Medicaid Moving Ahead in Uncertain Times: Results from a 50-State Medicaid Budget Survey for State Fiscal Years 2017 and 2018

Medicaid covers one in five Americans, accounts for one in six dollars spent on health care in the United States and more than half of all spending for long-term services and supports, and is a state budget driver as well as the largest source of federal revenues to states. Medicaid is constantly evolving as policymakers strive to improve program value and outcomes through delivery system reforms, respond to economic conditions or public health concerns (such as the opioid epidemic), or implement federal policy changes including those in the Affordable Care Act (ACA) or other regulatory changes (like the recent Medicaid managed care rule). As states began state fiscal year (FY) 2018, Congress was debating major ACA repeal and replace legislation generating great uncertainty for states around Medicaid including the future of the ACA and financing for the Medicaid expansion as well as overall financing for the Medicaid program.

KFF #Medicaid budget survey has data on #opioids initiatives, provider rates, #managedcare & more

This report provides an in-depth examination of the changes taking place in Medicaid programs across the country during this time of uncertainty. The findings are drawn from the 17^th annual budget survey of Medicaid officials in all 50 states and the District of Columbia conducted by the Kaiser Family Foundation (KFF) and Health Management Associates (HMA), in collaboration with the National Association of Medicaid Directors (NAMD). This report highlights certain policies in place in state Medicaid programs in FY 2017 and policy changes implemented or planned for FY 2018. The District of Columbia is counted as a state for the purposes of this report. Given differences in the financing structure of their programs, the U.S. territories were not included in this analysis.

Key findings show that despite uncertainty about federal legislative changes, many states were continuing efforts to expand managed care, move ahead with payment and delivery system reforms, increase provider payment rates, and expand benefits as well as community-based long-term services and supports. Emerging trends include proposals to restrict eligibility (e.g., work requirements) and impose premiums through Section 1115 waivers, movement to include value-based purchasing requirements in MCO contracts, and efforts to combat the growing opioid epidemic. Key areas to watch include federal legislative efforts to restructure and limit federal Medicaid financing as well as Section 1115 waiver activity (state waiver proposals and CMS approvals). These issues will have implications for states, providers, and beneficiaries that could shape the future of the Medicaid program in FY 2018 and beyond (Figure ES – 1).

Eligibility Policies

Since 2014, most major eligibility changes have been related to adoption of the ACA Medicaid expansion. To date, 32 states have implemented the expansion (Louisiana was the latest state to adopt the expansion in FY 2017). Largely because the Medicaid expansion made many individuals involved in the criminal justice system newly eligible for coverage (including childless adults who were not previously eligible in most states), many states have implemented policies to facilitate enrollment in Medicaid upon release and to suspend, rather than terminate, Medicaid eligibility for incarcerated individuals. The majority of states also have policies in place to provide Medicaid coverage of inpatient care for those incarcerated in prisons or jails.

What to watch: Several non-expansion states (Idaho, Tennessee, Virginia, and Wyoming) reported this year that consideration of the Medicaid expansion was on hold due to uncertainty about the future of the Medicaid expansion option. For FY 2018, several states are seeking Medicaid eligibility restrictions through Section 1115 waivers, including conditioning eligibility on meeting work requirements,¹  elimination of retroactive eligibility, and elimination of Medicaid expansion coverage for those with incomes above 100 percent of the federal poverty level (FPL).²  Eligibility provisions in proposals in Arkansas and Indiana would apply to ACA Medicaid expansion populations and proposals in Iowa, Maine, and Utah would apply to non-expansion populations. Two states (Arkansas and Indiana) reported activity related to Medicaid premiums in FY 2017 or FY 2018, both through Section 1115 waivers.

Managed Care And Delivery System Reforms

Managed care is the predominant delivery system for Medicaid in most states. Among the 39 states with comprehensive risk-based managed care organizations (MCOs), 29 states reported that 75 percent or more of their Medicaid beneficiaries were enrolled in MCOs as of July 1, 2017. More states continue to carve complex populations as well as behavioral health services into MCO contracts. Twenty-six of the 39 MCO states reported that they plan to use authority to receive federal matching funds for adults receiving inpatient psychiatric or substance use disorder (SUD) treatment in an institution for mental disease (IMD) for no more than 15 days a month included in the 2016 managed care regulations. Close to half of MCO states reported that the day limit is insufficient to meet acute inpatient or residential treatment needs for those with serious mental illness (SMI) or SUD.³  Nearly all states have managed care quality initiatives in place such as pay for performance or capitation withholds. Working in conjunction with or outside of MCO contracts, the majority of states (40) had one or more delivery system or payment reform initiative in place in FY 2017 (e.g., patient-centered medical home, ACA Health Home, accountable care organization, episode of care payment, or delivery system reform incentive program (DSRIP)).

What to watch: States are using MCO arrangements to increase attention to the social determinants of health and to promote value-based payment. States are increasingly requiring MCOs to: screen beneficiaries for social needs (19 states in FY 2017 and two additional states in FY 2018); provide care coordination pre-release to incarcerated individuals (six states in FY 2017 and one additional state in FY 2018); and use alternative payment models (APMs) to reimburse providers (13 states in FY 2017 set a target percentage of MCO provider payments that must be in APM and nine additional states plan to set a target in FY 2018). More than one in three states also have initiatives to expand dental access or improve oral health outcomes (for children and/or adults) and to expand the use of telehealth.

Long-Term Services And Supports (LTSS)

The vast majority of states in FY 2017 (47 states) and all states in FY 2018 are using a variety of tools and strategies to expand the number of people served in home and community-based settings. The most common strategies include using home and community-based services (HCBS) waivers or state plan options, serving more individuals through Programs of All-Inclusive Care for the Elderly (PACE), and building rebalancing incentives into managed long-term services and supports (MLTSS) contracts. Twenty-three states cover LTSS through one or more capitated managed care arrangements as of July 1, 2017.

What to watch: Housing supports are an increasingly important part of state LTSS benefits. Over half of states (27) reported that they implemented or expanded housing-related activities outlined in CMS’s June 2015 Informational Bulletin (e.g., housing transition services or housing and tenancy sustaining services) in FY 2017 or FY 2018 (up from 16 states reported last year). States are also focused on addressing LTSS direct care workforce shortages and turnover: 17 states reported efforts in FY 2017 or 2018 to increase wages for direct care workers and/or engage in targeted workforce development activities (recruiting, training, credentialing, etc.).

Provider Payment Rates And Taxes

In FY 2017 and FY 2018, more states made or are planning provider rate increases compared to restrictions across all provider types, except for inpatient hospital rates (hospital rate restrictions are primarily rate freezes, which are counted as restrictions in this report). All states except Alaska rely on provider taxes and fees to provide a portion of the non-federal share of the costs of Medicaid. Three states indicated plans for new provider taxes in FY 2018 and 13 states plan provider tax increases.

What to watch: Survey responses related to MCO rate setting show that 18 of 39 MCO states require MCO rates to follow fee-for-service (FFS) rate changes for some provider types, and two states require MCO rates to follow FFS rate changes for all provider types. Twenty-four states reported they had MCO rate floors for some provider types, and five states said they had rate floors for all types of Medicaid providers. Federal legislation considered in the Senate proposed limiting the use of provider taxes by lowering the “safe harbor threshold” from the current allowable level, 6.0 percent of net patient revenues, to 5.0 percent of net patient revenues by FY 2025 in one proposal and 4.0 percent by FY 2025 in another. The survey shows that 29 states reported having at least one provider tax exceeding 5.5 percent of net patient revenues and 46 states reported having at least one provider tax exceeding 3.5 percent as of July 1, 2017.

Benefits, Prescription Drugs, and Opioid Strategies

A total of 26 states expanded or enhanced covered benefits in FY 2017 and 17 states plan to add or enhance benefits in FY 2018, most commonly for behavioral health/substance use disorder services and dental services. Thirteen states reported changes to copayment requirements in either FY 2017 or FY 2018, including new or increased copayments for enrollees with income above 100 percent FPL, for non-emergency use of a hospital emergency department, and pharmacy. Most states identified high cost and specialty drugs (including hepatitis C antivirals) as a significant cost driver for state Medicaid programs. The majority reported actions to refine and enhance their pharmacy programs, especially implementation of new utilization controls (e.g., prior authorization requirements, clinical edits, and quantity limits). Thirty-five of 39 MCO states reported that the pharmacy benefit was “generally carved-in.” Of these 35 states, the majority reported requirements that MCOs have uniform clinical protocols (31 states) or uniform preferred drug lists (PDLs) (19 states) that will be in place for one or more drugs as of the end of FY 2018.

