Enterprise Services Blog Payment Innovation and Value-Based Payment Reform

Payment Innovation and Value-Based Payment Reform

  • March 6, 2017

By George Mathew, M.D.

Over the better part of a decade, we’ve seen a fairly rapid shift from Fee for Service to Outcomes-based Medicine – a change known as “Volume to Value.” The 5th Annual National Association of Medicaid Directors (NAMD) “State Medicaid Operations Survey” identifies delivery system and payment reform as the most cited priority in the coming year. 1

With the multitude of Value-Based Programs and pilots from CMS, Medicaid programs, Payers and among Providers – we may be seeing a bit of “innovation fatigue.” It is uncertain how large-scale Federal reform will affect Medicaid financing, but the expectation is set for less Federal funding and a greater need for flexibility and innovation to drive better outcomes.

States have always had to be innovative 2 – driven by limited budgets and increasing need, many states have been designing creative payment models for some time – and with the uncertainty in regards to Federal funding in the future, this experience will serve them well going forward.

States also face unique challenges. They serve more complex populations (amplified by the ACA expansion of 15 million new beneficiaries) and can’t model other insurance segments. States have lower Provider payment rates for Medicaid versus Managed Care, and it can be harder to change Provider behavior.

States typically use various types of value-based programs, or a combination of these alternatives, based on their particular needs 3: the most common types include episode-based payments, Accountable Care Organizations (ACOs) with shared savings and risk, global budgeting (capitation), pay for performance and targeted payment adjustments, and patient-centered medical homes.

What we’re learning

From our experience, we are learning that payment reform is not always “value over volume” – it may mean organizing care and focusing on the consumer, even at a higher cost. As state Medicaid programs use value-based purchasing to transform themselves into learning health systems, states will need to go beyond standard quality measure libraries to assess outcomes, and create real-time feedback loops for providers and payers.

As Medicaid operating budgets have expanded (median state budget increased 3% from FY15- FY16 to $7.02B) and Medicaid covered populations have grown, states have had to more efficiently manage grants funded with non-Medicaid federal dollars. And as social determinants are increasingly linked to direct effects on health, Medicaid agencies are acquiring broader responsibilities, leading to greater program complexity and diversity – and a greater need for more robust analytical and operational capabilities.

State Medicaid programs now deal with both very unique populations and demanding budget requirements – for example – most Medicaid funding goes into long term care, which is just not sustainable. 4

Medicaid programs must share data and lessons learned, as no other agency or group can understand these challenges or create benchmarks or best practice solutions. To manage Medicaid costs and complexity, and as states migrate to full capitation and provider-based risk, the programs, payers, providers and patients need better tools.

This leads to the other high priority topic in the NAMD report: systems and IT management (staffing).

Medicaid Management Information Systems (MMIS) must be transformed into more than just transactions processing systems; they must be built into knowledge acquisition and exploitation systems.  Ideally, these systems should support program development and operations, and then be used to help create and coordinate value-based programs.

As states continue to invest in and evolve these systems (which include analytics platforms, as mentioned in our earlier blog), they must have the tools needed to innovate and create ‘smart’ healthcare systems that can respond and change to the needs of their beneficiaries.

In our next blog installment, we address security and the privacy of health information.

About the Author


George Mathew, M.D., Chief Medicaid Officer, Americas Health & Life Sciences. Dr. Mathew serves as the HPE clinical expert and healthcare thought leader to our clients in the transforming healthcare marketplace.
Dr. Mathew graduated from Boston University School of Medicine and completed his residency in Internal Medicine at Greenwich Hospital/Yale University in Connecticut. He also holds a Master of Business Administration from Duke University’s Fuqua School of Business. He is Board Certified in Internal Medicine, Clinical Informatics and Medical Quality. Dr. Mathew also currently serves as a member of CMS’ Office of the National Coordinator – Health Information Technology Joint Consumer Task Force.
He is based in New York City and continues to practice medicine as a hospitalist at Westchester Medical Center in Valhalla, NY.