The Road to Value in Health Care

For Medicaid and other programs, state policymakers can learn a lot from new payment models that are evolving.
March 8, 2017
By Marc Berg  |  Contributor
KPMG's head of strategy and transformation for health care. The views expressed in his commentaries do not necessarily represent those of KPMG.

While uncertainty over the future of the Affordable Care Act continues to grab headlines, a less visible but equally important transformation is underway at the state level that promises to shape the future of how Medicaid and other government health-care delivery systems function, particularly when it comes to paying providers in ways that reward outcomes rather than the volume of services delivered.

Back in 2014, I wrote here about how Medicaid had become an urgent agenda item for state policy leaders seeking to control expenditures while improving outcomes. At the time, only a few states had started this journey. Fast forward just three years, and the changes are profound. Efforts across various states, in conjunction with the impact of 2015's Medicare Access and CHIP Reauthorization Act on a wide range of health-care programs, are accelerating the march toward a nationwide system that promotes value over volume.

Two evolving approaches in particular are moving to the forefront as policymakers look for alternatives to the traditional and much-maligned fee-for-service system: "capitation," in which a health-care provider receives a fixed, per-person payment covering the broad needs of its patient population, and bundled payments, in which providers are paid for all of the care needed for an individual patient's particular medical condition.

It's critical in this time of profound uncertainty for state leaders to look at the lessons learned to date that can help inform what works and what doesn't as they begin the process of designing and implementing a new payment model for health care.

One key lesson for leaders seeking a value-based payment (VBP) model is the importance of communicating a vision for a future operating framework. This should not be a mere top-down vision: Stakeholders will need to be engaged in multiple initiatives across services lines. Looking for synergy rather than yet more fragmentation is key. This begins with early conversations with stakeholders, gathering information concerning best practices, and anticipating challenges, while also engaging community-based organizations and Medicaid member advocacy groups.

New York State provides a prime example of how these conversations can unfold and have impact. During 2015, more than 500 stakeholders participated in 16 subcommittees and clinical advisory groups focused on the move to VPB. Throughout the implementation process, a core group of stakeholders, including managed-care organizations (MCOs), other providers, community-based organizations and patient advocates, met regularly to monitor progress, suggest improvements and new ideas, and ensure that objectives were being met.

A second important lesson is understanding the importance of flexibility when developing a payment framework. States need to decide where to require uniformity and where flexibility and freedom can better realize the long-term vision. Flexibility in the type of arrangements -- capitation versus bundled payments, for example -- can allow providers to focus on areas where they're best suited to provide care and manage risk.

Texas' Medicaid-CHIP program, for example, utilizes various payment methodologies across the 19 MCOs involved in value-based contracts. Generally, the payment structures in these contracts are represented by one of three methods: fee-for service with bonus payments, partial capitation, and shared savings, in which lowering the total cost of care results in reimbursement to providers that achieve that goal. By allowing for various payment structures, Texas has ensured that a greater number of Medicaid providers are able to participate in value-based contracts.

A final lesson for state policymakers: Be prepared to use every available policy lever to help usher in VBP and ensure that different initiatives create synergy rather than friction. Once a vision and flexible framework are identified, policymakers can begin to underpin it with adjacent policy incentives in a gradual and responsible manner.

In Washington State, for example, grant funds from the Center for Medicare and Medicaid Services' State Innovation Model program have been closely aligned with the state's recently launched Delivery System Reform Incentive Payment program. Among other things, the state uses the same provider organizations, known as "Accountable Communities of Health," for both programs.

Where does all of this leave state policymakers? As Yogi Berra once said, "You can observe a lot by watching." While the road to value-based payment as the prevailing funding method in health care is long and challenging, state leaders can learn a great deal by simply watching their peers and learning from them while working with stakeholders to deliver the value their constituents need and desire.

Marc Berg | Contributor | mberg1@kpmg.com