Brief Value-Based Care in State Medicaid Programs

Value-based care is a spectrum of health care delivery and payment models designed to realign financial incentives to improve patient outcomes and increase provider flexibility to provide high-value care, sometimes used interchangeably with the term alternative payment models (APMs). Given that more than one-quarter of total state expenditures go towards health care services provided through the Medicaid program, states may look to value-based care to improve care and control costs.  

In recent years, the majority of payments in traditional Medicare (84.1%) and Medicare Advantage plans (61.8%) have transitioned from fee-for-service (FFS) payments—where providers are paid separately for each service—to payments linked to quality and value. The same source shows that half of payments in the Medicaid programs are in FFS and not explicitly linked to quality or value.

The Medicaid program may provide unique opportunities for states looking to improve care through value-based care reforms for patients that aren’t reached through the Medicare program or through commercial insurance. While Medicaid payment methodologies are often established by the state Medicaid agency or Medicaid managed care organizations (MCOs), the state legislature plays an important role in funding, evaluating, and setting standards for the implementation of APMs within the state Medicaid program and in Medicaid managed care. This brief explores how states have implemented value-based care and APMs in the Medicaid program.

State Medicaid Value-Based Care Initiatives 

Accountable Care Organizations 

Several state Medicaid agencies contract with accountable care organizations (ACOs) and design APMs around these entities. ACOs are groups of clinicians, hospitals or other health care providers that come together voluntarily to deliver coordinated, person-centered, high-quality care to a population of patients. ACOs may be linked to one or more APMs and accountable for quality or cost-savings through upside risk, downside risk, or both. States have also implemented APMs targeted at specific types of care, sometimes layered within ACOs. 

States often use different terminology in referring to their Medicaid ACO initiatives, such as Regional Accountable Entities in Colorado, value care organizations in Idaho, or coordinated care organizations in Oregon, or Accountable Entities in Rhode Island.  

Some states with long-standing Medicaid accountable care organizations (ACOs) have seen positive results associated with these organizations. A study of Medicaid ACOs in four states found that three of the states—Maine, Vermont and Minnesota—reported savings associated with ACOs. Maine reported $5.4 million in savings, Vermont reported $14.6 million in savings, although the amount of savings decreased over time with one ACO generating savings at a significantly lower rate, and Minnesota reported $65 million in savings. 

Maternal and Child Health 

Medicaid is the single largest national payer of maternal and child health services, which may make it an important driver in implementing value-based care. In 2022, 41% of births were covered by the Medicaid program nationally and 39% of children were covered by the Medicaid program.  

As of 2020, at least 14 states have implemented pay-for-performance models for maternity care, 10 states implemented perinatal episode of care models, and four states implemented pregnancy medical homes. Additionally, at least three jurisdictions—the District of Columbia, Michigan and New Hampshire—have explored APMs for children’s oral health to reduce the incidence of cavities and increase preventive oral health care. 

Arkansas established a perinatal episode of care in 2012 for the duration of low-risk pregnancies through 60 days postpartum. Under the episode of care, all the providers that furnished care during the episode were held accountable for both upside and downside risk against a target cost threshold set by the state. State officials noted that the program met its goals of reducing variation in cost and improving quality and the program sunset in 2020.  

Colorado launched a maternity bundled payment in November 2020 to improve perinatal care service quality and maternal and newborn health outcomes. The program is also designed to specially address substance use disorder and mental health issues and incentivize screening, referral, and treatment to pregnant patients. Pennsylvania also introduced a maternity care bundle in January 2021. 

Long-Term Services and Supports 

Medicaid is the single largest payer of long-term services and supports (LTSS) nationwide, accounting for 54% of payments for LTSS. Care for LTSS accounts for a broad continuum of services, from home- and community-based services to care provided in facilities like nursing homes. Of Medicaid LTSS spending, 95% is for beneficiaries who are 65 years or older or who have a disability.  

The majority of APMs for LTSS are directed towards nursing facilities. As of November 2021, 20 states and D.C. paid nursing facilities using an APM, mostly through pay-for-performance models where facilities are eligible for payment incentives for achieving certain goals, like meeting quality measures. Virginia HB 1446 (2022) required the state agency to add minimum total nursing staffing hour metrics to the Virginia Medicaid Nursing Facility Value-Based Purchasing Program requirements for participating nursing facilities. 

