Payer, provider trends to watch in 2019

Ripple effects from 2018 will continue well into the new year as players deal with some massive policy and business shifts.



Enabling Sustainable Investment in Social Interventions: A Review of Medicaid Managed Care Rate-Setting Tools


  • Issue: It is widely recognized that social factors, such as unstable housing and lack of healthy food, have a substantial impact on health outcomes and spending, particularly with respect to lower-income populations. For Medicaid, now dominated by managed care, this raises the question of how states can establish managed care rates to sustain investments in social supports.
  • Goal: To explore practical strategies that states can deploy to support Medicaid managed care plans and their network providers in addressing social issues.
  • Methods: Literature review, interviews with stakeholders, and analysis of federal regulations.
  • Findings and Conclusions: We identify the following options: 1) classify certain social services as covered benefits under the state’s Medicaid plan; 2) explore the additional flexibility afforded states through Section 1115 waivers; 3) use value-based payments to support provider investment in social interventions; 4) use incentives and withholds to encourage plan investment in social interventions; 5) integrate efforts to address social issues into quality improvement activities; and 6) reward plans through higher rates for effective investments in social interventions. More needs to be done, however, to assist interested states in using these options and identifying pathways to braid Medicaid dollars with other social services funding.


Exhibit 1

State Options and Considerations

1. Classify certain social services as covered benefits under the state’s Medicaid plan

2. Explore the additional flexibility afforded states through Section 1115 waivers

3. Use value-based payment to support investment in social interventions

4. Use incentives and withholds to encourage plan investment in social interventions

5. Integrate efforts to address social issues into quality improvement activities

6. Reward plans with effective investments in social interventions with higher rates

It is now widely recognized that social factors, such as unstable housing, lack of healthy food, unsafe neighborhoods, and unemployment, have a substantial impact on health care outcomes and spending, particularly with respect to lower-income populations.1 Moreover, there is an emerging body of research on which interventions are most likely to result in better outcomes and reductions in spending.2 As the nation’s largest payer for health care services for low-income populations, many of whom have substantial social service needs, Medicaid is front and center when it comes to these issues. State Medicaid agencies are increasingly focusing on how the program can cover and reimburse for nonclinical interventions, particularly in managed care, now the dominant service delivery model in Medicaid.

This report identifies practical strategies that states can deploy to support Medicaid managed care plans and their network providers in addressing social issues. Based on a literature review and on interviews with state officials, health plan leaders, actuarial experts, and other stakeholders, we identify options for states to consider if they are interested in incorporating the cost of social interventions into Medicaid managed care rates (Exhibit 1). While the strategies do not represent a comprehensive solution to the issue of Medicaid’s role in addressing social issues, they are an essential building block.


States face several questions about what role they want Medicaid to play in addressing social issues that directly affect the health of Medicaid beneficiaries and the cost of serving them. Do they want to move their Medicaid programs beyond paying for medical services to tackling affordable housing, economic insecurity, unsafe neighborhoods, and access to adequate and healthy food? In some states, the priority is finding more effective ways to deliver traditional medical care. Other states, particularly those that have implemented an expansion of coverage to low-income adults or are adopting a population health approach to their Medicaid programs, look to their managed care plans and providers to address such issues (Exhibit 2). In all cases, states must evaluate the extent to which federal Medicaid rules permit coverage and payment for discrete nonclinical services.

Exhibit 2

Medicaid Expansion: Implications for the Importance of Addressing Social Determinants of Health

In the states that expanded their Medicaid programs to all adults with incomes below 138 percent of the federal poverty level (31, plus the District of Columbia), newly eligible adults often have extensive social needs. According to research from the Medicaid and Children’s Health Insurance Program Payment and Access Commission, 70 percent are below the federal poverty level, but, even so, only about half receive benefits from the Supplemental Nutrition Assistance Program.a In our interviews with Medicaid directors in expansion states, they reported that gaining these new enrollees has reinforced the importance of Medicaid addressing social issues: first, because of the relatively high prevalence of mental illness and substance abuse among the population,b and second, because of Medicaid’s increasingly important role in the coverage and care of low-income families. Finally, interviewees noted that, as Medicaid coverage became more stable and states and managed care plans began to implement value-based payment policies, plans and providers were better positioned to address the social needs of their enrollees and patients.

