Results from a new RAND Corporation study – Nationwide Evaluation of Health Care Prices Paid By Private Health Plans – show commercial payers reimburse hospitals about 2.5-times more than does Medicare. As expected, hospital officials responded, claiming that public payers underpay for medical services and that it is inappropriate to challenge hospitals now as they battle the pandemic. However, the RAND study revealed a very significant finding – there is no relationship between a hospital’s prices charged to commercial payers and its volume of Medicare and Medicaid patients.
There is never a good time to take on hospital prices, but that task is essential if the nation is ever to get a grip on health care costs. Hospitals are large employers and provide an essential service, never more important than during the pandemic, but they also comprise the biggest chunk of health care spending, driving up insurance premiums and out-of-pocket costs.
Additionally, most hospital markets are now consolidated, creating an imbalance in bargaining power and driving up costs. A growing trend in vertical consolidation – when hospital/heath care systems purchase physician practices and other ancillary services – has resulted in increased costs, in part through the addition of facility fees for non-hospital-based services.
Policymakers are often pressured to protect their local hospitals and avoid the much-needed discussion of what is an adequate payment to sustain quality hospital care. The RAND study provides a great place to start that discussion and the first step is understanding just how Medicare sets its rates. The National Academy for State Health Policy (NASHP) offers this overview on Medicare rates and will soon release more tools to help states take on the important policy question of what is an appropriate hospital payment.
How Are Medicare Rates Calculated?
Since the passage of the Social Security Amendments Act of 1983 that created Medicare, the federal health insurance program covering 40 million older and/or disabled adults has primarily reimbursed providers through prospective fee-for-service (FFS) payments. Under the federal Prospective Payment System (PPS), Medicare reimburses each provider a predetermined amount for each service.
Medicare Advantage plans – established in 1997 as privately administered alternatives to traditional Medicare – are a notable exception from the standard FFS system. For these plans, the Centers for Medicare & Medicaid Services (CMS) pays a private health plan a prospective lump sum based on the number of beneficiaries enrolled in the plan. The health plan then uses these funds to reimburse providers and administer benefits to enrollees.
Medicare payments to some plans are negotiated from a benchmark based on a county’s per capita Medicare spending compared to the national average, as well as plan quality indicators. For other plans, the benchmark is a weighted average of the average county rate and the average health plan’s bid. CMS publishes the statutorily derived formulas for these payments.
Under the PPS for inpatient admissions, CMS bases the amount of reimbursement on a patient’s diagnosis-related group (DRG). Each patient’s case is assigned a different DRG code based largely on five main factors, including the type and severity of their illness. Generally, the more resources (e.g., medical supplies) required to treat a patient, the greater the reimbursement. This amount can vary based on local wages and cost of living, and additional payments are made to teaching hospitals and those that treat a high percentage of low-income patients.
Under the PPS for hospital outpatient services, payments are similarly based on resource costs and complexity. Additionally, hospitals can receive payments for using certain new drugs/devices, providing particularly costly services, or if the hospital is a cancer, children’s, and/or rural hospital. To determine these reimbursement rates, CMS receives recommendations from an advisory panel of 16 full-time hospital employees and outpatient PPS providers.
An important recurring factor in CMS’s payment methodology is its consideration of stakeholder recommendations. Under the Resource-Based Relative Value Scale (RBRVS) FFS payment system, CMS considers recommendations from a 31-member physician committee when quantifying the value of each service rendered, based on the following geographically adjusted costs:
- Physician work – the time, skill, and mental/physical effort required to perform the service
- Practice expense – the cost for the service to be rendered at the specific site of care
- Professional liability insurance – the amount a provider spends on malpractice insurance, based on claims data
The Medicare Payment Advisory Commission (MedPAC) – the independent 17-member Congressional advisory commission of health care delivery and finance experts – meets publicly with beneficiary advocates, researchers, and providers to consider their input before submitting an annual report to Congress detailing the payment adequacy in meeting patient care and provider cost needs, in addition to considering any inequities that may result from payments.
According to MedPAC’s March 2020 report, Medicare payments covered 8 percent more than hospitals’ allowed variable costs (costs that can change based on utilization of services), which allows for this additional percentage to contribute to coverage of fixed costs. This method provides incentive for hospitals to lower their costs and encourages them to treat Medicare beneficiaries, as an increase in the number of patients a hospital treats results in an increased contribution to fixed costs while covering variable costs.
Medicare payments are determined in part through these various stakeholder recommendations. However, this input is not the sole means by which Medicare rates are set. CMS also collects quantitative data through the Medicare cost report, which is the primary data collection to assess provider costs.
How Does CMS Collect Provider Cost Data?
The costs that a provider’s PPS reimbursement are based on are collected through a publicly available Medicare cost report (MCR). These annual reports, due five months after a fiscal year ends, are required from all Medicare-reimbursable facilities, including hospitals, skilled nursing homes, home health agencies, home offices, hospices, rural health clinics, federally qualified health centers, and comprehensive outpatient rehabilitation facilities.
Each report includes information on hospital revenues, capacity, discharge volume, charges, and operating costs. To ensure accuracy, an officer or administrator of the hospital must certify the reported data complies with relevant laws and regulations and that the MCR is a “true, correct, and complete statement.” These reports are the only national source for hospital operating costs reported in a uniform manner.
