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Virginia JLARC Issues Report on Medicaid Spending Management

This week, our In Focus section comes to us from HMA Principal Barbara Markham Smith, JD, of our Washington, DC office. On December 12, 2016, Virginia’s Joint Legislative Audit and Review Commission (JLARC), the audit arm of the General Assembly, issued findings from its two-year review of the Department of Medical Assistance Service’s (DMAS’s) management of the Medicaid program. In a review of DMAS’s performance that largely foreshadows Medicaid reforms to be implemented in 2017-2018, JLARC notes that inflation-adjusted Medicaid spending in Virginia, per enrollee, remained essentially flat from FY2011 to FY2015. Program spending increases came from growing enrollment due to expanded outreach activities and the addition of new waiver slots for people with intellectual and developmental disabilities.  The growth in total spending (as opposed to per capita spending), amounted to average annual cost increases of 8.9 percent over the past 10 years. Services for individuals with disabilities accounted for the lion’s share of cost increases, according to a budget report released earlier this year. Medicaid spending accounted for 22 percent of Virginia’s general fund budget in FY2016. 

Notwithstanding the overall performance, JLARC proposes areas for improvement in its 35 recommendations. It specifically notes throughout the report that implementing many of its recommendations will require additional legislative authorization and financial resources for DMAS.  Most of its recommendations fall into three basic categories:

  • MCO overpayment
  • Better eligibility screening for long-term care services and supports (LTSS)
  • Greater emphasis on minimizing institutional long-term care, i.e., improved rebalancing.

Some of the recommendations have significant implications for MCO payment and financial oversight, while many reflect issues that are explicitly addressed in four major initiatives Virginia will launch in 2017:

  • Implementation of mandatory managed long-term care through Commonwealth Coordinated Care Plus (CCC+)
  • New procurement of the “base” managed care program (Medallion 4) that integrates behavioral health
  • Development of value-based payment (VBP) in both managed care programs
  • Procurement of a new Medicaid Enterprise System (MES) that includes substantial data collection/analytic capabilities and a data warehouse.

MCO Overpayment

According to JLARC, overpayment to MCOs arises from three separate sources:

  • A profit cap that is too high compared to other states
  • Reluctance to aggressively impose sanctions for non- or under-performance
  • Failure to prospectively reflect anticipated savings from care management improvements in the actuarial setting of capitation rates.

JLARC recommends implementing capitation rates that take prospective savings into account by FY2019. It specifically urges DMAS to recoup funds for inefficient services and notes that Virginia could save $17 million to $36 million dollars by recouping funds for avoidable ambulatory care-sensitive costs such as preventable inpatient admissions, preventable emergency room visits, and inappropriate pharmacy use.

The proposed contract for CCC+ and planning for Medallion 4 focuses on standards and payment intended to improve primary care coordination that avoids tertiary costs. DMAS disputes that past inefficiencies are carried forward into subsequent-year capitation-setting. It notes that it is frequently difficult to quantify future savings and that the absence of a clear methodology poses other financial risks.

With respect to the profit cap, JLARC recommends that Virginia retain an “underwriting gain” cap rather than adopting medical loss ratio (MLR) standards in its new contracts, although not using MLR altogether would conflict with federal regulations. JLARC also proposes classifying as profit, medical spending that is higher than market value, although DMAS has noted the difficulty of defining market value. JLARC proposes a gain cap requiring that “at least a portion” of MCO revenue be returned to DMAS when profit exceeds three percent of premium income, with the percentage of returned revenue increasing to match the increases in the percentage of underwriting gain. In other words, it proposes a sliding scale of revenue rebates based on the profit percentage of the MCO. It also recommended changes in the treatment of administrative costs. Both JLARC and DMAS point out that legislation is required to implement some of these changes. Finally, JLARC believes that the Compliance Unit has been too lenient in waiving or mitigating sanctions that could have resulted in more recoupments to the program.

As part of this series of recommendations, JLARC notes that DMAS’s oversight efforts emphasize quality monitoring and improvement, which DMAS and JLARC agree can yield long-term savings. In addition, many of the issues regarding care coordination and avoidable utilization are addressed in the value-based payment being implemented across managed care programs in 2017-2018, and in the care coordination and integration standards developed in the new programs.  However, JLARC recommends increased financial oversight and reporting on a quarterly basis, including increased utilization reporting and more detailed income statements. The potential effects of increased utilization scrutiny on access to care are not discussed. Again, both JLARC and DMAS note that additional resources will be needed to implement this level of financial and utilization oversight.

Eligibility Screening for LTSS

A large portion of the report focuses on the need for a validated Uniform Assessment Instrument (UAI) for children who comprise an increasing share of the population needing LTSS. Virginia uses the UAI for all LTSS screening; however, this tool has not been validated for children. JLARC notes that over 200 entities perform screenings in Virginia with significant variation in approval rates—ranging from 37 percent to 98 percent. The report reflects particular concern about the high rate of eligibility approvals from hospitals and the resulting admissions to institutional care. It flags the existence of conflicts of interest in screenings by institutions that provide long-term care.

JLARC proposes that the General Assembly authorize DMAS to develop an inter-rater reliability test for the pre-admission screening process and that DMAS develop a comprehensive training curriculum for people who screen for LTSS eligibility. It further proposes that new legislation require the training and certification of all screeners. JLARC also directs DMAS to focus its attention on oversight of hospital screening practices to ensure consistency.

DMAS basically embraces this series of recommendations. Again, additional administrative resources, as well as legislative authority, would be required to develop the curriculum and administer the certifications and oversight.

Rebalancing Toward Community-based Care

While recognizing the impending launch of CCC+ and Medallion 4, JLARC emphasizes the need to reduce institutional care and rely on community-based resources. It ties this recommendation to the UAI screening-process recommendations to ensure appropriate placements at the screening level.  In addition, JLARC recommends tying financial incentives to greater success in keeping individuals with disabilities in the community, including implementing blended rates. DMAS will be using blended rates for the CCC+ program and VBP in its managed care programs, generally, as those programs come online.  On December 12, DMAS posted for comment a draft of its proposed MCO contract for CCC+, encompassing blended rates and care planning and coordination requirements designed to reduce institutional care and improve outcomes. Comments are due on December 20. (More Information Here)

Additional Recommendations

In addition to recommendations around these major themes, JLARC notes the importance of having the data collection and analytics capabilities to support increased utilization and financial monitoring. As discussed above, it is expected that the MES procurement, generally, will provide these capabilities.  JLARC also flags the need to monitor the quality of care from behavioral health providers as those services are integrated into Medallion 4 and tie payment, generally, to the improved management of chronic diseases. These are practices that are explicitly included in the design of CCC+ and anticipated for Medallion 4. To ensure transparency and accountability, JLARC recommends that performance and quality report cards be distributed to program beneficiaries as part of their enrollment packages.

In terms of structural program changes to reduce spending, JLARC recommends that DMAS undertake an evaluation of the option to reduce eligibility thresholds in Virginia and require cost-sharing for LTSS from people in the 300 percent of SSI category of eligibility. It should be noted that Virginia already has highly restrictive eligibility standards. Only parents below 39 percent of the federal poverty level (FPL) are eligible for Medicaid, causing Virginia to rank 43rd nationally in eligibility standards; with no Medicaid expansion, poor childless adults are not eligible. The aged, blind, and disabled are eligible up to 80 percent of FPL. Children are generally eligible up to 148 percent of FPL.

The full JLARC report is available at http://jlarc.virginia.gov/medicaid-2016.asp. DMAS will post its response to the JLARC report in the coming days on its website www.dmas.virginia.gov.

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