What to watch: A growing number of states have chosen to adopt the CDC guidelines for the prescribing of opioid pain medications for adults in primary care settings (34 states as of the end of FY 2018). Nearly all states have various FFS pharmacy management strategies targeted at opioid harm reduction in place as of FY 2017, including quantity limits (48 states); clinical criteria claim system edits (46 states); step therapy (34 states); and other prior authorization requirements (32 states). Somewhat fewer states (28 states) reported requirements in place for Medicaid prescribers to check their states’ Prescription Drug Monitoring Program before prescribing opioids to a Medicaid patient. Among the 35 states that used MCOs to deliver pharmacy benefits, 24 reported that they required MCOs to follow some or all of their FFS pharmacy benefit management policies for opioids. For FY 2017, the vast majority of states (46 states) reported that naloxone (a prescription opioid overdose antidote) was available in at least one formulation without prior authorization (PA) and most states (42) also covered the naloxone nasal spray formulation without PA. The standard of care for opioid use disorder is medication-assisted treatment (MAT), which combines psychosocial treatment with medication. All 49 states that responded to a new question about medication-assisted treatment (MAT) drugs reported coverage of buprenorphine and both oral and injectable naltrexone, but a somewhat smaller number (36 states) reported coverage of methadone in FY 2017.⁴ 

Looking Ahead

Medicaid is constantly evolving as policymakers strive to improve program value and outcomes through delivery system reforms, respond to economic conditions or public health concerns (such as the opioid epidemic), or implement federal policy changes including those in the ACA or other regulatory changes (like the recent Medicaid managed care rule). As states began FY 2018, Congress was debating major ACA repeal and replace legislation generating great uncertainty for states around Medicaid including the future of the ACA and financing for the Medicaid expansion as well as overall financing for the overall Medicaid program. On this year’s survey, Medicaid directors were asked to comment on state-specific implications of federal proposals. Most Medicaid directors from the 32 ACA Medicaid expansion states reported that they would not be able to continue covering the expansion population, or that coverage would be at substantial risk, if the ACA enhanced federal match for this population were terminated. Almost all Medicaid directors expressed concern about the likely negative fiscal consequences tied to proposed limits on federal Medicaid spending. Some directors mentioned that they welcomed potential new state policy flexibility under federal legislative proposals, but a greater number of Medicaid directors expressed concern that proposals to convert Medicaid to a per capita cap or block grant would not provide sufficient flexibility to enable states to make up for the reduction in federal funds.

Despite the uncertain policy environment, many states continue efforts to expand managed care, move ahead with payment and delivery system reforms, increase provider payment rates, expand benefits, and expand community-based LTSS. Emerging trends from this year’s survey include proposals to restrict eligibility (e.g., work requirements) and impose premiums through Section 1115 waivers, movement to include value-based purchasing requirements in MCO contracts, and efforts to combat the growing opioid epidemic. Key areas to watch include federal legislative efforts to restructure and limit federal Medicaid financing as well as Section 1115 waiver activity (state waiver proposals and CMS approvals). These issues will have implications for states, providers, and beneficiaries that could shape the future of the Medicaid program in FY 2018 and beyond.

Medicaid provides health insurance coverage to more than one in five Americans, and accounting for over one-sixth of all U.S. health care expenditures.⁵  The Medicaid program constantly evolves, as policy makers in each state make changes to improve their programs, respond to economic conditions, come into compliance with new federal requirements, and implement other state budget and policy priorities. As fiscal year (FY) 2018 began in most states, legislative proposals to repeal major portions of the Affordable Care Act (ACA), including the Marketplace and Medicaid coverage expansions, were under consideration in Congress. These proposals would also have fundamentally restructured federal Medicaid financing, converting the current open-ended entitlement to a federal block grant or per capita cap. It is within that context that this year’s survey was conducted.

This report examines the reforms, policy changes, and initiatives that occurred in FY 2017 and those adopted for implementation for FY 2018 (which began for most states on July 1, 2017⁶ ). Report findings are drawn from the annual budget survey of Medicaid officials in all 50 states and the District of Columbia conducted by the Kaiser Family Foundation (KFF) and Health Management Associates (HMA), in collaboration with the National Association of Medicaid Directors (NAMD). This was the 17^th annual survey, which has been conducted from FY 2002 through FY 2018. (Copies of previous reports are archived here.⁷ )

The KFF/HMA Medicaid survey on which this report is based was conducted from June through September 2017. The survey was sent to each state Medicaid director in June 2017. Directors and their staff provided data for this report in their written survey response and through a follow-up telephone interview. All 50 states and DC completed surveys and participated in telephone interview discussions between July and September 2017. Given differences in the financing structure of their programs, the U.S. territories were not included in this analysis. An acronym glossary and the survey instrument are included as appendices to this report.

The survey collects data about Medicaid policies in place or implemented in FY 2017, policy changes implemented at the beginning of FY 2018, or policy changes for which a definite decision has been made to implement in FY 2018. Some policies adopted for the upcoming year are occasionally delayed or not implemented for reasons related to legal, fiscal, administrative, systems or political considerations, or due to delays in approval from CMS. The District of Columbia is counted as a state for the purposes of this report; the counts of state policies or policy actions that are interspersed throughout this report include survey responses from the 51 “states” (including DC). Key findings of this survey, along with state-by-state tables providing more detailed information, are described in the following sections of this report:

• Eligibility and Premiums
• Managed Care Initiatives
• Emerging Delivery System and Payment Reforms
• Long-Term Services and Supports Reforms
• Provider Rates and Taxes
• Benefits, Copayments, Pharmacy, and Opioid Strategies
• Challenges and Priorities in FY 2018 and Beyond Reported by Medicaid Directors

Changes to Eligibility Standards

The ACA Medicaid expansion was one of the most significant Medicaid eligibility changes in the history of the program. By FY 2017, 32 states had implemented the ACA Medicaid expansion: 26 states in FY 2014; three states (Indiana, New Hampshire and Pennsylvania) in FY 2015; two states (Alaska and Montana) in FY 2016, and one state (Louisiana) on July 1, 2016 (FY 2017) (Figure 1).

Several non-expansion states (Idaho, Tennessee, Virginia, and Wyoming) reported that consideration of the Medicaid expansion was on hold due to uncertainty about the future of the Medicaid expansion option. North Carolina’s governor announced plans to adopt the expansion shortly after taking office in January 2017. These plans have been delayed, however, by a lawsuit brought by a group of legislators challenging the governor’s authority to expand without legislative approval.⁹  In Maine, voters will decide whether the state will adopt the ACA Medicaid expansion in a referendum this November.¹⁰ 

Other Eligibility Expansions

Beyond the ACA Medicaid expansion, states have made very few changes to expand Medicaid eligibility since 2014, and states reported only a few narrow expansions targeting a limited number of beneficiaries implemented in FY 2017 or planned for FY 2018 (Tables 1 and 2).

In addition to the ACA Medicaid expansion in Louisiana, a total of six other states made changes that expanded Medicaid eligibility in FY 2017. For FY 2018, seven states plan to implement eligibility expansions. Notable expansions reported include the following:

• In FY 2017, both Florida and Utah implemented the option to eliminate the five-year bar on Medicaid eligibility for lawfully-residing immigrant children. Arkansas and Nevada both intend to implement this option in FY 2018 (pending CMS approval of their plans, which were adopted by both states’ legislatures during FY 2017).
• In FY 2018, a pending Section 1115 waiver in Utah proposes covering a new eligibility group: individuals with income below 5 percent of the FPL who are chronically homeless, justice-involved, or individuals in need of substance use and/or mental health treatment.

Eligibility Restrictions

Only one state reported implementing an eligibility restriction in FY 2017: Missouri suspended its family planning waiver¹¹  in FY 2017 following legislative restrictions contained in the state’s FY 2017 appropriations bill.¹²  Although Missouri replaced the Medicaid family planning waiver with a state-funded family planning program, this change eliminated Medicaid coverage for family planning services and placed new restrictions on which providers are accessible to the population. (The new restrictions apply only to individuals eligible through the waiver, however, and do not affect coverage of family planning services for other Medicaid eligible individuals.)

Eight states reported eligibility restrictions for FY 2018 (six states through Section 1115 waivers and two states through state plan authority), some in response to a March 2017 Trump administration letter to state governors¹³  that signaled an openness to approve Section 1115 waivers that include work requirements and more expansive use of premiums and cost sharing. This year’s survey captured changes that states have implemented or plan to implement in FY 2018, even if these changes are included in Section 1115 Waiver proposals that are pending approval ¹⁴  at CMS. Waiver provisions (in approved or pending waivers) that states plan to implement in FY 2019 or after are described later in the “Challenges and Priorities” section of this report.¹⁵  A description of key eligibility restrictions included in pending Section 1115 waivers planned for FY 2018 implementation follows.