Critics argue that the definition of allowable costs under federal code 42 CFR 413.9(c)(3) is too narrow, classifying what some might say are appropriate costs as non-reimbursable. However, only operating costs related to patient care are reimbursable under the program. If operating costs include amounts for “luxury items or services” (more expensive than those generally considered necessary for the provision of needed health services), such amounts are not allowable.
Physician costs are often the largest “disallowed” appropriate costs, according to critics. However, while some of these costs are disallowed by Medicare through the inpatient/outpatient PPS, this is only because they are reimbursed through other payment methods. The MCR splits physician costs into three buckets:
- Non-reimbursable services: These services, of which research is the most common component, are disallowed as they do not provide patient care and are usually reimbursed by other funding.
- Professional services to individual patients: These costs are disallowed as professional service reimbursement is provided through other channels, such as RBRVS, Medicaid/Medicare fee schedules, and commercial network agreements, etc.
- General services that provide benefit to hospital patients: These costs are allowed and reimbursed under the MCR. General services may include emergency room, intensive care unit, and other areas of general care that are not reimbursed through another channel.
The transparency surrounding these allowed and disallowed costs enables states to use tools such as NASHP’s upcoming Hospital Cost Tool, which utilizes data from MCRs to provide a comprehensive view of a hospital’s financial status. This can inform a state’s provider reimbursement negotiations and other cost-containment strategies.
Building on the Progress
Medicare rates are based on provider-attested costs while allowing for a transparent, standard payment system that can evolve. For example, the Medicare Access and Children’s Health Insurance Program Reauthorization Act of 2015 (MACRA) reformed Medicare to replace the population growth-rate based spending cap with two pathways – the Merit-based Incentive Payment System and the Advanced Alternative Payment Models – to base providers’ reimbursements on their performance against various quality and cost measures.
The methodology of Medicare rate determination is annually updated, geographically adjusted, and publicly available through the CMS website that also publishes a complete listing of fees used to pay providers/medical equipment suppliers and a regularly updated tool that allows users to estimate PPS payments based on claims data and provider cost reports.
Multiple stakeholder groups have helped Medicare, the largest health care purchaser in the country, promote equity and transparency in covering nearly every service and paying for health system costs rather than charges.
A hospital does not have to abide by any formula or legal requirement for setting its charges nor does it have to disclose mark-ups on hospital-purchased services or medical supplies, and it may change them at any time. As a result, chargemaster rates (what hospitals list as prices for their services) present an inaccurate benchmark for assessing costs and negotiating reimbursements between commercial payers and providers, resulting in costly bills for patients.
However, when the transparent and standardized Medicare rates are used as the benchmark, states can achieve savings while still covering providers’ costs and they can better explore innovative strategies to improve health care affordability.
As the pandemic continues and more individuals lose jobs and health insurance, the demand for Medicaid and Children’s Health Insurance Program (CHIP) coverage is rising. Kentucky and Virginia – stripped of their traditional, in-person enrollment strategies – have adapted their outreach efforts to help make enrollment as easy as possible for adults and children to ensure access to critical coverage and care.
A recent survey of Medicaid programs shows that between February and May 2020 all but three states experienced notable increases in enrollment.Through waivers and state plan amendments, states have the opportunity to adopt a wide range of flexibile strategies to facilitate and maintain enrollment.
However, social-distancing, tele-work, and strained state budgets have introduced new challenges for state Medicaid and CHIP agencies. A number of state Medicaid agencies have implemented furloughs or reassigned staff to contract tracing and other essential tasks related to the pandemic. Without the ability to conduct traditional outreach campaigns, which are often linked with large community gatherings and one-on-one enrollment support, state Medicaid agencies have needed to quickly pivot their outreach strategies to connect with individuals who are newly eligible for coverage.
Streamlining Enrollment and Enhancing Partnerships
Kentucky has experienced one of the most significant increases in Medicaid enrollment. Between February and May, 2020, Kentucky’s Medicaid and CHIP enrollment increased by nearly 7 percent. While some of the growth can be credited to the maintenance of effort (MOE) provisions required to secure enhanced federal Medicaid funding through the Families First Coronavirus Response Act, Kentucky has taken significant steps to enroll eligible individuals and families. State officials report that a key aspect of their successful enrollment strategy has been adopting presumptive eligibility (PE) policy flexibilities allowed by the public health emergency. By designating the state Medicaid agency as a qualifying entity to determine presumptive eligibility based on individuals’ modified adjusted gross income, and condensing its 20-page application into a one-page online form, Kentucky has enrolled over 137,000 individuals under presumptive coverage. To keep these individuals covered once their eligibility period ends, Kentucky Medicaid agents track these applications to identify when individuals’ PE periods are drawing to a close. They then make direct outreach calls to these enrollees to assist them in completing a full Medicaid application.
States have also leveraged interagency partnerships to target their outreach strategies to individuals who may be eligible for Medicaid coverage. To connect with individuals who may have lost employer coverage due to the pandemic, both Kentucky and Virginia have contacted thousands of individuals who have applied for state unemployment insurance. The states also added easily accessible links to their unemployment agency websites to help individuals to apply for health coverage.
In Virginia, partnership efforts have been bolstered through a renewed connection with the Virginia Health Care Foundation’s (VHCF) Project Connect, which funds local outreach efforts to enroll individuals in Medicaid and CHIP. Through this partnership, representatives from Virginia Medicaid and VHCF have provided support at virtual job fairs and rapid response online events, and they plan to continue to collaborate to serve those who have been affected by COVID-19’s economic consequences.
