indepth

Volume 27, Issue 459

January 23, 2006

PAYING FOR PERFORMANCE IN MEDICAID: STATES ARE DEMANDING ACCOUNTABILITY

By Christina Kent

A growing number of states are using one of the oldest tricks in business to improve the health status of their Medicaid enrollees: pay people more if they do a better job.

Pioneered in the private sector by large purchasers who began insisting on value for their health-care dollars, the pay-for-performance (P4P) movement has spread to Medicare (where it’s being pilot-tested at ten sites) and Medicaid, where it’s been adopted through legislative or executive actions by more than a dozen states – including California, Iowa, Maine, Maryland, Massachusetts, Michigan, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, Texas, Vermont – and the District of Columbia.

No two P4P programs are alike. But in general, state Medicaid agencies require contracting health plans or physicians to collect standardized quality measures, such as the National Committee for Quality Assurance’s Health Plan Employer Data and Information Set (HEDIS). Those that can demonstrate that they’ve improved the quality of care by, for example, increasing the number of well-baby visits or doubling the percentage of enrollees with diabetes who control their blood sugar, get financial or non-financial rewards.

Why should states reward health plans and providers for providing good care when they’re already being paid? Too often, experts say, purchasers don’t know what kind of health care they’re buying. And there’s evidence that care in both the private and public sectors can be substandard. A RAND study in the June 2003 New England Journal of Medicine reported that, nationwide, adults receive 55 percent of the care that can prevent costly complications or even death. Fewer than half of diabetics had their blood sugar levels measured regularly; only 45 percent of heart attack patients got recommended medications; and patients with pneumonia received 68 percent of recommended care.

P4P can be the “carrot” in a “carrot and stick” approach that states can use to get providers and plans to focus on quality, said Nikki Highsmith, senior vice president at the Center for Health Care Strategies, one of the premier sources of information on Medicaid P4P, which gets funding from The Robert Wood Johnson Foundation, The Commonwealth Fund and other philanthropies. “But P4P is not a magic bullet.” Ideally, she said, it’s only one part of a comprehensive quality-improvement strategy that could also include public disclosure of performance results and adoption of health information technology.

When it comes to low-income populations, “quality” has historically been thought of as achieving access to health care, said Michael Bailit, president of Bailit Health Purchasing. That’s changing now, as states seek to spend their precious Medicaid dollars wisely. “This is an amazingly well-documented means for motivating health plans or direct-service providers to invest in quality improvement in targeted areas,” Bailit said.

Results Rewarded

States that are eyeing the programs want to know if they can produce savings. Tricia Leddy, director of RIte Care, Rhode Island’s Medicaid managed-care program, emphatically says “yes.” Rhode Island is a granddaddy in this field, having passed a law in 1996 that requires the collection of quality data for commercial and Medicare plans, as well as the three Medicaid managed-care plans in the state (which have 126,000 enrollees). Each year, the state publishes reports on the quality performance of all three types of plans, and it rewards the high-performing Medicaid plans by paying them bonuses out of money set aside in Leddy’s $300 million budget for Medicaid managed care.

“In 2005, we paid out $1.3 million, which was about 80 percent of what was available (for P4P bonuses),” Leddy said. “The percentage that they’ve earned has gone up each year, which shows improvement.”

The state sets the capitation rates for the plans based upon their experience and utilization; all receive enough to cover their costs, as well as a small profit margin. Those plans that reduce their costs by adopting higher-quality, more cost-efficient ways of delivering services have that efficiency reflected in their payment rates – which don’t need to grow as fast as they otherwise might. They also get the bonuses for improving care. “We see the savings within the year,” Leddy said.

Even though their capitation rates increase more slowly if they improve quality, the plans are “very on board with this,” Leddy said. “They use the quality reports as marketing tools, and they really are very proud of what they do.” In fact they do so well, that when US News & World Report published an article in November on exceptional health plans, the three Rhode Island Medicaid plans were listed among the top six Medicaid managed-care plans in the country. “Right now, Blue Cross and Blue Shield of Rhode Island has a billboard on Route 95 in Providence, quoting where they were in the US News & World Report. It says: Number 1 in the country. They have a billboard taking credit for that, and rightfully so.”

Some say much research remains to be done. “Estimating the return on investment of P4P is essential, but few projects nationally are conducting rigorous research on this topic,” says Rewarding Results, an $8.8 million national initiative to help private and public purchasers and health plans provide high-quality care. “There are still questions about who should benefit from cost savings, and over what time span the return on investment should be calculated.”

“Our belief is that, over time, a focus on quality and on better chronic care will save money,” Highsmith said. “It’s just not going to be in the legislative session that these programs are authorized.”

Medicaid is Different

Setting up P4P programs is a complex process, and especially so in Medicaid, where enrollees tend to cycle in and out more quickly than in the commercial sector, Bailit noted. “To do quality measurement, you need to have a fairly stable population. So that’s a challenge – it’s not insurmountable, but it’s a challenge.”

He added that another issue for Medicaid “obviously” is: from where do you get the money for the bonuses? “That’s often a problem, especially in the last few years, when so many states were operating at a deficit. It’s tougher than for a commercial health plan that is generating a profit and has an internal source of funding.”

