Blog

Month: September 2022

HMA perspectives on the 2022 federal policy landscape

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This week, our In Focus section looks at the current federal policy landscape and trends and the legislative outlook for the remainder of 2022 and beyond. Experts from HMA continue to monitor developments in this area and provide additional updates as more information becomes available.

Legislative Branch

To date in 2022, Congress passed multiple comprehensive bills, including the Inflation Reduction Act (IRA), which was signed by President Biden on August 16, 2022. The IRA extends Exchange plan premium tax subsidies through 2025, institutes an out-of-pocket drug spending cap for Medicare beneficiaries, expands Medicare, Medicaid, and CHIP coverage protections for certain vaccines, allows Medicare to negotiate drug prices, and implements a penalty payment in the Medicare program for prescription drug prices that rise faster than the rate of inflation.

Going forward, stakeholders have an extensive list of immediate Medicare payment issues for Congress to tackle while lawmakers continue to consider fundamental reforms to the program. Priorities include mitigating Medicare payment reductions scheduled for 2023; providing relief to address inflationary cost pressures; extending the 5 percent bonus for physicians participating in Advanced Alternative Payment Models (APMs), which expires at the end of 2022 for Accountable Care Organizations (ACOs); and permanently expanding telehealth access and payment policies after the federal COVID-19 public health emergency (PHE) declaration expires. Many stakeholder groups are also urging the Senate to act on the House-approved legislation, Improving Seniors Timely Access to Care Act (H.R. 3173), to reform Medicare Advantage prior authorization policies.

Congress did not include major Medicaid proposals in the Inflation Reduction Act. Medicaid stakeholders want Congress to revisit certain Medicaid policies in one of the remaining legislative vehicles this year. Significant proposals of interest include closing the Medicaid coverage gap in non-expansion states, enhanced coverage for justice involved populations, and expanding support for home and community-based services (HCBS). States and some stakeholders have also sought more certainty in the timing and guardrails for ending the COVID-19 Public Health Emergency (PHE) policy that links enhanced federal Medicaid funding with the requirement for continuous Medicaid coverage.

Congressional leaders and key influencers are laying the groundwork for 2023 legislative efforts. Congress is likely to defer action on most major legislative issues until after the November mid-terms, including finalizing federal fiscal year 2023 funding for most departments. A change in control of either or both chambers of Congress will likely lead to greater scrutiny of the Biden Administration’s health care policies and actions, which have largely gone untested by this Congress.

Executive Branch

Executive orders have been a major source in driving federal workstreams in 2022. Following enactment of several major bills, implementation responsibilities have shifted to the Executive Branch and stakeholders will have multiple opportunities to further shape and support new programs, regulatory and policy updates, and funding opportunities. Executive orders passed include:

  • Advancing Racial Equity and Support for Underserved Communities, January 21, 2021
  • Promoting Competition in the American Economy, July 9, 2021
  • Improving the Customer Experience, December 13, 2021
  • Access to Affordable, Quality Health Coverage, April 5, 2022
  • Equality for LGBTQI Individuals, June 15, 2022
  • Protecting Access to Reproductive Healthcare Services, July 8, 2022

The Administration will continue to address COVID-19 emergency needs while stepping up efforts to support states, health plans, providers and other stakeholders as they prepare for the post-COVID environment. The current PHE declaration expires October 13, 2022, but since HHS has not signaled that it plans to end the PHE in October, another extension is likely until January 11, 2023. The next advance notification about the end of the PHE would be Nov. 12, 2022. Once the PHE declaration expires, numerous Medicare and Medicaid, TANF, and SNAP flexibilities will end, including Medicaid’s continuous coverage requirement and certain telehealth flexibilities, among others. Additional federal agency guidance is expected to support post-PHE transitions.

The Centers for Medicare & Medicaid Services (CMS) plans to advance new policy direction across several service and delivery areas, including strengthening long-term services and support and innovations via Section 1115 demonstration programs. CMS is expected to approve transformational 1115 proposals in additional states. Several state proposals focus, in part, on building capacity among local and regional entities and community-based organizations to address social drivers of health. Many state proposals are also strengthening behavioral health delivery systems and seek to meet enrollees’ urgent behavioral health needs. Additionally will want to monitor CMS’ regulatory efforts to align and strengthen managed care and fee-for-service (FFS) access and network adequacy policies as well as updates to the agency’s in lieu of services policy in managed care programs.

