Medicaid Reform in Alabama Alabama Medicaid Advisory Commission November 14, 2012

1. Medicaid Reform in AlabamaAlabama Medicaid Advisory CommissionNovember 14, 2012

2. Agenda • Stakeholder Input • Defining the Problem • Potential Solution Options • Implementation

3. Stakeholder Interviews Inform the Solution • Many stakeholder interviews were completed to inform the problem statement and a potential solution. Interviews were conducted with representatives from: • The Governor’s office • Legislators and legislative staff • Government officials from Medicaid, Mental Health, Senior Services and the Board of Nursing • Auburn Montgomery Center for Government • Physicians, including Family Practice and Pediatricians • Hospitals • Nursing homes • Pharmacists • Health centers • Consumers • Insurers • Business Community

4. Stakeholder Input • Areas of Broad Consensus • Long-term sustainable funding for the Medicaid program must be found • The proposed financing/payment model must introduce new incentives for improving cost and quality outcomes • Broad support for Patient Care Networks (PCNs) • The proposed delivery model needs to: • Support additional access to primary care • Increase coordination across providers • Achieve real improvements in cost and quality • Stakeholders are ready to work together to create “a new Medicaid”

5. Average Medicaid Payment Per Recipient for All Services FY2008 AL Cost per Beneficiary is relatively low Alabama has a lower average Medicaid payment per recipient than the average for all states in the Southern Legislative Council. Manatt Health Solutions Source: Southern Legislative Council “Comparative Data Report on Medicaid,” March 15, 2011

6. Defining the Problem - Health Status in Alabama Source: Kaiser State Health Facts Alabama fares worse than the national average on many health indicators.

7. Defining the Problem - Utilization Broadly, there is over-reliance on ED and inpatient use in Alabama.... Source: Kaiser State Health Facts, 2010 data

8. Defining the Problem - Barriers in Access to Care ...and insufficient access to primary care. Source: Kaiser State Health Facts

9. 64% Spending on 35% of Beneficiaries (ABD) Children 469, 795 49% Adults $320 8% Adults 157,527 16% Aged 120,974 13% Children $1,100 28% Disabled 206,497 22% Aged $1,000 26% Disabled $1,449 38% The Aged, Blind and Disabled beneficiaries account for two thirds of Medicaid spending. Alabama has a high rate of dual eligibles, which are among the highest cost and most challenging to administer. Alabama Medicaid Enrollment by Category FY 2009 Alabama Medicaid Spending by Category In Millions, FY 2009 Dual Eligibles • 207,000 duals in Alabama • $2.7B Medicare expenditures • $1.2B Medicaid expenditures Source: Kaiser State Health Facts, Alabama Medicaid 2009

10. Manatt View: Requirements for Reform of AL Medicaid • Provide fiscal certainty to the state by transferring budgetary risk to downstream entities and minimizing annual increases • Improve beneficiary access to care and improve health outcomes • Secure new dollars to support access, better outcomes, funding shortfalls and delivery system transformation • Restructure the provider contribution to state match while maintaining full program funding • Create accountability for care and outcomes by paying based on value • Implement an approach that incorporates leadership and input from all healthcare stakeholders – and holds them accountable for results

11. Building Blocks for Medicaid Reform in Alabama • Develop a long term, sustainable financing plan for Medicaid • Replace stopgap funds from the Oil and Gas Trust fund • Secure long-term sources of additional funding • Continue provider assessments while transitioning payment to a value basis Program Financing • Pay based on value rather than FFS wherever possible • Reimburse care coordination efforts Provider Payment • Address access shortages, particularly in primary care and in rural regions • Implement care coordination models across providers Care Delivery

12. Manatt View: Goals of Medicaid Reform • Control costs by systematically addressing high cost beneficiaries and improving the system of care • Provide a “medical home” for patients, emphasizing primary care and the coordination of care across settings • Organize providers to take accountability for costs and outcomes, managing chronic illness • Secure sufficient funding to maintain and strengthen the program and attract provider participation

13. Stakeholder Perspectives • “Beneficiaries run out of physician visits, or they otherwise can’t access a physician, and they end up in the emergency department for primary care, costing the program significantly more.” • “We take extensive information about the patient – their medical condition, their home/social situation... when they leave our facility, nothing happens with that information. It doesn’t follow the patient. There is limited coordination across providers.” • “There could be increased coordination between behavioral and physical health to improve outcomes for beneficiaries.” • Source: Manatt interviews with stakeholders, paraphrased.