Some state legislatures set aside money for rewards, although Bailit noted that he’s seen states scoop this money back up when they were running a deficit. Some have turned to incentives that aren’t direct payments, such as reducing the number of state audits or providing computers and training.

Quality report cards are very effective incentives, the P4P experts say, as good results can attract new members and bad ones can steer them away. Publicity in other forms works too. “Iowa has a large number of performance indicators that are applied to the state’s behavioral health carve-out contractor for Medicaid,” Bailit said. “At the end of each year, the executive director of the managed behavioral health firm has to stand up in a big public forum of advocates and providers and report on whether or not they met their targets for the year. The corporate entity also earns a large financial incentive. But the executive director a few years ago told me that having to stand up in front of a roomful of advocates and providers was a much more powerful incentive for her than all the dollars.”

One of the newest non-financial incentives is auto-assignment to the highest quality plans of individuals who have not chosen a Medicaid plan. This increases the plan’s number of enrollees, and plan executives say that auto-assignees tend to be less expensive than people who enroll because the auto-assignees don’t use many services. Auto-assignment has just been put into place in California and is being adopted in New Mexico. “When we worked in California, every single health plan CEO we talked to said, yes, this would be a meaningful incentive and would cause them to focus their efforts on improving their performance,” Bailit said. The technique not only rewards the highest-quality plans and providers for their efforts, but helps ensure that individuals get the best available care.

Launched in 1994, New York’s P4P program is highly effective because it uses all three incentives, Bailit said – financial payments to high-performing plans (which will total $45 million in 2005), public reporting of results and auto-assignment of enrollees. “My experience is that a multi-pronged approach makes for a much more effective strategy than if you pursue any one incentive on its own,” Bailit noted. “That way, any way the plans turn, there’s a business reason why they should improve their performance.” Bailit added that he recently worked with Texas officials to design a system similar to New York’s.

A 2005 report from the New York State Department of Health found “continuous improvement in Medicaid managed care over prior years.” For 18 of 19 selected measures, the state’s Medicaid managed-care plans met or exceeded the national benchmarks. Three of New York’s Medicaid managed-care plans were listed among the top nine plans in the country by US News & World Report.

Collaborating Plans

The largest collaborative, multi-plan Medicaid P4P effort in the nation is the Local Initiative Rewarding Results (LIRR) Collaborative, administered by the CHCS and funded by The Robert Wood Johnson Foundation and the California HealthCare Foundation. Under LIRR, seven low-income-focused health plans in California agreed in the fall of 2002 to collect and work to improve HEDIS scores for well-baby visits, well-adolescents visits and/or the completeness of encounter data submission. The plans use a variety of models for paying its providers, including fee-for-service, capitation and salaries.

An interim report (released in August 2005) by Mathematica identified both successes and problems. One of the plans that had previously targeted incentives to only a few high-volume providers expanded the incentives to a few more. One plan withdrew from the project, saying the evaluation data requirements were too burdensome, while another announced a major incentive aimed at improving quality, only to find itself mired in a major financial crisis that drove it to cancel the planned incentive distribution.

Plan physicians said the low socioeconomic status of their patients contributed to difficulties in getting babies in for timely visits: the parents were focused on economic survival. Getting adolescents in for well-visits also proved difficult, as few teens seemed motivated to come in.

Nevertheless, the plans documented improvements. Those that submitted HEDIS data beginning in 2002 had started below the national average for Medicaid plans in well-baby visits and well-adolescent visits. By 2004, the plans had moved closer to or exceeded the national averages.

In addition to giving providers financial incentives, some of the plans motivated patients by providing movie tickets and gift certificates. “The state’s decision to auto-assign members based on HEDIS scores does appear to be working to sustain plans’ interest in retaining incentives in general, giving them a business case for doing so,” wrote Suzanne Felt-Lisk, author of the report.

Hands-Off Control

One of the beauties of P4P is that it enables states to set their own goals and incentives, but leaves it up to the plans and providers to figure out how to get there, said RIte Care’s Tricia Leddy. “The plans get a lump sum, and they use that to promote program improvements.” For example, one of Rhode Island’s goals is a reduction in teen pregnancy. That is not a HEDIS measure, but it’s an important goal for the state, Leddy said.

This year, for the first time, the state is requiring health plans to provide incentives to their physicians to increase access for patients to after-hours urgent care. The thinking is that having more providers available outside of work hours will decrease ER use. “We’ve specified in our contract that we want the plans to do that, and we’ve added some money to fund it.”

The state also has added cost management to its list of goals. “We want to make sure that we’re the payer of last resort,” Leddy said. “So we’re requiring the plans to notify us within 15 days if they find out someone has another source of coverage.”

She emphasized, “A P4P program is where you’re paying for results. We’ve set what we want as the outcome for results. And we’ve said we’re going to pay you extra to achieve these results. How the health plan does that is up to them. That’s one of the values of a P4P program. It’s not a huge amount of money. It makes clear what the state’s priorities are. It gives the plans an incentive because they want to look good, they look at how they do in each of these measures against the average.” She paused a moment and added, “It’s really a partnership. We couldn’t do it without the health plans, and they couldn’t do it without their provider networks.”

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PAYING FOR PERFORMANCE IN MEDICAID: STATES ARE DEMANDING ACCOUNTABILITY

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