Like Kentucky, Virginia has also experienced a significant increase in Medicaid enrollment in recent months, and state officials credit the persistence and creativity of their community outreach coordinators as critical to their enrollment success. They have redesigned their approach to safely conduct outreach and enrollment support by leveraging existing community contacts to distribute informational materials electronically and organizing online meetings with community groups. The outreach coordinators have also sought to develop new partnerships with charity, community, and faith-based organizations, retailers, and hospitality groups, as well as schools and colleges. In some rural areas with lower COVID-19 infection rates, the coordinators are beginning to conduct some outreach efforts at churches, fast food chains, and other retailers.
A crucial focus of this work in both states has been developing targeted outreach strategies and building relationships with communities of color who have been disproportionately affected by the economic and health impacts of COVID-19. Virginia has developed ad campaigns designed specifically to reach Latinx families. Kentucky relies on its data analytics team to guide the state’s outreach efforts and recently launched a marketing campaign targeting seven counties with the highest Black, uninsured population.
Modifying Back-to-School Outreach Efforts
For children, who represent 51 percent of total Medicaid and CHIP enrollment, access to health coverage is of paramount importance to ensure that developmental milestones are met and vaccines are administered. Traditionally, school partnerships have provided Medicaid and CHIP agencies with the ability to identify eligible children and families and to distribute resources from a trusted source. A report conducted by the Urban Institute at the Robert Wood Johnson Foundation in 2016 found that almost half of individuals who are eligible for Medicaid or CHIP live in families with at least one school-aged child, making schools a valuable venue to conduct outreach for both children and adults.
Historically, the back-to-school season provided an opportunity for Medicaid and CHIP programs to convene large enrollment events where promotional flyers and branded materials are distributed to children and parents. However, this year, without traditional events such as summer camps or sports registration, there are fewer chances to connect with families to provide coverage options and underscore the importance of care.
In addition to hosting events, Medicaid and CHIP agencies often provide schools with informational packets to slip into student’s backpacks or include with school registration materials. But with fewer students returning to traditional classroom settings and tighter restrictions on the number of individuals allowed into schools, these tested outreach methods have needed to be re-examined and reformulated.
To minimize physical contact, Kentucky has limited school outreach to a group of professionals from the Division of Family Resource and Youth Service Coalition (FRYSC) within the Cabinet for Health and Family Services. Representatives from FRYSC have established relationships with schools and are able to distribute outreach materials without prolonged contact at socially distanced drive-through school events. In recent weeks, FRYSC representatives have begun distributing materials, which include more than 200,000 protective face masks displaying KCHIP marketing for children.
In Virginia, the Medicaid agency has revamped its back-to-school campaign by investing in digital resources for students and families. Working with schools, VA Medicaid has created widgets that will send parents from school webpages to the Medicaid and CHIP back-to-school pages. Their reformulated back-to-school websites acknowledge the constraints caused by the pandemic and include information for parents about how to enroll their children in health coverage in both English and Spanish as well as outreach resources for schools, such as social media messaging. When the back-to-school campaign formally ends in December, these dedicated back-to-school pages will be built into their website and remain active throughout the year.
The state is also coordinating with a digital engagement contractor to send text messages aimed at parents and advocates to encourage enrollment in CHIP and Medicaid. In addition to outreach efforts through school’s web pages, Virginia Medicaid printed 1.3 million copies of its enrollment materials to cover every school-age child in every public school in the state. Prior to the pandemic, Virginia Medicaid requested that the materials be distributed in back-to-school informational packets, but this year, due to the variability in which districts are electing to return to school, it asked teachers and administrators to distribute the material in any way they saw fit.
In response to the limitations of the pandemic, states have demonstrated flexibility in their approaches to outreach and enrollment. Kentucky’s efforts highlight the importance of making enrollment as easy as possible for individuals. Virginia state officials noted that despite the challenges and constraints, COVID-19 has provided the state with an opportunity to reassess and improve its outreach strategies. As Medicaid programs continue to serve as one of the primary safety nets for millions of Americans whose livelihoods have been uprooted by the economic consequences of the pandemic, states are creatively adapting their outreach and enrollment efforts to help ensure access to coverage and care.
Dual Eligible Special Needs Plans (D-SNPs) enroll individuals who are entitled to both Medicare and medical assistance from a state Medicaid plan. States cover some Medicare costs, depending on the state and the individual’s eligibility.
Many states already leverage Dual Eligible Special Needs Plans (D-SNPs ) to better manage care for individuals enrolled in both Medicare and state Medicaid programs. Recent changes to federal regulation, stemming the Bipartisan Budget Act of 2018, are expected to make D-SNPs more attractive for states seeking to better integrate care for this population.
The National Academy for State Health Policy (NASHP), with support from The SCAN Foundation, convened state policymakers at its recent annual conference to explore these new opportunities, highlight Medicare/Medicaid integration efforts in leading states, and explore what internal state capacity is needed to successfully address the needs of dual-eligible beneficiaries across programs.
The session, Maximizing Medicare: New Opportunities to Support State Policy Goals, featured examples of successful D-SNP models in Minnesota and Arizona, and highlighted lessons learned from states, detailing what internal expertise is needed to support these programs.
