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    CMS hopes to change payment for dual eligibles

    Federal and state governments may soon be looking to the managed care industry for a comprehensive solution that delivers higher quality, more efficient care to our nation's dual eligibles.

    We have all heard the statistics. Dual eligibles represent a relatively small part of the beneficiary population in Medicaid and Medicare, but lead to a disproportionate share of the costs. Indeed some programs, including several PACE programs and Medicare Advantage Special Needs Plans, have demonstrated that coordinating care and payment for these individuals can lead to lower costs and expanded access to necessary services.

    Nevertheless, dual eligible reform has struggled historically not only because of the extremely complex needs of the population, but also because of the financial incentives and misalignment created by the dual eligible payment structure.

    To date, the two public programs have had competing, rather than complimentary, incentives. Medicare currently pays for hospital and physician care, as well as some skilled nursing and rehabilitation services for certain individuals. On the other hand, Medicaid is generally responsible for nursing home care, home health and personal care services. In addition, Medicaid helps subsidize Medicare premiums and cost sharing.

    Not surprisingly, the burden of complex patient care is constantly being shifted from one program to another—Medicare has an incentive to move people into long term care, while Medicaid has little incentive to avoid hospital readmissions. Further, neither program has seen a path forward to equally sharing in the savings created by investments in better care processes and administrative simplification. In particular, states have often been reticent to invest upfront money in dual eligible coordination, when some of the biggest savings—often achieved by keeping patients out of the hospital—accrue primarily to Medicare and the federal government. Likewise, the federal government has been hesitant to let states keep the share of Medicare savings that may be achieved through increased coordination efforts.

    While several states have recently embarked upon care redesign processes for dual eligibles, what is perhaps more interesting is the desire to finally address the misaligned financial structure under the program. More specifically, 37 states and the District of Columbia recently indicated their interest in participating in a Centers for Medicare and Medicaid Services (CMS) demonstration that would not only fundamentally change the payment structure for dual eligibles, but would also set forth new potential savings incentives to drive investments in care coordination and delivery reform. Specifically, CMS is pursuing new financial arrangements with states under two models:

    • Capitated model, under which CMS and a state would collectively contract with a health plan who would receive a single, prospective blended payment for care delivered to dual eligibles. The rate would provide upfront savings to both Medicare and Medicaid. If savings are not achieved for both payers, the demonstration will not continue. Some have expressed concern about this type of approach in the past because of general apprehension regarding using managed care to deliver care to vulnerable populations. In addition, contract negotiations between states, CMS and private entities are inherently challenging, leaving questions about the time necessary to get this model up and running. CMS hopes to begin to negotiate contracts this fall. Given the differences in the programs and the complexities of the underlying contracts, one issue that will need to be resolved would involve the legal contractual relationship between the parties, and particularly the status of the private entity involved. Moreover, given the networks of medical and supportive services providers, one single three-way contract may not suffice—the type of service may necessarily drive the type of contract, thereby further complicating the exercise. A single contract between the three parties may be legally untenable, and, at a minimum, there are likely a number of issues that must be considered to ensure that such an agreement is both legally binding and palpable to all concerned.
    • Managed Fee-for-Service, through which the state would have the opportunity to share in Medicare, not just Medicaid, savings resulting from investments in quality and delivery reform. Specifically, while providers would continue to be reimbursed on a fee-for-service basis, the state would undertake the responsibility of coordinating care between the two programs. In exchange, a state would be eligible for a retrospective performance payment if a specific level of Medicare savings, relative to potential increased Medicaid costs, is achieved. This model allows participants to pursue reform without going "at risk," which some may say provides an appealing interim step. Others will argue it is not enough to truly transform care. While this financial alignment model presents an appealing compromise between the competing State and Federal interests, ensuring consistency across state initiatives and protecting beneficiaries may create some interesting legal challenges in the execution of some sort of binding agreement between the parties.

    Over the past months, 29 states have expressed interest in pursuing the capitated model, with 23 expressing desire to explore managed fee-for-service. Some states have shown interest in both approaches. CMS indicates that it hopes to get many of these demonstrations up and running in 2012 for testing over a three year period.

    This column is provided for informational purposes only and should not be construed as legal advice.

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