Health Care Current: October 8, 2013

The evolution of Medicaid managed care

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

Defining moments and the evolution of Medicaid managed care

This past July, former Michigan Governor Jennifer Granholm was the keynote speaker at Deloitte’s Public Sector Industry week. During her presentation she shared a personal story: the main employer in a small town, a manufacturing plant was slated to shut down. Jobs were being eliminated, families that for generations had made their livelihoods at that plant were severely affected and the decision to close was not to be overturned. The Governor described that experience as a defining moment for her, because at that moment she began to focus on innovation as the catalyst for future growth, new opportunities and change for her state and its citizens. It became her mission during the remainder of her tenure as Governor.

For years, Medicaid programs across the U.S. have been leaders in implementing delivery system reforms to coordinate care, improve outcomes and reduce costs. Over time, many states have moved to managed care models with the objective of improving overall health system performance and quality of care. Today, states are continuing to expand their managed care programs into new geographic areas and/or to new eligibility groups. They are also establishing or expanding programs focused on improving population health for those with chronic and complex conditions, aligning payment incentives with performance goals and building accountability for delivering high quality care. Most states have new care coordination efforts underway, including home health initiatives, patient-centered medical homes, accountable care organizations and plans to coordinate physical, behavioral health, long-term and acute care services.

More recently, the Affordable Care Act (ACA) created a number of mechanisms to enable states and the Centers for Medicare and Medicaid Services (CMS) in their efforts to improve the health and well-being of Medicare and Medicaid beneficiaries. For example, the Medicare-Medicaid Coordination Office (MCCO) and the Center for Medicare and Medicaid Innovation, created under the ACA, are working with states to develop approaches for improving care for dual eligible beneficiaries (i.e., individuals who qualify for both Medicare and Medicaid benefits). As a result of these efforts, CMS recently finalized memoranda of understanding with three states to implement demonstrations to integrate care and align financing for those eligible for both programs. The three-year demonstrations allow the Secretary of the U.S. Department of Health and Human Services to “test” innovative payment and service delivery models to reduce program expenditures under Medicare and Medicaid but preserve and or improve the quality of care to beneficiaries. Participating states are developing and implementing new managed care models and shifting the delivery of services to community- and home-based care from institutional care settings.

Under the ACA, states also have the option to participate in six new programs that provide federal financing to improve access and delivery of Long Term Services and Support (LTSS):

  • Money Follows the Person demonstration
  • Balancing Incentive Program
  • Dual Eligible Demonstration Alignment
  • Home Health State Plan Option
  • Home- and Community-Based Services (HCBS) State Plan Options
  • Community First Choice Option

Nearly every state will participate in at least one of these programs as of March 2013 and many are pursuing multiple options:

States' participation in six key Medicaid LTSS options provided or enhanced by the Affordable Care Act

Source: Kaiser Family Foundation,

At the same time as they pursue these new, innovative programs and demonstrations, 25 states have decided to expand Medicaid under the terms of the ACA.

Medicaid expansion will take a variety of forms, but we anticipate a few things will be in the spotlight:

  • There will be at least three service delivery models used to cover Medicaid expansion populations: traditional fee-for-service, managed care and premium assistance, (a.k.a., the “Arkansas Model” whereby newly-eligible Medicaid beneficiaries will be given subsidies to purchase commercial health insurance coverage through exchanges).
  • The same consumer protections that exist for today’s Medicaid beneficiaries will be extended to the expansion population, regardless of the service delivery model used to cover them: quality will be monitored and the emphasis on effective coordination will continue.
  • Costs will continue to be a concern – both for the federal government, which is bearing 100 percent of expansion costs in the short term and for state governments that anticipate increased enrollment among the already-eligible but not-enrolled and have some longer-term concerns about the costs to the states of the expansion population.
  • Access to care may be a challenge in some geographies and specialties. Providers will be challenged to accept more patients and increase patient care loads―efforts to increase physician supply and the health care workforce will likely be required.
  • States and CMS will continue to experiment with value-based care arrangements that link payment to clinical and financial performance and outcomes.

So what can we expect as state Medicaid agencies and CMS seek to implement these new programs and the expansion? In her closing comments, Governor Granholm challenged those that work in the public sector to be leaders in innovation. In this defining moment for Medicaid programs and beneficiaries, it will take dedicated leaders, commitment, effort and a lot of innovation by both the public and private sectors to create a sustainable Medicaid program that recognizes and responds to the needs of its beneficiaries, the health care system and taxpayers. As I look around, I see signs that we are up to the challenge.