FY 2018 restrictions for ACA Medicaid expansion populations:¹⁶ 

• Arkansas ¹⁷  has proposed to amend its “Arkansas Works” Medicaid expansion waiver to: (1) eliminate coverage for persons with income above 100 percent of the FPL while still maintaining the enhanced federal matching rate for the remaining expansion population at or below 100 percent FPL, (2) include a work requirement for the remaining expansion population, and (3) eliminate the conditions CMS placed on the state’s waiver of retroactive eligibility for expansion enrollees (including the medically frail).¹⁸ 
• Indiana ¹⁹  plans to impose a three-month lock-out from coverage on individuals who fail to comply with redetermination requirements. Beneficiaries who fail to verify eligibility at renewal would be disenrolled but could re-enroll without a new application if they provide necessary documentation within 90 days. After 90 days, a three-month lock-out period would follow before individuals could re-enroll.²⁰ 

FY 2018 restrictions for non-ACA expansion Medicaid populations:

• Iowa plans to eliminate retroactive Medicaid eligibility for all Medicaid enrollees with an October 1, 2017 target implementation date.²¹ 
• Maine ²²  plans to: (1) waive retroactive eligibility so that coverage would begin no earlier than the first day of the month of application, (2) impose a work requirement for adults (ages 19 to 64), such as parents and former foster care youth, and a time limit on coverage for those who fail to comply with work requirement, (3) apply a $5,000 asset test to all coverage groups that currently do not have an asset test, and (4) eliminate hospital presumptive eligibility for all coverage groups. The state’s pending waiver application proposes to implement these initiatives within six months of demonstration approval (the state’s estimated start date is January 1, 2018).²³ 
• Utah plans to impose a work requirement for its existing Primary Care Network (PCN) waiver adults,²⁴  impose a 60-month time limit on eligibility for PCN adults, and end hospital presumptive eligibility for all current enrollees.

Premiums

The Medicaid statute generally does not allow states to charge premiums to Medicaid beneficiaries. Only two states reported activity related to Medicaid premiums in either FY 2017 or FY 2018.²⁶  In FY 2017, Arkansas replaced the requirement that expansion enrollees make contributions to “Health Independence Accounts” with a new 2 percent of income premium requirement (up to $13/month) for expansion enrollees above 100 percent FPL. Indiana’s pending waiver includes requests to: (1) add a 1 percent premium surcharge for tobacco users beginning in the second year of enrollment, (2) require Transitional Medical Assistance parents with income up to 138 percent FPL to pay premiums like expansion adults, and (3) change to a tiered premium structure instead of a flat charge of 2 percent of income (this change is planned for FY 2018 and expected to have a neutral effect on beneficiaries) (Table 2). 

Coverage Initiatives for the Criminal Justice Population

In recent years, many states have implemented new policies to connect individuals involved with the criminal justice system to Medicaid given that the Medicaid expansion made many of these individuals newly eligible for coverage (including childless adults who were not previously eligible in most states). Connecting these individuals to health coverage²⁷  can facilitate their integration back into the community. Individuals may be enrolled in Medicaid while they are incarcerated, but Medicaid cannot cover the cost of their care during their period of incarceration, except for inpatient services. Nearly all states have policies in place to cover inpatient care for individuals who are incarcerated under Medicaid. Most states are also working with corrections agencies and with local jails to facilitate enrolling individuals in Medicaid before they are released. In addition, half of the states (25) have enrollment initiatives to facilitate Medicaid enrollment for parolees. Some states train criminal justice employees to assist with Medicaid applications and other states have dedicated Medicaid staff to work with the corrections agencies to facilitate enrollment for inmates or payment for inpatient care of inmates. Finally, the majority of states suspend rather than terminate Medicaid coverage for enrollees who become incarcerated. When coverage is suspended, it can be reinstated more easily and quickly upon release from incarceration or when an inpatient hospital stay occurs.²⁸ 

While both Medicaid expansion and non-expansion states have adopted these strategies to connect justice-involved individuals to Medicaid coverage, these initiatives affect many more people in expansion states because eligibility for adults remains restrictive in non-expansion states. In this year’s survey, one non-expansion state commented that the administrative costs of implementing Medicaid coverage policies for the criminal justice population would be excessive since the policies would apply to such a small number of people in the state.

Details on Medicaid coverage for individuals involved with the criminal justice system are included in Exhibit 1 and Table 3.

Table 1: Changes to Eligibility Standards in all 50 States and DC, FY 2017 and FY 2018

Table 2: States Reporting Eligibility²⁹  and Premium³⁰  Changes in FY 2017 and FY 2018³¹ 

TABLE 3: CORRECTIONS-RELATED ENROLLMENT POLICIES IN ALL 50 STATES AND DC, FY 2017 AND FY 2018

The Centers for Medicare and Medicaid Services (CMS) issued a final rule on managed care in Medicaid and CHIP in April 2016. The new rule represents a major revision and modernization of federal regulations in this area.^{35  36}  On June 30, 2017, CMS released an Informational Bulletin³⁷  indicating they would use “enforcement discretion” to work with states on achieving compliance with the new managed care regulations, except for specific areas that “have significant federal fiscal implications.”

Managed care remains the predominant delivery system for Medicaid in most states. As of July 2017, all states except three – Alaska, Connecticut,³⁸  and Wyoming– had some form of managed care in place, unchanged from July 2016. The number of states contracting with comprehensive risk-based managed care organizations (MCOs) (39 states) or operating a Primary Care Case Management (PCCM) program (16 states) as of July 2017 also remained unchanged from the prior year. PCCM is a managed fee-for-service (FFS) based system in which beneficiaries are enrolled with a primary care provider who is paid a small monthly fee to provide case management services in addition to primary care.

Of the 48 states that operate some form of managed care, seven operate both MCOs and a PCCM program while 32 states operate MCOs only and nine states operate PCCM programs only³⁹  (Figure 2). Wyoming, one of the three states without any managed care (i.e., without either MCOs or a PCCM program), does operate a limited-benefit risk-based prepaid health plan (PHP). In total, 25 states (including Wyoming) contracted with one or more PHPs to provide Medicaid benefits including, behavioral health care, dental care, vision care, non-emergency medical transportation (NEMT), or long-term services and supports (LTSS).

Populations Covered by Risk-Based Managed Care

The share of Medicaid beneficiaries enrolled in MCOs or PCCM programs or remaining in FFS for their acute care varies widely by state. However, the share of Medicaid beneficiaries enrolled in MCOs has steadily increased as states have expanded their managed care programs to new regions and new populations and made MCO enrollment mandatory for additional eligibility groups. This year’s survey showed continued modest growth. The survey asked states to indicate the approximate share of specific Medicaid populations who receive their acute care in MCOs, PCCM programs, and FFS. As shown in Figure 3, among the 39 states with MCOs, 29 states reported that 75 percent or more of their Medicaid beneficiaries were enrolled in MCOs as of July 1, 2017 (up from 28 states in last year’s survey), including four of the five states with the largest total Medicaid enrollment. These four states (California, New York, Texas, and Florida) account for nearly four out of every 10 Medicaid beneficiaries across the country (Figure 3 and Table 4).⁴⁰ 

Consistent with past survey results, this year’s survey found that children and adults (particularly those enrolled through the ACA Medicaid expansion) are much more likely to be enrolled in an MCO than elderly Medicaid beneficiaries or those with disabilities. Thirty-five of the 39 MCO states covered 75 percent or more of all children through MCOs. Twenty-eight of the 39 MCO states covered 75 percent or more of low-income adults in pre-ACA expansion groups (e.g., parents, pregnant women) through MCOs. The elderly and people with disabilities were the group least likely to be covered through managed care contracts, with only 16 of the 39 MCO states covering 75 percent or more such enrollees through MCOs (Figure 3).

Of the 32 states that had implemented the ACA Medicaid expansion as of July 1, 2017, 27 were using MCOs to cover newly eligible adults. (The five Medicaid expansion states without risk-based managed care were Alaska, Arkansas, Connecticut, Montana, and Vermont.) The large majority (24) of these 27 states covered more than 75 percent of beneficiaries in this group through risk-based managed care. New Hampshire, however, reported that approximately 80 percent of its ACA expansion adults receive premium assistance to enroll in Qualified Health Plans in the state’s Marketplace and that only 13.5 percent were enrolled in MCOs. The other two states reporting less than 75 percent MCO penetration for this group were Colorado and Illinois.

Seven of the 16 states with PCCM programs also contract with MCOs. In most of these states, MCOs cover a larger share of beneficiaries than PCCM programs. However, Colorado and North Dakota are exceptions. As of July 1, 2017, a majority of Colorado’s enrollees were in the PCCM program, which is the foundation of the state’s Accountable Care Collaboratives, and 40 percent of enrollees in North Dakota were enrolled in the PCCM program (compared to 25 percent in the MCO program).

Only two states reported policies implemented in FY 2017 or planned for FY 2018 that reduced or will reduce the states’ reliance on the MCO model of managed care: Colorado reported that a small MCO pilot initiated on July 1, 2016 terminated on June 30, 2017, and Massachusetts reported that the implementation of its Accountable Care Organization (ACO) program in FY 2018 will result in the transition of MCO enrollees to ACOs.

Populations with Special Needs

For geographic areas where MCOs operate, this year’s survey asked MCO states whether, as of July 1, 2017, certain subpopulations with special needs were enrolled in MCOs for their acute care services on a mandatory or voluntary basis or were always excluded. On the survey, states selected from “always mandatory,” “always voluntary,” “varies,” or “always excluded” for the following populations: pregnant women, foster children, persons with intellectual and developmental disabilities (ID/DD), children with special health care needs (CSHCNs), persons with a serious mental illness (SMI) or serious emotional disorder (SED), and adults with physical disabilities. This year’s survey found an increase in the number of states reporting that enrollment for these populations is always mandatory (Exhibit 2).

