Medicaid is a growing economic powerhouse, anchoring the new coverage paradigm under the Patient Protection and Affordable Care Act (PPACA) and wielding increasing influence within the healthcare sector and beyond. Already the largest source of federal funding flowing to states and a major revenue stream for providers, health plans, pharmaceutical companies, and vendors, Medicaid is projected to cover a record 65 million people and expend close to $500 billion dollars in 2014. Twenty-five states and the District of Columbia have expanded their Medicaid programs to include new adult populations under PPACA, and several others are evaluating expansion options, fueled at least in part by mounting research pointing to positive impacts on state and local productivity, jobs and earnings. By 2020, Medicaid could provide health insurance coverage for as many as 1 in 4 Americans.

This growth, combined with increasing sophistication from state purchasers, continued pressure to contain state budgets, and a national drive for payment and delivery reform, will make 2014 a transformative year for Medicaid programs across the country. The following trends will be central drivers behind this transformation in the year ahead.

See Part 1: 5 Medicaid trends to watch in 2014

Trend 6: Behavioral health takes center stage

Pressure to integrate physical and behavioral health will accelerate, propelled by a combination of extraordinarily high costs and poor health outcomes. States will revisit and continue to “tweak” traditional approaches, including managed care organizations (MCOs) and behavioral health organizations (BHOs), while also deploying health homes and other provider-led care coordination strategies. As integration efforts increase, issues related to data exchange among providers will come to the fore, and states and other stakeholders will seek to address privacy concerns that may limit data sharing among physical and behavioral health providers.

All of these issues will take on heightened importance in states that expand their Medicaid programs. Expansion states will confront the significant mental health and substance abuse needs of the newly eligible adults, as well as the obligation to provide behavioral health benefits that meet essential health benefit (EHB) standards and the requirements of the Mental Health Parity and Addiction Equity Act (MHPAEA). States that provide physical and behavioral health through different managed care entities or delivery models will face the new challenge of monitoring parity compliance across their systems. And health plans, insurers and behavioral health organizations doing business in expansion states can expect new regulatory oversight aimed at ensuring compliance with parity.

Expansion and integration will put new pressures on the delivery system. States and providers will focus on workforce development needed to support integrated care models, especially for clinical alternatives to institutional care, and seek coverage for services traditionally excluded from the Medicaid program, including peer supports, housing, and career coaching.

Finally, some, perhaps many, behavioral health providers will face challenges in transitioning to new models of delivery and payment, particularly related to participating in Medicaid and contracting with insurance companies for the first time. These providers will need to bolster their administrative infrastructures, including information systems, to support appointment scheduling, billing, and medical records functions for patients who are newly insured — and may well look to vendors, health plans and provider alliances that can help them do so.

Trend 7: Coordinating care for dually eligible patients

Dually eligible beneficiaries — those who are eligible for both Medicaid and Medicare — account for almost 40 percent of Medicaid spending, but constitute only 15 percent of Medicaid beneficiaries. Most of this spending is attributable to long-term care services.  Despite the numbers, dually eligible beneficiaries have been largely excluded from mainstream managed care; and efforts to coordinate service delivery and payment have been hampered by fragmentation of program responsibility, care, and data; differences in Medicare and Medicaid rules; and misaligned payment incentives.

The Patient Protection and Affordable Care Act (PPACA) includes multiple initiatives targeted to enable and encourage care coordination for dually eligible beneficiaries, including establishment of the Medicare-Medicaid Coordination Office within CMS and the creation of State Demonstrations to Integrate Care for Dual Eligible Individuals. Implementation of the duals demonstrations is still in its infancy, and 2013 was largely spent planning. To date, interest in the program has been strong — 26 states submitted proposals for participation in the Financial Alignment Demonstrations (FAD), though only two states have begun enrollment (MA and WA). More than two million beneficiaries (29% of full benefit duals) are expected to enroll in dual demonstrations over the next three years, with more than three-quarters in fully capitated managed care and the balance in managed fee for services shared savings models.

2014 will be a telling year as the dual demonstrations begin enrolling beneficiaries in significant numbers. The primary issue to watch will be rate sufficiency — whether the rates being negotiated in the three-way contract between Medicare, Medicaid and the plans are adequate to cover the costs and generate the savings necessary to make the integrated financing model sustainable. A related issue, and a challenge for plans, has been how to stratify and adjust interventions based on the different needs of various population segments. Other issues to watch include timing (the rollout to date has taken much longer than expected), the success of data sharing and coordination of performance metrics, and how robust requirements for consumer participation and engagement will impact program design.

As additional states roll out care coordination initiatives in 2014, all eyes will be on the ultimate measure of success — can these initiatives improve care and reduce costs? We are likely to see only preliminary findings in the year to come, with more robust outcome data available in 2015 and beyond.

 

Trend 8: Continuing spotlight on pharmaceutical coverage and costs

In states that expand Medicaid, pharmaceutical spending can be expected to increase significantly; and all states will continue to see an increase in spending for drugs as new and more effective therapies are introduced.

