Note: I’ve left this post unmodified, but there is a factual inaccuracy I want to correct. The law does not require MassHealth to entirely phase out its fee-for-service plan: it can implement an alternative payment plan that keeps fee-for-service, but adds other payment mechanisms on top, such as a “shared savings” scheme that lets providers keep some share of any reduced costs, or pay-for-performance payments. There is certainly a danger that such plans could drive up the costs of MassHealth’s cheapest plan – which is what happened under Blue Cross’s ACO for example, where the pay-for-performance payments were so high they erased any possible savings. So the plan would not need to entirely abandon its fee-for-service rates, but it would need to supplement them. Thanks to Brian for flagging this issue for me in the comments below and via email.
Last Monday, August 6, Governor Patrick to great fanfare signed legislation that had slowly worked its way through the State House to control health care costs. At the signing, he declared “We are ushering in the end of fee-for-service care in Massachusetts in favor of better care at lower cost.” The law’s largest impacts will be on the state’s own public health insurance plans – MassHealth, Commonwealth Care, and the Group Insurance Commission (the plan for state and many municipal employees). The law requires that MassHealth move at least 25% of its Medicaid enrollees into “alternative payment methodologies” – defined as anything but fee-for-service – by July 1, 2013; then 50% by July 1, 2014; and finally 80% by July 1, 2015. If that weren’t enough, later in the bill all public insurance plans are instructed to implement alternative payment methodologies “to the maximum extent feasible” by July 1, 2014.
In an ironic (possibly intentional?) act of timing, just three days previously the State’s Inspector General released a report showing that the state pays 33% more on average for enrollees in MassHealth’s managed care plans – which are capitated – than for its enrollees in MassHealth’s fee-for-service plan.
In short: MassHealth has been instructed to rapidly phase out its cheapest health care payment plan in favor of plans that are more expensive, but at the center of a national policy fad.
The rhetoric around abolishing fee-for-service revolves around reducing the overuse or “overutilization” of care. However, the Inspector General’s report concludes “While it is theoretically possible that the [managed care] program produces enough savings in utilization to outweigh the large differentials in reimbursement rates, there is little evidence to support that possibility. In fact, studies of the private market have indicated that managed care savings come primarily from price reductions and not from decreases in utilization.”
This echoes recent findings from the Attorney General’s office, which analyzed Blue Cross Blue Shield’s “Alternative Quality Contract” – the largest alternative payment plan in the state, which relies on capitation and pay-for-performance incentives. The AG found that costs for providers entering the AQC contract went up by 10% on average in year 1, compared to an increase of 1.7% for other providers. While the contract does stipulate slightly less generous payments over the next 4 years, the AG’s office calculated that other providers in the state would have to see catastrophic increases in their health care costs every year for the AQC payment methodology to actually result in savings.
I should note in closing that it is universally acknowledged that MassHealth’s fee-for-service payments are too low, and for many providers actually less than the cost of providing care. The discrepancy means that providers servicing low-income communities tend to struggle financially. Increasing Medicaid payments is a necessary step without real reform that reduces the costs providers themselves face, but let’s not pretend that it’s cost control!