Ray Scheppach and eight other experts met recently in Washington to analyze state innovations in Medicaid. [editor’s note]

Medicaid is now the biggest health program in the country, covering more than 70 million people, or 1-in-5 Americans. Spending surpassed $545 billion in 2015. Yet Medicaid, “the other M,” is often overshadowed by Medicare. But the depth and breadth of innovation in Medicaid in states across the country under Democratic and Republican governors, deserves more attention. That’s particularly true now as the Trump administration and Republicans in Congress consider sweeping changes and deep spending cuts that would fundamentally change the program that provides health care for Americans with low income, the disabled, and millions of older Americans needing long-term services and support in nursing homes or in the community. POLITICO recently convened a working group of policymakers and stakeholders to explore the obstacles, risks and opportunities in Medicaid innovation.

In an on-the-record discussion moderated by POLITICO’s executive editor for Health, Joanne Kenen, and health care reporter Rachana Pradhan, participants identified potential challenges and policy options for Medicaid that are emerging under the new administration.

To encourage a free and frank conversation, comments were not attributed to individual participants. What follows is their candid assessment of the state of Medicaid innovation, the role of the Affordable Care Act in stimulating innovation, and the opportunities and challenges created by the new administration, which has promised greater flexibility for states, regardless of whether Obamacare repeal legislation is enacted. The participants in the session are listed at the end of this report.

PAYMENT AND DELIVERY REFORM IN MEDICAID TODAY

As one participant said, “There really has been an explosion of work in Medicaid.” States are testing “medical homes,” Accountable Care Organizations, new quality initiatives and a host of waivers aimed at delivering care more efficiently to high-need populations. Forty-seven states now use Medicaid Managed Care Organizations, a move away from traditional fee-for -service toward value-based, or risk-sharing models (both with nonprofit and for-profit plans). All states and the District of Columbia’s Medicaid programs allow at least some form of telemedicine. Innovations like this can be found from Washington state to Maine, from New Mexico to South Carolina.

“It is fair to say that the Medicaid program is wild with innovation. It is a little scattershot as we try to think of new approaches.”

The vocabulary of Medicaid has changed in a pretty interesting and dramatic way over the last several years.”

Participants generally agreed that Medicaid programs need the ability to address specific defined communities, rather than applying their programs statewide, to microtarget to specific populations or neighborhoods.

“The other thing to realize is that these are also very geographically concentrated populations. So it’s eight zip codes where everybody’s coming from, into [the] ER and being hospitalized. And so, if you can do something there, then I can make a difference.”

KEY AREAS OF STATE INNOVATION

Under the broad rubric of innovation, participants agreed on three major –“buckets” or trends where state Medicaid programs are moving away from old fee-for-service models into new systems.

1) Engaging new populations: Medicaid innovators are engaging many different populations in a variety of ways – not just better managing the care of people who are of low income but relatively healthy. They also are working to improve management of chronic disease, mental illness and care for the disabled.

“I don’t think Washington fully understands how advanced the managed-care program has become for children and adults.”

2) Addressing social determinants: Medicaid programs increasingly are addressing social determinants of health; they’re not just paying for health care services as they have traditionally done, but they’re now finding way to fund – or partner with programs that can fund – areas such as housing, transportation and food. Several participants noted the need for new partnerships and financing models to address social determinants, and caution that Medicaid can’t be the “piggy bank” for the full array of social needs. But such partnerships and coordination can be hampered by the silos between the various government social service agencies and programs.

“It’s really important to understand that the driver in health care cost really is the social determinants of health in the lives of older people. … This is sort of lost in the Medicare world. The primary driver of health care costs in the Medicare world are all the sort of ancillary things around the health care itself … but you know, housing, food, security, transportation, those things — and care coordination — are fundamental [in Medicaid]

“Health system leaders are thinking, ‘I’ve got to start and intervene at the social determinant level to make this work.’ I think that’s happening in the Medicaid space in a way which, for whatever reason, didn’t really happen to Medicare shared saving space. I think that’s going to be sort of the great potential of these models.”

1) Managed long-term services and supports: The most expensive patients in Medicaid tend to be those with functional limitations and multiple chronic conditions. They require intensive care coordination, social services and long-term services and supports. But while it has become easy for states to turn to Medicaid managed care by amending the state plan they have to file with the federal Medicaid program, that’s not the case for programs for the elderly and the disabled. For those groups, filing a state plan amendment isn’t enough; the state needs to obtain a federal waiver. Nevertheless, participants said states are further along in deploying managed care for this hard-to-serve population than many federal policymakers may realize.

 “When you look at Medicare beneficiaries with chronic conditions, whether it’s one, two, three, four, five, six [conditions], and then you look at those [patients] with or without significant functional limitations, those with functional limitations are twice as expensive. This is where the Medicaid piece is sort of innovating in advance of Medicare.… Managed MLTSS work is where the rubber meets the road. It’s about targeting and care coordination… aligning services in ways that make sense.”

THE AFFORDABLE CARE ACT AS AN INCUBATOR FOR INNOVATION

Most participants agreed that the Affordable Care Act – which is, of course, now the subject of a repeal effort in Congress – has catalyzed much of the innovation currently taking place in Medicaid. It included new tools for care coordination, and expanded Medicaid coverage and funding. But state budgetary pressures also played a crucial role in prompting action. The drive for payment and delivery system reform has now become an integral part of state Medicaid policies, although it is not necessarily taking place everywhere in a state or reaching all patients who could benefit.

