It’s the big question facing the health-care sector these days: Can we move from a fee-for-service payment model, doling out money based on quantity instead of quality, to a more sophisticated model that rewards providers for meeting quality targets and delivering better care? Everybody seems to agree it’s the right move (good luck finding a policy analyst or lawmaker who would say otherwise), but exactly how it should be done is constantly debated.

The folks in Massachusetts, however, think they’ve figured out the answer -- at least partially. And they’re focusing their efforts on a group that's routinely responsible for a disproportionate share of Medicare and Medicaid spending: dual eligibles. Dual eligibles (people who qualify for both government programs) account for only 15 percent of Medicaid enrollment, but 39 percent of its costs.

This article appears in our Health newsletter. Click to subscribe.

At least 26 states have pledged to develop pilot programs to better coordinate care between Medicaid and Medicare, but Massachusetts was the first to gain approval from the Centers for Medicare & Medicaid Services (CMS) for its dual eligibles demonstration project, which will be partially modeled after two existing programs in the state that are aimed at moving away from a fee-for-service model. If they can work for dual eligibles, the thinking goes, they should be able to work for everyone. Perhaps as importantly, the coordinated care approach that both programs use should allow them to remain solvent even as the population ages.

Massachusetts' Programs for All-Inclusive Care for the Elderly (PACE) and Senior Care Options (SCO) differ in their specifics and funding sources, but both plans operate under a similar model. A team of health-care providers -- contracted by the state -- evaluate a dual eligible’s needs, develop a comprehensive care plan, and oversee their primary care and medications. The group is paid, in part, based on the health of its patients. The team of providers is paid a flat fee (say, $3,500 a month from each Medicaid member), but if the care ultimately costs less than that, the providers share the savings. If it costs more, the group shares the additional costs.The idea is that, with the delivery of care being centralized to a singular entity that should be intimately familiar with a patient’s history, the symptoms of poor health care that often drive up costs (duplications, unnecessary procedures, misdiagnosis, etc.) can be more easily eradicated.

One of the programs' goals is to keep patients out of nursing homes. As Governing reported in its October issue, more than 80 percent of Americans over 50 say they want to remain in their home as long as possible. Not only do people prefer to stay at home, but research indicates it could also be more cost-effective. A 2009 Health Affairs study concluded that home- and community-based care reduced Medicaid costs by 8 percent over a decade, while nursing home spending increased by 9 percent over the same period.

“We simply can’t afford to do things the old-fashioned way,” says Karen Longo, executive director of Summit ElderCare, one of the PACE programs in the state. “Yet most consumers believe their only choice is to move into a nursing home. With this tsunami of people who will need these services, we have to change that perception.”

Early results suggest Massachusetts’ PACE and SCO programs could be a model for how to do this affordably. SCO has reduced nursing home placement by 30 percent, according to an independent analysis. PACE, on the other hand, has saved the state an annual $52 million compared to the traditional fee-for-service Medicaid program, and 88 percent of its participants remain in their homes -- despite the fact that needing a nursing home level of care is a requirement for enrollment.

Despite those promising figures, the 26,000 PACE and SCO enrollees represent only 10 percent of Massachusetts’ dual eligibles population. With its demonstration project, the state wants to coordinate care for more than 100,000 people. So now the focus for advocates is taking the lessons learned from these programs and translating them to new reform efforts.

Generally speaking, the state proposed moving the broader dual eligibles population into coordinated care organizations based in part on PACE and SCO.

"Both PACE and SCO have illustrated how we can connect Medicare and Medicaid services in a way that is effective for enrollees," said Massachusetts Medicaid director Julian Harris, "and we have carried those lessons into our design of the duals demonstration.”