Individuals covered by both Medicare and Medicaid present unique challenges for state policymakers. This population often has higher health care costs and poorer outcomes, including higher rates of chronic conditions and behavioral health diagnoses. For states, creating well-integrated and coordinated systems of care for this high-needs population can be hampered by the complex interplay of these two programs.
The Bipartisan Budget Act of 2018 permanently authorized D-SNPs, and final regulations require D-SNPs to coordinate Medicaid benefits for duals and assist them in navigating appeals. The new rule also requires D-SNPs – in some circumstances – to provide an integrated appeals process and discharge planning for some high-need members. All D-SNPs must meet certain minimum integration criteria by 2021.
Both Minnesota and Arizona have experienced improved integration of care for duals through use of D-SNPs. Both states leveraged the contracting requirements of the Medicare Improvements for Patients and Providers Act to align administration and improve consumer experience. Wisconsin has structured its program to provide a more integrated experience at every step, including one set of enrollment materials, aligned enrollment dates, and care coordination for primary, acute, and long-term care services. Arizona’s D-SNP plans must be contracted “companion” plans with the Arizona Health Care Cost Containment System (AHCCCS), the state’s Medicaid agency. This and other contract features help encourage member enrollment in the same health plan for both Medicare and Medicaid services.
What internal capacity is needed to make these programs work? Presenters offered the following key takeaways:
- Leadership is critical: Strong leadership is an important factor in providing more integrated care for duals. Leadership that understands the complexity of the population, and the need to mobilize specific resources and policies to address their unique issues and make long-term investment in these programs has been an ingredient for success in leading states.
- Build and nurture strong managed care organization (MCO) partnerships: Collaborative relationships with Medicaid MCOs are also central to integrating care across programs. To avoid misalignment, presenters suggested working with MCOs to review detailed descriptions of the services to be coordinated by D-SNPs, including behavioral health and long-term services and supports, and discussing enrollment, marketing, and appeals policies with them to identify and resolve issues.
- Engage stakeholders: Similarly, states found it helpful to regularly engage a range of stakeholders – providers, members, and advocates – to identify specific needs and areas of disconnect, and to allay consumer and provider concerns who may be impacted by policy changes.
- Focus on staff capacity and ongoing training: States emphasized the need to have subject matter expertise within a state Medicaid agency. One presenter noted, “integration is a process and not an event,” long-term capacity is necessary to be able to analyze and respond to the changing state and federal regulatory landscape on an ongoing basis. Having designated staff and facilitating clear lines of communication across offices within Medicaid with an “open door policy” can also help identify and troubleshoot issues. Important areas of expertise include accessing and using Medicare data, understanding covered services and payment, and familiarity with state policy options to better integrate care.
Presenters encouraged policymakers to make full use of available resources to help them better understand the policy issues and needs of dual eligibles. The federal Medicare-Medicaid Coordination Office (MMCO) was noted as an excellent resource. MMCO leaders recently released a State Medicaid Director Letter detailing how states can improve care for dually-eligible beneficiaries. Additionally, the Integrated Care Resource Center website also provides a host of state-specific materials and learning opportunities.
Additional information and copies of slide presentations from NASHP’s 2019 conference is available on this Conference Presentation page.
Last week, the Centers for Medicare & Medicaid Services (CMS) released two highly anticipated initiatives — the Maternal Opioid Misuse (MOM) Model and the Integrated Care for Kids (InCK) Model — which will provide multi-year funding to states to improve integrated care for maternal and child health populations enrolled in Medicaid and the Children’s Health Insurance Program (CHIP).
NASHP has been tracking these important initiatives since they were first announced by the CMS Center for Medicare and Medicaid Innovation (Innovation Center) last year and has compiled and promoted exemplary integrated care delivery models, strategies, and innovations for pregnant and postpartum women and children that states can consider as they develop their applications for these initiatives.
The MOM Model is designed to:
- Improve quality of care and reduce costs for pregnant and postpartum women with opioid use disorder (OUD) and their infants;
- Expand access, service-delivery capacity, and infrastructure based on state-specific needs; and
- Create sustainable coverage and payment strategies that support ongoing coordination and integration of care.
The CMS Innovation Center will award a maximum of $64.5 million through up to 12 cooperative agreements with state Medicaid agencies and their care delivery model partners for a five-year period. Applications for the MOM Model are due to CMS by 3 p.m. (EST), May 6, 2019. A CMS webinar about the MOM Model Notice of Funding Opportunity was held Feb. 21, 2019. The recording, slides, and transcript from the webinar are available here.
The InCK Model is designed to reduce expenditures and improve the quality of care for children under 21 years of age covered by Medicaid and CHIP through prevention, early identification, and treatment of behavioral and physical health needs. States and local organizations will work to conduct early identification and treatment of children with health-related needs across settings to:
- Increase behavioral health access;
- Respond to the opioid epidemic; and
- Improve child health outcomes.
The CMS Innovation Center will award a maximum of $128 million through eight cooperative agreements with state and local participants for a seven-year period (awarding up to $16 million per recipient). Applications to implement the InCK Model are due to CMS by 3 p.m. (EST), June 10, 2019. A CMS webinar about the InCK Model NOFO is scheduled for 2:30 to 4 p.m. (EST) Tuesday, Feb. 19, 2019.
