FEBRUARY 2019 Medi-Cal Explained FACT SHEET Medi-Cal Payment to Under the monthly capitation arrangement, the goal is to promote a system of managed care Managed Care Plans — that is focused on providing quality and access to Current Process and preventive care and medically necessary services and move away from a model in which payment Challenges is based on the volume of services provided. Aligning financial incentives helps reduce unnec- Michael Engelhard, Managing Principal, and Steve essary use of high-cost services, such as hospital Soto, Principal, Health Management Associates; or skilled nursing facility stays. To ensure that plans Athena Chapman, President, Chapman Consulting do not unreasonably limit care to save money under capitation, DHCS has implemented moni- Introduction toring programs of the MMCPs related to quality Over the past decade, the California Department of care, access, and member grievances. The of Health Care Services (DHCS) has been steadily oversight combined with the financial incentives is moving the Medi-Cal program to managed care intended to deliver care that is more cost effective from the fee-for-service model (FFS). As of 2018, and achieves better outcomes for members. This DHCS had contracted with Medi-Cal managed publication outlines how the Medi-Cal managed care plans (MMCPs) to deliver at least some cov- care capitation payment setting process works in ered benefits in all 58 counties, accounting for 82% California. of all Medi-Cal enrollees.1 Under a managed care contract, an MMCP pro- How Monthly Capitation Rates vides all covered services for a monthly capitation Are Set payment, also referred to as a per-member per- The Centers for Medicare & Medicaid Services month (PMPM) payment.2 Rates paid to doctors (CMS) sets federal rules that states must follow and hospitals in managed care networks are related when contracting with MMCPs. The CMS rate-set- to the monthly capitation payment received by the ting guide requires states to establish monthly managed care plan from DHCS, but each MMCP has authority and responsibility to negotiate pay- ment rates with providers in its county or service The California Health Care Foundation is ded- icated to advancing meaningful, measurable area. Many plans attempt to link their provider improvements in the way the health care delivery contracts to the state fee schedule, which is used in system provides care to the the FFS program. However, plans are also required people of California, particularly to have enough contracted providers to ensure those with low incomes and appropriate levels of access to care for their mem- those whose needs are not well bers. Because of wide variation in the availability of served by the status quo. We providers who will accept the state FFS payment work to ensure that people have rates, many plans pay providers at rates above this access to the care they need, fee schedule. when they need it, at a price they can afford. For more information, visit www.chcf.org. California Health Care Foundation www.chcf.org | 1 FEBRUARY 2019 capitation rates that are expected to cover all pro- Certain managed care plans cover more than the jected costs of care for the services and popula- populations listed above. Plan- or county-specific tions covered under the MMCP contract. The state COAs may also include: must obtain an independent actuarial certification lLong-term care Medi-Cal only of those rates. The actuarial certification contains lLong-term care dual eligible detailed explanations of the data used to project the costs (e.g., cost of services, past and expected lAIDS Medi-Cal only use of services) and lists additional factors (e.g., lAIDS dual eligible expected policy changes) that are included to The current DHCS approach to MMCP rate setting determine the rates to meet this standard. uses health plan costs and data on use of services Separate payment rates are developed for groups to establish the “base period.” This base year is of beneficiaries, which are called category of aid then adjusted to create the final monthly capita- (COA). In California, the COAs covered under tion payment as follows: the MMCP contract include the following in all l DHCS collects data on actual plan medical counties: costs and services provided from the previous lAdult calendar year (known as encounter data). lChild lDHCS also collects actual plan administrative costs from the previous calendar year. lAffordable Care Act (ACA) optional expansion lThe data are analyzed, adjusted to address out- lAged/person with disability — Medi-Cal only liers, and validated, becoming the base period lDisabled dual eligible data. lAged dual eligible lThe base period data are updated to include lBreast and Cervical Cancer Treatment Program trend adjustments for anticipated changes in (BCCTP) utilization or costs; updates to nonmedical load (changes in program or administrative costs); lMaternity legislative or administrative program changes (such as new benefits); and efficiency adjust- ments, which are expectations of the cost sav- ings MMCPs can achieve for specific services. Figure 1. Rate Development Process, 2018 Efficiency Trend Adjustments Historical/ Future Adjusted Contract Base Data Period Program Nonmedical Changes Load Source: Intended Consequences: Modernizing Medi-Cal Rate Setting to Improve Health and Manage Costs California Health Care Foundation, 2018. California Health Care Foundation www.chcf.org | 2 FEBRUARY 2019 Adjusting for Program Changes Looking Ahead Program changes that impact cost and use of ser- A key challenge in the current capitation payment vices require monthly capitation payment adjust- approach is the lack of incentive for MMCPs to ments. Program changes can have either a direct reduce costs over time. DHCS currently employs or an indirect impact on expected costs to the plan an experience-based approach to setting monthly and include the addition, modification, or elimi- capitation payments, as described above. This nation of a benefit or service; a provider FFS rate means that when an MMCP reduces costs through change (which impacts the rate those providers effective cost-management techniques, the base expect Medi-Cal to pay); a COA eligibility change; period costs reflect that decreased spending, or an additional requirement placed on MMCPs which in turn results in reduced capitation levels (e.g., requiring health risk assessments for new in future years. This process, referred to as pre- plan enrollees). Program adjustments may take mium slide, fails to reward the MMCP for providing effect before the next rate development process, cost-effective care. in which case the monthly capitation adjustment would operate retroactively. New incentives for MMCPs could reduce health care spending through greater use of value-based Supplemental Rates payments. There are several options, including In addition to the base monthly capitation pay- a shared savings arrangement in which MMCPs ments MMCPs receive, DHCS also makes supple- would retain a percentage of savings above a mental payments for other covered benefits. As predetermined benchmark. Another is the use with risk adjustment, this applies only in counties of in-lieu-of services, which would allow MMCPs where there is more than one MMCP. to include certain nontraditional or alternative services in their utilization data, as long as those When DHCS determines, based on historical data, services are cost-effective. that variation exists among MMCPs in the concen- tration of high-cost services, and it would be diffi- The current process to develop monthly capitation cult for DHCS to project how that variation would payments requires periodic supplemental data impact each MMCP in a particular year, it can make requests (SDRs) to address the constantly changing supplemental payments. The most frequent of Medi-Cal environment and its impact on the costs these supplemental payments is referred to as the plans incur. The SDRs are considered new benefits maternity “kick” payment. For this maternity kick and incorporated into managed care either by category, DHCS pays MMCPs a supplemental pay- federal requirements (e.g., ACA’s essential health ment for all live births, covering both facility and benefits) or by state action (e.g., movement of physician costs. the Healthy Families Program into Medi-Cal). This introduces a significant administrative burden. A DHCS also develops supplemental payments when different process could align the SDRs with the new services or benefits are added and there are annual capitation rate-setting process to minimize not adequate cost and utilization data available to administrative time and effort. incorporate these costs into the monthly capitation payment. Examples of this type of supplemental Finally, the consistency and reliability of the payment include the very expensive hepatitis C MMCP encounter data that support the costs drugs that were approved for use starting in 2013, and utilization information submitted for the base the inclusion of behavioral health treatment for chil- period remain an area of high interest. The fed- dren with autism spectrum disorder that began on eral government will start to impose fines in the July 7, 2014, and the inclusion of community-based coming years on states that do not have adequate adult services as a managed care benefit in 2013. encounter data.3 California Health Care Foundation www.chcf.org | 3 FEBRUARY 2019 Endnotes 1. “Medi-Cal Certified Eligibles - Recent Trends,” California Department of Health Care Services, accessed November 29, 2018, www.dhcs.ca.gov/dataandstats/statistics/Pages/ Medi-Cal-Certified-EligiblesRecentTrends.aspx. 2. “Medi-Cal Managed Care Boilerplate Contracts,” California Department of Health Care Services, last updated March 13, 2014, www.dhcs.ca.gov/provgovpart/ Pages/MMCDBoilerplateContracts.aspx. 3.CMS’s Final Rule on Medicaid Managed Care: A Summary of Major Provisions, The Kaiser Commission on Medicaid and the Uninsured, June 2016, http://files.kff.org/ attachment/CMSs-Final-Rule-on-Medicaid-Managed-Care. Acknowledgments About Health Management Associates Health Management Associates (HMA) is an inde- pendent national research and consulting firm in the health care industry. HMA helps clients stay ahead of the curve in publicly funded healthcare by providing technical assistance, resources, decision support and expertise. www.healthmanagement.com About Chapman Consulting Chapman Consulting provides strategic planning, meeting facilitation, organizational support, and regulatory and statutory analysis, to a variety of health care-related organizations. Medi-Cal Explained is an ongoing series on Medi-Cal for those who are new to the pro- gram, as well as those who need a refresher. To see other publications in this series, visit www.chcf.org/MC-explained. California Health Care Foundation www.chcf.org | 4