Fact Sheets

Value-based Care State Medicaid Directors Letter

The Centers for Medicare & Medicaid Services (CMS) is releasing guidance for states on how to advance value-based care (VBC) across their healthcare systems, with a particular emphasis on Medicaid populations, and to share pathways for adoption of such approaches.  CMS has made a strong commitment to advancing VBC in Medicare for its 61.7 million enrollees. This guidance is designed to ensure that this same commitment can be made at the state level through Medicaid with its nearly 74 million beneficiaries.  This guidance includes an assessment of key lessons learned from early state and federal experiences in implementing VBC reforms, as well as a comprehensive toolkit of available federal authorities for states to adopt for innovative payment reform efforts within their individual programs. The guidance stresses the importance of multi-payer alignment in VBC to drive care transformation, and supports state efforts to align new payment models in Medicaid with Medicare and other private payers.    

Under VBC arrangements, providers are reimbursed based on their ability to improve quality of care in a cost-effective manner or lower costs while maintaining standards of care, rather than the volume of care they provide.  Moving toward more value-driven reimbursement models is a critical part of state and federal efforts to ensure the Medicaid program remains sustainable, as fee-for-service payment incentivizes higher volume and greater spending, rather than accountability for costs and outcomes.  CMS believes that value-based payment (VBP) is the key driver of VBC.  Improving value in the larger healthcare system is more likely to happen if provider incentives are aligned across multiple payers, and advancing VBC in Medicaid represents a significant opportunity to improve beneficiary health while reducing costs.  Value-based care has particular promise in helping the United States and its healthcare system handle unexpected challenges and disruption, including those ongoing challenges experienced from the COVID-19 pandemic.  The letter is a roadmap for states and is designed to increase state and Medicaid provider participation in and adoption of VBC models.

Alternative Payment Methodologies

States moving toward VBC rely on alternative payment methodologies to drive provider transformation in the delivery of services.  “Alternative payment methodologies (APM)” refers to a variety of ways to pay healthcare providers for delivering value over volume that are not simply tied to fee-for-service reimbursements for services rendered to patients.  Alternative payment methodologies aim to create greater provider accountability for care of defined populations by attributing patients to providers and linking payment to outcomes.  This State Medicaid Director Letter (SMDL) references APMs described in the Health Care Payment Learning and Action Network (HCP-LAN) APM Framework and clarifies how state Medicaid agencies can adopt them.

Availability of Alternative Payment and Delivery Models across Payers

Models mentioned within this letter are widely applicable (and used) across many payer types, including Medicare.  CMS has identified key features of VBP models, as well as Medicaid authorities relevant to these features, within the letter.  In taking this new direction, states should consider the adoption of models in the context of the lessons CMS has learned from the implementation of Delivery System Reform Incentive Payment (DSRIP) demonstration programs authorized under section 1115 of the Social Security Act (the Act) and various payment and service delivery models under the CMS Innovation Center (also known as the Center for Medicare and Medicaid Innovation or CMMI), particularly in the areas of delivery system readiness and multi-payer alignment. 

These models are not mutually exclusive and states may be interested in adopting multiple models to achieve their desired goals.  The APMs as outlined may be applicable to a mixture of payers, provider types, and state goals.  Ultimately, states should consider aligning payer and provider incentives as they pursue VBP models.  Each payment model links payment changes to quality improvement and introduces better financial accountability in a unique way.  The payment models listed below are organized by magnitude of complexity and risk, and states should consider their specific circumstances before selecting models for adoption.  Incorporated in each of these payment strategies are opportunities for shared savings or other similar arrangements.  These arrangements may allow providers to share in a portion of savings they generate relative to pre-established spending targets, given providers meet or exceed quality targets.  A summary of these strategies is below.