As shown in Exhibit 2 and Table 5, and consistent with results in last year’s survey, pregnant women were the group most likely to be enrolled on a mandatory basis while persons with ID/DD were least likely to be enrolled on mandatory basis and also most likely to be excluded from MCO enrollment. Foster children were the group most likely to be enrolled on a voluntary basis, although they were enrolled on a mandatory basis in a larger number of states. Among states indicating that the enrollment approach for a given group or groups varied, LTSS eligibility was the most frequently cited basis of variation.

Acute Care Managed Care Population Changes

In both FY 2017 and FY 2018, only a few states reported actions to increase enrollment in acute care managed care, reflecting full or nearly full MCO saturation in most MCO states. Of the 39 states with MCOs, a total of 14 states indicated that they made specific policy changes in either FY 2017 (7 states) or FY 2018 (8 states) to increase the number of enrollees in MCOs through geographic expansion, voluntary or mandatory enrollment of new groups into MCOs, or mandatory enrollment of specific eligibility groups that were formerly enrolled on a voluntary basis (Exhibit 3). Thirty-six states reported that acute care MCOs were operating statewide as of July 2017 and Illinois reported plans to expand MCOs statewide in FY 2018. The remaining two states without statewide MCO programs (Colorado and Nevada) did not report a geographic expansion planned for FY 2018.

Some of the notable acute care MCO expansions include:

• West Virginia transitioned its SSI population from FFS to mandatory MCO enrollment in July 2016.
• Missouri extended its MCO program geographically statewide on May 1, 2017 for children, pregnant women, refugees, and custodial parents.
• In January 2018, Pennsylvania will begin to phase-in its Community HealthChoices program which will provide both physical health and long-term services and supports through newly contracted MCOs. CHC enrollees will include individuals in nursing facilities (currently carved out of managed care after 30 days), full benefit dually-eligible individuals, and individuals receiving home and community-based services.

In FY 2017 and FY 2018, states expanded MCO enrollment (either voluntary or mandatory) to additional groups. Some states added multiple groups. Some groups that states added or are planning to add include: foster care or adoption assistance children (New York, Ohio, and Texas); persons eligible for LTSS (Nebraska, New York, Ohio, Pennsylvania, and Texas); ACA expansion, newly eligible adult group and enrollees in the state’s Health Insurance Premium Payment Program (Louisiana); Breast and Cervical Cancer Treatment Program group (Ohio and Texas); children with special health care needs or SSI (Illinois, Ohio, and Texas); SSI population (West Virginia); and persons with intellectual and developmental disabilities (Nebraska and Ohio).

One state in FY 2017 and five in FY 2018 made enrollment mandatory for a specific eligibility group that was formerly enrolled on a voluntary basis: Washington (clients with Third Party Liability (TPL)/other insurance, excluding Medicare); New York (children with special health care needs in 1915(c) waiver programs); Oregon (Medicare/Medicaid dual eligibles); South Carolina (former foster care adults); Virginia (aged, blind, and disabled enrollees); and Wisconsin (SSI adults that do not have LTSS needs).

Services Covered Under MCO Contracts

Behavioral Health Services Covered Under MCO Contracts

Although MCOs are at risk financially for providing a comprehensive set of acute care services, nearly all states exclude or “carve-out” certain services from their MCO contracts, most commonly behavioral health services. In this year’s survey, states with acute care MCOs were asked to indicate whether specialty outpatient mental health (MH) services, inpatient mental health services, and outpatient and inpatient substance use disorder (SUD) services are always carved-in (i.e., virtually all services are covered by the MCO), always carved-out (to PHP or FFS), or carve-in status varies by geographic or other factors.

For purposes of this survey, “specialty outpatient mental health” services mean services used by adults with Serious Mental Illness (SMI) and/or youth with serious emotional disturbance (SED), commonly provided by specialty providers such as community mental health centers. Depending on the service, more than half of the 39 MCO states reported that specific behavioral health service types were carved into their MCO contracts, with specialty outpatient mental health services somewhat less likely to be carved in (Exhibit 4 and Table 6). Also, with the exception of inpatient SUD services, the number of states reporting that the other services were always carved-in increased modestly from last year.

States reporting actions in FY 2017 to carve in behavioral health services into their MCO contracts (in at least some regions/contracts) included six states (Minnesota, Nebraska, South Carolina, Texas, Virginia, and Washington). In FY 2018, ten states (Louisiana, Michigan, Minnesota, Mississippi, New Jersey, New York, Ohio, South Carolina, Washington, and West Virginia) report new/continued actions to carve in behavioral health services.

Institutions for Mental Diseases (IMD) Rule Change

The 2016 Medicaid Managed Care Final Rule⁴²  allows states (under the authority for health plans to cover services “in lieu of” those available under the Medicaid state plan), to receive federal matching funds for capitation payments on behalf of adults who receive inpatient psychiatric or substance use disorder treatment or crisis residential services in an IMD for no more than 15 days in a month.⁴³  States were asked in the survey whether they planned to use this new authority. Of the 39 states with MCOs, 26 states answered “yes” for FY 2017, FY 2018, or both FYs 2017 and 2018, five states answered “no,” and eight states answered “undetermined.”

States were also asked whether they believed the Final Rule allows MCOs sufficient flexibility to provide cost-effective “in lieu of” IMD services to meet acute inpatient or residential treatment needs for members with severe mental illness (SMI) or substance use disorders (SUDs). Only a small number of states (9 for SMI and 8 for SUD) answered “yes.” The remaining MCO states answered “no” (19 for SMI and 19 for SUD) or “don’t know” (11 for SMI and 12 for SUD). Many states commented that the 15-day limit was too restrictive, especially for SUD services, and a number of states indicated plans to seek a Section 1115 waiver to cover more than 15 days per month.⁴⁴ 

Additional Services

States with MCO contracts reported that plans in their states may offer a range of services beyond those described in the state plan or waivers. Eleven states reported that MCOs provide limited or enhanced adult dental services beyond contractually required state plan benefits, and nine states reported enhanced vision services for adults. Several states noted that MCOs offer cell phones for reminder services or other technology supports from scales to telemedicine. Half of MCO states reported that MCOs provide a wide variety of non-clinical supports as value added services, including infant car seats and cribs, nominal gift cards for healthy behavior, air conditioners for asthma treatment, weight management classes or memberships, and even support for obtaining a GED. Health education, wellness supports, and non-traditional therapies were also noted by some states.

Managed Care (Acute and LTSS) Quality, Contract Requirements, and Administration

Quality Initiatives

Over time, the expansion of comprehensive risk-based managed care in Medicaid has been accompanied by greater attention to measuring quality and plan performance and, increasingly, to measuring health outcomes. After years of comprehensive risk-based managed care experience within the Medicaid program, many states now incorporate quality into the procurement process, as well as into ongoing program monitoring.

States procure MCO contracts using different approaches; however, most states use competitive bidding, in part because the dollar value is so large. Under these procurements, states can specify requirements and criteria that go beyond price, and may expect plans to compete on the basis of value-based payment arrangements with network providers, specific policy priorities such as improving birth outcomes, or strategies to address social determinants of health, and/or other specific performance and quality criteria. In this year’s survey, states were asked if they used, or planned to use, National Committee for Quality Assurance’s (NCQA’s) Healthcare Effectiveness Data and Information Set (HEDIS^®) scores as criteria for selecting MCOs. Of the 39 states with MCOs, 18 indicated that they used or plan to use HEDIS scores as criteria for selecting MCOs.

States were asked to indicate whether they had select quality strategies in place in FY 2017 and to indicate newly added or expanded initiatives for FY 2018. Thirty-seven MCO states reported one or more select MCO quality initiatives in place in FY 2017 (Figure 4 and Table 7). The most common strategies were requirements for data collection and reporting (often public reporting) on quality measures and the use of quality-based capitation withholds or penalties. Withhold amounts for acute care services typically ranged from 1 percent (Michigan, Oregon, and Washington) to 5 percent (Minnesota and Missouri); managed long-term services and supports (MLTSS) withhold amounts typically ranged from 0.5 percent (Iowa and Wisconsin) to 3 percent (California and Ohio). Over half the 39 states with managed care contracts reported the use of pay for performance strategies. In addition, several states reported “other” quality initiatives, including the use of liquidated damages for poor performance and the required operation of and reporting on performance improvement projects (PIPs).

In FY 2018, 11 states expect to implement new or expanded quality initiatives (Figure 4). The most common new quality initiatives are pay for performance initiatives while the most common expanded initiatives are data collection and reporting initiatives (Table 7).

