Experiments with Medicaid work requirements could create opportunities, administrative hurdles for health plans

Health Care Current | August 29, 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

Experiments with Medicaid work requirements could create opportunities, administrative hurdles for health plans

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

You probably won’t find many glass beakers, test tubes, or Bunsen burners within the offices of state lawmakers, but that doesn’t mean there isn’t a good bit of experimentation being discussed within these “laboratories of democracy.” The concept of states as laboratories goes back to the early part of the 20th century when Supreme Court Justice Louis Brandeis used it to describe how a state could “if its citizens choose, serve as a laboratory…and try novel social and economic experiments without risk to the rest of the country."1 This oft-cited metaphor illustrates that not all states are the same – and a policy that works well in one state, might not be effective in another.

Seven states have submitted plans to experiment with their Medicaid programs by adding a work requirement for beneficiaries. Section 1115 of the Social Security Act gives the US Department of Health and Human Services (HHS) authority to approve experimental projects and demonstrations that promote the objectives of Medicaid and the Children’s Health Insurance Program.

So far, Arkansas, Indiana, Kentucky, Maine, Utah, and Wisconsin have pending waiver applications with the Centers for Medicare and Medicaid (CMS) that seek to tie Medicaid eligibility to work requirements. Arizona has announced its intention to submit a waiver amendment that includes a work requirement.2 In its proposal, Kentucky says its work requirement is “designed to provide dignity to individuals as they move toward self-reliability, accountability and, ultimately, independence from public assistance.”3 Our recent paper on state-led Medicaid reform efforts examines such work requirements. To date, no state has a work requirement for Medicaid beneficiaries.

CMS has indicated a willingness to approve work requirements through waivers, and the administration has indicated that it supports work-requirement provisions, which already are required by the Supplemental Nutrition Assistance Program (SNAP) and Transitional Assistance for Needy Families (TANF). However, while the secretary of HHS has significant latitude to allow states to experiment with their Medicaid programs, a waiver allowing a work requirement is likely to face legal challenges.

Concerns and opportunities for health plans
It is still too soon to know how a work requirement might impact margins for Medicaid managed care plans. The institution of a work requirement creates a new alignment between Medicaid managed care plans and their members. Meeting the requirement helps ensure that the member will continue to receive health care coverage, and that the health plan will continue to receive capitation payments.

Proposed work requirements would impact only a percentage of the Medicaid population, as the existing proposals would exclude adults who are medically frail or unable to work. However there is some concern that enrollment could be suppressed if the broader Medicaid population thinks it is affected.

Some states are projecting that the introduction of a work requirement will lead to a drop in overall Medicaid enrollment. Kentucky’s waiver, for example, estimates Medicaid enrollment would decline by about 80,000 (12 percent) of its total adult enrollment by the end of the five-year waiver period. At a minimum, a work requirement could lead to more churn among beneficiaries as people lose coverage for non-compliance. Some people might lose coverage for a while, and then gain it back when they find a job, or otherwise fulfill the work requirement. As a result of this churn, Medicaid managed care plans could face higher administrative costs (e.g., processing enrollments/disenrollments, sending welcome kits and identification cards, handling claims pre- and post-eligibility) and loss of investment in clinical programs. Carriers might also need to invest in systems that can connect with states to ensure up-to-date employment data.

Unemployment can impact health
Beyond the economic impact of not working, not being able to keep a job or gain steady income is one of eight key health-related social needs recently outlined in a report from The Deloitte Center for Health Solutions. The study examines efforts among hospitals and health systems to address health-related social needs and activities.

Helping a non-disabled Medicaid beneficiary meet a work requirement could fit into a health plan’s social determinant strategy. People who are employed, as a population, tend to be healthier than those who are unemployed. While many people can’t work because they are ill or disabled, there is evidence that not working can contribute to poor health outcomes.

Some health plans are addressing social determinants. In 2012, WellCare Health Plans, Inc., a Medicaid managed care organization, made free General Educational Development (GED) testing available to its eligible Medicaid members in Georgia. The company has since expanded the program to three other states, and is considering further expansion.4 WellCare recognized that many social determinants factor into the health of an individual, family, and community, and wanted to help members remove financial barriers that could prevent them from furthering their education and employment opportunities.

Indiana’s pending waiver explicitly requires managed care plans to develop member incentive programs designed to promote employment. The state intends to determine whether member incentives increase participation in various employment and training programs. “Ultimately, these efforts to improve employment rates are critical to improving member health (including addressing the drug-abuse epidemic) and reducing overall poverty,” according to the proposal.