On Monday, the Office of Management and Budget released the president’s FFY 2019 budget request that proposes $68.4 billion for health programs administered by the U.S. Department of Health and Human Services (HHS) – which is $17.9 billion less than 2017 funding levels. The budget proposal included an addendum designed to align the proposed White House budget with the recently passed Bipartisan Budget Act.
The following highlights some of the key components of the president’s budget proposal that could impact state health programs.
Affordable Care Act (ACA) and Insurance Markets
The proposed budget recommends the following changes to the ACA and insurance markets:
- Replace the ACA with the Market-Based Health Care Grant Program: This would be a block grant structure that state could use to implement their own insurance reforms, which was originally proposed by Sens. Graham, Cassidy, Heller, and Johnson. Under the Graham-Cassidy-Heller-Johnson bill, $1.176 trillion would be appropriated from FFY 2020 to FFY 2026 for states to explore experimenting with a variety of insurance reforms or affordability programs. The bill would allow greater flexibility over enrollment in copper (catastrophic health) plans in 2019 and provide greater flexibility over health savings accounts. (For more details see, NASHP’s summary).
- Phase out the federally-facilitated marketplace (FFM): Related to its proposed ACA repeal, the budget includes funding for “critical functions” and “wind down” of the FFM.
- Increase funding to support Association Health Plans (AHPs): Funding would be directed to the Employee Benefits Security Administration to develop policy and enforcement capacity to expand access to AHPs, which would not have the consumer protections that ACA plans currently have and may be exempt from state regulation. This reflects recently-proposed regulations designed to increase flexibility over the formation of AHPs.
- Fund the cost-sharing reduction (CSR) program: Funding would be available to cover CSR expenses from October 2017 through December 2019. The Administration discontinued payments to the CSR program in October 2017.
- Reduce the grace period for payment of health insurance marketplace premiums: This suggests that the 90-day grace period consumers are given to enact marketplace coverage be reduced to 30 days.
- Allow for state certification of qualified health plans (QHPs): The change is consistent with recent actions taken by the Administration to defer oversight and certification of QHPs sold through Healthcare.gov to states.
- Include mandatory funding for the Risk Corridor program: Funding would reconcile outstanding balances owed to insurers under the temporary Risk Corridor program established under the ACA.
The president’s FFY 2019 budget proposes:
- Overall program funding cuts: Proposes to cut federal Medicaid funding by $250 billion over 10 years.
- Repeal of ACA’s Medicaid expansion and targets Medicaid funding: Advocates repealing the ACA’s Medicaid expansion and supports state efforts to prioritize Medicaid dollars for the “most vulnerable” individuals.
- Medicaid financing changes: Indicates support for proposals to change the structure of Medicaid financing, similar to what the Graham-Cassidy bill proposed, such as implementing per capita cap or block grant funding models, which would be trended over time by the Consumer Price Index.
- Work and community engagement initiatives: Encourages state initiatives to implement community engagement initiatives for able-bodied adults enrolled in Medicaid.
- Prohibit Medicaid payments to public providers: Proposes to limit Medicaid reimbursement for health care providers operated by a unit of government to no more than the cost of providing services to Medicaid beneficiaries.
- Giving states the ability to change certain program elements and eligibility determination processes: Plans to provide states with additional flexibility over Medicaid benefits and cost sharing, including allowing states to use state plan authority to increase copayments for non-emergency use of emergency departments. Proposes to also allow states to make changes to Medicaid eligibility determination, such as counting savings, lottery winnings, and other assets.
- Mandated coverage of medication-assisted treatment: Requires state Medicaid programs to cover approved medication-assisted treatments for opioid use disorder. These investments are expected to reduce Medicaid expenditures over time.
- Resources for program integrity and data collection: Includes measures designed to address waste, fraud, and abuse, as well as forthcoming guidance from the Centers for Medicare & Medicaid Services (CMS) about improving data collection of Medicaid supplemental payments.
- Medicaid Disproportionate Share Hospital (DSH) payments: Continues DSH reductions by $8 billion per year from FFY 2026 to FFY 2028 (the Bipartisan Budget Act delayed DSH cuts until FFY 2020, and then increased scheduled payment reductions for FFY 2021 to FFY 2025 to $8 billion for each fiscal year).
Children’s Health Insurance Program (CHIP)
Although the recent Bipartisan Budget Act along with the earlier Jan. 22, 2018, continuing resolution (CR) extended CHIP funding until FFY 2027, the president’s budget includes some suggestions for policy changes to CHIP.
- Eliminates the 23-percentage point federal match rate increase earlier: Known as the 23 percent bump, the budget proposes to eliminate this entirely in FFY 2019. (This does not include the provisions that were in the Jan. 22, 2018, CR to continue the 23 percent bump in FFY 2018 and FFY 2019, phase it down to 11.5 percent in FFY 2020, and then return to the regular enhanced CHIP match rate in FFY 2021 and beyond).
- Limits enhanced CHIP match rate: Proposes to cap the increased CHIP federal match rate for states by restricting this enhanced match rate only for children in families with income up to 250 percent of the federal poverty level (FPL).
- Eliminates the maintenance of effort (MOE) in FFY 2019: Proposes to end the MOE that requires states to cover children with family incomes up to the same eligibility level that was in place in 2010. In contrast, the Bipartisan Budget Act continued the MOE requirements through FFY 2019 as in current law, and then through FFY 2027 for families with incomes up to 300 percent of FPL.