Contract Requirements

Alternative [Provider] Payment Models within MCO Contracts

Value-based purchasing (VBP) strategies are important tools for states pursuing improved quality and outcomes and reduced costs of care within Medicaid and across payers. Generally speaking, VBP strategies include activities that hold a provider or MCO accountable for cost and quality of care.⁴⁵  This often includes efforts to implement alternative payment models (APMs). APMs replace FFS/volume-driven provider payments with payment models that incentivize quality, coordination, and value (e.g., shared savings/shared risk arrangements and episode-based payments). Many states have included a focus on adopting and promoting APMs as part of their federally supported State Innovation Models (SIM) projects and as part of delivery system reform efforts approved under Section 1115 Medicaid waivers.⁴⁶  States are increasingly encouraging or requiring Medicaid MCOs to adopt APMs to advance VBP in Medicaid. The survey found that:

• Thirteen states (Arizona, California, Delaware, Hawaii, Nebraska, New Hampshire, New Mexico, New York, Ohio, Pennsylvania, Rhode Island, South Carolina, and Washington) identified a specific target in their MCO contracts for the percentage of provider payments, network providers, or plan members that plans must cover via alternative provider payment models in FY 2017 (compared to five states in FY 2016); and
• Nine additional states (District of Columbia, Iowa, Kansas, Louisiana, Michigan, New Jersey, Oregon, Texas, and West Virginia) will include a target percentage in their contracts for FY 2018.

Further, in FY 2017, eight states had contracts that required Medicaid MCOs to adopt specific alternative provider payment models (e.g., episode of care payments, shared savings/shared risk, etc.), while eight states had contracts that encouraged MCOs to adopt specific APMs. In FY 2018, four additional states plan to require the use of specific APMs while five additional states plan to encourage use of specific APMs. The box below provides state examples of APM requirements.

Social Determinants of Health

In April 2017, the CMS Center for Medicare and Medicaid Innovation selected 32 organizations to implement and test models to support local communities in addressing the health-related social needs of Medicare and Medicaid beneficiaries, aiming to bridge the gap between clinical and community service providers. This “Accountable Health Communities” model represents the first CMS innovation model that focuses on social determinants of health. The goal of the five-year program is to encourage innovation to deliver local solutions that improve access to community-based services.⁴⁸  This development reflects growing awareness and interest on the part of CMS to address other issues, such as housing and food insecurity, by linking beneficiaries to social services and supports, ultimately to improve health and health outcomes. States have also focused on addressing social determinants of health, so federal and state activity are occurring simultaneously.

The survey found that, of the 39 MCO states, 19 states required while 12 states encouraged MCOs to screen enrollees for social needs and provide referrals to other services in FY 2017. Two additional states plan to require and two plan to encourage MCOs to screen/refer enrollees for social needs in FY 2018.

Criminal Justice-Involved Populations

Engaging Medicaid MCOs in efforts to improve continuity of care for individuals released from correctional facilities into the community is important to ensure that individuals with complex or chronic health conditions, including behavioral health needs, have an effective transition to treatment in the community. In FY 2017, of the 39 states that contract with MCOs, six states (Arizona, Iowa, Kansas, Louisiana, Ohio, and Virginia) require MCOs to provide care coordination services to enrollees prior to release from incarceration, while two states (Kentucky and New Mexico) encourage MCOs to provide care coordination services prior to release. Five states intend to use contracts to encourage or require such care coordination in FY 2018. The following are examples of pre-release state requirements: Louisiana requires plans to offer care management at least 30 days prior to scheduled release; Kansas requires pre-release care management for LTSS populations, and new legislation in Washington will require care coordination pre-release and post-incarceration in FY 2018. New Mexico, a state that encourages but does not require pre-release activity, reported that one health plan is piloting a care coordination model through collaboration with a metropolitan detention center to test and learn effective methods to impact recidivism and improve public health and safety.

Administrative Policies

Minimum Medical Loss Ratios

The Medical Loss Ratio (MLR) is the proportion of total capitation payments received by an MCO spent on clinical services and quality improvement. CMS published a final rule in 2016 that requires states to develop capitation rates for Medicaid to achieve an MLR of at least 85 percent in the rate year, for rating periods and contracts starting on or after July 1, 2017.⁴⁹  This 85 percent minimum MLR is the same standard that applies in Medicare Advantage and private large group plans. There is no federal requirement that Medicaid plans must pay remittances to the state if they fail to meet the MLR standard, but states have discretion to require remittances.

As of July 1, 2017, 25 of the 39 states that contract with comprehensive risk-based MCOs specified a minimum MLR in Medicaid MCO contracts. Twenty of these 25 states applied the MLR requirement to all MCO contracts, while five states applied it on a limited basis. Seventeen of the 25 states with minimum MLR requirements always require remittance payments to the state if the minimum MLR is not achieved; one state (Ohio) requires remittance under some circumstances.⁵⁰ 

Medicaid MLRs vary by state but are most commonly set at 85 percent or higher. A few states noted that their minimum MLRs varied by type of plan or population. For example, in New Jersey, the MLR is calculated separately for each population covered, with an MLR of 85 percent set for acute care contracts and an MLR of 90 percent set for MLTSS contracts.

Table 8 provides state-specific information regarding the use of a minimum MLR.

Auto-Enrollment

Generally, beneficiaries who are required to enroll in MCOs must be offered a choice of at least two plans. Those who do not select a plan are auto-enrolled in a plan by the state. The proportion of MCO beneficiaries who are auto-enrolled varies widely across states. State auto-enrollment algorithms also vary, but usually take into consideration variables like previous plan or provider relationships, beneficiary geographic location, and/or plan enrollments of other family members. States may also aim to balance enrollment among plans. As of July 1, 2017, 11 states took plan quality or performance rankings into consideration in the auto-enrollment algorithm (Arizona, California, Hawaii, Michigan, Minnesota, New Mexico, New York, Ohio, South Carolina, Virginia, and Washington).

PCCM and PHP Program Changes

Primary Care Case Management (PCCM) Program Changes

Of the 16 states with PCCM programs, two reported enacting policies to increase PCCM enrollment in FY 2017 or FY 2018: Colorado reported continued growth in its PCCM-based Accountable Care Collaboratives in both FY 2017 and FY 2018, and Arkansas reported implementing new billing software that would auto-assign beneficiaries to a primary care physician. Two other states reported new PCCM programs: Alaska – one of only three states without either an MCO or PCCM program as of July 1, 2017 – reported plans to implement a PCCM program in FY 2018, and Arizona reported plans to implement an American Indian Medical Home effective October 1, 2017 using PCCM authority.

Three states⁵¹  (California, Illinois, and Massachusetts) reported actions to decrease enrollment in a PCCM program in FY 2017 or FY 2018. California plans to transition its one-county HIV PCCM program to a full-risk MCO model in CY 2018; Illinois reported that its Integrated Health Homes would move to managed care under new MCO contracts that would begin in FY 2018, and Massachusetts reported that implementation of its Accountable Care Organization (ACO) program in FY 2018 will include the transition of PCCM members to ACO Plans.

Limited-Benefit Prepaid Health Plans (PHP) Changes

In this year’s survey, the 25 states contracting with at least one PHP as of July 1, 2017, were asked to indicate whether certain services (listed in Exhibit 5 below) were provided under these arrangements. The most frequently cited services provided (of those included in the question) were outpatient mental health services (14 states), followed by non-emergency medical transportation (NEMT) (12 states) and inpatient mental health and outpatient substance use disorder (SUD) treatment services (11 states each).

Nine states reported implementing policies to increase PHP enrollment in FY 2017 or FY 2018. Five states (Arkansas, Iowa, Idaho, Nebraska, and Nevada) reported new or expanded dental PHPs in FY 2018, Indiana reported plans for an NEMT PHP contract in FY 2018, California reported adding inpatient SUD treatment to its PHP program in FY 2018, Louisiana will add “Coordinated System of Care” PHPs in FY 2018 (serving youth with behavioral health challenges and their families), and New York reported increased enrollment in its LTSS PHPs in both FY 2017 an FY 2018.

Four states also reported actions to decrease PHP enrollment in FY 2017 or FY 2018. Nebraska and Texas reported ending a behavioral health PHP and folding the covered services into MCO contracts in FY 2017. Washington reported that PHP enrollment decreased in FY 2017 and will decrease further in FY 2018 when the state converts behavioral health PHPs to fully integrated MCO contracts in additional geographic areas. Massachusetts reported that implementation of its Accountable Care Organization (ACO) program in FY 2018 will reduce enrollments in its behavioral health PHP program.

TABLE 4: SHARE OF THE MEDICAID POPULATION COVERED UNDER DIFFERENT DELIVERY SYSTEMS IN ALL 50 STATES AND DC, AS OF JULY 1, 2017

TABLE 5: ENROLLMENT OF SPECIAL POPULATIONS UNDER MEDICAID MANAGED CARE CONTRACTS FOR ACUTE CARE IN ALL 50 STATES AND DC, AS OF JULY 1, 2017

TABLE 6: BEHAVIORAL HEALTH SERVICES COVERED UNDER ACUTE CARE MCO CONTRACTS IN ALL 50 STATES AND DC, AS OF JULY 1, 2017

TABLE 7: SELECT MEDICAID MANAGED CARE QUALITY INITIATIVES IN ALL 50 STATES AND DC, IN PLACE IN FY 2017 AND ACTIONS TAKEN IN FY 2018

TABLE 8: MINIMUM MEDICAL LOSS RATIO POLICIES FOR MEDICAID MCOs IN ALL 50 STATES AND DC, JULY 1, 2017

This year’s survey asked states whether certain delivery system and payment reform models designed to improve health outcomes and constrain cost growth were in place in FY 2017, and whether they planned to adopt or enhance these models in FY 2018. Over three-quarters of all state Medicaid programs (40) had at least one of the specified delivery system or payment reform models in place in FY 2017 (Figure 5 and Table 9). If all actions reported by states for FY 2018 are implemented as planned, that number will grow to 44 states by the end of FY 2018, demonstrating the continued widespread and growing interest in Medicaid transformation. For FY 2018, a total of 22 states reported plans to adopt or expand one or more of the models to reward quality and encourage integrated care. Key initiatives include patient-centered medical homes (PCMHs), Health Homes, and Accountable Care Organizations (ACOs).