• Payment Models built on Fee-For-Service Architecture
  • The state pays a healthcare provider directly on a fee-for-service basis. This can be further targeted by population and service, with payments made either retrospectively or prospectively (based on value-based advanced payment methodologies).
  • Adjustments are made (usually retrospective) for the cost and quality of services provided relative to benchmarks.
  • Providers may be eligible for shared savings payments based on performance for a subset of total care (“upside risk”), for example on primary care services, if they also meet related quality performance targets.  Providers may also owe money if they do not meet performance and quality performance targets (“downside risk”).
• Payments for “Episodes of Care”
  • States or other payers pay healthcare providers a bundled payment for a set of services associated with a single healthcare event during a defined period of time (“episode of care”).
  • Sets a “benchmark price” which a state or other payer can use to determine savings.
  • Incentivizes quality over volume of services.
  • Providers may be eligible for payments (“upside risk”) or may owe money (“downside risk”) for an episode of care based on performance against the benchmark price and quality measures.
• Payment Models Involving Total Cost of Care Accountability
  • Healthcare providers are held accountable financially for meeting performance and quality metrics for all populations or sub-populations for some or all services attributed to them.
  • Healthcare providers may be responsible and at financial risk for all aspects of a patient’s care, or for a specific set of services.
  • Provides flexibility to payers and healthcare providers in addressing community needs.
  • Healthcare providers may be eligible for payments (“upside risk”) and/or may owe money (“downside risk”) based on their performance on quality and performance metrics.

Funding Opportunities

CMS is not announcing any new models or funding opportunities via this letter. This letter is meant to clarify current opportunities for states considering and implementing VBC in Medicaid, including implementing features of models developed by the Innovation Center using existing Medicaid authorities.

Changes to Available Flexibilities

CMS will now consider state plan payment methodologies (for payments to providers for covered services) that include downside risk for providers through advanced payment strategies outside of the context of managed care plan payments.  States will be expected to ensure, through an approved reconciliation process, that total payments are consistent with the statutory requirements of section 1902(a)(30)(A) of the Act which requires that payments are consistent with “efficiency, economy and quality of care,” as well as sufficient to ensure that statutory access standards are met.  This letter provides states with planning and methodological considerations that should be factored into any of these proposals, as well as technical guidance that CMS expects states will address in their submissions. 

Changes to Program Requirements

CMS is not requiring states to establish or adhere to any specific approaches or payment methodologies.  CMS does encourage states to move toward value-based care and to set targets for expanding value-based payments, consistent with the targets established by the HCP-LAN.  This framework is frequently referenced by states in considering and describing their strategic approach to driving value in health care delivery.  The HCP-LAN sets ambitious goals for increasing the adoption of VBP across the nation and recently released revised adoption targets for different payers going into the future, including goals for increasing downside risk or shared accountability.

CMS believes that VBC represents a way to improve health outcomes, lower costs, and promote provider flexibility.  CMS understands that states face unique circumstances in their healthcare landscapes, and what works for one state may not necessarily work for another state.  The Administration supports flexible approaches for states and does not expect a “one-size-fits-all” approach as states reform their delivery systems and move to VBC.  Some states may prefer to join other multi-payer initiatives within their state, and others may instead take the lead on developing their own multi-payer initiatives.  Still others may wish to pursue more limited, incremental changes that primarily focus on improving performance on specific drivers of costs and quality in their Medicaid programs.  Whatever a state’s circumstances, CMS will work with states to address and respond to local barriers to VBC.

Resources

CMS encourages states to request technical assistance from CMS to learn more about the models discussed in the letter and receive feedback on concepts in development.  States should direct inquiries to their CMCS state leads.  

Section 1115 Demonstration Opportunities

CMS acknowledges that there may be instances when a state requires additional flexibility to adopt an approach to value-based care or pursue other delivery system reforms that are not available through the Medicaid state plan or section 1915 waiver authorities.  These instances generally should be limited to when a state wants to pilot a geographically limited payment or delivery system model, limit benefits to certain populations, and/or offer benefits not available under any other Medicaid authority.  In such circumstances, CMS welcomes the opportunity to work with states on state-driven section 1115 demonstration proposals that take into account their unique needs and capabilities.

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