For Better Outcomes and Significant Savings, Medi-Cal Must Pay Health Plans Differently

Four years ago, the Health Plan of San Mateo (HPSM) set out to improve care for its members who are older and have disabilities. The Community Care Settings Pilot (CCSP) provided extensive case management, housing-related services, and other supports that were above and beyond the traditional Medi-Cal benefits that HPSM was required to provide. The goal was to enable members living in nursing homes, or those at risk of moving into a nursing home, to stay at home instead — the option patients generally prefer.

The investment paid off. Within six months of participating in the pilot, members were more satisfied with their care, and health care costs to the health plan were cut in half, largely because of reductions in avoidable nursing home care.

Payment is one of the best tools at our disposal to drive improvements forward.

We need health plans to invest more in innovations like this if we are to improve the health outcomes of Medi-Cal enrollees and slow the growth of health care costs to providers, and ultimately, the system at large. Unfortunately, despite the obvious potential of the CCSP pilot, HPSM is reluctant to expand it. The reason for this reluctance reveals a major unintended consequence of the way managed care plans are currently paid.

Financial (Dis)incentives

While the California Department of Health Care Services (DHCS) considers multiple factors when it sets a Medi-Cal health plan’s rate for a given year, one of the most significant is the health plan’s costs in previous years. If a health plan invests in services outside of Medi-Cal’s required benefits, and those services successfully lower costs, the plan could essentially be penalized by receiving a lower rate in the future. In other words, DHCS has created a financial disincentive for health plans to make investments that could improve the health and well-being of Medi-Cal enrollees and reduce spending.

This financial disincentive has hampered HPSM and other plans in bringing innovative programs to scale or maintaining them over time. That’s not what’s best for Medi-Cal enrollees, and it’s not what’s best for California as the state strives to bend the health care cost curve in Medi-Cal.

Harnessing Payment as a Tool

As I highlighted during a recent presentation before the California Assembly Select Committee on Health Care Delivery Systems and Universal Coverage, large-scale improvements in quality and access across the entire Medi-Cal managed care system are hard to find. DHCS uses six quality metrics to assign enrollees to health plans if they don’t choose one themselves. There has been major, program-wide improvement over the past decade in only one metric: blood-glucose testing for diabetes care. Lack of improvement in the other five quality measures means too many low-income women aren’t getting timely prenatal care or screenings for cervical cancer; children are missing well-child visits or immunizations; and many people with high blood pressure aren’t being helped to control their condition.

The Medi-Cal Managed Care Performance Dashboard shows that quality varies widely among plans, as shown by managed care plans’ aggregate clinical quality scores. (See page 11 of the dashboard for a complete list by plan.) While some differences across counties are to be expected given local variation in health care resources and constraints, we should all be concerned about the wide range in scores. Moreover, large differences in quality scores between plans operating in the same county (such as in Contra Costa and San Diego) should not be acceptable.

There’s clearly room for improvement — and payment is one of the best tools at our disposal to drive improvements forward.

Modernizing the Rate-Setting Process

Over several months in 2017, the California Health Care Foundation brought together a group of leaders from several health plans participating in Medi-Cal, and two leading national health care consulting firms — Manatt Health and Optumas Healthcare. Their goal was to recommend a better way to set rates that would align with the state’s goals to improve health and quality, while reducing the long-term cost trend within Medi-Cal. Mari Cantwell, Medi-Cal’s chief deputy director of health care programs, was an advisor to the work group.

The work group studied options from other states and modeled various scenarios. An important parameter was that the final recommendations couldn’t require additional funding from the state. The recommendations were released today in Intended Consequences: Modernizing Medi-Cal Rate Setting to Improve Health and Manage Costs.

The core of the recommended approach is a rate adjustment, similar to one currently being implemented in Oregon. It would allow plans to share in some of the savings generated when investing in health-related services and interventions, such as meal services, sobering stations, home improvements, and investments in integrating physical and behavioral health. For the rate adjustment to kick in, a health plan would have to achieve savings above a defined threshold and hit quality targets, among other criteria. The methodology is described in further detail in the paper.

By allowing plans to keep some of the money saved, the rate adjustment is designed to help create a virtuous cycle: Plans are incentivized to keep investing in care improvements and health-related services that generate savings; Medi-Cal members get better service; and the state makes progress toward bending the program’s long-term cost curve.

Leveraging State Purchasing Power

Intended Consequences is part of a larger critical conversation around how California can better use payment as a tool to drive performance improvements and to create greater value in the Medi-Cal program. The rate adjustment proposed in Intended Consequences is one potential step forward, but there are a variety of other methods at the state’s disposal. These include setting clear expectations for performance improvement in managed care contracts and establishing a pay-for-performance program that puts plans at financial risk for not meeting performance targets.

The key to this approach is that we can more effectively leverage the power of DHCS as the largest purchaser of health care services in the state. While Medi-Cal has made huge strides in recent years, we can do better. Some say we get what we pay for. Let’s start paying health plans for the outcomes we want.