“The Affordable Care Act gave structure. It put payment structure and incentives; it codified all of the best practices that states were already beginning to do, bits and pieces here and there, these sporadic efforts, these trickles. The ACA helped pull that together and put a framework around it, put some structure around it.”

While participants generally agreed that the ACA had a role in spurring innovation, some argued that the new models of care and moves away from fee-for-service were emerging even before the ACA passed.

“States were doing [delivery system reform] before ACA; whether they were relying on their academic medical centers, FQHCs [federally qualified health clinics] who were using grants or existing Medicaid funding to spur delivery innovation.”

POLICY OPTIONS WITHIN THE CURRENT MEDICAID SYSTEM

Participants broadly agreed that states could benefit from greater flexibility through a streamlined federal waiver process that facilitates state experimentation, and the new administration has already made clear it is open to move waivers more quickly. In addition, several participants stressed the need to make it easier for state Medicaid programs to coordinate and share expenses of addressing social determinants with agencies such as the Department of Housing and Urban Development. (Interagency cooperation isn’t impossible, but the current system has many silos.) Participants preferred building such programs onto the current system, rather than the more sweeping overhaul of Medicaid and its financing that the Trump administration and Republicans in Congress have outlined.

1) Streamlined quality measurement: Some, though not all, participants backed a federal framework for quality measurement in Medicaid. Right now, there is significant variation among the states in what is being measured, and how well.

“If you’re in New York state, you have pretty good metrics for how that Medicaid system is performing for its patients. If you’re in South Carolina, you really don’t. And we’ve got to get to some national understanding. Frankly, [we need] a mandated framework — and that’s probably impolite for me to say that — in which we have some minimum expectations about what we’re going to measure for these populations.”

2) Drug cost reform: Several participants said they expect Congress to consider reforming Medicaid rules so that states would not have to include all drugs on the formulary — the list of drugs it must cover. This would help control rising drug spending that is eating up a bigger portion of the state Medicaid budgets, a trend that is supposed to get more challenging as pricey new drugs come onto the market.

“You’ve got to find a way — you certainly want — Medicaid has the most frail populations. Any of these drugs are going to be budget busters.”

3) Waiver reform: Most of the experts in the room said they would favor loosening the rules so that states could use 1,115 Medicaid waivers in tandem with 1,332 ACA exchange waivers. That could include requiring budget neutrality over three to five years.

State innovation risk : Several participants worry that states under the new HHS leadership may request to waive actuarial soundness, either under the current system or a Medicaid revamped according to the Trump administration’s blueprint. If granted, such a waiver would allow states to avoid paying Managed Care Organizations reasonable rates to cover the costs of delivering care, or paying providers enough so they are willing to participate in the networks. Without adequate payments, Medicaid MCOs would have trouble maintaining current programs, let alone developing the next iteration of innovation.

“It could undermine everything we’re talking about.”

THE PROPOSED GOP OVERHAUL

The House’s Affordable Care Act repeal bill, known as the American Health Care Act, which is backed by the administration, would phase out Medicaid expansion, turn Medicaid into a block grant or per person capped payment, and reduce federal Medicaid spending by $834 billion over a decade. The Congressional Budget Office predicts millions of people would lose their Medicaid coverage under the House bill. The Trump budget calls for additional cuts, beyond those in the repeal legislation. Across the board, participants thought these cuts would be unsustainable and would harm patients and providers. More to the point for this discussion, they feared that such deep cuts would stifle innovation. The proposed cuts are so severe that states would have to slash and slash spending; they would not be able to innovate their way to make up for that loss in federal funding. Innovation requires upfront expenditure, and the savings that innovation is intended to yield are not reaped immediately. Participants also noted that federal payments under the proposed per capita caps would not give states the flexibility to absorb drugs with high prices expected to come on the market, (such as an anticipated $750,000 MS drug and new gene therapies). They also noted that states under caps would get the same payment for a 65-year-old person who is relatively healthy but of low income and a far more complicated 85-year-old with multiple health challenges.

“Some of the things that we see working, you know, the savings are over the longer term. … They also require a lot of upfront investments. And you’re asking states to have to cut a significant amount of money, they’re not going to be able to invest in those kind of social determinant programs where you really see those long-term savings. I think that’s where our concern and focus is right now.”

“It’s one of the reasons we’re so concerned about the per capita caps, at the growth rates that they’ve proposed, because our plans will not be able to do a lot of the stuff that we’re talking about.”

“It’s a type of magical thinking.”

Working group participants:

•    Thomas Barker, partner, co-chair, Healthcare Practice, Foley Hoag LLP

•    Bruce Chernof, M.D., president and CEO, The SCAN Foundation

•    Meg Murray, CEO, Association for Community Affiliated Plans

•    Seemin Pasha, vice president for External Affairs, Alliance of Community Health Plans

•    Trish Riley, executive director, National Academy for State Health Policy

•    Michael Sargent, senior director, government affairs, CVS Health (Sponsor)

•    Ray Scheppach, PH.D., professor of Public Policy, University of Virginia

•    Bruce Siegel, M.D., president and CEO, America’s Essential Hospitals

•    Latoya S. Thomas, director of State Policy Resource Center, American Telemedicine Association