- Transitioning children from Medicaid to CHIP: Allows states to transition children ages 6 through 18 with family income between 100 to 133 percent of FPL (known as the bright line or stair steps kids) from Medicaid to CHIP, thus eliminating the current 133 percent FPL Medicaid eligibility level floor for children.
Prevention and Public Health Issues
The HHS budget request prioritizes the opioid crisis, mental illness, and infectious diseases. This is a shift from the former HHS Secretary’s priorities of addressing opioid/substance abuse, mental illness, and childhood obesity. Some other things of note are:
- Funding to address the opioid epidemic: Proposes $10 billion in funding in FFY 2019 to HHS to combat the opioid epidemic and serious mental illnesses.
- Prevention and Public Health Fund (PPHF): Proposes to eliminate the PPHF but backfill PPHF-funded programs with discretionary budget authority.
- Infectious diseases demonstration: Includes a $40 million request for a new demonstration program for five or more states or localities that focuses on eliminating multiple infectious diseases using screenings and referral to treatment. It would focus particularly on states/localities with infectious disease increases related to opioids.
- National Strategic Stockpile: Proposes to move the National Strategic Stockpile program out of the Centers for Disease Control and Prevention and house it in the HHS Office of the Assistant Secretary for Preparedness and Response.
Health and Housing Issues/Other Programs Addressing Social Determinants of Health
Some components of the HHS budget, as well as several aspects of the U.S. Department of Housing and Urban Development (HUD) budget, could affect states’ abilities to address health through housing and other social determinants of health.
- Decreases funding for HUD rental assistance programs: Proposes to reduce funding for HUD rental assistance programs by 11.2 percent over 2017. The administration maintains that this would be enough to support the currently-housed families, while shrinking the program over time. The addendum would provide $1.7 billion to maintain current levels of housing vouchers and exempt elderly and disabled households from “rent reform proposals.”
- More state and local resources will be necessary to develop affordable housing: Expects states to pick up a greater share of the tab for affordable housing, and does not request funding for the Public Housing Capital Fund, indicating that the responsibility for providing affordable housing should be more fully shared with state and local governments.
- Supplemental Nutrition Assistance Program (SNAP): Proposes cutting SNAP by $17 billion in FFY 2019 (and by $98 billion over the next five years), and proposes combining SNAP with a program that provides “100 percent American-grown foods” directly to households.
- Social Services Block Grant: The budget proposes to eliminate the Social Services Block Grant with the justification that it funds services that are currently funded by other sources and lacks the ability to track the impact of spending.
- Elimination of the Community Development Block Grant (CDBG) and Low-Income Home Energy Assistance Program (LIHEAP): Calls for the elimination of both programs.
- Increases rent payment requirements for certain individuals in subsidized housing: Calls for able-bodied people in affordable housing to pay a greater share of their income (more than 30 percent) toward rent, in an effort to encourage them to work more.
Medicaid Prescription Drugs
- Medicaid Drug Coverage Demonstration: Establishes a statutory demonstration authority to allow up to five states more flexibility in negotiating prices directly with drug manufacturers, rather than participate in the Medicaid Drug Rebate Program. Participating states will be required to include an appeals process so beneficiaries can access non-covered drugs based on medical need. The demonstration would exempt prices negotiated under the demonstration from best price reporting. (The budget estimates $85 million in savings over 10 years.)
- Clarify definitions under Medicaid Drug Rebate program: Clarifies the Medicaid definition of brand and over-the-counter drugs, as well as drugs approved under a biologics license application, by codifying existing regulations to ensure appropriate Medicaid drug rebates. (Estimates $319 million in savings over 10 years.)
Federal Health Safety Net Programs
- Health center funding: Provides $5.1 billion of discretionary funding for community health centers.
- Consolidates Graduate Medical Education (GME) funding: Proposes to consolidate GME funding into a new mandatory GME capped grant program, no longer allowing categorical funding for certain medical specialties.
- Reductions in nursing education funding: Proposes to reduce funding for nursing workforce development by $145 million from FFY 2018.
Proposals Affecting Individuals Dually Eligible for Medicare and Medicaid
- Coordinated review of Dual Eligible Special Needs Plan marketing materials: Allows for joint state and CMS review of marketing materials for Dual Eligible Special Needs Plans.
- Part D special enrollment period for dually eligible individuals: Clarifies the Special Enrollment Period (SEP) for Medicare Part D to allow CMS to apply the same annual election process for all eligible individuals, but maintain the ability for dually eligible beneficiaries to use an SEP to opt into integrated care programs or to change plans following auto-assignment.
Center for Medicare and Medicaid Innovation (CMMI)
- Additional funding for CMMI: Proposes an increase of $314 million in funding for CMMI for FFY 2019.
- Temporary Assistance for Needy Families (TANF) funding reductions: Proposes a 10 percent decrease in funding for the TANF program, and require states to use at least 30 percent of federal TANF and state maintenance-of-effort funds on the following: work, education, and training activities and work supports, including child care.
- Family to Family (F2F) Information Centers: Funds the F2F Health Information Centers, however not at the same rate as the recently passed CR, which included $6 million per year in FFY 2018 and FFY 2019, and an additional $1 million per year to establish centers in the territories and for Native American tribes. Under the president’s proposal, F2F centers would receive $1 million in FFY 2018 and $4 million each in FFY 2019 and FFY 2020.
