Using Value-Based Purchasing to Incentivize MCO Quality
States also incentivize MCOs to achieve quality standards through value-based purchasing. There are two main methods that states can use to implement value-based purchasing with Medicaid MCOs:
- Capitation withholds and incentive payments
- Value-based payment targets
Capitation withholds and incentive payments are when the state withholds a percentage of the capitation payment made to MCOs and only distributes it to the MCO if certain quality or performance measures are met. In some cases, if MCOs fail to meet performance measures, the withheld funds may be combined into an incentive pool and distributed to MCOs that do meet the performance requirements. Capitation withholds may be tied to the MCOs performance on the quality measures included in the state’s quality review processes.
Value-based payment targets require MCOs to hold providers accountable for quality and costs through the methods they use to pay providers. MCOs predominately pay providers through fee-for-service (FFS) payments, where the provider bills and is paid for each individual service performed, regardless of the quality of care or patient outcomes. Some state Medicaid programs have started requiring MCOs to increasingly pay providers using value-based payments or alternative payment models (APMs) based on the provider’s achievement of quality goals.
These value-based payment targets may require MCOs to increase use of specific payment models or increase the percentage of APMs used to pay providers. States that require MCOs to adopt specific models often use the APM Framework developed by the Health Care Payment Learning and Action Network, which classifies APMs based on the connection between payment and quality of care and the level of financial risk assumed by providers.
For example, New Hampshire withholds 2% of the MCO’s capitation payments in accordance with the state’s Withhold and Incentive Guidance. The state requires MCOs to meet a minimum performance standard for measures. Upon satisfying the minimum performance standards in three priority performance categories—quality improvement, care management, and behavioral health—MCOs are eligible to earn back withheld capitation payments. If one or more MCO fails to earn back its full withhold, those unearned dollars are used to finance an incentive pool that is available for additional incentive payment performance bonuses to be made to high-performing MCOs.
New Hampshire also has a comprehensive and detailed Medicaid APM Strategy Guidance document that requires that 50% of provider payments take place in qualifying APMs based on the APM Framework, and requires MCOs to adopt capitated payment arrangements with community mental health centers.
Mississippi implemented a 1% capitation withhold as part of the state’s quality strategy based on established quality metrics reported by the MCOs.
Hawaii included value-based payment targets in the state’s most recent MCO procurement in 2021. The procurement included a value-driven healthcare schedule with targets for adoption of specific payment models in the APM Framework that increase in link to quality and provider risk year over year. Hawaii has also reported to CMS that it has been working with the University of Hawaii to develop report templates to collect information and evaluate its value-based purchasing strategy.
In Kansas’s 2021 Quality Management Strategy, a value-based payment target was added to increase the number of providers contracted with MCOs who quality for value-based payments by 2% year over year.
Nebraska defines value-based contracts in the state’s quality strategy as payment and contractual arrangements between the MCOs and providers that include accountability for improvements in health outcomes, care quality or cost efficiency; and payment methodologies that align providers’ financial and contractual incentives with the MCOs. The quality strategy also requires MCOs to enter into an increasing portion of value-based contracts with providers over the five-year contract period, with at least 50% of its providers participating by year five of the contract.
States can integrate value-based purchasing throughout the life cycle of the MCO procurement, contracting or quality review processes to ensure that the state has ongoing insight into how the MCO is performing on key quality measures and contractual deliverables during the life of the contract.