If approved by CMS, states could let people meet a work requirement by volunteering. Helping members connect to volunteer opportunities could help them strengthen relationships with community partners, which also could help advance the plan’s social determinants strategy. Health plans might also consider developing their own job training programs, building relationships with job placement services, and embedding work-seeking assistance into their care-management programs.

As more states look to experiment with their Medicaid programs, all eyes are squarely on CMS, which would need to approve any work requirements. In the meantime health plans will need to assess the potential impact of a work requirement on their membership and develop win-win strategies that help their members ensure their employment status, which can allow them to retain their eligibility for health insurance.

1 Brandeis University,
3 Kentucky HEALTH 1115 Demonstration Modification Request, July 3, 2017.
4 Kaiser Family Foundation: Don’t expect Medicaid work requirements to make a difference, April 3, 2017.


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In the News

Administration reduces payments to half of US hospitals because of readmissions

CMS will penalize 2,573 hospitals this October under the Hospital Readmissions Reduction Program (HRRP). That is more than half of hospitals in the nation, though 24 fewer hospitals than last year.

CMS launched the HRRP in 2012 to provide hospitals with the incentive to reduce readmissions. Under the program, CMS withholds a percentage of Medicare payments to hospitals that have higher readmissions rates for six common conditions. The conditions include heart attacks, heart failure, pneumonia, chronic lung disease, hip and knee replacements, and coronary artery bypass graft surgery. The average penalty is 0.73 percent this year, and the maximum possible penalty is 3 percent.

Nationally, readmissions have decreased since the HRRP began, according to CMS. Readmissions for the six conditions included in the program dropped from 21.5 percent to 17.8 percent between 2007 and 2015. Some hospitals have found ways to reduce readmissions, including giving patients free medications to aid in recovery and sending nurses to check on patients in their homes.

Senate HELP committee has hearing on stabilizing the individual market

The Senate Health Education Labor and Pensions (HELP) committee has invited state insurance commissioners and governors to testify on September 6 and 7 on ways to stabilize the individual health insurance market. Generally, the committee is concerned about rising premiums in the individual market.

Committee Chairman Lamar Alexander (R-TN) emphasized that Congress must act before September 27 – the deadline for insurance companies to sign contracts with the federal government to sell insurance on the federal exchange in 2018.

The governors testifying are Charlie Baker of Massachusetts, Steve Bullock of Montana, Bill Haslam of Tennessee, Gary Herbert of Utah, and John Hickenlooper of Colorado.

DME Competitive Bidding Program saves money, researchers find

Through its Competitive Bidding Program for durable medical equipment, prosthetics/orthotics and supplies (DMEPOS), CMS paid 35 percent less for these items than under the agency’s previous fee schedule, according to a recent study published in Health Affairs. With competitive bidding, CMS paid comparable prices as large commercial insurers for these items.

CMS reported the DMEPOS Competitive Bidding Program reduced the Medicare program’s DMEPOS costs by 35 percent between 2010 and 2011 after the first round of competitive bidding. Overall, CMS estimates that the program will save the Medicare program $25.7 billion, and will save beneficiaries $17.1 billion, between 2013 and 2022.

The competitive bidding program includes nine types of DMEPOS items and is in effect in nine regions of the US.

Background: Researchers compared commercial insurers’ DMEPOS prices in the Health Care Cost Institute data with Medicare spending for the same items.

(Source: David Newman, Eric Barrette, and Katharine McGraves-Lloyd, “Medical Equipment Purchases Medicare Competitive Bidding Program Realized Price Savings For Durable Medical Equipment Purchase,” Health Affairs, August 2017)

CMS to conduct fewer, but more-targeted audits of physician claims

Following the success of a pilot, CMS will expand a new audit program for physician claims. As part of the agency’s existing effort to combat fraud, waste, and abuse, Medicare Administrative Contractors (MACs) review a sample of claims and identify errors. Under the pilot, MACs audit specific providers within a service, rather than all providers who bill a particular service. This led to an increase in provider education on claims errors and a decrease in appeals of claims decisions.

The shift away from the existing audit system of reviewing all providers at random for a specific service, has garnered praise from the industry. The American Medical Association’s president called it a step in the right direction, and the American Association of Neurological Surgeons welcomed improvements to decrease the burdens and disruptions to physician practices.

Drug reference pricing may save employers money

A self-insured employer used reference pricing to encourage employees to use the least-expensive drugs, which lowered the employer’s drug costs by 13.9 percent over 18 months, researchers found. Employees paid 5.2 percent more out of pocket during the same period relative to a control group, according to recent research published in the New England Journal of Medicine (NEJM).

