The California Department of Health Care Services (DHCS) has announced a conceptual agreement with the Centers for Medicare & Medicaid Services (CMS) on a new Medicaid 1115 waiver. CMS has also approved an extension of California’s current “Bridge to Reform” waiver through December 31, 2015. This is good news; it allows the flow of federal funds under the existing waiver to continue without interruption while state and federal officials finalize the scope and terms of the new five-year waiver, dubbed “Medi-Cal 2020.”

Although the size of the new waiver ($6.2 billion with the potential for more) is considerably lower than the $17 billion California initially requested and less than the current $10 billion waiver, it nevertheless provides an important opportunity for California to leverage federal funds to advance several key initiatives. At the heart of Medi-Cal 2020 is the Global Payment Program for services to the uninsured in designated public hospital systems and an updated Delivery System Reform Incentive Payment (DSRIP) program. The new DSRIP program, called PRIME (Public Hospital Redesign and Incentives in Medi-Cal), provides up to $3.7 billion to public hospitals and district/municipal hospitals over five years. Other elements of the new waiver include an incentive program to improve dental care, a voluntary pilot program to support whole-person care at the county level, and independent studies of access to care and uncompensated care.

Numerous other important initiatives proposed by DHCS were dropped during negotiations with CMS, including incentive programs to improve access and quality in managed care, integrate physical health and specialty mental health, improve maternity care, expand provider participation in Medi-Cal, and provide housing and support services to Medi-Cal enrollees experiencing homelessness. While this outcome is disappointing, many of these initiatives do not require a federal waiver and can and should be advanced outside of the waiver process.

Medi-Cal now serves more than 12 million people — roughly one in three Californians — and 80% of them are enrolled in managed care. Yet many enrollees still don’t have timely access to the care they need — with those in poor health reporting the greatest challenges — and quality of care and consumer experience vary widely across Medi-Cal plans and providers. In light of these facts, California should pursue the following reforms whether or not they are part of the next waiver:

• Reward value over volume. California does not take into account a health plan’s quality or consumer satisfaction scores when calculating each plan’s Medi-Cal capitation rate (the monthly payment the plan receives for each Medi-Cal member). Medicare and the commercial sector are shifting to value-based payment models, and it’s time for Medi-Cal to do the same. CMS, for example, announced its intention to have 50% of all Medicare payments tied to quality or value through alternative payment models by 2018. In the private sector, UnitedHealth Group announced its goal of spending $65 billion in value-based pay arrangements by 2018.Medi-Cal faces several distinct challenges in moving to value-based payment. One barrier is the lack of confidence that elected officials will maintain payment rates in difficult economic times. California has a track record of low Medi-Cal reimbursement rates and per capita spending (California ranks near the bottom, nationally, on both measures) and a long history of cutting Medi-Cal reimbursements to help address budget shortfalls. So health plans serving Medi-Cal beneficiaries are understandably nervous that funds established as payment incentives to reward high-performing health plans (or improvements over time) will be the first thing cut during the next economic downturn. (The Medi-Cal waiver, which represents a contract between the federal government and California, might have provided some measure of protection against such cuts.) A second challenge is that the state general fund accounts for a declining share of California’s contribution to Medi-Cal, from 94% of the non-federal share in 2007 to 65% in 2015, with county funds making up for much of this difference. The state is not in a strong position to direct counties to adopt value-based payments for their own public hospitals.
• Allow plans to share savings. Health plans participating in Medi-Cal that find creative ways to reduce spending while providing better care face a double whammy. First, their capitation rate in future years is reduced to reflect lower overall spending, so there is no long-term financial benefit to finding lower-cost ways to provide better care. Second, their new capitation rate won’t reflect the cost of providing any service not covered through fee-for-service (FFS) Medi-Cal (such as a home visit by a nurse or community health worker, or a wheelchair ramp at the patient’s home) as a medical cost, even if that service is cost-effective. We need a methodology that incentivizes health plans to deliver high-quality care at a lower cost, rather than punishing them for doing so.
• Advance broad-based delivery system reform. Both the “Bridge to Reform” waiver and the proposed Medi-Cal 2020 waiver support public hospitals in implementing critical delivery system reforms, such as primary care redesign, integration of physical and behavioral health, and better care coordination for high-cost populations. Neither waiver, however, presents a plan for broad-based delivery system reform in Medi-Cal nor includes general fund support for such initiatives. Specifically, neither waiver invests in transforming other parts of the safety-net system where most Medi-Cal beneficiaries get their primary care, most notably community health centers. California needs a vision for revitalizing the entire safety net. This is more important now than ever as we’ve seen the role of safety-net clinics in the state expand (not shrink, as some suggested they might) following implementation of the Affordable Care Act.

With these goals in mind, CHCF has engaged Cindy Mann, former deputy administrator of CMS and director of the Center for Medicaid and CHIP Services, to help develop a long-term “20/20” vision for ongoing and sustainable delivery system reform in Medi-Cal. Mann and her colleagues at the consulting firm Manatt, Phelps, and Phillips are supplementing their extensive knowledge of federal policy and the California health care landscape by interviewing more than 50 leading health care and finance experts in California. We will share the results of this work in February to foster discussion and action.

Notwithstanding the mixed news about California’s next waiver and the challenge that state lawmakers face filling the billion-dollar hole in the Medi-Cal budget left by the expiring tax on managed care plans, it is exciting to see the growing recognition among many health care leaders that the time is right for transformational change. CHCF looks forward to working with state officials, health plans, providers, consumer groups, and other stakeholders to make these reforms a reality.

Share your thoughts below or on Twitter (@chcfnews).

Christopher Perrone

Christopher Perrone is director of CHCF’s Improving Access team, which works to improve access to coverage and care for Californians with low incomes. Read More

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