Patient-Centered Medical Homes (PCMHs)

PCMH initiatives operated in over half (30) of Medicaid programs in FY 2017 (Table 9). Under a PCMH model, a physician-led, multi-disciplinary care team holistically manages the patient’s ongoing care, including recommended preventive services, care for chronic conditions, and access to social services and supports. Generally, providers or provider organizations that operate as a PCMH seek recognition from organizations like the National Committee for Quality Assurance (NCQA).⁵³  PCMHs are often paid (by state Medicaid agencies directly or through MCO contracts) a per member per month (PMPM) fee in addition to regular FFS payments for their Medicaid patients.⁵⁴ 

In this year’s survey, 12 states reported plans to adopt or expand PCMHs in FY 2018 (Table 9). A few of these states reported notable expansions. Through its Centennial Care managed care program, New Mexico indicated that it now serves approximately 300,000 members through a PCMH and further expansion is planned for FY 2018. Tennessee reported launching its statewide multi-payer PCMH program (through its TennCare MCOs) with 29 organizations in January 2017 with plans to add practices each year. Wyoming, a state without MCO or PCCM programs, implemented PCMHs prior to FY 2017, but reported that it will continue to recruit and enroll physician practices into the program in FY 2018. Alaska, Delaware, and Illinois are planning to implement new PCMH initiatives in FY 2018 and Georgia’s MCO contracts will support expansion of the number of PCMHs in FY 2018.

In contrast, three states reported the restriction or elimination of a PCMH program: Massachusetts ended a PCMH program in December 2016 as part of its transition towards primary care-led reform through ACO models; Maine reported that the multi-payer PCMH program that it participated in was eliminated at the federal level, and South Carolina reported that it would be restricting its PCMH program by eliminating “level 1” funding after finding that many PCMHs remained in the application phase for more than 18 months.

ACA Health Homes

The ACA Health Homes option, created under Section 2703 of the ACA, builds on the PCMH concept. By design, Health Homes must target beneficiaries who have at least two chronic conditions (or one and risk of a second, or a serious and persistent mental health condition), and provide a person-centered system of care that facilitates access to and coordination of the full array of primary and acute physical health services, behavioral health care, and social and long-term services and supports. This includes services such as comprehensive care management, referrals to community and social support services, and the use of health information technology (HIT) to link services, among others. States receive a 90 percent federal match rate for qualified Health Home service expenditures for the first eight quarters under each Health Home State Plan Amendment; states can (and have) created more than one Health Home program to target different populations.

Over one-third of states (21) had at least one Health Home initiative in place in FY 2017 (Table 9). One of these states (Alabama) specifically noted that it is continuing to operate its Health Home initiative even though the eight quarters of enhanced federal funding has expired. In this survey, seven states also reported plans to adopt or expand Health Homes in FY 2018 (Table 9). Of these seven states, three (Alaska, California, and Illinois) reported new Health Home State Plan Amendments (SPAs) and four states (New Mexico, New York, Vermont, and West Virginia) reported expansions of existing Health Home programs. Ohio, however, reported plans to end its Health Home program in January 2018 as part of a behavioral health redesign initiative.

Accountable Care Organizations (ACOs)

Thirteen states reported having ACOs in place for at least some of their Medicaid beneficiaries in FY 2017 (Table 9).⁵⁵  While there is no uniform, commonly accepted federal definition of an ACO, an ACO generally refers to a group of health care providers or, in some cases, a regional entity that contracts with providers and/or health plans, that agrees to share responsibility for the health care delivery and outcomes for a defined population.⁵⁶  An ACO that meets quality performance standards that have been set by the payer and achieves savings relative to a benchmark can share in the savings. States use different terminology in referring to their Medicaid ACO initiatives, such as Regional Care Collaborative Organizations (RCCOs) in Colorado⁵⁷  and Accountable Entities in Rhode Island.

In this survey, no state reported a new ACO initiative, but six states reported plans to expand an existing initiative in FY 2018 (Table 9). Four states with more mature ACO programs (Colorado, Maine, Minnesota, and Vermont) reported continued expansions of those programs in FY 2018, including Vermont, which also reported that it had aligned its existing ACO model with the design of the Medicare/CMS Next Generation ACO model beginning in January 2017. Two states (Massachusetts and Rhode Island) reported more significant expansions. Massachusetts reported that its ACO pilot program would be expanded statewide in January 2018 employing three different ACO models: an ACO/MCO partnership model; an ACO contracting directly with the state (without an MCO partner), and an exclusively MCO administered model. Massachusetts expects approximately 900,000 Medicaid beneficiaries to be enrolled in an ACO (out of 1.4 million total Medicaid enrollees). Rhode Island also reported plans to expand its current pilot “Accountable Entity” (AE) program in partnership with its existing MCOs with a long-term goal of having at least one-third of its Medicaid eligibles attributed to a certified AE.⁵⁸ 

Episode-of-Care Payment Initiatives

Unlike FFS reimbursement, where providers are paid separately for each service, or capitation, where a health plan receives a PMPM payment for each enrollee intended to cover the costs for all covered services, episode-of-care payment provides a set dollar amount for the care a patient receives in connection with a defined condition or health event (e.g., heart attack or knee replacement). Episode-based payments usually involve payment for multiple services and providers, creating a financial incentive for physicians, hospitals, and other providers to work together to improve patient care and manage costs. Six states (Arkansas, New Mexico, New York, Ohio, Pennsylvania, and Tennessee) reported that they had episode-of-care payment initiatives in place in FY 2017, up from only two states in FY 2015 (Table 9). Four of these states (Arkansas, New Mexico, Ohio, and Tennessee) also reported planned expansions of these initiatives in FY 2018. Another three states (Alaska, Connecticut, and South Carolina) reported plans to implement a new episode-of-care initiative in FY 2018 (Table 9).

Delivery System Reform Incentive Payment (DSRIP) Program

DSRIP initiatives,⁵⁹  which emerged under the Obama administration, provide states with significant federal funding to support hospitals and other providers in changing how they provide care to Medicaid beneficiaries.[endnote 239092-11] DSRIP initiatives link funding for eligible providers to process and performance metrics. Ten states reported DSRIP initiatives in place in FY 2017 (Table 9). Two of these states (Massachusetts and Texas) reported expansions planned for FY 2018: Massachusetts’ expanded DSRIP will support the development of ACOs and Texas reported new protocols for DSRIP activities, subject to CMS approval. Although states continue to show interest in pursuing delivery system reform through Section 1115 waiver authority, the future of DSRIP initiatives remains unclear under the new administration.

Other Initiatives

In addition to the initiatives discussed above, states mentioned a variety of other delivery system and payment reform initiatives (not counted in the totals for Figure 5 and Table 9). For example, DC reported on its pay for performance (P4P) initiatives including a new rate methodology for nursing facilities that includes P4P and an federally qualified health center (FQHC) P4P program focused on reducing inappropriate use of the emergency room, decreasing the rate of potentially avoidable hospital admissions, and addressing the problem of hospital readmissions. Montana reported on the implementation and expansion of a tribal health improvement program. Nevada reported implementing Certified Community Behavioral Health Clinics (CCBHCs) using an integrated behavioral health model, a prospective payment system, and pay for performance measures. Rhode Island reported using Section 1115 waiver authority to receive federal matching funds for services currently provided by various state agencies to support a new Designated State Health Program aimed at supporting quality-based payment programs, and Wisconsin reported plans to implement incentives to reduce potentially preventable hospital readmissions among both managed care and FFS members.

All-payer claims database (APCD) systems are large-scale databases that systematically collect medical claims, pharmacy claims, dental claims (typically, but not always), and eligibility and provider files from both private and public payers. APCDs can be used to help identify areas to focus reform efforts and for other purposes. Sixteen states (up from 11 in FY 2015) reported that an APCD was in place in their states (although Minnesota reported that the Medicaid program did not have access to the APCD in its state); one state (Connecticut) reported an APCD expansion planned for FY 2018; and three states (Delaware, Hawaii, and Washington) reported plans for new APCDs in FY 2018. Tennessee, however, reported that its APCD would be eliminated stating that following the United States Supreme Court’s 2016 decision in Gobeille v. Liberty Mutual Insurance Company,⁶⁰  the Tennessee Attorney General opined that the statute authorizing the Tennessee APCD could no longer be enforced.

Access Improvement Focus Areas

This year’s survey included additional questions for states focusing on initiatives to increase access to dental care or improve oral health outcomes and initiatives to increase access to telehealth. States were asked to briefly describe initiatives implemented in FY 2017 or planned for FY 2018.