Rate-Setting Tools in Context

A Medicaid managed care financing and payment strategy is an essential element, but far from the only required element, of any approach to use Medicaid as a vehicle for addressing social determinants of health. During our interviews, we consistently heard that while there is strong interest in innovative rate-setting options, states have many other challenges they need to tackle for Medicaid to play a role in addressing social issues. These other challenges include the need for more staff with different skills, such as social service experience or actuarial proficiency; a data infrastructure to identify and address social factors; and sufficient time and resources for plans and providers to prepare to address social issues (see Appendix D). While these are important issues, they are not the focus of this report, which addresses options available to states for creating a payment and managed care contracting strategy that supports investments in social interventions.

Medicaid Managed Care Rate-Setting: Rules, Policies, and Procedures

The question at the center of this analysis is how states can support plan investment in social services that improve health outcomes and are cost-effective. In states with Medicaid managed care, this translates into a question of how to set Medicaid managed care capitation rates in such a way that plans are incentivized or required — and, even more importantly, have the resources — to address social issues that directly affect the health outcomes of their members.

The starting point for answering this question is the federal Medicaid managed care rules that require states to ensure that capitation rates are actuarially sound. This means that rates must be sufficient to cover the costs that plans incur to provide covered benefits to their enrollees, as well as related administrative and operational expenses. Notably, capitation rates must be based only on services covered under the state plan and services necessary to achieve mental health parity requirements.3 In other words, states cannot directly build the cost of social support services not covered under the state plan into their capitation rates (Exhibit 3).4


Moody’s: Aggressive insurer growth strategies threaten nonprofit hospitals

Dive Brief:

  • Disruptive growth strategies among health insurers threaten the future margins and volumes of nonprofit hospitals, a new Moody’s Investor Services report maintains.
  • Vertical integrations — such as the proposed CVS Health-Aetna merger and UnitedHealth/Optum-DaVita deal — put insurers “in direct competition” with hospitals for outpatient volume and revenue and could allow payers to carve out hospitals or specific services from their contracts, according to the report.
  • Moody’s warns that the embrace of value-based payment models by insurers is also a threat, as it shifts patients from high-cost inpatient care to cheaper outpatient settings.

Dive Insight:

Hospitals are already feeling the squeeze from cuts in Medicare reimbursements, which are driving patients with less serious ailments to urgent care and other outpatient treatment facilities. Depressed patient admissions and payments have providers searching for cost savings. The result has been a near constant stream of divestitures, mergers and layoffs that shows no signs of abating. At the same time, hospitals have been acquiring physician practice and outpatient care sites to diversify their revenue streams as demand shifts.

Those efforts could be undermined as insurers move into the provider space by buying up professional practices, for example.

“As the insurer owns more non-acute healthcare providers — particularly physician groups — it would be better able to carve out hospitals or certain services from its contracts, which would translate into lower volume and revenue for hospitals,” the report said.

Vertically integrated private payers will cut into hospital revenues by offering similar outpatient and post-acute care to members at lower costs than hospitals can afford, Moody’s says. With enough integration, they could siphon more patients and revenue from struggling hospitals.

Optum’s physician acquisitions and similar deals will also cut into hospitals’ referral volumes. “The acquisition of relatively large physician groups is noteworthy because these providers are the key decision makers in determining what type of treatment the patient will receive and where the care is provided,” the report said.

Increasing scale fueled by more Medicare and Medicaid managed care members, coupled with market concentration, will also give insurers the edge in price negotiations, according to the report. Meanwhile, reduced government payments will make hospitals more dependent on private insurance to cover their costs.

“Insurers flexing their negotiating power by offering lower rate increases will likely result in more standoffs and terminations of contracts between insurers and hospitals,” Diana Lee, a vice president at Moody’s, said in the report. “To gain leverage, we expect hospitals to continue M&A and consolidation.”


