Flexibility and Innovation Needed to Control Medicaid Costs

June 19, 2017 - As state and federal regulators debate the future of Medicaid spending, health researchers have identified the need for flexibility and innovation in Medicaid policies involving payment models, delivery of care and drug costs. The recommendations were presented in a joint piece from the Center for Health Systems Effectiveness and Department of Emergency Medicine at the Oregon Health and Science University, and the Department of Health Care Policy at Harvard Medical School.   

“Missing from the debate has been consideration of policies that could improve the value of the Medicaid program, controlling Medicaid spending without diminishing coverage or quality. We believe that any Medicaid-reform proposals should be grounded in the realities of this complex and frequently misunderstood program.”

Despite political wrangling, Medicaid remains a low-cost means of providing coverage with total expenditures 22 percent below private insurance costs.  For the past 15 years, Medicaid has also experienced smaller annual cost increases than both Medicare and the commercial insurance sector.

To address Medicaid costs, states have been looking more closely at requesting Section 1115 waivers from CMS.  The waivers allow states regulatory flexibility to experiment and innovate with Medicaid requirements and delivery.  States have been encouraged to apply for the waivers, particularly in the wake of increased costs stemming from the Medicaid expansion in 31 states under the Affordable Care Act (ACA).  

Current payment models in Medicaid are based on federal requirements which stipulate “actuarial soundness” for Medicaid managed plans.  These Medicaid payment structures are based on a fee-for-service model.  The report suggests that a larger move towards a flexible value-based, or other alternative payment model, could be enacted to reduce overall spending while also improving patient outcomes.

READ MORE: Medicare-Medicaid Financial Alignment Shows Cost Savings

Despite a political fixation on the “able bodied” adult as the primary cause of Medicaid overspending, in reality, these beneficiaries comprise a minority of Medicaid members and dollars spent.  

Currently the largest nationwide segment of Medicaid spending (47 percent) goes towards long-term services such as nursing facilities and institutional care.  The spending for long-term services was particularly noticeable in dual eligibles, who used the majority of funds.  

Medicaid payment incentives have traditionally favored the institutional setting for long-term services over home care and community based services.

The authors did note the introduction of several programs that are seeking to introduce new cost-controlling payment incentives that encourage community or home-based care.

Among these are the Money Follows the Person program, which provides federal funding for the transition of Medicaid beneficiaries from institutional settings to home- or community-based services.  Another innovative model is the Program of All-Inclusive Care for the Elderly (PACE), which combines Medicare and Medicaid funding into a one capitated payment. This model allows beneficiaries to receive a high level of care while remaining in their communities.

READ MORE: Medicaid Waiver Adds More Beds For Drug Addiction Treatment

Sufficient data evaluating the efficacy of these alternative approaches to delivery of care has been hampered by the newness of the programs and their lack of widespread implementation.

“Nonetheless, addressing patients’ needs for long-term services will probably require a variety of strategies to support patient choice and meet the complex needs of populations in various settings, so continued innovation is crucial,” said the report.

“Unfortunately, proposed Medicaid cuts have the potential to exacerbate existing inefficiencies in the long-term services market.   Since home and community-based services are generally classified as ‘optional’ benefits, states may opt to cut these services when faced with reductions in federal support.”

Another category pegged for Medicaid innovation was the increased integration of physical and behavioral health care.  

These integrated care models are of particular relevance to Medicaid populations given their statistically higher prevalence of mental health and substance abuse conditions than the general population.

READ MORE: Medicaid Service Equals or Surpasses Private Health Payers

The third component to control Medicaid costs is with reigning in the price for prescription medications.  As with commercial health plans, prescription drugs have been an important driver of healthcare costs for Medicaid. Despite innovations such as the Medicaid Drug Rebate Program spending on drugs increased by 24 percent in 2014.  

Possible solutions to addressing Medicaid’s accelerating drug costs could include a value-based purchasing model, particularly for high-cost specialty drugs.   

By implementing a value-based purchasing model, states could create greater flexibility in determining coverage guidelines or be granted waivers to address aspects of the current rebate program that impede these arrangements

This includes action on the federal level to provide greater support for the creation of joint federal-state negotiation pools that would provide additional pricing and rebate options.  

“A dynamic policy environment and the increased role of the Medicaid program may stimulate a variety of policy proposals in the near future,” the authors concluded. “The greatest benefits to public health and the largest returns on the taxpayer dollar will come from an honest acknowledgment of the program’s successes and weaknesses and the pursuit of policies tailored to the realities of Medicaid and the populations it covers.”