14. Stakeholder Perspectives “We have brought six mental health counselors into our pediatric practice. We don’t make any money from it right now, but our patients need access to behavioral as well as physical health services.” “The PCN program has resulted in a wonderful partnership between providers. Part of the success has been the ability to capture high risk patients at the time of care due to the data provided by the state. We have seen 7-9% cost savings.” “The PCNs are assisting providers in caring for patients and controlling costs by developing care pathways based on evidence-based medicine.” Source: Manatt interviews with stakeholders, paraphrased.

15. Manatt View: Goals of Medicaid Reform • 1. Control costs by systematically addressing high cost beneficiaries and improving the system of care • Approach: • Priority emphasis is on toughest challenges: ABD, dual eligibles, special needs children, mentally ill • Care is shifted out of the ED and into community setting • Provider community is engaged to deal with both issues collaboratively • State resources are coordinated – Medicaid, Mental Health, Public Health, Senior Services • Solutions: • Create reimbursement incentives for: • a) providing services in home and continuity of care settings to decrease unnecessary nursing home and hospital utilization; • b) reducing readmissions from nursing home to hospital • c) increasing primary care access and linking to hospitals • Implement health homes for chronically ill by expanding the PCN program • Support statewide programs for special needs kids • Encourage providers to come together into (delivery) risk-bearing entities to implement these changes

16. Manatt View: Goals of Medicaid Reform 2. Provide a “medical home” for patients, emphasizing primary care and the coordination of care across settings • Approach: • Providers work together in local/regional partnerships • Accountability built into care delivery and reimbursement models • Identification and management of patients enabled by data sharing • Solutions: • Launch a Medicare-Medicaid dual eligibles demonstration • Promote medical homes • Pilot and roll-out health homes • Implement payment incentives to pay for care coordination services • Build data collection and sharing capabilities • Increase reimbursement to support greater use of mid-level practitioners

17. Addressing ABD and Duals New sources of funding can support implementation of new models of care. • New State plan option that allows patients enrolled in Medicaid with at least two chronic conditions to designate a provider as a “health home” to help coordinate treatments for the patient. Chronic conditions include mental health, substance abuse, asthma, diabetes, heart disease and being overweight. 90/10 FMAP for 8 quarters. Health Homes (SPA) • Managed Fee For Service program for implementing coordinated care approaches for dual eligibles. Focus on providing care coordinators and behavioral health resources to these beneficiaries Duals Demonstration Transition & Pilot Programs • E.g., Some states are using 1115 waiver authority to design programs for dual eligibles. • It is anticipated that other SPA and demonstration authorities will become available and should be evaluated by the state. Other SPA/ Demonstration Options

18. Manatt View: Goals of Medicaid Reform • 3. Organize providers to take accountability for costs and outcomes, managing chronic illness • Approach: • Implement payment reform to migrate to value based reimbursement • Promote gain sharing and risk bearing solutions • Expand quality measurement and reporting • Solutions: • Implement APR-DRG’s and APG/APC’s for hospitals • Strengthen and expand PCN’s into risk bearing entities • Implement shared savings and bundled payments

19. Taking PCNs to the Next Level

20. Manatt View: Goals of Medicaid Reform • 4. Secure sufficient funding to maintain and strengthen the program and attract provider participation • Approach: • Establish short term and long term funding solutions • Reinvest savings back into the Medicaid program • Support initial infrastructure development to improve efficiency and coordination • Solutions: • Use 1115 waiver and health home SPA to leverage new dollars to support payment and delivery system reforms • Renew existing provider assessments prior to expiration next year • Selectively increase reimbursements to encourage participation • Longer term, 2015+, consider: • A tobacco user fee or other provider assessments to make up shortfall from Oil and Gas Trust Fund • How Medicaid expansion brings new funds to the state to cover uninsured

