New Medicaid Waiver Plan Would Shift From Cost to Value in Payment, Care Delivery

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By Laura Mahoney

April 16 — California's newly submitted Medicaid waiver application asks the federal government for $17 billion and permission to launch initiatives to overhaul payments and care delivery for the state's uninsured population.

If the Centers for Medicare & Medicaid Services approves the state's application, submitted March 27, California would become the first state to use financial incentives to boost preventive care for Medicaid enrollees and the uninsured as a way to cut acute and emergency care costs. It also would make California the first state to include housing assistance and other social services in its plans to improve care and outcomes for homeless people.

The Section 1115 waiver would replace a $10 billion, five-year waiver that expires at the end of October. It would continue some programs in the expiring waiver that helped the state's transition in implementing the Affordable Care Act and launch of the state's benefits exchange, Covered California. At the same time, it would launch new programs.

“We view this waiver renewal as the second half of our current waiver,” Mari Cantwell, chief deputy director of health care programs at the Department of Health Care Services, told Bloomberg BNA April 15.

More Medicaid Members, Fewer Uninsured

Since the current waiver took effect in 2010, the state's Medicaid and uninsured populations have changed significantly, Cantwell said. The uninsured population has dropped from 15 percent of the state's overall population to 7 percent, or about 2.5 million to 3 million people, through the state's expansion of Medicaid and enrollment throught Covered California.

Nearly 3 million people have enrolled in Medi-Cal, the state's Medicaid program, since the expansion. Enrollment in Medi-Cal Managed Care, which is part of the state's current waiver, has increased from 55 percent of Medicaid enrollees to 80 percent of enrollees.

Cantwell said DHCS is seeing a flattening of the trend in new Medi-Cal enrollees, which may mean the state has reached a large majority of those eligible. The remaining uninsured population is harder to reach, and many of them aren't eligible for Medi-Cal or Covered California due to their immigration status, she said.

Through the waiver the state is continuing to shift focus away from payments based on cost and volume of care provided, and toward incentives based on quality of care and outcomes for both the Medicaid and uninsured populations, Cantwell said.

Bonuses to Providers

The state would pay bonuses to providers not currently serving Medi-Cal patients to attract them to the program, and pay bonuses to existing providers if they accept more patients to increase provider participation and meet demand, according to the DHCS summary of the plan.

Gov. Jerry Brown (D) is not proposing to restore cuts to reimbursement rates to Medi-Cal providers made in recent years, but the incentive payments in the waiver provide a more targeted pay increase for the providers, Cantwell said.

“We're giving incentives rather than paying everyone more to keep doing the same things they're doing today,” Cantwell said.

The waiver also offers shared savings and pay-for-performance programs to managed care organizations that improve outcomes, for example by increasing access to dental care or patient satisfaction. It also calls for health plans to integrate behavioral health and physical health services to reduce costs and improve care.

The California Association of Health Plans is reviewing the proposals that affect its members, President and Chief Executive Officer Charles Bacchi told Bloomberg BNA in a prepared statement.

“California's waiver is an ambitious proposal to change the way our Medi-Cal program operates and we are committed to working with DHCS on improving Medi-Cal especially increasing federal funding,” he said. “With all such proposals the details matter and we are reviewing them.”

Housing Services Included

A new housing and supportive services program would target about 60,000 Medi-Cal enrollees who are homeless, use emergency rooms and hospitals often, have at least two chronic conditions, or have mental health or substance abuse disorders. Under the program, counties, community organizations and health plans could get Medicaid reimbursement for care management services that include housing assistance, Cantwell said.

Although some states have Medicaid programs that address support services, California's program would differ because it would allow plans to keep more money if they improve cost and outcomes through housing support, she said.

The waiver includes a new option for counties or regions to create Whole-Person Care Pilots to target high-need Medi-Cal enrollees. The pilots would include managed care plans, county behavioral health systems, hospitals, providers, social services agencies, housing providers, criminal justice and probation officials and other community-based organizations. The pilot programs would be eligible for incentive payments if they show improved outcomes, enrollment in social services and housing. DHCS would evaluate their impact on total cost of care and sustainability beyond the waiver.

Safety Net Overhaul

The waiver would extend the concept of more coordinated care, prevention and integration between physical and behavioral health to uninsured people who will continue to rely on the state's safety-net hospitals and providers, Cantwell said.

To better fund the health-care safety net, the waiver would pool together now-separate money allocated to disproportionate share hospitals and the safety-net care pool for uncompensated care provided at clinics and other facilities. The overhaul of the funding structure would unify the approaches of the Medicaid program and care for the uninsured, with a shift away from cost and toward value, Cantwell said.

Public hospitals and safety-net providers would have more flexibility in spending the money they get under the proposed global payment system, Erica Murray, president of the California Association of Public Hospitals, told Bloomberg BNA April 15. The waiver would allow the providers to increase payments for primary and outpatient care, for example.

The current system is “agnostic about how we provide services,” Murray said. “California is the first state to propose such an evolution of these federal funds focused on value over cost.”

Budget Neutrality

Cantwell said the waiver proposal meets CMS's requirement that it be budget-neutral, meaning it wouldn't cost more to provide care than if the waiver were not in place. The DHCS proposal would go beyond neutrality and save the federal government several billion dollars a year. California is asking CMS to share those savings and allow the state to reinvest the money into the Medicaid and safety-net systems, she said.

CMS has notified the department that its application is complete, and is launching a 30-day public comment period, Cantwell said. The CMS may require the state to modify its plan, but Cantwell said state officials believe the waiver's innovative programs are in line with CMS's priorities.

The DHCS expects the new waiver to be in place by Nov. 1, when the current waiver expires, she said.

In the meantime, two bills have been introduced in the Legislature to make changes in state law necessary under the waiver proposal. Those bills, A.B. 72 by Assemblyman Rob Bonta (D) and S.B. 26 by Sen. Ed Hernandez (D), are pending in the appropriations committees of their respective houses.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at

To contact the editor responsible for this story: Nancy Simmons at