New York's Big Medicaid Gamble

Can rewarding doctors for taking risks lead to better outcomes and cheaper costs?
by | August 2015
(AP)

A decade ago, New York state’s Medicaid system was known mostly for its gargantuan size, runaway costs and pervasive inefficiencies. By the end of this decade, however, the state is betting that it will be known for rooting out that old system’s worst habits. Whether it can pull that off is far from a given.

New York is the latest in a small group of states attempting far-reaching Medicaid overhauls through what’s known as the Delivery System Reform Incentive Payment program. DSRIP varies in each state, but at bottom it seeks to hold costs below a certain threshold and reinvest the savings in projects aimed at achieving specific goals, such as preventing patients from needlessly winding up in hospitals.

New York’s program aspires to go beyond improvements in individual hospitals to improvements across entire regions, allowing or requiring different groups of doctors and even nonmedical social services organizations to work together toward certain goals. Texas has a similar $11.4 billion five-year project. New York’s is a few billion dollars smaller, but its ambitions are grander in some key respects.

In every DSRIP program, a state is pushing medical providers toward a payment model that’s more rooted in health outcomes than in simply awarding a fee for every service. In the health-care world, these are referred to as “value-based payments,” and they represent a departure from the way insurers have traditionally paid doctors. By the end of 2019, all of New York’s privatized Medicaid plans will have to ensure that 90 percent of their payments to providers are value-based.

The idea behind value-based payments is to ultimately get doctors to take financial risks for failing to deliver good outcomes. In New York, they’ll have some control over the level of risk they accept, but they’ll be rewarded financially for embracing bolder arrangements. The insurers who pay the providers can also earn higher fees per patient if a greater volume of the payments they make goes to doctors who take on greater risk -- agreeing, for instance, to a lump sum for an entire procedure and absorbing the additional costs if the patient experiences an avoidable mishap.

That pace of change is unmatched in the Medicaid world, and it has some people worried. For one thing, academic studies vary on whether incentivizing doctors through pay for performance achieves the desired efficiencies. Health outcomes among patients of safety-net providers are notoriously difficult to manage, for example, because of challenges in other aspects of their lives, such as employment and housing.

The widest effort so far to incentivize doctors has shown mixed results. Of the 114 medical groups participating in the Medicare Shared Savings program, about half have saved enough money to pocket bonuses. Concerns by doctors in that program have led the federal government to delay for three years requirements that they accept risk for losses.

New York participated in the shared savings program as well, and that experience is coloring views of DSRIP’s potential. Dr. Neil Calman, who heads the Institute for Family Health, which operates more than two dozen community health centers across the state, told the New York State Health Foundation last year that being measured by numerous insurers for a host of different tasks can undermine the whole idea of incentivizing better outcomes. “The danger is that a multiplicity of performance standards means that there are no real incentives,” Calman says, “and these standards may not reflect how providers can better care for patients.”

That danger is just as real for New York’s newest experiment, but this time the stakes are even higher -- as are the rewards.