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Reviewing Oregon’s Medicaid Expenditure Cap Waiver

This week, our In Focus article provides an overview of Oregon’s Medicaid waiver program, under which the state implemented integrated managed care entities and committed to a per capita reduction on the rate of Medicaid cost growth. The model, viewed widely as a success, may be of interest to states as discussions at the federal level around restraining spending growth in Medicaid develop under the incoming administration.

The Oregon Waiver Model

The Oregon experiment sheds light on an approach that reduces costs for both the federal government and the states, while at the same time protecting beneficiaries. In 2012, Oregon received approval for a $1.9 billion 1115 Waiver from the Centers for Medicare & Medicaid Services (CMS) to transform its Medicaid program. As part of that agreement, the state committed to reduce the rate of growth of the program from 5.4 percent to 3.4 percent per capita. If Oregon fails to meet its goals for 2 percent reduced trend calculated over the life of the waiver or misses its quality targets, it must pay the federal government penalties amounting to hundreds of millions of dollars. Oregon made good on that promise, and the states Waiver renewal was just approved last week, committing to continuing to hold down costs to 3.4 percent per capita rate of growth.

The Oregon model moved from multiple siloed managed care organizations (MCOs) – separate MCOs managing physical, behavioral, and dental healthcare—to one managed care entity known as a Coordinated Care Organization (CCO). Instead of paying capitation rates to multiple managed care entities for different types of care for the same beneficiary, CCOs accept full financial risk and are accountable for all of a beneficiarys care out of one integrated budget that increases at a fixed rate of growth.

The 16 CCOs that exist across the state are regional entities, with accountability to the local communities they serve. They receive financial incentives for achieving improvements in targeted quality measures and have the flexibility, out of their integrated budgets, to pay for health-related services that can improve a members outcomes and reduce medical costs. For example, Malik was an 8-year-old child who suffered from severe asthma and frequently ended up in the emergency room. Thanks to coordinated and team-based care through his CCO, Malik and his family received home-visiting services which helped identify asthma triggers in the home and development of a prevention care plan. This significantly reduced Maliks trips to the hospital; he went from visiting the ER twice a month to infrequent visits, which was better for Malik and reduced his health care expenses.

Impact of Oregon Waiver, Next Steps

Oregon is now four years into this experiment with promising results. As a recent Health Affairs blog noted, “the CCOs were a stunning success. In three short years, they accumulated over $900 million in surpluses.” These savings came despite enrolling the expansion population, along with preserving (and, in some cases, increasing) benefits and primary care provider rates. At the same time savings have been realized, gains in important quality measures have also been achieved. Emergency department use has decreased while expenditures on primary care have risen. Over 80 percent of CCO members receive health care through a recognized Patient-Centered Primary Care Home. Developmental screenings have increased by 137 percent since CCOs launched. Significant improvements have been made in follow-up care for members who are hospitalized for mental illness.

In addition to improvements in quality measures, Oregons CCOs continue to work toward integration of medical care with behavioral health and dental care. They are moving toward basing more of their provider contracts on alternative payment agreements. They are deepening relationships with their providers and their communities, and developing strategies to address the social determinants of health.

Oregons experiment shows the benefit of putting pressure on the system to change. The traditional levers – cutting beneficiaries, benefits, or provider rates – may reduce costs in the short term but will not help states transform their Medicaid programs. These efforts ultimately result in cost shifts, not cost reductions. The combination of a fixed rate of growth – a per capita cap – along with protections for beneficiaries and incentives to spur innovation and improve quality have helped Oregon achieve significant savings while making important improvements in quality. The baseline for spending and how the growth trend is calculated are obviously of critical importance. CMS and the state negotiated a calculation that will result in meaningful savings for the federal government, without setting the state up for failure.

The most important lesson from the Oregon experiment is that cost savings and improving care and coverage for beneficiaries can go hand in hand, rather than operating at odds with each other. Oregons achievements to-date were only possible because the state expanded coverage and aggressively enrolled eligible people, hitting the goal of providing 95 percent of Oregonians with health coverage. Investing in prevention and coordinated care, rather than shifting the cost of preventable hospitalizations and uncompensated care across the system, are an important part of their successful formula for bending the cost curve in health care. That approach, coupled with meaningful constraints on the rate of growth at the per capita level, has led to healthier people and a more efficient health care system. Oregon still has a lot of work left to do, but its success so far provides valuable lessons for other states as further changes to Medicaid are implemented.

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