Savings Methods Absent from Massachusetts Medicaid Waiver Request

Published March 16, 2012

The latest Massachusetts request for a Medicaid waiver renewal from the federal government assumes Safety Net Hospitals will significantly reduce costs for the state’s Medicaid program. Unfortunately, no new methods for such cost reductions are specified in the waiver request.

Considering that the Bay State depends on this waiver to a greater degree than other states—it provided the basis for Republican Gov. Mitt Romney’s statewide reforms—this unresolved funding question could indicate future problems for the nation under President Obama’s similar health care reform.

Under the terms of the waiver request, the Safety Net Hospitals would be pushed away from the fee-for-service payment model. Federal Section 1115 waivers allow states to experiment with different funding and delivery options for their Medicaid and CHIP programs, which must be federally budget neutral over the duration of the waiver.

Unfortunately, the page of the waiver describing what payment models Massachusetts plans to move to was left blank, according to Joshua Archambault of the Pioneer Institute.

“As part of this agreement, you are going to move these Safety Net Hospitals to a different payment methodology. And in the waiver they laid out seven individual hospitals. They put additional money on the table to allow for that transition. The agreement was these hospitals had to move in that direction payment-wise,” Archambault said.

“There are some thresholds or benchmarks that these institutions have to reach in order to get all of the money that’s on the table for them. They have to make these payment changes, but the page that describes what they actually need to do is completely blank,” he added.

Non-Specified Cost Savings

Jennifer Kritz, communications director for the Office of Massachusetts Health and Human Services, confirmed “the waiver does not specify exactly the type of payment [model or models] that safety net providers should move to in favor of the fee-for-service model.

“In general, we believe that the health care system must transition from the fee-for-service payment model toward alternative models that reward providers for quality, coordination, and cost effectiveness in care,” Kritz added. “These models may include bundled payments, shared savings, and global payments, among others.”

According to Archambault, Massachusetts legislators are considering legislation to describe the payment models to be used at the Safety Net Hospitals, but as of yet has offered no specific solutions.

“We’re moving away from fee-for-service. That’s about as much detail as we have,” Archambault said.

Still Discussing Options

Archambault says there is a common understanding between the health policy establishment in Massachusetts and the federal government that “fee-for-service is not how you pay for health care.” CMS and Massachusetts officials have discussed many different options for payment, according to Archambault.

“I don’t think they’ve coalesced around one form, but they may include bundled payments, episodic payments, and these all mean different things to different people, but in essence, starting to pay for an individual’s care rather than one specific procedure. This is an area of a lot of debate right now in our state,” Archambault said.

Archambault says the inherent assumption within the waiver request is that in order to shift away from the FFS model, “you have to put these hundreds of millions of dollars on the table.”

“In order to get these Savings Net Hospitals to change you’re going to have to give them a ton of money,” he explained. But he sees two problems with that: “First, what about the other hospitals not specifically mentioned in the state waiver? And secondly, at the federal level, the federal law is partially financed by pulling all of this money out of the system.”

Obamacare Cuts Payments

Merrill Matthews, a health care policy analyst with the Institute for Policy Innovation, says what’s at issue in Massachusetts are federal Disproportionate Share Hospital (DSH) adjustment payments, which provide additional help to hospitals serving low-income patients not covered by either public or private health insurance.

“The background on this is that historically hospitals have gotten an extra bump from the federal government if they serve a disproportionate number of uninsured people,” Matthews said. “What the Obamacare legislation did was largely try to do away with the DSH payments because they thought ‘everyone’s going to be insured.'”

With more people on Medicaid, Medicare, and private insurance, the idea was there would be less need for DSH payments, which are cut by 75 percent nationally under Obama’s law. The transition away from fee-for-service is to be financed in part through future cuts in Medicare DSH payments, according to Archambault.

“What this is about,” Archambault said, “is the future of how we pay for health care. There is a lot of disagreement about how you should actually pay for health care. None of these unnamed reforms they’re considering are proven to save a bunch of money.

“Our waiver seems to imply that CMS’s belief is that hundreds of millions of dollars are required to make that change. Where is that money going to come from nationally? Obviously, we have no idea,” Archambault added. “Through the waiver they are assuming that the only way you can change the payment structure is by giving hundreds of millions of dollars more to do it, and under the federal government currently they are planning to take away money from these hospitals.”

“Something has got to give,” Archambault said.