- Maternal, Infant, and Early Childhood Home Visiting (MIECHV) program: Includes an addendum that would fund the MIECHV program for FFY 2019 at the same level included in the recently passed CR at $400 million per year.
- Reforms for families with more than one child enrolled in the Supplemental Security Income (SSI) Disability Program: Creates a sliding scale for multi-recipient SSI families. For families with more than one child receiving SSI disability payments, they would still receive up to the current maximum benefit for the first child, but SSI payments for additional children would operate on a sliding scale that takes into the account the number of additional children.
- Paid parental leave and child care funding: Allocates money to establish a paid parental leave program, which would require states to provide parents six weeks of paid leave to new mothers and fathers and give states wide latitude to design and implement their programs. It also enhances funding for child care programs, including increasing the Child Care and Development Block Grant by $169 million over FFY 2018 levels.
- Individuals with Disabilities Education Act (IDEA): Proposes maintaining current level of funding ($12.8 billion) for IDEA formula grants to states to support special education and early intervention services.
- Women, Infants, and Children (WIC): Proposes maintaining current level of funding ($5.8 billion) for the Special Supplemental Nutrition Program for WIC.
How long would you drive your car with its gasoline gauge on empty when it’s full of people you care about as you speed along a highway? That was the analogy used by Children’s Health Insurance Program (CHIP) and Medicaid officials during National Academy for State Health Policy’s (NASHP) annual conference held late last month.
Congress has repeatedly promised state officials that there is broad support for CHIP, and that new funds will be available soon and they should just hold on until then. However, it has been over a month since federal CHIP funding expired and it is still unclear if and when Congress will successfully pass a bill to provide more federal funding.
On Nov. 3, 2017, the House of Representatives passed H.R. 3922, a bill combining funding extensions for both CHIP and community health centers. The bill passed the House by a vote of 242-174, with most Democrats voting against it because of their opposition how to the bill is paid for. The pay-fors or off-sets in the House bill include taking money away from the Affordable Care Act’s (ACA) public health and prevention fund and increasing premiums for higher-income Medicare enrollees. Given the current partisan divide over the funding off-sets, the bill’s future remains uncertain.
In the absence of certainty over its future and funding, state officials must weigh multiple factors in making difficult decisions in the weeks ahead. As stewards of health coverage for low- to moderate-income children and pregnant women who depend on CHIP, state officials are first and foremost considering what is currently best for families and are trying to maintain this coverage for as long as possible.
Officials are actively scrutinizing their state’s CHIP finances to determine how long their current funding will last and are trying to figure out if there is any way within their already stressed budgets to extend CHIP once federal carryover and redistribution funds have been exhausted. For example, Arizona is one of the first states expected to exhaust their available federal funds and officials there are considering using money from the state’s “rainy day fund” to continue CHIP coverage. This is not an option for most, as a growing number of states are struggling to address budget shortfalls or address unexpected costs resulting from multiple natural disasters that occurred this year.
Reality is setting in as an increasing number states (MN, AZ, WA, CA, OR, UT, and DC) exhaust their available 2017 carryover allotment and receive their limited redistribution funds from the Centers for Medicare & Medicaid Services (CMS). Without federal funds, most states will need to shut down their CHIP programs and in doing so must consider state notification requirements, costs that the state will incur to close this program, and more. So, why haven’t states sent notices to families warning that the program will shut down? During NASHP’s conference, officials voiced concerns that termination notices could create unnecessary panic for families that could result in far-reaching ramifications that may take months or years to nullify.
Officials know from some states’ experience from freezing enrollment and establishing wait lists for CHIP approximately15 years ago when the block grant’s funding was not adequate that those changes can instill distrust of the program for families. Officials fear parents may disenroll their children sooner than necessary or not renew their coverage. There is also a concern that knowing a child’s coverage is limited will influence medical care decisions, particularly for longer-term treatments. And if Congress does extend federal funding for CHIP after termination notices are sent, states will need to send another notice letting families know they can re-enroll. Officials fear that not all families will re-enroll their children in CHIP if they perceive it to offer unstable coverage. And finally, there is a cost to states to develop, generate, and send notices.
Unfortunately, there are states that expect to exhaust their CHIP funds in December and January that will have no other option than to disenroll children and pregnant women from coverage. As a result, state officials’ questions about their own next steps have increased and intensified. Such questions include:
- What is more important? 1) Giving families more notice and time to plan and research other possible coverage options, which risks potential unnecessary panic or, 2) Minimize panic and only alert families when absolutely necessary?
- What kind of assistance needs to be available to families who are losing CHIP coverage so they can weigh and navigate the potential other coverage options that may be available to them? And, how to pay for that assistance considering states did not assume this would be necessary in designing their budgets and given that the Trump Administration has cut outreach funds for the Marketplaces?
- hould states handle the timing of possibly closing down CHIP programs for pregnant women given their time sensitive, ongoing needs for medical attention?
- What needs to be done to ensure children are transferred successfully from CHIP to the Marketplace so families can enroll them in Qualified Health Plans (QHPs) if they are eligible to receive subsidies? Is it possible to have a data feedback loop from the federally-facilitated marketplace to know if CHIP children are in fact enrolling in QHPs or need further assistance?