Improving Dental Access or Oral Health Outcomes

Oral health is a critical component of overall health and well-being, but the prevalence of dental disease and tooth loss is disproportionately high among people with low income, reflecting lack of access to dental coverage and care.⁶¹  While all state Medicaid programs are required to provide a comprehensive dental benefit for children, dental services remain an optional benefit for adults and securing an adequate number of dental providers is a challenge in many areas. In this year’s survey, 19 states described a variety of new or expanded initiatives to expand dental access or improve oral health outcomes (for children and/or adults) implemented in FY 2017 or FY 2018 (Exhibit 6).

In addition to the strategies noted in Exhibit 6 above, Pennsylvania reported expanded use of mid-level oral healthcare providers; Maryland reported expanded dental coverage to former foster care adults; and South Dakota reported working with its DBM vendor on care coordination initiatives (between primary care and dental care). Also see the “Benefit Changes” section of this report for details on states with dental benefit expansions. A number of other states mentioned ongoing initiatives implemented prior to FY 2017.

Improving Access to Care Through Telehealth

Interest in telehealth has grown across both public and commercial payers as a way to expand access to care, create greater convenience for patients, improve the quality of care, and reduce the costs of care. There are various types of telehealth services including: medical care/consultation between a patient at home and a distant clinician or between a patient in the presence of a clinician and a distant clinician; consultations between two clinicians without the patient present; remote monitoring of a patient at home or in a hospital or other facility; and secure electronic transfer of patient information (e.g., an image or lab results) to a clinician.⁶² 

In this year’s survey, 19 states reported initiatives to expand the use of telehealth in FY 2017 or FY 2018. Nine states reported expanding telehealth by covering additional services, diagnoses, or provider types (Arizona, Minnesota, Mississippi, Montana, and Washington), removing a 20 mile distance restriction (Indiana), adding or encouraging remote patient monitoring (Florida and Maryland) and distant site providers (Maryland), and allowing a patient’s home to be an acceptable patient site and clarifying that an initial in-person visit is not required if the telehealth service is being used to treat a behavioral health condition (Texas). California and Colorado reported telehealth pilot programs; Nevada indicated that its MCOs had implemented “NowClinics” to promote telehealth utilization, and South Dakota reported that it was working with tribal facilities to expand telehealth availability. Other states that reported new or expanded telehealth initiatives include Arkansas, Hawaii, Illinois, New Jersey, New Mexico, and New York.

TABLE 9: SELECT DELIVERY SYSTEM AND PAYMENT REFORM INITIATIVES IN ALL 50 STATES AND DC, IN PLACE IN FY 2017 AND ACTIONS TAKEN IN FY 2018

Medicaid is the nation’s primary payer for long-term services and supports (LTSS), covering a continuum of services ranging from home and community-based services (HCBS) that allow persons to live independently in their own homes or in other community settings to institutional care provided in nursing facilities (NFs) and intermediate care facilities for individuals with intellectual disabilities (ICF-IDs). In 2015, spending on HCBS increased 7 percent while institutional spending decreased slightly, by 0.1 percent. HCBS represented 55 percent of total Medicaid expenditures on LTSS, and institutional LTSS represented 45 percent,⁶⁴  a dramatic shift from 1995, when institutional settings accounted for 82 percent of national Medicaid LTSS expenditures.⁶⁵ 

This year’s survey shows the vast majority of states in FY 2017 (47) and all states in FY 2018 (51) employing one or more strategies to expand the number of people served in home and community-based settings (Figure 6 and Table 10).

• Forty-three states in FY 2017 and 46 states in FY 2018 report using HCBS waivers and/or State Plan Amendments (SPAs) to expand the number of people receiving HCBS.⁶⁶  HCBS waivers and SPAs include Section 1915(c) and Section 1115 waivers⁶⁷  as well as Section 1915(i) and 1915(k) (“Community First Choice”) state plan options.
• Sixteen states in FY 2017⁶⁸  and 17 states in FY 2018 report including specific rebalancing incentives, performance targets and/or financial incentives, in managed care contracts to encourage MCOs that cover LTSS to expand access to HCBS.
• Twenty-one states in FY 2017 and 22 states in FY 2018 report serving more individuals through Programs of All-Inclusive Care for the Elderly (PACE) programs.⁶⁹ 
• Thirteen states in FY 2017 and nine states in FY 2018 are closing or downsizing a state institution and transitioning residents into community settings.
• Four states in FY 2017 and five states in FY 2018 are implementing or tightening a Certificate of Need (CON) program or imposing or extending a moratorium on construction of new NF or ICF-ID beds.

States were also asked whether they have adopted or plan to adopt new restrictions on the number of people served in the community. In FY 2018, Missouri noted they are reducing enrollees’ state plan consumer directed services budgets to equal 60 percent of the cost of nursing home care. In addition, Texas noted that, while the state budget included increased funding to support additional slots in Section 1915(c) waivers, the state has slowed down the rollout of new slots because of unanticipated increases in Community First Choice expenditures.

Table 10 shows state use of LTSS rebalancing tools in FY 2017 and FY 2018.

Housing Supports

In June 2015, CMS issued an Informational Bulletin to clarify when and how Medicaid reimburses for certain housing-related activities, including individual housing transition services, individual housing and tenancy sustaining services, and state-level housing related collaborative activities.⁷⁰  CMS’s intent was to assist states in designing benefits that support community integration for seniors, individuals with disabilities, and individuals experiencing chronic homelessness. Over half of states (27 states) reported that they implemented or expanded a housing-related strategy outlined in the CMS bulletin in FY 2017 and/or FY 2018 (Exhibit 7).

Many of the services outlined in CMS’s Informational Bulletin were developed under the auspices of federal grant programs, including the Money Follows the Person (MFP) rebalancing demonstration. MFP is a federal grant program, enacted under the Deficit Reduction Act of 2005 and extended through September 2016 by the Affordable Care Act, which operated in 44 states.^71 ,72  Enhanced federal funding under MFP has supported the transition of over 63,000 individuals from institutional to home and community-based long-term care settings as of December 2015.⁷³  Under MFP, states identified the lack of affordable and accessible housing as a major barrier to assisting individuals to leave institutional settings of care.⁷⁴  With MFP resources, many states have offered new housing related services, incorporated housing expertise within the Medicaid program to increase the likelihood of successful community living for persons who need supports, and engaged in strategic activities to assist in identifying and securing housing resources for individuals who choose HCBS.⁷⁵ 

After September 2016, with CMS approval, states can continue to transition eligible individuals through 2018 and expend remaining MFP funds through federal FY 2020.⁷⁶  As of July 2017, 30 states report that they currently offer housing-related services under a state plan, Section 1915(c) waiver, or Section 1115 waiver that the state intends to continue after the expiration of the MFP. However, 21 states report some services will likely be discontinued when MFP funding runs out. Examples of MFP services and activities that states may discontinue include: home delivered meals, vehicle modifications, independent living skills training, housing transition services, peer mentorship, and caregiver education, among others.

LTSS Direct Care Workforce

Many states are struggling to find sufficient numbers of trained direct care workers to meet the growing LTSS demand, including the demand for care in home and community-based settings.^77 ,78  Low wages, few benefits, limited opportunities for career advancement, inadequate training, and high rates of worker injury are all factors that contribute to a workforce shortage and high workforce turnover among paid LTSS direct care workers. In this year’s survey, states were asked to describe any Medicaid initiatives intended to address LTSS direct care workforce shortages or turnover. Seventeen states report efforts underway in FY 2017 or FY 2018 related to wage increases for direct care workers or to workforce development (Exhibit 8).⁷⁹ 

HCBS Benefit Changes

Fourteen states in FY 2017 and 13 states in FY 2018 reported a wide variety of HCBS benefit additions or expansions. HCBS benefits include those in Section 1915(c) waivers, under Section 1915(i) authority or Section 1915(k) authority (“Community First Choice” or “CFC”), and state plan personal care services, home health services, or private duty nursing, and PACE (Exhibit 9).⁸⁰  Most HCBS benefit changes reported involve the addition of HCBS services to existing waiver or state plan programs. Examples of HCBS services added by states include assistive technology, home delivered and medically tailored meals, personal supports, unpaid caregiver training, housing transition services and tenancy supports, and supported employment.

Some states implemented new HCBS programs in FY 2017 or FY 2018. Six states report establishing eleven new PACE sites over the reporting period (Exhibit 9). In FY 2017, Tennessee added a new HCBS program for individuals with ID/DD under its Section 1115 waiver (Employment and Community First CHOICES). In FY 2018, Idaho will implement a new Section 1915(i) state plan HCBS option for children with a serious emotional disturbance, Pennsylvania will add a new Community Living waiver for individuals with ID/DD, and Wyoming will implement a new Section 1915(k) (CFC) state plan service.

Only one state, Oregon, reported eliminating an HCBS benefit, proposing to eliminate coverage for a live-in program in FY 2018.