The Administration is also expected to accelerate work on its top policy priorities and regulatory agenda in advance of the next Presidential election, and this will require ongoing engagement among health care stakeholders.

For additional information on these and other policies, please contact Andrea Maresca, Amy Bassano, Zach Gaumer, Jon Kromm, or Kevin Kirby.

The basics of evaluating PBM contracts

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This week, our In Focus section highlights an issue brief from Wakely, an HMA Company, The Basics of Evaluating PBM Contracts, published September 2022. The brief provides an overview of the basic financial elements of a pharmacy benefit manager (PBM) contract. Evaluation of a traditional request for proposals (RFP) or PBM contract should begin with financial analysis of the following four key elements: discount guarantees (typically understood as point-of-sale ingredient costs), dispensing fees, rebate guarantees, and PBM administrative fees. This paper addresses various points of consideration when attempting a financial analysis of these contract elements.

Payors today face unprecedented degrees of complexity when conducting a PBM RFP or evaluating PBM contracts. To stay competitive, payors must navigate an ambiguous and changing pricing environment. That requires a solid understanding of PBM contracting. In a proposal, some PBMs may offer better AWP discounts while other PBMs offer better rebate guarantees. Alternatively, a payor may find a PBM that offers the best discounts and rebates but charges significantly higher administrative fees. Such analysis will consider the impacts of these key components together with historical and projected drug mix. While any PBM analysis must start with the elements discussed in this paper, a complete analysis must dive below the surface and into the fine print underlying these items.

Link to Issue Brief

Delaware substance use disorder treatment system needs assessment

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This week, our In Focus highlights a Health Management Associates Institute on Addiction (HMA IOA) report, Delaware Substance Use Disorder Treatment System Needs Assessment, published in June 2022. HMA IOA conducted a statewide three-county substance use disorder (SUD) treatment system needs assessment in Delaware. This project began in November 2021 and was primarily funded by New Castle County with contributions from Kent and Sussex counties. The goal was to review the current state of the SUD treatment ecosystem, identify strengths and gaps collecting input from as many Delawareans across multiple sectors as possible, and make actionable recommendations to build a more robust and sustainable future state system.

The final analysis included interviews with key stakeholders, focus groups, a survey of all licensed SUD providers, claims data analysis, and a comparison of Delaware’s public (e.g., Medicaid) outpatient and residential SUD reimbursement rates with selected regional states. This approach provided a unique cross-sector view of where the most significant opportunities for improvement and investment may rest.

The areas of greatest experienced need in the system were reported as: inadequate treatment beds, especially for some populations, like children and youth; lack of residential services for adults, especially those on Medicare and without insurance; needed supports for those experiencing negative impacts from social determinants of health (SDOH), like transportation and housing needs; lack of consistent access and care coordination; lack of adequate reimbursement to sustain the system or expand the treatment system; the need for trauma-informed care (TIC); and the need for more harm reduction and prevention strategies, including greater access specifically to Narcan 4mg Nasal Spray or its generic equivalent.

The study found that Delaware is meeting only 15 percent of SUD treatment needs and only meeting five percent of the need for the highest-intensity services, including inpatient treatment.

The results also showed an apparent discrepancy between what the state is working hard to implement to address the SUD and overdose crisis in Delaware and the community’s perception of, or lived experience with, those SUD treatment services and supports. Additionally, HMA IOA heard about many treatment system strengths from interviewees, town hall participants, and focus groups and included recommendations that are meant to leverage those existing strengths in the future treatment system.

Click here to read the report.

How can Medicare and Medicaid providers utilize CMS’ COVID-19 roadmap?

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On August 18, 2022, the Centers for Medicare and Medicaid Services (CMS) released a roadmap to support healthcare providers with preparing for the eventual end of the COVID-19 public health emergency (PHE) declaration. CMS also published a series of fact sheets summarizing the status of Medicare Blanket waivers and flexibilities by provider type as well as flexibilities applicable to the Medicaid providers and stakeholders.