Medicaid enrollment flat in 2017, but managed care keeps gaining steam

Image result for Medicaid

For the first time in four years, overall enrollment in Medicaid did not grow significantly in 2017—though managed care continues to become more prevalent.

PwC’s annual report (PDF) on the state of the program—released this week to coincide with the Medicaid Health Plans of America conference—found that total enrollment in 2017 was 74.8 million. That’s just 98,000 above the enrollment total in 2016.

The reasons for that flattening growth include the fact that no new states expanded Medicaid this year, a strengthening economy, and some states’ moves to “aggressively redetermine eligibility status.”

By comparison, total enrollment was 72.9 million in 2015, 66.6 million in 2014 and 57.1 million in 2013. Thanks to that steady growth over the past five years, 23.2% of the U.S. population is now enrolled in Medicaid.

On the state level, enrollment changes in 2017 were more varied than in years past, the report notes. Twenty-two states reported declines, while 28 states and the District of Columbia saw increases—including a 23% rise in Alaska and a 20% rise in Montana tied to the states’ decision to expand Medicaid.

Looking at the last five years, divergent enrollment trends in Nevada and Maine offer a prime example of how powerful an effect state decision-making can have on Medicaid programs.

Nevada, whose leaders embraced the Affordable Care Act, has seen its program grow by 105% since 2013. But Maine has seen its Medicaid enrollment decline by 18% since 2013. The primary reason? Maine’s anti-ACA governor Paul LePage, who has vetoed the state legislature’s attempt to expand Medicaid five times.

Policy decisions at the national level can also have a big impact on Medicaid enrollment, the PwC report’s author, Ari Gottlieb, said during the MHPA conference. For example, the Trump administration’s ACA outreach cuts and conflicting information about whether the individual mandate will be enforced will affect more than just the individual insurance market.

Gottlieb predicted that total Medicaid enrollment might be lower next year because of those factors.

Meanwhile, the number of enrollees in private managed care plans continued its steady rise.

In 2017, 73% of Medicaid beneficiaries were in managed care plans, an increase of 1.9% year over year, or an additional 1 million Americans. In addition, 12 states now have at least 90% of their Medicaid populations covered by private plans, compared to just nine last year and four in 2013.

Over the past five years, an additional 20.9 million people were served by a managed care plan, while 3.1 million fewer were served by Medicaid fee-for-service.

But while the past year was mostly a stable one for Medicaid managed care, “the future is going to be more complicated,” Gottlieb said.

One reason is that all the talk about changing Medicaid, while not likely to result in major coverage reductions, will likely result in changes to how it’s paid for, which could prove challenging for health plans.

Further, the trend of consolidation in the managed care industry shows no signs of abating.

That means, according to Gottlieb, that “you’re going to need more scale to participate in the Medicaid of the future.”

Patients, Health Insurers Challenge Iowa’s Effort To Privatize Medicaid

Iowa is one of 38 states that radically changed the way it runs Medicaid over the past few years. The state moved about 600,000 people on the government-run health program into care that is managed by for-profit insurance companies.

The idea is that the private companies would save the state money, but it has been a rocky transition in Iowa, especially for people like Neal Siegel.

Siegel is one of six disabled Iowans suing the state, alleging that Medicaid managed care, as it is known, deprives thousands of Iowans with disabilities the right to live safely in their homes.

Medicaid serves people with disabilities, low-income people and people in nursing homes. A combination of federal and state funds pays for the program. It covers 74 million people across the country these days, about half of whom are in Medicaid managed care.

Siegel, a former financial consultant, was in a hit-and-run bicycle crash four years ago that left him with a severe brain injury. He uses a wheelchair and can barely speak.

“I would probably put Neal at about 98 percent cognitive of what’s going on around him, but unfortunately not able to articulate it,” says Siegel’s girlfriend, Beth Wargo. “So it’s being trapped inside your own body.”

After the accident, Siegel qualified for Medicaid. He lived in a rehabilitation center for a while, and the lawsuit, filed in U.S. district court in June, says he was the victim of abuse and neglect while living there.

Eventually, he moved home with Wargo, where he is reliant on caregivers to assist him with all activities of daily life.