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My Take

By Jessica Blume, Vice Chairman, U.S. Public Sector Leader, Deloitte LLP 



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Implementation & Adoption

ACA not causing employers to shift from full-time to part-time workers

According to the Center on Budget and Policy Priorities, the ACA has not caused employers to shift their employees to part-time work to avoid the requirement that employers with 50 or more full-time-equivalent workers must provide their employees with affordable health insurance benefits or pay a fine. Center researchers concluded that raising the threshold for full-time work from 30 hours to 40 hours a week, as some have proposed, would make a significant shift toward part-time employment much more likely. Highlights of the Center’s findings:

  • Overall shift of full-time workers to part-time once the ACA is fully implemented is estimated to be 1-2 percent, according to the San Francisco Federal Reserve.
  • Less than 8 percent of employees work 30-34 hours a week―the population considered most at risk of having their hours cut below the ACA’s threshold.
  • The proportion of workers putting in 30 hours or more per week increased slightly from 80.2 percent in 2012 to 80.7 percent during the first half of 2013.
  • The part-time employment rate stands at 18.9 percent, has remained steady since last year and is below the post-recession peak of 20 percent.
  • Since the ACA was signed into law in 2010, 5.4 million civilian jobs have been added to the workforce, 90 percent of them were full-time positions.

(Source: Center on Budget and Policy Priorities, “Health Reform Not Causing Significant Shift to Part-Time Work,” October 2013)

“It may be a little premature to draw any conclusions about the effect of the ACA on the ratio of full-time to part-time employees nationwide. While the law was passed in 2010, the impact on employers was not scheduled to take effect until January 2014 and the Administration’s decision to defer the employer ‘shared responsibility penalties’ will not take effect until 2015. Employer strategies with respect to the definition of full-time v. part-time, the actual number of average hours worked per employee, the definition of benefit eligibility for employees, their spouses and their children and the cost of coverage for those eligible, will continue to be developed and communicated throughout the 2013 and 2014 open enrollment seasons.”—Rick Wald, National Practice Leader, Employer Health Care Community, Deloitte Consulting LLP

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On the Hill & In the Courts

CMS amends DSH rule to accommodate hospitals

Last Monday, CMS amended the methodology for the fiscal year (FY) 2014 Hospital Inpatient Prospective Payment System for acute care hospitals and the Long-Term Care Hospital Prospective Payment System that had previously been released in the interim final rule on August 2. The rule, as amended, would give hospitals 25 percent of their allotted FY2014 Medicare Disproportionate Share Hospital (DSH) payments based on the current DSH methodology, while the remaining 75 percent would be paid to hospitals based on the updated methodology. In a letter to CMS, the American Hospital Association (AHA) and Association of American Medical Colleges (AAMC) pointed out that the revised payment methodology would cause payment delays for most hospitals since most hospitals do not have a cost reporting period that is structured around the federal fiscal calendar. CMS acknowledged potential operating issues for hospitals with cost reporting periods that span more than one federal fiscal calendar year and revised the rule so that hospitals will be eligible for respective pro rata shares of their uncompensated care payment if they were eligible for DSH in that cost reporting period. The rule went into effect on October 1.

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Around the Country

IA moves forward on alternate Medicaid expansion before HHS approval

The Iowa (IA) Health and Wellness Plan began enrollment on October 1, despite not having received official approval from HHS. The state submitted a Section 1115 demonstration waiver to HHS on August 23, 2013 to allow the use of federal dollars to expand its Medicaid eligibility to low-income residents via private insurance carriers or a state-run heath plan, rather than Medicaid (a.k.a., the Arkansas model). Governor Terry Branstad (R-IA) indicated that he is confident HHS will approve the waiver, as Arkansas was recently granted approval for a similar program. Details of the plan include:

  • Individuals earning up to 100 percent of the federal poverty line (FPL) would join a state-run health plan with benefits similar to those obtained by state employees.
  • Individuals earning 101 percent to 138 percent of the FPL would obtain commercial health insurance coverage through the state’s HIX.

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Arkansas Medicaid expansion will not include drug rebates

Arkansas’ private option Medicaid expansion will not be permitted to collect drug rebates for individuals participating in the program. According to InsideHealthPolicy, CMS has indicated that since the state is not actually purchasing drugs for newly eligible individuals, but rather paying for insurance premiums, drug rebates that apply to the Medicaid program do not apply to these beneficiaries. CMS approved the Section 1115 demonstration waiver on September 17. The waiver is expected to provide roughly 200,000 Arkansas residents with health insurance coverage.

Note: Arkansas’ private option will use federal Medicaid funding to provide coverage to eligible individuals (childless adults aged 19-64 who earn between 0-138 percent of the federal poverty level (FPL) and parents earning between 17-138 percent of FPL) through private health insurance purchased via the state’s HIX.

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CMS approves Mississippi SHOP Marketplace

The Mississippi Insurance Department (MID) is on track to run the state’s Small Business Health Options Program (SHOP) exchange, One, Mississippi™, according to a letter from HHS Secretary Kathleen Sebelius. The approval is contingent upon:

  • MID adhering to provisions in the ACA;
  • MID’s ability to conduct plan management activities to certify qualified health plans (QHP) in time for consumers to enroll in the HIX on January 1, 2014; and
  • Following the Exchange Establishment Review process, including a technology review prior to December 1, 2015.

