In a calculation of costs and risks, a way is found to reduce risk of treating HIV patients

From a project to develop purchasing specifications to help Medicaid managed care organizations treat HIV/AIDS patients comes a new effort by the Center for Health Services Research and Policy in Washington, DC — to help states reduce the financial risk of ensuring appropriate levels of care to those patients.

Marcia Wilson, Jeffrey Levi, and Aimee Owen, researchers for the center and the authors of Mitigating Financial Risks with HIV/AIDS Patients, say that changes to the Medicaid health care financing and delivery systems have a far-reaching effect on how people living with HIV/AIDS receive medical care. In many instances, these changes have led to higher costs associated with caring for HIV/AIDS patients. Patients are living longer, requiring a broader range of support services, and becoming increasingly more complex due to drug treatments and comorbidities, such as chemical dependency, mental illness, or chronic diseases.

These same factors contribute to a higher unpredictability of costs.

All studies to date agree that the cost of caring for HIV/AIDS patients is very high. Whereas the average cost for an adult Medicaid beneficiary is $1,836 per year and for the average disabled beneficiary is $8,448 per year, the Centers for Medicare & Medicaid Services estimates the average annual cost for a person with AIDS at $33,372 — almost four times the cost of the average disabled beneficiary.

With higher costs and more unpredictable costs, the financial risk of caring for HIV/AIDS patients increases. Financial risk involves uncertainty surrounding revenue and expenses. In a fee-for-service environment, both revenue and expenses are uncertain, while in a capitated environment, only expenses are uncertain.

How to structure risk

For their research into ways to cut financial risk, Wilson and colleagues found that financial risk occurs when the cost of providing the appropriate care for HIV/AIDS patients exceeds the amount of revenue, reimbursement, or capitated payment received. The inability to accurately predict the revenues and costs associated with caring for a particular group of patients increases financial risk for state Medicaid programs, managed care organizations, and providers.

Mr. Levi says that following on their purchasing specifications, this latest paper represents a toolbox of approaches that states could consider in trying to mitigate their financial risk.

Regardless of who ends up with the financial risk for a patient, he says, the concern is the same — how can the financial risk be structured to manageable and reasonably predictable levels?

Enhanced fee-for-service payments. The Medicaid program could make enhanced payments to providers for defined services. Some services provided to HIV/AIDS patients are more involved than when the same service is provided to an individual not infected with HIV. The additional time or complexity means a greater workload for the practitioner providing the service. Selected services could be eligible for reimbursement and enhanced fee-for-service payments could be used to support entire programs of care such as through a center of excellence.

An advantage of this option is that it can encourage providers to care for HIV/AIDS patients and can encourage development of programs of care and standards within quality improvement efforts that mitigate concerns regarding quality assurance issues.

Potential downsides are the increased complexity of claims processing and higher program costs.

Risk adjustment. Premium payments can be adjusted based on classification of patients into groups tied to expected use of medical services. Risk adjustment, Ms. Wilson says, requires finding the appropriate variable to predict anticipated costs, such as age and gender, clinical markers, diagnosis codes, or comorbidities.

The advantages of using risk adjustment include incorporating it into overall contract negotiations and using it to create an incentive for managed care organizations to accept high-risk patients if the capitation rate is adequate.

There can be problems with data collection needed to accomplish risk adjustment and with the ability of the Medicaid program to accurately predict expenditures for AIDS patients.

Also, the reality is that higher capitation rates don’t guarantee that necessary services will be provided.

Special HIV capitation rates. Special rates provide an additional sum above the capitation amount. Capitation payments can be enhanced based on a patient’s assistance category, geographic region, demographics, or diagnoses.

While managed care organizations are more likely to accept high-cost patients if an enhanced rate is adequate, enhanced rates mean higher costs for the program without a guarantee that appropriate services will be provided. There also can be problems with the data collection required.

Stop-loss. Managed care organizations and providers can purchase stop-loss insurance from private insurers to limit their risk exposure when costs incurred are significantly higher than the prepaid capitation amount for those services.

Availability of stop-loss may mean that managed care organizations and providers will be more willing to accept high-cost patients.

The downside can be the high cost of purchasing such insurance and the fact that once the threshold has been exceeded, stop-loss mechanisms do not encourage efficient provision of services if charges above the threshold are reimbursed at 100%.

Risk corridors. Use of risk corridors allows Medicaid and a managed care organization to share in the financial risk of caring for high-cost patients. Boundaries on profits and losses by the managed care organization are specified in the contract between the two parties. When the managed care organization with such an arrangement experiences costs below a specified lower limit or costs above a specified upper limit, it may share any profit or loss with Medicaid. A similar risk corridor arrangement also can exist between a managed care organization and providers.

Although there can be an advantage in that managed care organizations may be more willing to enroll high-cost patients, Medicaid may experience additional expenses if patients have costs greater than the risk corridor’s upper limit. It also can be seen as a disadvantage that managed care organizations and providers are constrained in the amount of profit they can make.

Risk pools. Using risk pools involves withholding a portion of Medicaid for redistribution among managed care organizations. All participating managed care organizations would have to participate in a risk pool. Amounts withheld are distributed among the managed care organizations to offset the higher costs incurred based on the number of enrollees in managed care organizations with HIV/AIDS.

As with the other options, the primary advantage is that managed care organizations may be more willing to enroll high-cost patients.

The principal disadvantage is that risk pool arrangements require
an information system capable of accurately tracking HIV/AIDS patients by managed care organization, risk pool funds, and risk pool distributions. Also, the amount withheld for the risk pool may not be sufficient to cover all the necessary costs, increasing the financial risk of the managed care organization.

Carve-outs. Carve-outs represent services covered by a payer that are excluded from the covered benefits package of the payer’s managed care product. Services are carved out of the capitation rate and can be contracted separately, to a more cost-effective provider, or reimbursed to the original provider under a different reimbursement method such as fee-for-service. The authors say carve-outs can be used for services that are unpredictable in cost.

Advantages of using carve-outs are that they can allow the Medicaid program to gain experience with services lacking a stable history of costs before negotiating a capitated rate and the reduced risk for managed care organizations and providers.

The potential downside is that care for patients may be fragmented if they have to receive care from multiple providers, and managed care organizations may not always have access to the necessary data.

The authors note that the options can be implemented separately or in different combinations, and the choice of which option(s) to use will vary with the nature of the epidemic in the state, the amount of managed care penetration, the maturity of managed care organization and provider administrative infrastructure, the accessibility of data, the capability of information systems, and the availability of funds.

"In implementing any of the options presented, the implications throughout the delivery system — from Medicaid agency to MCO to provider to patient — must be considered, in terms of both financial impact and the quality of care that will ultimately be provided the Medicaid beneficiary living with HIV," they conclude.

[Contact Ms. Wilson and Mr. Levi at (202) 296-6922.]