As drug prices have increased, some insurers have used reference pricing – paying a set amount for a certain therapeutic class and requiring beneficiaries to pay the additional costs if they choose a more expensive product – to control costs. The amount that insurance companies pay is usually the cost of the least expensive drug available in a therapeutic class and therefore, reference pricing can shift costs to employees if they choose to use a more expensive option than the reference drug. Drugs in a therapeutic class have the same chemical mechanisms and treat the same diseases.

Background: Researchers used data from the RETA Trust, a self-insured group of Catholic organizations that implemented reference pricing in 2013. The group contracts with private health plans to negotiate prices and pay claims. The researchers – from RAND, Santa Monica and the University of California, Berkeley – compared claims to those for a labor group that did not use reference pricing.

(Source: James C. Robinson, Christopher M. Whaley, and Timothy T. Brown, “Association of Reference Pricing with Drug Selection and Spending,” New England Journal of Medicine, August 17, 2017)

Including social determinants of health data in EHRs could improve outcomes

Researchers found that integrating social determinants of health (SDoH) information into electronic health records (EHRs) could improve patient outcomes and overall patient health. Researchers used data from the Oregon Community Health Information Network (OCHIN), which includes 440 primary care community health centers in 19 states, to see how including SDoH could improve outcomes.

SDoH are non-health factors, such as income, education and race, which can play a major role in an individual’s health. Earlier this year, the Institute of Medicine recommended that SDoH information be included in EHRs. Some health care organizations and health IT companies are already working to make socioeconomic data available in EHR systems.

Specifically, information on SDoH helped clinicians provide patients with the most appropriate treatment possible. In this particular study, the researchers assisted leaders of community health centers (CHCs) with adding SDoH questions and information into the EHRs at their facilities, and discussed their experience. Through including SDoH information, CHCs would help patients with referrals to community services they need, such as assistance with housing. SDoH information could also assist with developing policy and promoting overall health, according to researchers.

Researchers suggested that organizations consider the following aspects when adding social determinants of health data to their EHRs:

  • Collecting data: Organizations should examine which determinants to include in EHRs and how to collect the data (e.g., prior to an appointment via an in-office tablet, or during an appointment).
  • Reviewing patient data: Clinicians should consider how they want to present and use the SDoH data from EHRs.
  • Identifying and ordering referrals: Community clinics should assess which social services their patients need, and how to connect patients with such services using data from EHRs.

Related: Deloitte researchers recently surveyed 284 facilities to find out how they address social determinants of health in health care delivery. Eighty-eight percent of hospitals said that they screen for social needs; however, only 62 percent reported doing so consistently. About half of respondents stated that they reported this social needs information in an ad hoc manner. Including data as recommended by researchers above might help to standardize how facilities address patients’ social needs.

(Source: Rachel Gold, et al., “Developing Electronic Health Record (EHR) Strategies Related to Health Center Patients' Social Determinants of Health,” Journal of the American Board of Family Medicine, July-August 2017)

Moody's says that not-for-profit hospital margins shrank

Expenses among non-profit and public hospitals increased 7.2 percent, while revenue only grew 6 percent during fiscal year 2016, according to a recent report from Moody’s Investors Service. Analysts cited rising pension, labor, and pharmaceutical costs as reasons for this trend.

The volume of both outpatient and inpatient services increased overall, though the growth rate was higher for outpatient services, and both growth rates were lower relative to fiscal year 2015.

Telehealth company to deliver CDC's National Diabetes Prevention Program

A telehealth company, Fruit Street, plans to be the first partner to deliver the Centers for Disease Control and Prevention’s (CDC) National Diabetes Prevention Program (DPP) by video conference.

CDC reports that one in 10 adults in the US has diabetes; this rate could rise to one in five by 2025. The DPP seeks to prevent or delay the onset of diabetes among at-risk individuals, including people with pre-diabetes. It consists of a year-long series of classes, coaching sessions, and support group meetings (see the April 12, 2016 Health Care Current).

The CDC partners with companies to provide materials, such as readings and videos, for patients to use on their own time. Fruit Street will be the first to create a virtual classroom that allows patients to interact with health care providers and each other.

Registered dietitians lead the video calls. The dietitian also provides participants with individualized feedback based on information they submit using Fitbits, wireless scales, and a mobile app. Giving patients a chance to interact with others could contribute to the program’s success.

Background: As a “lifestyle change program,” the DPP teaches participants how to make a habit out of exercising and eating healthily for long-term, sustainable improvements. The National Institute of Health found that people who partook in the DPP reduced their risk of developing diabetes by 58 percent.

