Medicaid is a state-federal partnership through which state Medicaid agencies collectively provide coverage to over 70 million Americans of limited financial means (and/or other qualifying criteria) across all 50 states.  Annually, Medicaid spending exceeds $500 billion.

  • Providers in Colorado receive a per-member-per-month (PMPM) payment for achieving performance expectations—often through models attached to Health Home or Patient Centered Medical Home (PCMH) delivery systems.  
  • Arkansas and Tennessee have implemented episode-based and bundled payment models, where a provider is responsible for the costs and quality of a defined and discrete set of services for a period of time. 
  • California, Minnesota, Massachusetts and New York are using population-based models to incentivize value-based care and invest in the health care infrastructure necessary for the success of value-based care—often through an ACO or ACO-like structures—which have been funded in partnership with the federal government through Section 1115 demonstration waivers referred to as Delivery System Reform Incentive Payment programs.

The recent value-based health initiatives have shown promising results.  For example, Arkansas found improved compliance in clinical quality through its episode-based model, while at the same time over 85% of participating providers received upside payments. Similarly, enrollees in Colorado’s population-based model, accounting for 70% of the total state Medicaid population, experienced improvements in measures associated with better health outcomes and lower costs, such as the rate of children receiving their annual visits, while participating providers earned performance payments and the state estimated savings of $37 million in the most recent year.

Value-based health care initiatives, however, can be challenging for state Medicaid agencies to implement.  They must balance the substantial resources required for these new initiatives—particularly in staffing and data reporting capabilities—with the need to maintain their current Medicaid operations and to control overall spending.  They must consider both the need for regulatory waivers to existing laws that might prevent the success of value-based care initiatives (e.g., restrictive state privacy laws, fee-splitting) and trade groups that have competing interests.  Additionally, through many of the federal waivers that have authorized Medicaid programs to pursue to these initiatives, CMS has demanded substantial accountability and reporting that puts federal funding at risk for failure to achieve anticipated outcomes.  Similarly, for providers, shifting the necessary delivery system processes requires significant investments of time, personnel and technical capabilities, which can be especially challenging for the safety-net institutions that serve much of the Medicaid population, even with additional start-up funding that is often made available through these initiatives. Finally, if state Medicaid value-based efforts are not coordinated with federal efforts, their strategies risk diverging, causing providers to have to comply with different approaches that achieve essentially the same goals.

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