Capitated Managed Long-Term Services and Supports (MLTSS)

As of July 1, 2017, almost half of states (23 states) covered LTSS through one or more of the following types of capitated managed care arrangements:

• Medicaid MCO covering Medicaid acute care and LTSS (18 states)
• PHP covering only Medicaid LTSS (6 states)
• MCO arrangement for dual eligible beneficiaries covering Medicaid and Medicare acute care and Medicaid LTSS services in a single contract under the federal Financial Alignment Demonstration (FAD) (10 states)

Of the 23 states that reported using one or more of these MLTSS models, nine states reported using two models, and one state (New York) reported using all three. Of the states with capitated MLTSS, 15 offered some form of MLTSS plan on a statewide basis for at least some LTSS populations as of July 1, 2017 (Table 11).

Ten states offered an MCO-based FAD (California, Illinois, Massachusetts, Michigan, New York, Ohio, Rhode Island, South Carolina, Texas, and Virginia) as of July 1, 2017.^81 ,82  The FAD model involves a three-way contract between an MCO, Medicare, and the state Medicaid program.^83 ,84  Massachusetts also operates an administrative alignment demonstration (without financial alignment) for dually eligible beneficiaries (Senior Care Options program). Minnesota only operates an administrative alignment demonstration (without financial alignment) for dually eligible beneficiaries (Minnesota Senior Health Options program).

Other states not participating in a formal demonstration have taken action to encourage improved coordination and integration of services for the dually eligible population under MCO arrangements. Eight states⁸⁵  require Medicaid-contracting MCOs to be Medicare Dual Eligible Special Needs Plans (D-SNP)⁸⁶  or Fully Integrated Dual Eligible (FIDE) Special Needs Plans,⁸⁷  creating an opportunity for improved coordination and integration for beneficiaries. Five states⁸⁸  encourage MCOs to be a D-SNP or a FIDE-SNP.

MLTSS Enrollment

For geographic areas where MLTSS operates, this year’s survey asked whether, as of July 1, 2017, certain populations were enrolled in MLTSS on a mandatory or voluntary basis or were always excluded. On the survey, states selected from “always mandatory,” “always voluntary,” “varies,” or “always excluded” for the following populations: seniors, persons with ID/DD, nonelderly adults with physical disabilities, and full benefit dual eligible individuals. As shown in Exhibit 10 below, seniors were most likely to be enrolled on a mandatory basis. Persons with ID/DD were excluded from enrollment in only three MLTSS states, though they were least likely to be enrolled on a mandatory basis. No state offering MLTSS always excludes full benefit dual eligible individuals from MLTSS enrollment.

MLTSS Population Changes

Growth in the use of MLTSS has continued since the prior survey reporting year. South Carolina expanded MLTSS to new regions in FY 2017 while Pennsylvania will expand to new regions in FY 2018 (Exhibit 11). In FY 2018, Virginia will roll out a new MLTSS program. Wisconsin’s Family Care Program will be statewide by the end of FY 2018. Five states extended MLTSS to new populations in FY 2017 (Illinois, New York, South Carolina, Tennessee, and Texas). In FY 2018, two states (New York and Pennsylvania) will extend MLTSS to new populations. No states reported actions or plans to decrease the number of enrollees served in MLTSS in FY 2017 or FY 2018.

MLTSS Benefits

Almost every MLTSS state (21 out of 23 states) includes both institutional and HCBS in the same contractual arrangement, while two states (Michigan and Tennessee) report that this varies by MLTSS arrangement. Only one state reported a MLTSS benefit change in FY 2017 or FY 2018. Michigan added hospice benefits to its FAD in FY 2017.

TABLE 10: LONG-TERM CARE ACTIONS TO SERVE MORE INDIVIDUALS IN COMMUNITY SETTINGS IN ALL 50 STATES AND DC, FY 2017 AND FY 2018

TABLE 11: CAPITATED MLTSS MODELS IN ALL 50 STATES AND DC, AS OF JULY 1, 2017

Provider Rates

Provider rate changes are often tied to the economy. During economic downturns and budget shortfalls, states often turn to rate restrictions to contain costs and are more likely to increase rates during periods of recovery and revenue growth. This report examines rate changes across major provider categories: inpatient hospital, nursing facilities, MCOs, outpatient hospital, primary care physicians, specialists, dentists, and home and community-based services (HCBS). States were asked to report aggregate rate changes for each provider category in their FFS programs. In FY 2017, more states implemented rate increases for at least one category of providers (46 states) compared to rate restrictions (37 states) (Figure 7 and Table 12). Compared with what states projected for FY 2017 on last year’s survey, this year’s survey responses showed that six more states implemented rate increases in FY 2017 and four fewer states implemented rate restrictions.

For FY 2018, the number of states with at least one implemented or planned rate increase (44 states) is greater than the number of states with at least one implemented or planned rate restriction (40 states) (Table 13).

The number of states with rate increases exceeded the number of states with restrictions in FY 2017 and FY 2018 across all major categories of providers (physicians, MCOs, and nursing facilities) with the exception of rates for inpatient hospital services⁸⁹  (Figure 8). For the purposes of this report, cuts or freezes in rates for inpatient hospitals and nursing facilities are counted as restrictions.⁹⁰  Most of the restrictions are for rate freezes. Four states in FY 2017 and five states in FY 2018 had implemented or planned reductions to inpatient hospital rates; only one state cut nursing facility rates in FY 2017, and two states plan to cut nursing facility rates in FY 2018.

The number of states planning to increase nursing facility rates dropped in FY 2018 (28) compared to FY 2017 (36 states). HCBS providers were among those most likely to receive rate increases (27 states in FY 2017 and 29 states in FY 2018).

Capitation payments for MCOs are generally bolstered by the federal requirement that states pay actuarially sound rates. In FY 2017 and FY 2018, the majority of the 39 states with Medicaid MCOs either implemented or planned increases in MCO rates. Five states reported MCO rate cuts in FY 2017, and five states plan to cut MCO rates in FY 2018. Four states were not able to report MCO rate changes for FY 2018 because rate development was not complete. States are increasingly moving to calendar year MCO contracts.

Tables 12 and 13 provide state level details on provider rate changes in FY 2017 and FY 2018.

MCO Rate Requirements

In many states, MCOs make most of the Medicaid payments to providers. States were asked whether they require their MCOs to make changes to their provider payments when the state makes changes to FFS rates (such as rate increases). Of the 39 states with MCOs, 19 states indicated that they had no such requirement, 18 states have such a requirement for some provider types, and two states (Louisiana and Mississippi) required MCOs to make these changes for all types of Medicaid providers. States were also asked if their MCO contracts mandate minimum provider reimbursement rates. Of the 39 MCO states, ten indicated that they had no rate floors, 24 states indicated that they had rate floors for some provider types, and five states said they had minimum MCO payment requirements for all Medicaid provider types.

Provider Taxes and Fees

Provider taxes are an integral source of Medicaid financing. In this year’s survey, states reported continuing or increased reliance on provider taxes and fees to fund a portion of the non-federal share of Medicaid costs in FY 2017 and FY 2018. At the beginning of FY 2003, 21 states had at least one provider tax in place. Over the next decade, a majority of states imposed new taxes or fees and increased existing tax rates and fees to raise revenue to support Medicaid. By FY 2013, all but one state (Alaska) had at least one provider tax or fee in place.⁹¹  In FY 2017, 34 states had three or more provider taxes in place (Figure 9).

The most common Medicaid provider taxes in place in FY 2017 were taxes on nursing facilities (44 states), followed by taxes on hospitals (42 states) and taxes on intermediate care facilities for the intellectually disabled (36 states) (Table 14). Three states reported plans to add new taxes in FY 2018. Oregon reported a new MCO tax, Ohio’s MCO tax transitioned from a sales tax on premium revenues to a member month tax, and Tennessee expects to have a new ground ambulance provider assessment, which was enacted by the Tennessee General Assembly during its 2017 legislative session. Thirteen states reported increases to one or more provider taxes in FY 2018, compared to only five states reporting provider tax decreases.⁹² 

Recent federal health reform legislation⁹³  under consideration in the Senate proposed phasing down the limit on state use of provider taxes (the “safe harbor threshold”) from the current allowable level, 6.0 percent of net patient revenues, to 5.0 percent of net patient revenues by FY 2025.⁹⁴  Another proposal would lower the threshold to 4.0 percent in FY 2025.⁹⁵  In this year’s budget survey, 29 states reported having at least one provider tax exceeding 5.5 percent of net patient revenues and 46 states reported having at least one provider tax exceeding 3.5 percent as of July 1, 2017. These data suggest that federal action to lower the safe harbor threshold would restrict states’ ability to supply the non-federal share to finance Medicaid and could therefore shift additional costs to states. If states were not able to find additional funds to replace provider tax funding, limits on provider taxes could result in program cuts with implications for Medicaid providers and beneficiaries. 

TABLE 12: PROVIDER RATE CHANGES IN ALL 50 STATES AND DC, FY 2017

TABLE 13: PROVIDER RATE CHANGES IN ALL 50 STATES AND DC, FY 2018

TABLE 14: PROVIDER TAXES IN PLACE IN ALL 50 STATES AND DC, FY 2017 AND FY 2018