Billy Millwee, former Texas Medicaid director, recently published an excellent piece with insight into that state’s experience with quality-based payment reform. Health care payors, both private and public, are looking more and more to tie payment with outcomes. Millwee’s article is a thoughtful and thorough assessment of Texas Medicaid’s payment reform challenges and opportunities.

Payment Reforms on the Rise:

Increasingly, health care payors are implementing reforms to create incentives for providers to control costs and to tie provider reimbursement to quality-based care measures. Medicare’s Shared Savings Program allows Accountable Care Organizations (ACO) to earn a portion of savings on health costs and spending. The Center for Medicare and Medicaid Innovation (CMMI) promotes several payment reform initiatives, including a State Innovation Models Initiative with funding for state-level payment and care delivery reforms in Medicaid, Medicare, and the Children’s Health Insurance Program (CHIP).

Not all payment reform efforts spring from the federal government. States, employer health plans, and other commercial health plans with eyes to the future now encourage coordinated primary care and to transfer some risk of cost overruns to providers.

Medicaid is a major target for states looking to control health costs and spending while also promoting quality. Maryland, for example, recently began making payment adjustments to Medicaid providers base on rates of patient complications. New York in 2010 began reducing payments to hospitals with high rates of readmissions, predating Medicare’s Hospital Readmissions Reduction Program created as part of the Affordable Care Act (ACA).

Millwee on Texas Medicaid Payment Reform:

Texas also counts itself among the states with major Medicaid payment reform initiatives underway. In 2011, the Texas Legislature passed Senate Bill 7, which instructed the state Health and Human Services Commission (HHSC) to develop a payment system tied to quality-based outcomes for providers, ACOs, and Medicaid managed care organizations.

Former Texas Medicaid director Billy Millwee – also a friend and colleague at Sellers Dorsey – recently authored an excellent journal article with valuable insights into his state’s experience with Medicaid payment reform. Millwee writes about the complications of setting meaningful quality-based metrics and payment policies, and he discusses long-term implications and challenges of continuing the state’s Medicaid reform efforts.

It is worth reading the article yourself to absorb Millwee’s thoughts in full. But this blog post will give a quick overview and a look at some of the things I found most interesting.

Selecting Outcomes Linked to Cost:

Though there are now many quality measures available to states, as Millwee points out, “for most quality measures, there is no direct link to the cost or payment associated with the aspect of quality being measured.”

Texas instead decided to target quality measures that could be prevented and that are linked to payments. Doing so allows Texas Medicaid to make payment penalties that:

  • have a simple and clear link to negative outcomes
  • are proportional to the cost of unnecessary care
  • are substantial enough to influence provider behavior

Hospital readmissions make a good example: Preventable readmissions, usually the result of inadequate care, directly cause additional and unnecessary health costs. The payment system generates a cost for the readmission and assesses a proportional penalty on the provider. Not only has the state Medicaid program reduced useless health spending, the provider received a strong incentive to improve care to prevent hospital readmissions.

Texas’s payment reform identified five types of outcome measures to fit those parameters:

1. Potentially preventable complications, which are negative health events stemming from care and not from an underlying medical problem.

2. Potentially preventable readmissions.

3. Potentially preventable admissions, for example when a person is treated in an ambulatory care setting for asthma but then is admitted because of inadequate monitoring, coordination, or patient follow-up.

4. Potentially preventable emergency room visits.

5. Potentially preventable ancillary services, which includes ineffective treatment and meaningless diagnostic tests.

Of course, there are many steps between identifying appropriate outcomes and implementing effective payment adjustments. So far, the Texas HHSC has issued regulations for calculating outcome-based payments in the cases of potentially preventable complications (PPC) and potentially preventable readmissions (PPR), which go into effect this year.

Read the article for details on the quantifying financial impact of negative outcomes, setting risk-adjusted norms to compare provider performance, determining payment adjustments, and ensuring effective communications.

Possibilities for the Future:

Millwee contemplates other outcome measures Texas and other states could include at some point in the future. One interesting idea is to measure enrollee health status over time. Patients who develop one or more chronic illnesses are among the most expensive to cover, which is why the Centers for Medicare and Medicaid Services (CMS) and private payors are eager for new methods to chronic care management. Many efforts have focused on health information technology (Health IT) that promotes patient engagement and gather data on chronic disease care.

But Millwee discusses another angle to solve the chronic disease problem: Health status over time could serve as a measure of how effective a health system is at preventing a person’s health from deteriorating, a measure that could be linked to cost and payment.

Other frontiers for payment reform, Millwee says, are in long-term care, nursing homes, and the dual eligibles population, all of which account for outsized portions of state and federal health spending.

You can read the full article at the Journal of Ambulatory Care Management.

Billy Millwee:

Billy Millwee is a member of Sellers Dorsey’s growing team of leading advisers working with clients on assessment of new healthcare markets and products. His expertise also includes design, implementation, and evaluation of Medicaid programs. Prior to joining the Sellers Dorsey team, he served as the Texas Health and Human Services Commission Deputy Executive Commissioner and Texas Medicaid Director – the chief executive in charge of $30 billion Texas Medicaid and CHIP programs. Previous state government experience with the Texas Medicaid and CHIP programs also includes development of regional trauma systems and development, implementation, and deployment of immunization clinic assessment and program improvement protocols. Billy Millwee holds a baccalaureate degree in Business Administration from the University of Maryland, a master’s degree in health care administration from Central Michigan University, and a master’s degree in sociology from Texas State University.