Speakers: Transition to Value-Based Medicaid Payment Looks Good So Far, But Much Remains to Do

Chris Gaetano
Published Date:
Sep 27, 2017


Health care in New York has come a long way since 2010, when the 2008 global economic crisis forced major budget cuts in Albany, said State Medicaid Director Jason Helgerson, speaking at the Sept. 27 NYSSCPA Health Care Conference. But he added that, even seven years later, there's still a lot to do. Helgerson, who was appointed in 2011 to implement Medicaid reform in the state, said that the worldwide financial meltdown sparked off a state budget crisis in 2010 that, in turn, caused a crisis in a Medicaid system that he said wasn't operating very well in the first place. 

"We had a program spiraling out of control, not financially sustainable, in the worst budget environment in New York state history. We were also not getting the outcomes we wanted from this system, ... but we also had a political environment that made reform very difficult," he said. 

On the topic of politics, Helgerson briefly mentioned that he was pleased that the latest Republican effort to repeal the Affordable Care Act stalled in Congress, having been one of the 50 state Medicaid directors (i.e., all of them) who issued a statement announcing their opposition to the measure. 

"I'm becoming more and more convinced that hill is too steep for Congress to climb. ... While I'd like to see some changes to the law, overall I think it has been very good for New York, so I'm obviously pleased the latest repeal bill is not going to move any further," he said.

Helgerson said that the answer to the spiraling costs in New York has been a years-long, three-phase effort to fundamentally change the financial incentives governing the state's Medicaid program. The first phase, the Medicaid Redesign Team, developed the plan for how to proceed. The second phase, delivery system reform, was meant to use collective purchasing at both the state and federal government level to develop more cost-effective outcomes. The third and final phase is the move to a system of values-based payment, which he said is "the phase we're really focused on right now." 

The move to a values-based payment system, according to Helgerson, represents a fundamental shift in incentives for health care providers that is intended to provide better outcomes for patients. The more common fee-for-service model that the state is trying to move away from focuses more on the number of procedures performed. The health care provider performs a service, files a claim and gets paid. A values-based payment system, by contrast, is more focused on patient outcomes. 

Another speaker at the conference, Joseph Tomaino, principal of Grassi and Co's Healthcare Management Consulting Practice, said that the health care system has a very siloed delivery model, where each sector of the system is generally only interested in its own component. So for example hospitals are generally concerned with filling beds and encouraging ER visits, home care agencies are generally concerned with getting referrals so they can conduct home visits, and nursing homes are generally concerned with getting patients into their own facilities. Overall, health care providers will seek to maximize their utilization reimbursements because that's the main way they can generate appreciable amounts of revenue. This model, though, creates incentives that are more about the revenue of the individual provider than they are about patient outcomes. 

To illustrate, he said that, at one point, he was running a group of nursing homes, one of which was attached to a hospital. That nursing home would get $400 to $500 a day for short-term stays, but if the hospital didn't refer patients there, then the nursing home didn't get paid. He said he would sometimes talk to the hospital CEO and ask why the hospital wasn't sending patients to the nursing home, telling the CEO that he's losing money. The CEO's answers, he said, usually had to do with the hospital's own fixed costs like mortgage, staff and utilities: the hospital had to make money too, and if it meant keeping patients in the hospital and getting reimbursed for a fraction of what it costs to do so, it's still better than sending them out to a nursing home and getting nothing. 

Helgerson, during his talk, said that a big part of the new value-based payment model is getting parties to collaborate instead of compete, which he said could then result in them going beyond being just health care providers and into improving the health and well-being of their communities as a whole and being a positive force for community development and change. This initiative, however, requires providers to change their thinking toward being parts of a wider system, versus being an individual health care provider selling particular services. 

"Organizations have to see themselves as a coherent system. It's interesting. When we think of systems in the U.S. context, we think of it in the context of ... a single employer model [like Northwell Health]. What we want to think of is Northwell, with partner organizations serving the same individuals, providing not just health care but human services and other types of care. We need to think beyond the walls of any single health care institution," said Helgerson. 

One way to think about this would be in terms of stroke care. In the fee-for-service model, said Tomaino, the nearby community hospital would want stroke patients because the patients' emergency room and ICU visits would fill beds; the nursing home would want  referrals for rehab; and the home care agencies would want referrals for home visits. However, he said, driving past two community hospitals to get to a facility that specializes in stroke care may be better for the patient. 

"What might be more appropriate is [for] the person to go past the community hospital to a specialized one, and [they] may not need the nursing home stay because they got the intervention they needed so soon, and so all they need is home care," he said. 

Under the value-based pricing model, according to Helgerson, it's more about how well the patient does, versus what services had been performed for them. It's a performance-based program, and so quality is key. 

"If you perform, you are paid. If you don't, you're not. Everyone knows exactly what they are accountable to and what they need to do to get a payment. If they do what they need to do and move the needle and improve metrics and the health of their population, they will be paid. It's not about effort, it's not about incurring cost, it's about outcomes," he said. 

Helgerson said the state did not set out to make a one-size-fits-all model, though. There are several different ways a provider can approach the transition from input-oriented to outcome-oriented. A provider or group of providers might opt for a population-based system that takes responsibility for a total population and payouts based on their health outcomes, which Helgerson said is the most common model today. They might also opt to take on a more focused population like HIV/AIDS patients, or even a more episodic payment model where there's a flat fee for all services associated with a particular medical episode (e.g. maternity care). 

Inherent in all these variations, though, are financial consequences for outcomes, positive and negative, depending on the nature of the relationship with the patient and the level of risk the provider wants to take on. He said that, under value-based models, providers can select three different levels of risk/reward. 

In level one, there's only upside risk: The state has outcome measures that the provider must show improvement on. If the provider beats these measures in terms of cost, then the provider can share in some of those cost savings. He said the state is pushing for the most cash-strapped hospitals and other health care providers to take a level one arrangement. 

In level two, providers take on slightly more risk: If they provide effective care that is cheaper than the state measures, they can share in a greater proportion of the savings than they would in level one, but they will also be penalized if their care was more expensive than the state measures. 

Level three, finally, is a true values-based payment model, whereby providers are paid a set amount for each person enrolled with them, which can rise and fall with patient outcomes. (Helgerson pointed out that levels one and two are still technically fee for service with values-based features.)

Three years into implementing this system, Helgerson said that the providers have been earning 95 percent of the funds that were available to them for making improvements, but he noted that this is because it's still an early stage. It's easier to make money through improving efficiencies when there's already a lot of waste in the system. He believes that this percentage will fall as there's less to improve. So far, though, about 3 million people have been treated through the new value-based pricing model. 

"While we're still in the early days, and metrics are [only now] beginning to come through, we are seeing the impact the program [has] is real," he said. 

The state's goal in all this is a 25 percent reduction in avoidable hospital use, and for 80 percent of payments to be value-based, he said. How, specifically, this will be done is largely up to individual providers at a local level. There is only so much that can be done at the state level, he said, as most health care workers are not government employees. The state can set policies and payments, but he said it's up to communities to make the right choices and restructure themselves. 

"We can support, we can help, we can encourage, we can warn, but ultimately at the end of the day it's up to these communities to make the most of the effort," he said.

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