3M Commentary

Texas Transformation: A New Approach to Payment and Delivery of Medicaid Services

September 9th, 2013 / By Norbert Goldfield, MD, Richard Fuller, MS

Texas is implementing a new approach to the payment and delivery of Medicaid services, referred to as the Texas Healthcare Transformation and Quality Improvement Program. Through a Medicaid 1115 Waiver, the state has been granted the ability to expand their managed care program and still draw down FFP funds for Supplemental Payments. Further, they will do so while simultaneously providing incentives for quality improvements and shifting focus from providing minimum standards of care to achieving positive outcomes from care. This managed care expansion includes approximately 940,000 Medicaid enrollees in 164 rural counties [1]. The prior method of Supplemental Payments to these counties was discontinued and replaced by a new method funded through savings from the managed care expansion. Supplemental Payments will instead be distributed through two vehicles, the Uncompensated Care (UC) Pool and the Delivery System Incentive Reform Payment (DSRIP) Pool.

The UC Pool operates similarly to the current Medicaid Disproportionate Share (DSH) method, with hospitals receiving payments relative to their uncompensated care costs and Medicaid margins. By contrast the DSRIP Pool is an innovative attempt to tie Supplemental Payments with providers achieving measured performance targets (milestones) that improve outcomes quality [2]. Since performance change and resulting value has to be objectively measured, discrete events such as potentially preventable readmissions, admissions, complications and emergency room visits are significant utilized in this quality improvement initiative. This is a particular interest to us at 3M HIS as Texas uses 3M’s Potentially Preventable Event (PPE) suite of classification methodologies to determine these preventable rates.

There are many positive features of the DSRIP Pools and managed care. DSRIP pools are an innovative reform to the Medicaid payment and delivery system. Linking payment to objective performance and quality measures provides economic incentives that are absent under existing Medicaid Supplemental Payment structure. In addition, the movement to managed care, embraced by private industry nearly two decades ago, should realign the system towards long-term efficiency. This shift should simultaneously promote better health outcomes while generating savings, e.g. better coordination of care for individuals with chronic diseases. The outcomes measures create an accountability factor for providers. Striving for lower rates of preventable encounters will provide the financial incentive to improve care and will penalize the provision of substandard care. Failing to provide adequate care would result in costly readmissions, admissions, ER visits, and complications resulting in a subsequent loss of DSRIP funds. Emphasis will be shifted towards proper disease management and prevention. If the milestones work as intended, they should lead to a reduction in avoidable hospitalizations, avoidable readmissions, avoidable ER visits, fewer complications, and perhaps higher patient satisfaction.

The Texas demonstration makes it clear that making changes to a Medicaid payment and delivery system is complicated. The negotiations between Texas Medicaid and the Federal Government involved complex accounting issues related to the calculation of the Supplemental Payments. States negotiating waivers will need to be prepared to carefully evaluate the impact of the waiver on future Supplemental Payments. How can a state implement payment reform, restructure to managed care, increase performance and accountability, all while being fiscally responsible? Realigning incentives requires careful consideration, particularly when the ramifications of those changes are only speculative at the time of implementation. Using objective measures is a laudable effort, but only if those measures accurately capture the intended information. Creating new incentives and payments mean veering away from traditional Medicaid Supplemental Payment policy. New Supplemental Payment policies that allow states more freedom in experimenting with managed care and DSRIP Pools would be one step in innovating Medicaid payment policy and providing incentive for quality.

What lessons can we learn from the Texas demonstration? Will DSRIP Pools prove to be successful? Will DSRIP in rural Texas work the same as DSRIP in a larger city such as Austin or Houston? What about in other states? Aside from FFP policy, what other barriers exist for states wanting to experiment with managed care? We’ll examine some of these questions in future blogs.

Laura Ross, MA, is a Health Economist with 3M Health Information Systems.

1. Based on 2011 estimates from the US Census Bureau, this would account for 3.7% of the state’s population.

2. More detailed information on DSRIP funding, allocation formulas, and milestone for the Texas Demonstration can be found through the Texas Hospital Association.