Bending the Medicaid cost curve

Massachusetts is betting big on accountable care organizations

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John McDonough

IN A WILDLY uncertain national health care environment, something new, audacious, and risky is happening in MassHealth, the Medicaid program that provides health coverage to 1.9 million people who are poor, elderly, and persons with disabilities in Massachusetts. Gov. Charlie Baker’s administration is betting that an emerging health care delivery and payment model, called “accountable care organizations,” can restrain rising costs by keeping enrollees healthy and out of expensive settings, especially hospitals. Positive results will have big consequences for the state, for medical providers, and for hundreds of thousands of MassHealth enrollees who will become part of ACOs this year and into the future.

The ACO scheme is the major part of a massive new federal Medicaid waiver that Team Baker won from the outgoing Obama administration days before the November 8 election that put Donald Trump in the White House. The Obama administration liked the Baker plan because it fit with their mission to move US health care away from expensive fee-for-service payment and toward value-based financing that rewards quality and efficiency. Though no one knows for sure which way the Trump administration will move, right now it’s full speed ahead at MassHealth on the ACO agenda.

In March, the state’s Executive Office of Health & Human Services released the names of 21 applicant organizations hoping to launch new MassHealth ACOs starting in December of this year. Last December, MassHealth designated six of them as “pilot ACOs” for a shakedown cruise. We interviewed leaders at all six pilots, plus other observers, to see what’s up.

William Seligman

William Seligman

ACO applicants include every major acute care hospital system in the state, plus several non-hospital-based systems, organized into any of three models that vary by their relationship, or lack thereof, with a managed care plan that will provide administrative and financial backbone.

Most of the large provider groups are bidders, inclujding Partners HealthCare, Boston Children’s Hospital, Boston Medical Center, Steward Medical Care Network, Baystate, Lahey Health, Cambridge Health Alliance, UMass Memorial, Beth Israel Deaconess, Southcoast, Signature, Wellforce, and others.

Bidders without a hospital base include Atrius, Reliant Medical Group, and an intriguing new player composed of 13 community health centers called the Community Care Cooperative, or C3.

Several managed care organizations have actively courted providers to be their administrative and financial partners. Tufts Health Public Plans has aligned with five providers; Boston Medical Center’s HealthNet Plan with four; Fallon Community Health Plan with three; while Health New England, Neighborhood Health Plan, and Steward Medicaid Care Network have one each. In addition, the provider groups are aggressively forming relationships with behavioral health and community-based partners to advance integration and on-the-ground outreach to patients.

Our conversations with ACO pilot leaders suggest that the state’s health care community is taking the MassHealth ACO effort very seriously. “We view the health care cost problem as the biggest problem in the US,” says Dr. Tim Ferris, head of Partners HealthCare’s ACO efforts through the Center for Population Health. “We want to be part of the solution, even as we are viewed as the problem,” he says, referring to criticism Partners has faced for negotiating prices that are much higher than other providers.

Jean Yang, executive director of the Children’s Hospital Integrated Care Organization, says unsustainable cost increases under the current MassHealth structure make the ACO initiative a necessity not a choice. “Do we really have a status quo we can go back to?” she asks. “There’s not much of an option. If we don’t put ourselves in the driver’s seat, we won’t be able to defend our position or to help the state move in the right direction.”

ACOs are entities that are held “accountable” to provide comprehensive health services to a defined population. If that sounds like the 1970s definition of a “health maintenance organization,” it’s because they are similar. ACOs bring together medical providers to assume financial risk for a given population’s health. Providers will get a set payment from MassHealth (adjusted for patient health profile) to provide patient care for a year. Providers are rewarded or penalized based on costs and quality, and have incentives to keep enrollees healthy at home and out of hospitals.

ACOs became a key part of the Affordable Care Act’s scheme to transform health care from rewarding volume to value. Today, there are more than 800 ACOs across the nation, in Medicare, commercial insurance, and increasingly Medicaid. In the 2012 Massachusetts cost control law, MassHealth was directed to make “alternative payment models” such as ACOs a central new strategy.

“Budget-type arrangements such as ACOs align incentives and strongly support meaningful investments in population health, care management, managing between acute visits, and addressing how housing and homelessness and other social determinants impact outcomes,” says Dr. Stan Hochberg, chief quality officer at Boston Medical Center. He offers the example of early experience with an ACO patient with multiple chronic illnesses who became homeless and lost his transportation to dialysis treatments. The patient’s ACO care manager helped secure shelter and arranged transportation so that his dialysis treatment continued without interruption.