Then last year, Wargo says, they got a letter in the mail from AmeriHealth Caritas, the company that manages his care. Siegel’s budget for home help had been slashed by 50 percent, Wargo says. Siegel’s face lights up as Wargo talks about the lawsuit, and he manages to say, “Oh yeah,” when she mentions how happy they were that they could be part of it.

Cyndy Miller is the legal director with Disability Rights Iowa, the advocacy group that spearheaded the lawsuit.

“The system is too stressed right now with the way it’s being managed, and it’s not healthy for individuals with chronic or serious disabilities,” says Miller.

According to the lawsuit, the company claimed that spending on Siegel’s case was cut because it had exceeded a limit set in state policy. A spokesman for AmeriHealth Caritas said the company could not comment on ongoing litigation. The state has asked for the lawsuit to be dropped.

In addition to the suit, complaints about Medicaid from hospitals, doctors and patients have spiked in Iowa.

Iowa Department of Human Services Director Jerry Foxhoven defends moving the entire Medicaid population to managed care. He says more taxpayer dollars will be saved under private management.

But he says his agency is willing to make changes, especially for people like Neal, who have serious disabilities.

“Everything’s always on the table. We’re always looking at everything to say how do we best serve the people we’re trying to serve and be the best stewards of taxpayer dollars,” Foxhoven says.

For their part, the three companies with contracts in Iowa say in statements that the first 18 months have been successful. But they also have said to state officials that reimbursement rates were based on deeply flawed cost estimates provided to them before the project began.

They are now negotiating to get millions of dollars more in state funding.

So where is the savings? So far, no state has actually done a comprehensive review of whether private companies actually save Medicaid dollars, says Kelly Whitener, an associate professor with Georgetown University who studies managed care.

“You’d really need to be able to see are you saving money overall or not, and if you are spending less money, are you suppressing services that are needed? Or are you really finding efficiencies and only delivering care that families really need?” says Whitener.

For the moment, those questions don’t have definitive answers.

Meanwhile, Iowa has to balance its books. Republican Gov. Kim Reynolds had to tap more than $260 million of the state’s reserve fund this year, and officials expect next year’s budget will be even tougher to negotiate. Medicaid funding will likely be a large part of the discussion.

Dynamics of Decline: The Truth About HMOs

California Commercial HMO Enrollment, Kaiser Foundation Health Plan ("Kaiser") vs. Non-Kaiser, 2004-2015

California’s commercial health maintenance organization population shrank from 11.9 million to 9.8 million enrollees between 2004 and 2015 (see figure below), a 17.5% decline. But the decline has not been consistent across all HMOs — Kaiser’s commercial enrollment has actually grown during this period.

Two new publications from CHCF take a closer look at how commercial managed care enrollment (including individual enrollment) and the public sector’s embrace of managed care are shifting the way physician organizations are paid — important trends that could affect California’s delivery system.

The first report, As Commercial Capitation Sinks, Can California’s Physician Organizations Stay Afloat?, by Laura Tollen uses quantitative data and findings from stakeholder interviews to shed light on the extent to which commercial capitation is losing ground in California.

A companion set of charts and graphics compiled by Katherine Wilson provides additional detail on health plan enrollment and changes in HMO participation over the past decade.

It is important to look separately at Kaiser and non-Kaiser enrollment. Kaiser is characterized by a mutually exclusive relationship between the health plan (Kaiser Foundation Health Plan) and its two associated Permanente Medical Groups in Northern and Southern California. While Kaiser is by far the largest HMO in California, the health plan offers capitated contracts only to these two medical groups.

Kaiser HMO enrollment increased from 5.6 million to 6.1 million in the last decade, while commercial HMO enrollment for all non-Kaiser plans plummeted, from 6.3 million in 2004 to the current 3.6 million — a loss of more than 40%.

Uncertain Future

The impact of these trends on the state’s non-Permanente physician organizations is uncertain. While declining commercial capitation has not yet had a big effect on their operations, medical group leaders suspect it will soon, according to interviews. The change in commercial payment methods has been slow enough that their organizations have been able to adapt, repurposing some of their HMO-based infrastructure (utilization management tools, for example) for value-oriented payment programs that are FFS-based, such as private accountable care organizations (ACOs).