In its announcement, CMS expressed concern that the continued PHE flexibilities could contribute to further decline in patient, resident, and client safety beyond what has already been observed. As a result, the agency is cautiously working to balance ongoing PHE needs while conveying more urgency for providers to prepare for the eventual end of the PHE flexibilities and waivers.

CMS has already ended certain flexibilities and waivers. The agency could phase out other flexibilities as it prepares to let the PHE declaration lapse. This means that providers and health plans should act now to assess flexibilities and waivers in use and develop a plan to transition to post-PHE environment.

Phase-out of COVID-19 Flexibilities

During the COVID-19 PHE, CMS has utilized Medicare and Medicaid waivers and flexibilities extensively. For example, Medicare has not enforced certain federal requirements during this time to allow hospitals to utilize off-site locations to screen and treat patients when needed as well as to minimize certain reporting requirements. The agency’s flexibilities also have accelerated adoption of telehealth and audio only services, particularly for behavioral health services.

Medicare and Medicaid providers across the states utilized PHE flexibilities to varying degrees, in part depending on experiences in individual communities, capacity, and other provider specific factors. Additionally, over the course of the PHE health plan and provider staffing and workflows have changed dramatically. This means health plans and providers will need a tailored plan to support the transition to the post PHE environment.

HMA’s experts are working with hospitals, health systems, clinics, and other providers as well as health plans on the steps they need to take now to prepare for multiple transitions. Our experts identified six immediate steps that Medicare and Medicaid plans and providers can be undertaking now to ensure they can effectively return to normal operations, including:  

  • Review performance on the patient and clinician safety metrics cited in the new CMS resources. In instances where providers have gaps and suboptimal safety and quality outcomes they will need assistance developing and implementing mitigation and quality improvement plans.
  • Utilize CMS’ tailored fact sheets to identify specific flexibilities and waivers in use now and the “normal” federal regulations that will be in effect once the PHE lapses. This assessment should include the blanket waivers and provider specific flexibilities, including:
    • Flexibilities around the requirements and timing for practitioner training
    • Expansion of allowable sites of service that permitted more expansive use of telehealth and virtual services as well as screening and treatment provided at alternative sites
    • Relaxation of federal requirements pertaining to surge capacity protocols
    • Flexibilities for staffing requirements, including medical records departments, nursing facilities, among others
    • Waiver of requirement for hospitals to submit occupational mix surveys and to have a utilization review plan with a UR committee focused on services furnished to Medicare and Medicaid enrollees
    • Applicable of the Extreme and Uncontrollable Circumstances Policy in Medicare’s Shared Savings Program and use of other flexibilities for MSSP Accountable Care Organizations (ACOs)
    • Non enforcement of certain physician self-referral laws
    • Waiver of numerous reporting requirements including those pertaining to verbal orders, discharge planning, HEDIS and STARs measure reporting, among others
  • Project impact of ending Medicaid’s continuous coverage policy and support individuals with actions they may need to take at the end of the PHE. Once the PHE ends, Medicaid’s enhanced federal funding for states and continuous coverage policy will end. HMA is working with health plans, providers and other stakeholders to project how this change will impact the enrollment and payer mix on state and local levels. Additionally, patients and their caregivers will need support from plans, providers, and consumer groups to ensure they renew their coverage or transition to other coverage programs when needed.HMA’s experts have written extensively about our work to support the Medicaid unwinding activities here and here.
  • Develop a plan to transition from “PHE” to “post-PHE” expectations that is informed by the assessment of flexibilities in use. Key components of the plan include:
    • Anticipated resource needs to reflect changes in staffing and workflows during the PHE
    • Articulation of specific compliance procedures and regular reporting requirements that will resume and the process for this transition
    • Develop training and education opportunities for staff that may be new or need refresher on normal policies and procedures as well as timeframes for making these changes
  • Update budgets projections to account for changes in reimbursement rates for certain services post-PHE. Certain reimbursement amounts and payment methodologies will change post-PHE, such as payment for administering the COVID-19 vaccine in a Medicare patient’s home among other changes. Providers will need to project the financial impact of these payment changes and update coding and billing manuals and procedures where applicable.
  • Build strategies to sustain changes to care models implemented during the COVID-19 PHE while also addressing health disparities. Some providers and facilities adopted care models and modified existing ones during the PHE that may have improved patient outcomes and experiences, maximized expertise of practitioners, and improved value-based care. For example, some providers have embraced the Medicare Hospital Without Walls Initiative and will need to assess their options as some of those flexibilities are phased out. Other federal opportunities have newly emerged during the pandemic, such as the Rural Emergency Hospital designation and pending changes to the Medicare Shared Savings Program (MSSP).

