There are a variety of reasons why alternative payment models (APMs) can be more difficult to implement and manage in Medicaid, compared to the commercial or Medicare markets. Understanding these nuances and building strategies to address them is critical to the success of Medicaid APMs. An upcoming Milliman webinar hosted by Anders Larson, Rebecca Johnson, and Zach Hunt will focus on the challenges Medicaid payers face when attempting to establish APMs with providers. The webinar is based on their coauthored paper “Seven key challenges for Medicaid states considering alternative payment models.”
Title: Seven key challenges for Medicaid states considering alternative payment models
Date: Wednesday, February 27, 2019
Time: 2:00 p.m. EST
To register, click here.
While the use of alternative payment models (APMs) in the Medicare and commercial markets is prevalent, the use of APMs in the Medicaid market is low. There are several reasons why these models are more difficult to implement in Medicaid. Understanding the nuances of Medicaid APMs and building strategies to address them is critical to their success.
In this paper, Milliman’s Anders Larson, Rebecca Johnson, and Zach Hunt discuss seven key challenges that Medicaid payers face when trying to establish APMs with providers. The paper specifically focuses on shared savings/risk contracts based on total cost of care (TCOC) models. The following excerpt provides some perspective.
One challenge with any total cost of care model is that providers inherently take on some level of insurance risk due to random claims fluctuation that can influence results. This is true in the Medicare ACO models, which is why CMS uses a minimum savings rate (MSR) that varies by population size to limit its payments for “false positives.” This is likely to be more pronounced in Medicaid because of challenges with attribution, beneficiaries moving in and out of Medicaid, and a higher prevalence of zero-dollar claimants.
To ensure the long-term sustainability of its Medicaid program, New York State has launched an ambitious payment reform plan promoting use of value-based payment (VBP) models. This paper by Milliman’s Rebecca Johnson and Howard Kahn provides a high-level overview of the New York State VBP models, discusses the opportunities and challenges for providers considering participation in them, and highlights the needs for sophisticated actuarial, financial, and legal expertise to address the inherent business, legal, and operational risks.
Ropes & Gray’s Brett Friedman was also a co-author of this article.
Alternate payment contracts (APCs) are being employed to shift utilization risk from payers to providers in an effort to align financial compensation with provider performance. As a result, regulators may require that healthcare providers quantify their financial exposure and maintain adequate reserves to reduce their risks of insolvency. In this paper, Milliman consultants outline items that actuaries consider when reviewing a provider’s APCs and also provide perspective on modeling appropriate levels of financial reserves.
Here is an excerpt:
…The actuary will likely build a model to estimate the appropriate level of financial reserves required for the risk exposure borne by the provider through the APCs. Taking the above points into consideration, a deterministic model can be built to estimate the expected APC’s surplus or deficit based on projected claims and budget. The larger the projected surplus, the less likely random fluctuation from adverse events will cause financial strain on the provider, which will lower the level of required reserves.
A stochastic simulation can be built on top of this model to assign probabilities that the provider’s APC produces a deficit as a result of unforeseen events. A claims probability distribution can be created either from the provider’s actual APC historical claims data or another similar source.
Two main sources of claims variation that should be modeled in the simulation include:
• Mis-pricing. It is possible (probable) that the projected claims cost will not come in as expected because of inaccurate trend setting/assumptions.
• Random fluctuation. Even if the trend assumption is correct, there is always the possibility of chance events from year to year (i.e., larger-than-expected high-cost claimants).