State officials are frustrated that they find themselves preparing to shut down a program that has had such success. During a NASHP conference session, state officials offered a snapshot of their unique children’s coverage programs and highlighted the impact of CHIP in their states. Comparing data points from 1997 (the year CHIP was enacted) to today, states shared statistics showing the decline in uninsured children’s rates as well as increases in their access to care, particularly for primary care. States have also made strides to integrate CHIP with other programs so families can experience a continuum of coverage that could soon be significantly disrupted.
Just because states have yet to alert families that CHIP is in jeopardy doesn’t mean officials are not feeling the pressure of their gas tanks approaching empty. States are anxious for Congress to come together as its members have done throughout the history of CHIP to find a bipartisan agreement that provides funding certainty to ensure families and pregnant women do not experience unnecessary panic or loss of coverage.
The National Academy for State Health Policy (NASHP) has awarded $300,000 in grants to Colorado, Delaware, and Oklahoma to help the states develop innovative policy solutions to tackle high prescription drug prices.
With the support from the Laura and John Arnold Foundation, the funding enables states to explore promising policy approaches to control rapidly escalating drug costs highlighted in NASHP’s Pharmacy Costs Work Group recommendations. Rising prescription drug prices are hitting states hard because states cover the prescription costs of their Medicaid beneficiaries and state employees.
“These grants represent promising administrative models of what states can do right now, outside of the need for legislation or waivers, to address the high price of prescription drugs,” said NASHP Executive Director Trish Riley. “Drug costs have strained state budgets to the point they have been forced to take action. Colorado, Delaware, and Oklahoma are helping lead the way by testing new models to lower the drug cost trajectory.”
These state approaches to control drug prices are among several occurring nationwide. On Monday, Oct. 9, California Gov. Jerry Brown signed Senate Bill 17 into law, which requires drug manufactures to give advance notice and justification for significant price increases.
The grants to the three states will fund the following state approaches:
Colorado will develop a new payment system for physician-administered drugs:
Physician-administered drugs (PADs) are costly prescription drugs, such as chemotherapy and other specialty drugs, that are delivered by intravenous infusion or injection in clinical settings. Developing appropriate payment methods for drugs administered by physicians presents a challenge to states due to a lack of information about how much physicians actually pay for these drugs. Colorado has relied on available price information to establish PAD payment rates, including average sales price and wholesale acquisition costs. However, it is not known how closely these prices reflect what providers actually pay in Colorado. To better calculate payment rates, Colorado will conduct an average acquisition cost survey with providers across a range of practices, including small physician offices, clinics, and hospitals. The information collected in the survey will allow Colorado to develop a new payment model similar to the average acquisition model that it currently uses for pharmacy-dispensed prescription drugs. That pharmacy payment methodology has yielded savings exceeding 5 percent and savings are also expected from this new approach with PADs.
Delaware’s agencies and hospitals will maximize savings with a shared preferred drug list:
States have historically used preferred drug lists (PDLs) to strengthen their negotiating power with drug manufacturers. Delaware plans to increase its purchasing power by creating a common PDL across state agencies and hospitals for selected categories of drugs. Partners in this innovative, collaborative approach include the Delaware Division of Medicaid and Medical Assistance, the Delaware Statewide Benefits Office, the Delaware Department of Correction, and major hospitals. The partnership’s first task will be to identify the drug categories that promise the most savings. The goal is to lower the net cost per patient, per year for all categories included in the common PDL by 1 percent in the first year, and by 5 percent by the second year.
Oklahoma will develop a value-based purchasing agreement:
Value-based purchasing, which ties provider payments to quality and outcomes rather than volume, has been a driving principle in payment reform. Innovators are now applying alternative payment methodologies (APMs) to prescription drug purchases. One APM approach is a value-based payment contract between payers and manufacturers like the one recently negotiated between Medicare and Novartis for the gene therapy drug Kymriah (tisagenlecleucel). Under this agreement, the Centers for Medicare & Medicaid will pay for the drug only if patients benefit from the medication by the end of the first month of treatment. Oklahoma is working to be one of the first state Medicaid programs in the nation to enter into a value-based purchasing agreement with a manufacturer. It is currently working to identify the most appropriate drug to move forward with, using this approach, before entering into contract negotiations.
These three states were selected through a competitive application process as part of NASHP’s State Drug Spending and Pricing Policy Initiative through its Center for State Rx Drug Pricing. NASHP will provide technical and strategic assistance to the three states as they implement their policies, and will share outcomes and lessons learned with other states. The grants continue through January 2019.
NASHP invites all states interested in learning more about the wide range of policy responses to address rising drug costs to explore its Center for State Rx Drug Pricing for model legislation, white papers addressing key aspects of legislative strategy, a state legislation tracker, and more resources.
Walkabout Medical Homes with Mary Takach: A 10-month Study of Australia
What can states with large frontier areas such as Alaska, Texas, Montana, and Arizona learn from how Australia organizes and supports primary care delivery in its vast outback?
What do publicly financed community-based teams, networks, and organizations found in states including Vermont, North Carolina, Oregon, and Colorado have in common with the Australia government’s four-year experiment in financing and organizing local primary health care organizations nation-wide?
What lessons can states such as Massachusetts, Rhode Island, and Pennsylvania share with the Australian government on how to evolve primary care provider payments from fee for service (FFS) (yes, Australia general practitioners also get paid FFS) to blended payment models that include capitation and shared savings to better support access to medical homes?