Some states require facilities to assume more risk. For example, in Minnesota, nursing facility providers take on up to 20% of downside risk if they fail to achieve targets on state nursing facility performance measures. Measures and care improvement projects include fall reduction, wound prevention, exercise, improved continence, pain management, resident-centered care and culture change, and transitions to the community. A 2013 study of the Minnesota nursing facility program found that facilities participating in the project exhibited significantly greater gains than nonparticipating facilities in overall quality and maintained their quality advantage after project completion (although the authors noted that self-selection of participating providers may limit conclusions regarding the program’s impacts).  

Some states integrate more complex patients into their APMs for LTSS. Minnesota and Arizona focused on integrating dually eligible beneficiaries into nursing facility APMs. Several states are integrating individuals with intellectual or developmental disabilities or other complex needs into accountable care organizations (ACOs). For example, Massachusetts integrates physical health, behavioral health and LTSS into integrated ACOs. Individuals who are covered by home- and community-based services waivers are excluded from ACOs, but ACO performance is tied to quality and access of care for members with disabilities.  

Behavioral Health and Substance Use Disorders  

Medicaid pays for about one-quarter of all spending on behavioral health and substance use disorder treatment services. Medicaid beneficiaries report experiencing mental health conditions at higher rates than individuals with other forms of insurance. Also, Medicaid beneficiaries with a behavioral health diagnosis account for a disproportionate amount of Medicaid spending for their care.  

At least 11 states have APMs that include Medicaid behavioral health providers. Six states are participating in the CMS Innovation Center, Integrated Care for Kids model, which is designed to address the behavioral and physical health needs of children.  

Arizona, Massachusetts, Oregon, Pennsylvania, and Texas have implemented value-based payment targets for behavioral health in Medicaid managed care organization contracts, where managed care organizations are required to implement APMs in their provider payments. More recently, Washington House Bill 1515 (2023) required its managed care organizations to demonstrate commitment to integrating APMs in its pricing and payment structures with behavioral health providers in the procurement process.  

New York created a Behavioral Health Value Based Payment Readiness Program that created provider networks similar to accountable care organizations, responsible for integrated physical and behavioral health care. These provider networks could choose to participate in APMs with lower or higher levels of risk.  

Maryland HB 1148 established a behavioral health pilot program to implement an intensive care coordination model by financially incentivizing providers to meet specified outcomes measures. Maryland authorized a similar pilot program through House Bill 322 (2023) for home- and community-based services provided to children with behavioral health needs to incentivize case management services. 

The evidence on Medicaid APMs for behavioral health and substance use disorders is limited though some early studies exist. A 2023 JAMA article evaluating the effects of New York’s value-based payment initiatives found a statistically significant increase in the number of yearly behavioral health visits for patients with depression and bipolar disorder and a statistically significant reduction in the number of yearly mental health emergency department visits for patients with depression, bipolar disorder or schizophrenia.  

A separate 2020 literature review evaluated whether APMs were associated with changes in care delivery or outcomes for mental health or substance use disorders. The study found that APMs were associated with improvements in process-of-care outcomes, lower spending and utilization outcomes. The study also noted that clinical outcomes were rarely measured and some APMs may be susceptible to gaming or adverse selection. 

Community Health Centers 

Medicaid payment is the single largest source of revenue (41%) for community health centers which are safety net providers that offer integrated access to medical, dental, and behavioral health care to more than 30 million patients, regardless of their ability to pay. Community health centers often provide care in underserved communities, including rural communities. States have implemented APMs with community health centers to reduce the total cost of care, improve the predictability of payments and improve quality of care.  

For example, in Washington state, federally qualified health centers (FQHCs) receive a per member, per month fee for each assigned Medicaid beneficiary and additional payments to cover care management activities. Portions of the payments are adjusted based on health centers’ performance on five measures, which are changed each year. Maine recently passed legislation requiring the state Medicaid agency to provide an alternative payment method for FQHCs in accordance with federal requirements.  

The Idaho Healthy Connections Value Care program lets FQHCs and rural health centers participate in accountable care organizations and receive payment based on cost and quality of care improvements. The Community Health Center Network of Idaho is made up of 14FQHCs and is the second-largest accountable care organization in the state.  

In Iowa, the company IowaHealth+ is a network of 11 FQHCs that contract with the state’s Medicaid managed care organizations to advance value-based care and payment. The network is held accountable for health care quality measures and can earn pay-for-performance bonuses and/or shared savings for reducing the total cost of care.