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California dental program faces challenges due to inconsistent funding

The California State Assembly recently passed Bill 82 to restore funds to the state’s struggling adult dental program for low-income individuals, Denti-Cal, starting in May 2014. A second piece of legislation, Assembly Bill 97, will reduce provider payments for the state’s Medicaid program, Medi-Cal, retroactively by 10 percent from September 5, 2013 through June 1, 2011. Many advocates, including the California Dental Association (CDA), federally qualified health centers and safety-net hospitals, applaud the increase in funds but acknowledge it is not enough to fill the demand of low-income adults needing dental care. According to CDA, 33 percent of residents currently lack access to dental care and many safety net providers have been forced to close because of lack of funding. In addition, the state will expand its Medicaid program starting January 1, 2014, adding 1.4 million more people to Medi-Cal. This could create more obstacles for low-income residents needing dental care. 56 percent of Medi-Cal beneficiaries already have trouble finding a provider that will accept Medi-Cal because of reimbursement rates much lower than the national average.

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WI fund created to help low-income residents buy health insurance on HIX

The University of Wisconsin Hospital and Clinics (UW) and the United Way of Dane County have teamed up to create HealthConnect, a year-long pilot program that will help pay insurance premiums for 7,300 low-income residents earning between 100 percent to 138 percent of the FPL in the Madison, WI area. Earlier this year, Governor Scott Walker (R-WI) and the state legislature changed BadgerCare, the state’s Medicaid program, eligibility requirements from 200 percent to 100 percent of the FPL, leaving 92,000 residents ineligible for coverage under the program. Unless the newly uninsured beneficiaries enroll in the state’s HIX by December 15, they will no longer receive health benefits starting January 1, 2014. Concerned that the former Medicaid beneficiaries would not be able to afford health insurance on the HIX, even with federal tax subsidies, UW donated $2 million to provide roughly $268 to each recipient to be used towards their annual insurance premium payment. HealthConnect hopes to enroll and provide financial support for 84 percent of Madison’s low-income residents.

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NH House Republican requests tax bill remove non-profit exemption

New Hampshire (NH) House Representative David Hess (R) recently filed a legislative services request to draft a bill ending the exemption of not-for-profits that are classified as 501(c)(3) from the state’s business enterprise tax (BET). The state BET taxes 0.75 percent of compensation, interest and dividends of enterprises with over $150,000 in gross business receipts or having a value tax base of over $75,000. Advocates for private universities and colleges and not-for-profit medical facilities are displeased by the proposed changes, as they would result in 24 acute-care hospitals and about a dozen private universities and colleges paying millions of dollars to the state. Representative Hess is unsure whether he will file the bill in the 2014 legislative session, but has until November 15 to decide.

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Breaking Boundaries

FDA approves first early stage breast cancer drug

Last Monday, the U.S. Food and Drug Administration (FDA) granted accelerated approval to Perjeta, the first drug designed to treat patients with early-stage breast cancer. Perjeta was initially approved in 2012 for patients with late-stage breast cancer, but will now be available to patients who have early-stage breast cancer and are at high risk of the cancer spreading, returning, or patient death as a result of the cancer. Perjeta is intended to be part of a complete treatment program used in conjunction with chemotherapy before patients undergo surgery. As part of the accelerated approval process, a confirmatory trial to evaluate the safety, efficacy and long-term outcomes of Perjeta is being conducted with 4,800 women who have late stage breast cancer, who had surgery and are at high-risk of their cancer returning. The trial results are expected to be announced in 2016.

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RWJF awards innovative tools to address hospital price transparency

Last week, the Robert Wood Johnson Foundation (RWJF) announced the winners of its Hospital Price Transparency Challenge, a competition designed to increase use and awareness of data on what a hospital will charge for a given procedure and price variation in their area. Under the ACA, hospitals are required to make pricing public for the most frequently performed services beginning in 2014. In May 2013, the federal government released for the first time a data set showing hospital charges and Medicare payments for the 100 most common inpatient stays showing significant variation both nationally and locally. The contest aimed to identify ways in which consumers, communities and employers could easily use and access this type of data in the future. Winners were announced in two categories:

  • Visualization category winners submitted projects that attempted to help the general public interpret hospital data, how it varies geographically and other relationships that may exist. These projects highlighted visualizations that allow the user to manipulate and change fields to explore data relationships further.
  • Apps and Tools category winners submitted projects that highlighted tools or apps using inpatient or outpatient data combined with other sources to allow stakeholders such as employers, health plans and health care consumers to understand data. The end goal of these entries was to allow stakeholders to use the data to navigate payment decisions and hospital bills.

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