Among the other findings from the interviews were:

  • Declining capitation and rising fee-for-service will not influence individual physicians’ clinical decisions. All interviewees noted that their organizations’ strong culture of providing high-value care would prevent them from fundamentally changing the way they practice, regardless of payment type.
  • Despite commercial trends, capitation from Medicare Advantage and Medi-Cal managed care plans is on the rise. However, neither of these types of capitation is seen as a substitute for commercial capitation in terms of supporting infrastructure. While the perception is that Medicare Advantage capitation rates are generous, there is also recognition that these patients are costly. Interviewees said Medi-Cal capitation rates are inadequate.
  • Along with the decline in commercial capitation, interviewees expressed alarm at the large increases they observed in patient cost-sharing requirements. All said they fear that patients will not obtain the care recommended by their providers because of high out-of-pocket costs, and some said they already see this happen frequently.

Why This Matters

As more employers shift coverage from HMOs to preferred provider organizations (PPOs) and other non-capitated plans to achieve lower premium rates, they are sacrificing quality and financial protection for employees in exchange for short-term premium savings.

A recent CHCF blog post by Jeff Rideout of the Integrated Healthcare Association highlights the patterns of higher quality / lower cost that distinguish HMO plans in the state (compared to PPOs and other plan types). Large multispecialty physician organizations, which have flourished in California, have a long history and significant expertise in managing risk and coordinating care. These are the very skills that health care purchasers demand from value-based payment programs. Without sufficient infrastructure — which is supported by capitation/prepayment — the foundation of high-value care could crumble.

Given these trends, are employers being penny-wise but pound-foolish in pursuing short-term savings at the expense of longer-term value?


Florida Medicaid managed care demonstration gets 5-year extension

Dive Brief:

  • CMS approved a five-year extension of Florida’s section 1115 demonstration of a capitated Medicaid managed care program and low-income pool to support uncompensated care.
  • The uncompensated care pool will receive about $1.5 billion annually, based on the most current data on hospitals’ charity care costs, according to an Aug. 3 letter from CMS Administrator Seema Verma to Justin Senior, secretary of the Florida Agency for Health Care Administration.
  • The Managed Medical Assistance (MMA) demonstration, which now runs until June 2022, is the first to include simplified reporting requirements. CMS said it will monitor progress toward state-selected benchmarks and partner with the state to develop a meaningful program evaluation.

Dive Insight:

The modifications are in line with President Donald Trump’s administration’s pledge to reduce what it sees as burdensome or duplicative state reporting activities and with the CMS’ commitment to partner with states to improve their Medicaid programs.

In a March 14 letter, HHS Secretary Tom Price and Verma reminded states they can apply for waivers that would allow for significant changes to their Medicaid programs. States must show their waiver promotes the objectives of the Medicaid program, but HHS has broad authority for approval and Price has indicated he intends to broaden their use.

The CMS had been winding down funding for the Florida program under President Barack Obama’s administration. Officials at the time said the state should expand Medicaid under the Affordable Care Act to help with uncompensated care costs. They gave Florida $600 million for the final year of the program, far less than the about $2 billion requested.

The amount of funding now being provided offers a pretty clear indication the CMS under Trump thinks Florida is on the right track without expansion.

More than 30 states currently have waivers. Alabama received CMS approval in February for a section 1115 demonstration waiver to shift a majority of its Medicaid beneficiaries into regional care organizations, akin to accountable care organizations. While there are other states using this strategy, Alabama is unique in that it’s being administered by provider-run nonprofit organizations rather than a major insurer.

Patient advocacy groups have voiced alarm at potential steep cuts to Medicaid. Trump’s proposed $4.1 trillion budget would slash $610 billion from Medicaid plus 20% of funding for the Children’s Health Insurance Program. Robert Greenstein, president of the Center on Budget and Policy Priorities, said Trump’s budget would increase the number of uninsured and narrow Medicaid benefits and eligibility. This would lead to higher uncompensated care costs for hospitals.