The model for delivering care to the developmentally disabled (DD) population is likely to undergo fundamental change, financially impacting the agencies and healthcare providers serving this market. One of the strategies New York state is developing in response to the high cost of Medicaid benefits for DD beneficiaries is the establishment of licensed managed care organizations that will coordinate care for this population on a capitated basis. These organizations will be called Developmental Disabilities Individual Support and Care Coordination Organizations (DISCOs).
In this paper, Milliman consultants describe the upcoming changes to the Medicaid benefit framework and some of the challenges facing the managed care organizations and providers serving this population. Here is an excerpt:
There has been much speculation about the financial structure of the DISCO program, and the state has not released many details. One possibility, consistent with New York’s other Medicaid managed care programs, is a system of capitation payments. Capitations are predetermined amounts paid to the managed care plans to cover the full amount of benefits, regardless of the amount of services a particular individual uses. These capitation payments are often risk-adjusted based on risk-assessment tools, in the case of the Managed Long-Term Care (MLTC) program,2 or based on members’ health claim diagnosis codes and other data, in the case of the Medicaid Managed Care program.
Although the state has been testing various risk-assessment tools over the past few years, there is currently no risk-adjustment mechanism for DD Medicaid beneficiaries in New York. Without a proven risk-adjustment tool, DISCOs may incur a great amount of risk because benefit costs vary widely among individuals, as seen in Table 1. Until such a mechanism can be developed, some experts suggest that DISCO premium rates should be based on member characteristics such as age, residential needs, and other factors that will more accurately predict their benefit costs. A major drawback of this approach, however, is that too many premium variations (or rate cells) could provide little incentive for DISCOs to truly transform the system.
A risk corridor program is another approach that could mitigate the risk for DISCOs until a risk-adjustment mechanism is in place. This approach has been used as part of the New York’s MLTC program for new members under mandatory enrollment. CMS is also using risk corridors as part of the individual and small group exchange programs in the commercial market. A typical risk corridor program establishes a per-member-per-month
(PMPM) budget, and if a plan’s actual costs are less than the budget, the plan retains a percentage of the savings, and the remainder is paid back to the state (or CMS). If actual costs are greater than the budget, then the state (or CMS) will share a portion of the losses with the plan.
Capital requirements for DISCOs are also a matter of speculation, given the high average cost of benefits per member. In New York, both start-up and ongoing capital requirements for Article 44 managed care plans are based on a percentage of premium or capitation revenue. In the case of MLTC plans, the capital requirement is set at a fixed rate of 5% of premium. However, other managed care plans are required to hold 5% of premium in the initial year of operation, and the required percent of premium increases by one percentage point each subsequent year until reaching 12.5%. The state has hinted that the capital requirement for DISCOs may be less than other types of managed care plans, but actual details have not been released.