Under traditional fee-for-service, providers are paid for each procedure, office visit, or hospital day. “Pay us for sickness and mistakes, and you’ll get sickness and mistakes,” says Dr. Eric Dickson, CEO of UMass Memorial Health Care, the leading force behind the new Central Massachusetts ACO. “Pay us to keep people at home and healthy, and that’s what you’ll get. Less hospital and more community programs—asthma prevention in schools, community gardens, stopping falls at home. None of us want it the way it is now, and it’s perfectly designed to deliver those results until we change them.”

For decades, public health experts warned that cost containment aimed only at hospitals and physicians misses the point. Most poor health is a function of environment and behavior, and real cost containment must address “social determinants of health” such as poor housing, polluted environments, unhealthy diets, lack of exercise, and more. Pilot ACO leaders believe that the social determinants religion finally is catching on.

“The strategy is to address things that happen to people who live in poverty for a long time. For example, the chronic stress and exposure to trauma experienced by people living in poverty can often lead to issues with mental health and substance-use disorders,” says Christina Severin, president and CEO of the Community Care Cooperative, the network of 13 community health centers across the state. “We are planning to implement a really different model of care that seeks to de-medicalize people’s needs as much as possible.”

Dr. Mark Girard, president of the Steward Health Care Network, the for-profit system formed from the 2010 sale of the Catholic Caritas Christi system, says MassHealth’s initiative will expand Steward’s current ACO systems with Medicare and private insurers, which already cover 400,000 lives, to insure close to 600,000 patients in all. “We don’t think of ourselves exclusively as a hospital company but rather as an integrated delivery system,” he says. “We are proud to run high quality hospitals, but most people spend most of their time not in the hospital. That’s why concentrating solely on hospitals makes no sense in terms of keeping people healthy. We focus on populations and what they need.”

MassHealth’s ACO experiment has risks. Chief among them is the mandate for fast savings to restrain costs. MassHealth accounts for 42 percent of the state budget, including federal and state dollars, 16 percent if counting only state dollars. While ACOs nationally have improved quality, savings over the past five years have been unimpressive.

“I don’t know anyone who has figured out how to deliver altered care in one year,” says Partners’ Tim Ferris, though his network, like others, will build on years of experience using ACOs for Medicare and commercial patients. “The literature says it will take three years, but we’re bending over backwards to show we’re in this for the right reasons.”

Another concern is increasing provider concentration. The ACO strategy is to build broad, integrated networks of hospitals, physicians, behavioral health professionals, home health and long-term care services-and-supports, and now, community organizations. The Massachusetts health care market—already highly concentrated—will become even more so as a result. Will savings from prevention outstrip price pressures from more concentrated provider behemoths, or vice versa?  Stay tuned.

Another major concern is MassHealth’s management capacity. System leaders give high marks overall to Baker, Health & Human Services Secretary Marylou Sudders, and, especially, MassHealth chief Daniel Tsai and his team. But there are common complaints involving MassHealth’s primitive data infrastructure, which explains why most ACO providers are working with Tufts, HealthNet, and Fallon as their financial and administrative partners.

Looming large over the whole effort is the question of whether all the ACO work could be undone by new Trump administration Medicaid policies. The defeat of the Republicans’ Obamacare repeal legislation in late March has lessened this threat, and the new federal waiver is good for five years into 2021, though federal authorities retain the right to cancel. Yet ACOs do not appear to be under the gun of the new administration, and a 2015 law engineered by the Republican-led Senate and House, the Medicare and CHIP Reauthorization Act, actually gives them a real boost.

MassHealth ACOs may be a giant dud. They may save no money because providers are always one step ahead in gaming any system change. Provider concentration may nullify savings.  Medicaid patients may revolt from joining ACOs that limit their provider choices. MassHealth may blow up administratively—a state version of the Affordable Care Act’s epic 2013 website catastrophe.

Yet, as Eric Dickson of UMass says: “The ACO, as scary as it is to take risk for Medicaid beneficiaries, is our best chance. This is our best opportunity to deliver care the way we’ve always wanted to.” Others agree. “If this has not decreased costs at the end of five years,” notes Boston Medical Center’s Stan Hochberg, “I don’t know what choices we will face. If this doesn’t succeed, there are no good alternatives to providing care to our patients within budget constraints.”

Says Dr. Kit Gordon, president of Tufts Health Public Plans, “we’re authentically jazzed about this. All of us have to figure out how to better manage and control Medicaid spending. For the first time, I’m seeing health care organizations get serious that there might not be more resources and having to figure out how to live within a budget.”

A handy definition for the word quality is doing the right thing and doing it right. It is way too early to decide whether MassHealth is doing this transformation right. It’s not too early to judge whether they are doing the right thing. They clearly are.

Meet the Author

Meet the Author

John McDonough is a professor of practice at the Harvard TH Chan School of Public Health. William Seligman is a physician and a student at the Harvard Chan School.