Despite some evidence on the benefits of value-based payment (VBP), few states have passed legislation to support the transition to VBP systems. When use is the main driver of health spending, state legislation is an important lever to increase payer and provider participation in VBP initiatives.
Catalyst for Payment Reform and the Source on Healthcare Price and Competition at UC Hastings College of the Law, with support from the Robert Wood Johnson Foundation, jointly developed a public database that catalogues state laws and pending legislation to promote value in health care. In this post, we highlight three approaches that offer guidance to states seeking to achieve this goal.
Medicaid Accountable Care Organizations Have Produced Encouraging Results
The most common state legislative approach to advancing VBP is through creation of Medicaid accountable care organizations (ACOs). At least 12 state Medicaid agencies, including those in Oregon, Colorado, and Vermont, have implemented ACO programs, many through legislation. Several more are exploring whether to adopt an ACO strategy.
States seeking to control Medicaid spending through ACOs have several successful examples to draw from. One of the best known is in Oregon, which created coordinated care organizations (CCOs) in 2012 to replace its traditional managed care plans (HB 3650). Similar to ACOs, CCOs are designed to improve care coordination for Medicaid beneficiaries. The Oregon Health Authority, the state entity overseeing the program, contracts with multiple CCOs, which consist of hospitals, physicians, and community clinics or insurance companies with provider networks. Each CCO receives a global budget or prospective payment for a specified patient population. The CCO pays providers based on performance, as determined through specified quality metrics. Provider groups bear the financial risk of providing care for defined patient populations. CCOs aim to improve population health and outcomes by incentivizing primary care and prevention. CCOs and their affiliated providers also receive incentives to focus on patients with chronic health care needs to help them manage their conditions and mitigate the need for preventable and costly events, such as hospital stays and emergency department visits.
An independent evaluation in 2018 found that Oregon’s CCOs were associated with a 7 percent reduction in expenditures across evaluation and management services, imaging, procedures, tests, and inpatient care. Savings were attributed primarily to reduced inpatient utilization, as well as reductions in avoidable emergency department and primary care visits. The evaluation also found improvements in some appropriateness of care measures (appropriate medications for people with asthma, testing for children with pharyngitis, imaging studies for low back pain, imaging for uncomplicated headache, and avoidance of unnecessary cervical cancer screening).
Regulatory Flexibility Can Facilitate Value-Based Care
In states that grant regulatory entities flexibility to experiment with new approaches, payment innovations have had positive results. Two notable examples of success are Maryland and Rhode Island, where regulatory entities have achieved savings through VBP initiatives.
Maryland
In Maryland, the Health Services Cost Review Commission (HSCRC) has unique statutory flexibility to establish alternative hospital rate-setting methods that promote value. In response to stringent rate restrictions in the 1990s, hospitals increased the volume of admissions, tests, outpatient visits, and other services. To control both prices and volume, Maryland piloted an all-payer global budget model with eight rural hospitals and then negotiated a waiver agreement with the Centers for Medicare and Medicaid Services to move all Maryland hospitals to the model in 2014. The global budgets are based on each hospital’s revenues from 2013 (the base year) and adjusted to reflect inflation, changes in service use, and shifts in quality performance. A global cap on hospitals’ annual revenues can be adjusted incrementally as volumes vary. HSCRC continues to approve hospitals’ unit rates as part of its rate-setting authority.
An evaluation of the rural hospital pilot found no statistically significant differences in use or spending for Medicare beneficiaries served by affected hospitals compared to the control. However, a recent evaluation of the statewide program found that Maryland’s total Medicare expenditures declined by $25.37 per beneficiary per month (PBPM) more than the control group. In the first three years of the program, hospital expenditures declined by $20.69 PBPM compared to the control, primarily due to reductions in hospital outpatient expenditures. Inpatient admissions also declined during the study period. Overall, the program saved Medicare approximately $679 million.
Rhode Island
In 2004, the Rhode Island legislature created the Office of the Health Insurance Commissioner (OHIC), charged with holding commercial insurers accountable for improving the accessibility, quality, and affordability of health insurance sold in the state. In 2010, the health insurance commissioner established a comprehensive set of affordability standards to minimize increases in commercial health insurance premiums by reducing use and moderating price growth. The state aimed to reduce overuse by increasing spending on primary care—by 1 percentage point per year from 2010 to 2014—and by setting standards that encourage insurers to incorporate VBP arrangements in provider contracts. In 2008, the OHIC also established a statewide all-payer patient-centered medical home (PCMH) program called the Rhode Island Chronic Care Sustainability Initiative. PCMHs receive a care coordination fee and payment for the services provided by a care management nurse. Payments are also tied to quality measures.
As the new initiatives were implemented, primary care spending in Rhode Island grew from $47 million in 2009 to $74 million in 2014. During the same period, the number of Rhode Island primary care physicians per capita increased. A 2019 study found that the state’s affordability standards were associated with lower inpatient and outpatient quarterly fee-for-service spending (an average reduction of $76 per enrollee) and higher total quarterly non-fee-for-service spending (a $21 average increase per enrollee) among the commercially insured, mostly due to the increase in expenditures for primary care. Quality and use did not change significantly.
The Maryland and Rhode Island laws can serve as models for other states considering innovative approaches to require payer and provider participation in VBP models.
Conclusion
COVID-19 may create new opportunities for payment innovation, as providers look for effective ways to protect their revenue when patient use is declining. A small number of states have made progress in advancing VBP through legislation that creates Medicaid ACOs or gives regulatory entities greater flexibility to innovate. These initiatives can serve as helpful models for new state efforts to support the sustainability of physician practices, ease the pandemic-induced strain on state budgets, and improve health care value for all who use and pay for health care services.
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How Can State Legislation Promote Value In Health Care? Three Innovative Models - Health Affairs
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