21. Short Run: Use of 1115 Waiver Generate new funds through an 1115 waiver to transform the Alabama delivery system. 1115 Waiver • Waiver components: • Negotiation with CMS to: • Determine new services eligible for Medicaid coverage • Calculate total expected expenditures and anticipated saving as a result of payment and care delivery reforms • 1115 waiver provides flexibility for state investment in care model redesign • Maximizing 1115 funding generally requires state match, which may be generated by: • Program savings • Costs associated with state-only programs, such as certain mental health services, care management services • Waivers are generally for 5 years

22. Short Run: Use of 1115 Waiver 1115 Waiver Use funds from 1115 waiver to transform the Alabama delivery system. • Alabama can create new pools of funds that providers can access to transform its delivery system. The state can create funding pools, similar to those in other states, that can: • Provide capital funding for PCNs (and eventually regional care organizations) to expand and implement IT and care management infrastructure • Assist providers with the transition to a new care management program • Cover uncompensated care costs • Allocate dollars to providers for the delivery of quality care • Allow providers to develop new care management infrastructure • Enable program innovation and redesign

23. Long Run (2015+): New State-Based Revenue Provider Assessments Consider expanding the provider assessments to additional providers Alabama currently applies an assessment to hospitals, nursing homes and pharmacies, which is used to draw down federal match Federal law allows the state to assess other providers and services such as: ICF services, physician services, home health, ambulatory surgery, podiatric, chiropractic, optometric, psychological, therapist, nursing, lab, and emergency ambulance. Tobacco User Fee Consider raising the tobacco user fee with funding directed to Medicaid Alabama’s current tobacco user fee generates some limited revenue for the Medicaid Program • May have broad based political support among the provider community • Build into long term (2015+) operational infrastructure to improve the Medicaid system.

24. Manatt View: Accomplishing the Goals of Medicaid Reform Implement a global cap on Medicaid expenditures to provide fiscal certainty and environment conducive to fundamental reform.

25. Implementing a Global Cap on State Spending in Alabama Savings Reinvested to improve Program State Spending Meets Global Cap Global Cap on State Medicaid Expenditures Provider reimbursements are reduced • Providers and State develop a methodology for setting the cap • Must include an annual inflationary factor • Care management and delivery system reforms are critical to drive savings State Spending Exceeds Global Cap • Commissioner is authorized to make uniform reductions to provider reimbursements in the subsequent year to cover the shortfall • Non-uniform adjustments can be made if a particular sector causes the increase in excess of 4% • Commissioner could also be authorized to suspend certain benefits in order to achieve savings needed • Requires broad participation of providers – extending to LTC, home care, pharmacy, physicians, hospitals, etc. • Drives federal savings, which can be leveraged for the 1115 waiver to infuse dollars into the state for delivery system reform.

26. Global Cap and Maintaining “Provider Contributions” Global Cap Governor and Legislature appropriate funds to the Medicaid program General Fund - Medicaid $400M Transfers from other State departments to draw down federal match GF - Dept Receipts/IGTs $256M State Government Fund Trust through taxes on private hospitals, nursing home and Rx revenue AL Healthcare Trust/CPE $575M Nursing Homes & Pharmacies Private Hospitals Leverage public hospital Certified Public Expenditures • How do we ensure $575M? • Use IGTs to maximize UPL and funding from public hospitals • Set provider tax in a manner to ensure contributions from private hospitals remains stable. • Leverage 1115 waiver dollars to create transition pools Public Hospitals Rx Rebate, Other $156M Pharmaceutical manufacturers rebates, carry forward from prior year, tobacco revenue, and miscellaneous receipts. Total State Share $1.39B Source: State Medicaid Agency, 2011 Annual Report

27. Manatt View: Reform Implementation Takes Two+ Years

28. Manatt Health Solutions Thank you. Manatt Health Solutions Tom Enders, Managing Director Anthony Fiori, Director Molly Smith, Manager