Medicaid formularies are in flux. Traditionally, state Medicaid programs were required to cover all drugs for which manufacturers enter into rebate agreements.  However, under the new alternative benefit plan (ABP) for expansion adults, states need only cover the greater of one drug per category and class, or the number of drugs per category and class in the designated EHB base benchmark (or reference) plan. While most expansion states appear to be tracking traditional Medicaid formularies, state choices may not be known until after states submit their ABP plans which could be as late as March 2014.

Expansion states with caps on the number of prescriptions that a Medicaid beneficiary may fill each month will be required to eliminate such caps for their newly eligible adults to align with the formulary standards in the EHB base benchmark (or reference) plan. Likewise, the Mental Health Parity and Addiction Equity Act will require states to ensure that formularies for mental health and substance use disorders are provided in parity with medical/surgical drug benefits.

States’ expansion of Medicaid managed care programs to higher risk populations, coupled with the ACA’s extension of rebates to drugs dispensed by Medicaid MCOs, means more states will be carving pharmacy into their managed care benefit packages. Notably, Medicaid MCOs have wide latitude to manage the pharmacy benefit and may apply utilization controls such as prior authorization, formulary controls and generic dispensing requirements more aggressively than Medicaid fee-for-service programs.

Trend 9: Waivers and more waivers: New investment in delivery system transformation

States have a long history of using waivers to redefine the boundaries of Medicaid, advancing new coverage, payment and delivery models and securing additional funding for innovation. However, in the past year, waivers have received even more attention as states seek to craft Medicaid expansion and delivery system reforms that accommodate their unique clinical, economic and political landscapes.

In the year ahead, look for more states to follow in the footsteps of California, New York, Texas, Kansas and others in seeking waivers establishing and funding Delivery System Reform Incentive Payment (DSRIP) pools. HHS will continue to closely scrutinize these waivers, as will the Office of Management and Budget, causing approvals to take a year or more.

DSRIP pools allow states to secure federal Medicaid matching funds for hospitals and other providers engaged in delivery system reform advancing the Triple Aim of better care, better health and lower costs. To draw down the additional federal funds, states must identify a funding source for the non-federal share of the DSRIP pool. While in the past states used non- Medicaid health expenditures to fund the non-federal share of waiver funding, DSRIP pools are often funded through intergovernmental transfers from public hospitals that benefit when the money comes back to them, in whole or part, matched by federal dollars. HHS is increasingly proscriptive on the conditions that must be met before the DSRIP funds may be paid, requiring hospitals to develop detailed transformation plans and to demonstrate measureable progress. DSRIP allocation formulas generally favor hospitals serving the largest numbers of Medicaid and uninsured patients, providing an important source of transformation capital for these safety-net systems. The bottom line is that DSRIP waivers are injecting significant additional dollars into states to support health system transformation; time will tell whether the investment pays off in meaningful and lasting improvements in quality and reductions in costs.

We also expect to see even more 1902(e)(14) waiver activity. These new waivers — still awaiting a catchy name — can be used to temporarily waive some of Medicaid’s detailed eligibility rules to simplify the implementation of PPACA for states and beneficiaries.  With IT problems still plaguing the eligibility systems of many states and the federal government, look for 1902(e)(14) waivers to also serve as a transitional problem-solving tool.

Finally, 2014 may be when we begin to see more serious discussions about the “State Innovation Waivers” created by PPACA and their implications for Medicaid.  While not available for use until 2017, they potentially create the opportunity for states to make sweeping changes to their health care systems.

 

Trend 10: IT investment: From mitigation to innovation

2014 began as the “annus horribilus” for state and federal information technology (IT) projects. While less visible than the IT false starts at the Federally Facilitated Marketplace (FFM) and several state-based marketplaces, many state Medicaid agencies are facing their own challenges with implementing PPACA eligibility and enrollment IT systems and requirements. States will spend the rest of 2014 (and likely well into 2015) phasing in their new eligibility and enrollment systems, repairing defects and establishing connectivity with the troubled FFM, and in some cases with their own state-based marketplaces. The good news for states and their vendors is that enhanced federal funding to support system development will continue, with exchange establishment funding available through December 2014 and the Medicaid “90/10” enhanced federal match for systems development available through December 2015. Expect shifting alliances between state and federal clients and their IT vendors as fallout from 2013 continues, and heightened efforts to reform government procurement policies that have long been blamed for inhibiting IT innovation in government programs.

At the same time, providers will continue to shift their investments from electronic health records (EHRs) and meaningful use toward analytics, decision support and business intelligence that bolster population health management. Rapid consolidation and clinical integration across disparate providers is driving this trend, as is the need for risk-bearing

provider delivery systems, including ACOs, to predict and assess risk, deploy care managers and coordinators, and organize physicians. EHR vendors and other health information technology companies are trying to get ahead of this curve and will continue to make investments, including acquisitions, to expand their platforms with this functionality.

Finally, look for continued interest and activity related to development of all payer claims databases, in an effort among all stakeholders — states, health insurers, and providers — to support both value based purchasing and population management.

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