What’s Next

The COVID-19 PHE declaration next expires on October 12, 2022. While a renewal of the PHE declaration is possible into early 2023, providers should be using this time to prepare for resumption of normal policies and procedures.

The expiration of PHE flexibilities and waivers are not, however, happening in a vacuum. Providers need to make this transition amidst a dynamic healthcare sector with high expectations for continuous improvement in quality, patient experiences, and value. During this transitional period HMA’s experts are working with health plans and providers to develop or revisit strategic plans and investments to refocus attention on improving models of care and value-based payment approaches, including strategies that will help mitigate health disparities.

For questions, please contact Melinda Estep, Mary Walter, and Andrea Maresca.

Medicaid managed care spending tops $420 billion in 2021

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This week, our In Focus section reviews preliminary 2021 Medicaid spending data collected in the annual CMS-64 Medicaid expenditure report. After submitting a Freedom of Information Act request to the Centers for Medicare & Medicaid Services (CMS), HMA received a draft version of the CMS-64 report that is based on preliminary estimates of Medicaid spending by state for federal fiscal year (FFY) 2021. Based on the preliminary estimates, Medicaid expenditures on medical services across all 50 states and six territories in FFY 2021 was nearly $710.2 billion, with over 59 percent of the total now flowing through Medicaid managed care programs. In addition, total Medicaid spending on administrative services was $30.8 billion, bringing total program expenditures to $741 billion.

Total Medicaid Managed Care Spending

Total Medicaid managed care spending (including the federal and state share) in FFY 2021 across all 50 states and six territories was $420.5 billion, up from $359.6 billion in FFY 2020. This figure includes spending on comprehensive risk-based managed care programs as well as prepaid inpatient health plans (PIHPs) and prepaid ambulatory health plans (PAHPs). PIHPs and PAHPs refer to prepaid health plans that provide only certain services, such as dental services or behavioral health care. Fee-based programs such as primary care case management (PCCM) models are not counted in this total. Below we highlight some key observations:

  • Total Medicaid managed care spending grew 16.9 percent in FFY 2021. The rate of growth has been increasing since the COVID-19 pandemic. Prior to 2020, the rate had decelerated since FFY 2016.
  • Managed care spending growth was due in large part to the COVID-19 pandemic and the resulting higher Medicaid enrollment.
  • In terms of dollars, the increase in Medicaid managed care spending from FFY 2020 to FFY 2021 was $60.9 billion, compared to $46.1 billion from FFY 2019 to FFY 2020.
  • Medicaid managed care spending has increased at a compounded annual growth rate (CAGR) of 16.1 percent since FFY 2007, compared to a 6.6 percent growth in total Medicaid spending.
  • Compared to FFY 2020, Medicaid managed care spending as a percent of total Medicaid spending in FFY 2021 increased by 3.8 percentage points to 59.2 percent.

Figure 1: Medicaid MCO Expenditures as a Percentage of Total Medicaid Expenditures FFY 2007-2021 ($M)

As the table below indicates, 69.4 percent of FFY 2021 spending came from federal sources, which is 12 percentage points higher than the pre-Medicaid expansion share in FFY 2013, and 1.8 percentage points higher than FFY 2020.

Figure 2: Federal vs. States Share of Medicaid Expenditures, FFY 2013-2021 ($M)

State-specific Growth Trends

Forty-five states and territories report managed care organization (MCO) spending on the CMS-64 report, including Alaska, which utilizes a PIHP/PAHP model exclusively. Oklahoma is expected to implement a Medicaid managed care program in 2023. Of the remaining 44 states and territories that contract with risk-based MCOs, average MCO spending in FFY 2021 increased 17.6 percent. On a percentage basis, North Carolina experienced the highest year-over-year growth in Medicaid managed care spending at 63.3 percent due to the implementation of its risk-based Medicaid managed care program. Among states with more mature programs, Colorado experienced the fastest growth in FFY 2021 at 59 percent, followed by Nebraska at 55.6 percent.

