CCO Worries

During the past year, I’ve attended the governing board meetings of both CCO’s that serve my area and am a member of my local Community Advisory Council (CAC).  I continue to be impressed by the enthusiasm and commitment I see around me at these meetings.  However, I’m worried.

In its agreement with the Center for Medicare and Medicaid Services (CMS), Oregon committed to keeping the growth in per capita Medicaid costs below 4.4% during the 2013 fiscal year (July 2013 to June 2014) and below 3.4% during the 2014, 2015, and 2016 fiscal years.

How difficult will achieving these targets be for the CCO’s?  I haven’t been able to find a good analysis of this important question.  I did find data on Oregon’s per capita Medicaid spending up to 2009 on the Kaiser website and used the trend in this data to project what Medicaid spending would have been without the CCO’s.  The gap between this projection and the targets in Oregon’s CMS agreement is an estimate of the amount of spending reduction the CCO must achieve.

The CCO’s aren’t responsible for nursing home care.  The growth rate in non-nursing home Medicaid spending is plotted in the chart below for the ten-year period from 2000 to 2009.  The growth rate fluctuates widely during the period with a slightly increasing trend.  The average growth rate between 2000 and 2009 is 4.6%.  If spending continued to follow the trend line shown on the graph, per capita Medicaid spending would be 6.5% in 2014—over 2% higher than the CMS target.  My conclusion from the chart is that the CCO’s will need to make significant changes to bring spending down to the CMS target.


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Past efforts to reduce Medicaid spending have focused mainly on cutting payments to providers and/or changing the rules so that qualifying for Medicaid is more difficult.  Neither of these traditional approaches is available to the CCO’s.  The Affordable Care Act significantly expands the Medicaid rolls.  Payments to providers are already low and further cuts would make finding doctors to care for the new members difficult.

What options do the CCO’s have left to reduce the growth in costs?  I’ve been reading articles on this topic recently.  Almost all these articles are discouraging (See, for example, here, here, and here. The one encouraging one I found is here).  Since the CCO’s are so new, most of these articles focused on the CCO’s close cousins—the Medicaid Managed Care Organizations (MMC), the Accountable Care Organizations (ACO), and the HMO’s.  Cutting payments to providers is the only change that worked consistently to reduce costs.

I concluded that the CCO’s only options are to make the health care system more efficient by 1) providing better care to its high-cost patients and 2) changing the incentives of doctors and hospitals so they stop ordering low-value, unnecessary care.  Better coordination of care for patients with “multiple treatable chronic conditions and very serious illness” does have a record of modestly reducing costs. Since these patients use a large percentage of the CCO’s budget, it makes sense to expand efforts to keep them healthy and out of the hospital.  Hiring community health workers to assist high cost patients should be a good investment.

In theory, eliminating fee-for-service payments and expanding the use of capitated payments should reduce costs by eliminating the ability of providers to increase their income by ordering low-value, unnecessary services.  Unfortunately, the studies of the MMC’s and ACO’s have found little reduction in the quantity of low-value services ordered.  This finding may be because the health care systems studied were not fully integrated and had major parts that still are paid fee-for-service.  A mixed system reduces the incentives to coordinate care.  Unfortunately, the CCO’s currently are dealing with a mixed system.

The CCO contracts (or soon will contract) with providers in seven areas:

A. Primary care

B. Behavioral health services

C. Specialists

D. Hospitals

E. Pharmacies

F. Non-emergency transport

G. Dental services

Currently, only primary care and behavioral health services are paid using capitated per member per month (PMPM) contracts.  Providers of non-emergency transport and dental services should be willing to transition to PMPM contracts since their risk of large unexpected costs is small and should be manageable.

The CCO’s biggest and most uncertain expenses are paid to the hospitals, specialists, and pharmacies that treat the sickest members.  Unfortunately, hospitals, specialists, and pharmacies are still paid mainly using fee-for-service.  Since serious, expensive illnesses are difficult to predict, hospitals, specialists, and pharmacies have been reluctant to take on the additional risk of switching to capitated payments.  The inability to extend capitated payments to these providers is a major problem for the CCO’s.  It means the CCO itself must assume most of the risk for unexpected major illnesses.  It also means that key subcontractors don’t face the incentives to reduce low-value care that a fixed budget provides.  As large organizations, hospitals may have the financial resources to assume additional risk and may eventually be willing to accept capitated/bundled payments from the CCO’s.  However, I don’t know how PMPM payments can be made to work for specialists and pharmacies, unless they are employed or owned by the local hospital.