(Source: National Institute of Diabetes and Digestive and Kidney Diseases, National Institutes of Health, “Diabetes Prevention Program (DPP),” October 2008)

Iowa and Oklahoma propose changes to Medicaid

Iowa has formally requested under a 1332 waiver to offer just one plan in the individual market and set a flat premium subsidy payment based on income and age, rather than set through the Affordable Care Act’s bidding process. Under the proposal, the state would also eliminate cost-sharing reduction payments to insurers and would instead establish a reinsurance program – covering 85 percent of claims between $100,000 and $3 million; and 100 percent of claims above $3 million – for insurers covering high-cost enrollees. The request is pending approval from the administration.

State officials in Oklahoma also are working on a 1332 waiver proposal. The state is considering:

  • Changing eligibility for federal premium subsidies from 100-400 percent of the federal poverty level to 0-300 percent of the federal poverty level
  • Standardizing subsidies based on age and income
  • Establishing two plan options – a standard plan covering 80 percent of costs and a high-deductible plan to be used in conjunction with a health savings account
  • Redefining essential health benefits
  • Changing age-rating bands from 3-to-1 to 5-to-1
  • Integrating a reinsurance program to help cover the costs of expensive patients

The state has not finalized or submitted the waiver proposal. If the administration approves either waiver, other conservative states might explore similar policy ideas.

Breaking Boundaries

Breakthroughs in nanotechnology may transform treatments

Researchers are moving closer to a breakthrough in nanotechnology that has the potential to regrow damaged organs and heal serious wounds. Nanochips housed in a tiny pad the size of a penny can reprogram skin cells and generate cells in a process called nanotransfection. In trials, the non-invasive procedure restored the function of badly damaged blood vessels in days by firing DNA into skin cells from a small electric current.

The procedure has the potential to transform care for patients needing complex reconstructive surgery. There may be an opportunity to reprogram skin cells from parts of the body, which can be injected into the brain, to fight diseases such as Alzheimer’s and Parkinson’s. So far, the team has had successful trials of the technology on pigs and mice, and intends to start human trials next year.

Nanotechnology describes technological developments that occur at 0.1 to 100 nanometer scale. In health care, it is the development at molecular scale for diagnosis, prevention, and treatment of diseases, including the regeneration of tissues and organs. The technology differs from stem cell therapy in that it does not require laboratory-based procedures, and could be implemented in routine health care settings. The new cells are produced under the guidance of the patient’s own immune system, which means immunosuppressant drugs are not necessary.

Nanotechnology may play a unique role in developing countries, where many people do not have convenient or any access to medical facilities. Less expensive diagnostic tools are in demand, and the ability to have diagnostic capabilities on a chip – combined with sensors for blood testing – could be life-saving. To date, nanotechnology research has been focused on fighting HIV. It is also being used to detect tuberculosis and in the fight against malaria. Researchers are also exploring the use of nanosensors that can detect myocardial infarction – which could prevent heart attacks. The hope is that an individual at risk could have a tiny chip, the size of a grain of sand, implanted and receive a warning on a wireless device from the sensor.

Analysis: How long before health care organizations need to consider how to incorporate nanotechnologies into their business? According to Deloitte’s Tech Trends 2017 report, not long. Medicine is driving the demand for nano-manufacturing. Nano-manufacturing could be used to make objects that mimic the process of DNA copy and protein synthesis, to make proteins that can be used as drugs to inhibit or treat disease. Products already being made through nano-manufacturing include nanoparticles of silver that kill bacteria and are integrated into clothing and medical devices to prevent infection. Nanoparticles of titanium that block ultra-violet light can be integrated into a lotion or spray and applied to the skin to prevent sunburn.

The report provides four steps for health care organizations that are considering integrating nanotechnology and other exponential technologies into their strategies:

  • Sensing and research: To begin exploring exponential forces and their potential, organizations should consider, as a first step, building hypotheses based on sensing and research. Identify a force such as nanotechnology – and hypothesize its impact on products, production methods, and the competitive environment. Then perform sufficient research around that hypothesis, using thresholds or trigger levels to increase or decrease the activity and investment over time.
  • Exploration: Once companies have identified technologies that look promising through sensing and research, they can begin exploring the “state of the possible” by looking at how others are approaching these forces, and determining if any of them could apply broadly to the industry. If these approaches could impact business, companies can begin developing use cases in the experimentation phase.
  • Experimentation: The move from exploration to experimentation involves prioritizing business cases and building initial prototypes, doing in-the-workplace studies, and putting them into use. When the value proposition of the experiment meets the expectations set forth in the business case, then companies can consider investing by moving into incubation. They will likely need an incubator that has full scaling ability to carry out the level of enhancement, testing, and fixes needed before putting this product out into the world.
  • Be programmatic: Taking any product – but particularly one grounded in exponential forces – from sensing to production is not a two-step process, nor is it an accidental process. Innovation is more about programmatic disciplined effort, carried out over time, than it is about inspiration or a “eureka” moment.

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