CMS hopes to change payment for dual eligibles

March 15, 2012

Federal and state governments may soon be looking to managed care for a comprehensive solution.

Federal and state governments may soon be looking to the managed care industry for a comprehensive solution that delivers higher quality, more efficient care to our nation's dual eligibles.

We have all heard the statistics. Dual eligibles represent a relatively small part of the beneficiary population in Medicaid and Medicare, but lead to a disproportionate share of the costs. Indeed some programs, including several PACE programs and Medicare Advantage Special Needs Plans, have demonstrated that coordinating care and payment for these individuals can lead to lower costs and expanded access to necessary services.

Nevertheless, dual eligible reform has struggled historically not only because of the extremely complex needs of the population, but also because of the financial incentives and misalignment created by the dual eligible payment structure.

Not surprisingly, the burden of complex patient care is constantly being shifted from one program to another-Medicare has an incentive to move people into long term care, while Medicaid has little incentive to avoid hospital readmissions. Further, neither program has seen a path forward to equally sharing in the savings created by investments in better care processes and administrative simplification. In particular, states have often been reticent to invest upfront money in dual eligible coordination, when some of the biggest savings-often achieved by keeping patients out of the hospital-accrue primarily to Medicare and the federal government. Likewise, the federal government has been hesitant to let states keep the share of Medicare savings that may be achieved through increased coordination efforts.

While several states have recently embarked upon care redesign processes for dual eligibles, what is perhaps more interesting is the desire to finally address the misaligned financial structure under the program. More specifically, 37 states and the District of Columbia recently indicated their interest in participating in a Centers for Medicare and Medicaid Services (CMS) demonstration that would not only fundamentally change the payment structure for dual eligibles, but would also set forth new potential savings incentives to drive investments in care coordination and delivery reform. Specifically, CMS is pursuing new financial arrangements with states under two models:

Over the past months, 29 states have expressed interest in pursuing the capitated model, with 23 expressing desire to explore managed fee-for-service. Some states have shown interest in both approaches. CMS indicates that it hopes to get many of these demonstrations up and running in 2012 for testing over a three year period.

This column is provided for informational purposes only and should not be construed as legal advice.