Today, Medicaid spends nearly $500 billion a year on health care for about 71 million Americans.  Responsible for a quarter of state budgets, the highly complex program is poised to grow dramatically under the Affordable Care Act (ACA).

The extraordinary fiscal, clinical, and administrative demands of Medicaid have left state policy makers searching for ways to operate the program more efficiently and cost effectively.  In particular, Medicaid officials across the country seek alternative methods of payment and care delivery to decrease costs, increase value, and improve patient health outcomes.  Ultimately, Medicaid reform is essential to financial sustainability and providing value for both taxpayers and beneficiaries.

States are developing various strategies to strengthen their Medicaid programs.  While these approaches often differ, they share common goals, including replacing fee-for-service payment with value-based reimbursement, increasing coordination of care, effectively and efficiently treating high-risk patients such as dual eligibles and SSI beneficiaries, decreasing preventable events, and eliminating waste in unnecessary services.

Examining Three States’ Medicaid Reform Efforts

Several states stand out in their implementation of Medicaid payment and delivery system reforms.  A report by the Commonwealth Fund examined the efforts of Colorado, Minnesota, and Vermont.  Despite the many different challenges these states face, valuable take away points can be observed from their work so far.

Each of the three states share certain characteristics that made them likely candidates to initiate reform:

  • History and culture of reform:  These states were engaging in Medicaid reform efforts prior to the Affordable Care Act and have had a long evolutionary history of attempting to address challenges in health care payment and delivery.
  • Economic necessity:  Increased enrollment, rising healthcare prices, and the recession contributed to a need for lowing costs.
  • Stakeholder and/or bipartisan agreement on priorities:  Leaders generally agreed on goals including improving health outcomes, reducing costs, and improving care coordination.
  • Strong healthcare leadership:  Each state had strong leadership from the state Medicaid director, key stakeholders, and thought leaders.
Lessons Learned From State Medicaid Reforms

Payment and care delivery reform are hot topics now and are essential elements to any state Medicaid reform effort.  As implementation of the Affordable Care Act moves forward, states will be wise to pay attention to previous examples of reform.

By exploring the reform efforts of these three states, several important lessons emerged:

  • Allow regional or local flexibility:  Local culture, needs, and circumstances should be taken into consideration.
  • Standardize measures and invest in data collection and analysis:  This helps in evaluating programs, making necessary changes, and establishing accountability.
  • Leverage resources across state government departments and agencies.
  • Identify, convene, and educate stakeholders:  This includes providers, health plans, and consumers.
  • Build on what exists:  Instead of creating reform efforts from scratch, states should work within existing frameworks.
  • Broaden service integration:  This can be the result of an overall effort or done piece by piece, expanding coordination over time.
  • Acknowledge long term nature of savings:  Policy makers must recognize that reforms in payment and delivery are designed to generate savings in the long run, not immediately.
  • Integrate reforms across state health programs as well as Medicare and commercial health insurers:  This reduces cost shifting and strengthens the market influence the overall reform efforts.
How can the Feds Assist States in Medicaid Reform Efforts?

After the passage of the Affordable Care Act, the Centers for Medicare and Medicaid Services (CMS) has made a few resources available to states to aid in Medicaid reform, including grants through the CMS Center of Medicare and Medicaid Innovation.  However, the states have identified several areas in which CMS should provide substantial support to make genuine Medicaid reform a reality:

  • Flexibility for State Medicaid agencies
  • Better Access to Data
  • Medicare participation in state-led reform efforts
  • Grant simplification
  • Clinical process change
  • Greater financial support
  • Quality standards

To read the report – Aligning Incentives in Medicaid: How Colorado, Minnesota, and Vermont Are Reforming Care Delivery and Payment to Improve Health and Lower Costsclick here (PDF).