Massachusetts plunges into new territory again with innovative plan to manage dual-eligibles

Reimbursement based on enrollee health status gets providers’ attention

Strange as it may sound, Massachusetts has a list of 23 providers interested in caring for the state’s most challenging population—those who are both poor and old. What makes the providers’ response even more unusual is that Massachusetts’ plan incorporates risk adjustment and a capitation reimbursement strategy — both of which pose a financial risk for vendors.

If successful, the program in Massachusetts, which has been a bellwether state for health care in the past, could provide a model to help states entice providers into caring for the large and growing number of people who are eligible for both Medicare and Medicaid, the so-called dual-eligibles.

When Massachusetts officials in June publicized an innovative approach to care for dual-eligibles, they received inquiries from 23 providers in a variety of health care settings. Technical assistance meetings for potential vendors are expected to begin this month.

The state’s plan is described in an updated wavier application submitted in October to the Health Care Financing Administration (HCFA). The update reflects the elimination, through the 1997 Balanced Budget Act, of Medicaid waiver requirements in place when the program first was proposed in June 1997.

The revisions also propose risk adjustment and partial capitation reimbursement strategies carried out under a three-way contract among HCFA, the state, and vendors, all of which will test Massachusetts’ bureaucratic and technical skills in caring for the frail elderly. State officials do not expect to enroll participants before July 2000.

"This is a new approach," acknowledges Kate Willrich, program development director for the state’s Division of Medical Assistance. Senior Care Options is a voluntary program available statewide to virtually all of the 106,000 residents of Massachusetts over 65 years of age who are eligible for Medicaid or the state’s community-based waiver program. Of these, about 92% also are eligible for Medicare, Ms. Willrich says. By the fifth year of the program, the state hopes to enroll about 40% of those eligible, or just over 40,000 people.

Just northeast of Boston, Greater Lynn Senior Services (GLSS) for the past three years has been serving clients in its federal Program of All-Inclusive Care for the Elderly (PACE). With a successful track record and a current caseload of 240 clients, GLSS Executive Director Vince Lique says his agency has a "clear interest" in participating in the integration project and thinks it could offer "another tool" to serve the elderly in his community.

But he has questions, particularly regarding the capitalization requirements that will be imposed. To provide community and health care services under PACE, Greater Lynn Senior Services teamed with a community health center to form a third corporation, Elder Services of North Shore. Elder Services has taken on responsibility only for community-based, primary care and nursing home services. It does not have the capitalization or expertise to assume risk for inpatient care.

"If they require high-risk reserves, we won’t be able to go it alone," Mr. Lique says. "We’re not rich. We don’t have deep pockets."

So-called senior care organizations (SCOs) in the integration project will be required to be licensed under state law as risk-bearing entities, be operated by a Medicare+Choice entity, or be determined by a selection committee to meet modified solvency standards for Medicare provider-sponsored organizations (PSOs). HCFA and state officials hope that, while the SCO will receive funding separately from Medicare and Medicaid, the organization will have the flexibility to integrate the financing and provide the most cost-effective care for enrollees.

The Fallon Community Health Plan also responded to the state’s announcement about the integration project. Fallon Community Health Plan already has about 33,000 members in its Medicare risk product, Senior Plan, and 146 members in its PACE project, the federal model for state-level Medicare/Medicaid integration projects in Massachusetts and elsewhere.

"We’re obviously concerned about providing new and better ways of caring for the elderly," says Linda Fitzpatrick, director of Fallon’s senior health services. "What’s exciting about the Massachusetts plan, if it works, is the risk adjustment."

For Medicare reimbursement, the senior care organizations may choose to be fully capitated or elect to be reimbursed a fee based on a blend of capitation and fee-for-service methodologies. The fully capitated approach will provide the rates given to other Medicare risk contracts. It is an option that is not likely to attract many takers; research has shown that those who are eligible for both Medicare and Medicaid use services at a rate several times that of average Medicare enrollees.

More intriguing for potential vendors is the second option. Medicare reimbursement for those choosing the blend is based on a Medicare Choices demonstration project at the University of California at San Diego (UCSD) that incorporates both partial capitation and risk adjustment. For physician services under Medicare, HCFA calculates a capitated amount using an existing methodology that determines a particular county’s adjusted average per capita cost (AAPCC). To determine the hospital payment, HCFA calculates two separate amounts. The first is half of the hospital component of the AAPCC; the second is half of what the hospital would have received under a fee-for-service methodology.

Finally, physician and hospital payments are adjusted to account for the severity of illness among enrollees in the plan.

The risk-adjustment model uses ICD-9 diagnosis codes gathered from hospital inpatient, hospital outpatient, and physician services during a base year to predict costs for the following year. Using the ICD-9 data, enrollees are assigned into one or more of 100 "disease-based groups" that describe both the disease and future cost implications of that disease. In the event a person is assigned to more than one disease-based group—to the groups for simple and complex diabetes, for example—the highest-cost group determines the payment HCFA will pay.

Medicaid capitation amounts will be based on historical utilization and set separately for enrollees in the community who are well, community residents who are frail, and those who are institutionalized. Program officials will adjust the Medicaid capitation to reflect their expectation that the program will "alter service utilization patterns" and thus lower overall costs.

Contact Ms. Willrich at (617) 210-5466, Mr. Lique at (781) 599-0110, and Ms. Fitzpatrick at (508) 799-2100.