenir Research 2018 Midyear HSA Market Statistics and Trends)

Measles outbreak reaches 20 states and the District of Columbia

More than 100 cases of measles were reported across 20 states and the District of Columbia between January 1 and July 14, according to the US Centers for Disease Control and Prevention (CDC). The agency expects measles cases this year will top the 188 reported across 15 states and the District of Columbia in 2017.

Measles is a vaccine-preventable disease that people spread through sneezing and coughing. Symptoms of the illness include red eyes, cough, runny nose and high fever, and a rash. For some individuals, the infection can lead to hospitalization, pneumonia, encephalitis, and even death.

The US experienced a record measles outbreak in 2014 of 667 individuals in 27 states. Of those cases, 383 were from an unvaccinated Amish community in Ohio.

The CDC says measles is common throughout the world, and Americans who travel to countries that are experiencing a measles outbreak might contribute directly to measles cases in the US. Once introduced, the illness spreads quickly among unvaccinated people.

(Source: Centers for Disease Control and Prevention, “Measles cases and outbreak,” August 11, 2018)

Breaking Boundaries

Innovations in medical education are prepping a new generation of physicians for the future

The capabilities physicians need to effectively practice medicine and provide their patients with the highest-quality care are evolving. More than ever, physicians and care teams must understand population health, value-based payment models, and how to operate in a patient-centered system, rather than one that revolves around the physician. Another key skill will be learning how to incorporate new technologies into the practice of medicine.

In some medical schools around the country, students are learning more about augmented intelligence and machine learning. One student recently authored a paper showing how machine learning, which used predictor variables commonly included in electronic medical records, could help predict sepsis an average of five hours before the patient met the clinical definition of the illness. Another student tapped into billions of data points from invasive procedures performed at the hospital to develop a model that could potentially identify predictors of surgical-site infections. The model also could be used to help improve the workflow of operating rooms.

At the Hospital for Special Surgery in New York, medical students can practice surgeries using virtual-reality software. Virtual reality is emerging in health care as a potential solution for training doctors, reducing medical errors, and helping patients manage pain. Virtual-reality simulations have been used to train pilots for decades, but the technology has only been used in medicine for the past few years. Cadavers are still the preferred method for teaching surgical procedures, but they are costly, and it takes time to prep and clean them after each use. Pilot studies have shown that students trained in virtual-reality simulations perform procedures more accurately than students who trained using traditional methods.

Five years ago, the American Medical Association (AMA) and partners launched the “Accelerating Change in Medical Education Consortium” to help improve physician training. Last spring, the first medical students to receive full training under the new curricula graduated. The curricula were designed to ensure future physicians learn about value in health care, patient safety, quality improvement, teamwork and team science, leadership, clinical informatics, population health, socio-ecological determinants of health, health care policy, and health care economics. To date, the AMA provided grant funding to 32 participating medical schools across the US.

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