The chart below provides additional detail on Medicaid managed care spending growth in states with risk-based managed care programs in FFY 2021.

Figure 3: Medicaid Managed Care Spending Growth on a Percentage Basis by State FFY 2020-21

Source: CMS-64; *Note: Not all states are included in the table.

Looking at year-over-year spending growth in dollar terms, Illinois experienced the largest increase in Medicaid managed care spending at $5.5 billion. Other states with significant year-over-year spending increases in dollar terms included Texas ($5.2 billion), California ($5.2 billion), and New York ($5.1 billion). The chart below illustrates the year over year change in spending across the states.

Figure 4: Medicaid Managed Care Spending Growth on a Dollar Basis by State FFY 2020-21 ($M)

Source: CMS-64; *Note: Not all states are included in the table.

The percentage of Medicaid expenditures directed through risk-based Medicaid MCOs increased by more than  five percentage points in 14 states from FFY 2020 to FFY 2021. The managed care spending penetration rate rose 13.4 percentage points in the District of Columbia, 9.7 percentage points in Indiana, 9.5 percentage points in Nebraska, 9.2 percentage points in North Carolina, and 9.1 percentage points in Illinois.

Figure 5: Medicaid MCO Expenditures as a Percentage of Total Medicaid Expenditures in States with a 5 percent or Greater Increase from FFY 2020 to FFY 2021 ($M)

Source: CMS-64

The table below ranks the states and territories by the percentage of total Medicaid spending through Medicaid MCOs. Iowa reported the highest percentage at 97.2 percent, followed by Puerto Rico at 95 percent, and Hawaii at 94.4 percent.

We note that in many states, there are certain payment mechanisms which may never be directed through managed care, such as supplemental funding sources for institutional providers and spending on retroactively eligible beneficiaries. As a result, the maximum achievable penetration rate in each state will vary and may be below that achieved in other states. The Medicaid managed care spending penetration rate is greatly influenced by the degree to which states have implemented managed long-term services and supports (MLTSS) programs.

Figure 6: Medicaid MCO Expenditures as a Percent of Total Medicaid Expenditures, FFY 2016-2021

Non-MCO Expenditures

Despite the rapid growth in Medicaid managed care over the last 10 years, program spending still represented approximately 59 percent of total Medicaid expenditures in FFY 2021. So where is the remaining fee-for-service (FFS) spending (approximately $291 billion) going? First, as noted above, there are many states/territories with Medicaid managed care programs in which certain beneficiaries or services are carved-out of the program, and these are typically associated with high-cost populations. The total amount of non-MCO spending in the 44 states with risk-based managed care in FFY 2021 was $260.4 billion. Assuming an average “full penetration” of 85 percent of total Medicaid spending, then HMA estimates that an additional $221 billion in current FFS spending could shift to a managed care model just in the states that already employ managed care for a subset of services and/or beneficiaries.

Thirteen states/territories did not utilize a comprehensive risk-based managed care model in FFY 2020. In general, the 13 states/territories that do not utilize managed care today are smaller states. Oklahoma, with $5.3 billion in Medicaid spending is expected to shift to risk-based Medicaid managed care in 2023. Total Medicaid spending across all 13 non-managed care states/territories was $29.8 billion. The 13 states/territories that did not employ a risk-based comprehensive Medicaid managed care model in FFY 2021 were Alabama, Alaska, American Samoa, Connecticut, Guam, Maine, Montana, Northern Mariana Islands, Oklahoma, South Dakota, Vermont, Virgin Islands, and Wyoming.

In terms of spending by service line, the largest remaining FFS category is home and community-based services at $69.5 billion, which accounts for 24 percent of FFS spending. Inpatient hospital services represent 21 percent of FFS spending at $60.8 billion.

Figure 7: Fee-for-Service Medicaid Expenditures by Service Line, FFY 2021

While the CMS-64 report provides valuable detail by service line for all FFS expenditures, it does not capture how spending directed to Medicaid MCOs is allocated by category of service. Therefore, it is not possible to calculate total MCO spending by service line, a challenge that will only intensify as more spending runs through MCOs.