Crisis Spurs Healthcare Payment Reform in Arkansas

A federally backed drive to create a value-based healthcare delivery system in partnership with providers and payers is under way nationwide. Three years ago, an unprecedented financial crisis prompted Arkansas "to bet the farm" on a similar value-based healthcare model.

This is first of a multi-part series on healthcare payment reform in Arkansas. Read Part II.

Soon after the federal Patient Protection and Affordable Care Act became law in 2010, the Arkansas, consistently ranked near the bottom in many US health statistics, faced a healthcare system financial calamity.

Years of skyrocketing costs had pushed the sustainability of the state's healthcare system to the brink and baby boomers had swollen the Medicaid program's rolls. When lawmakers opened the 2011 legislative session in Little Rock, they gazed into the maw of a 2012 Medicaid program gap estimated at more than $300 million. Some estimates were as high as $400 million.

The state's political, healthcare, and business leadership faced a Herculean challenge. "We were hitting a cliff and we had to take dramatic measures," says Arkansas Surgeon General Joseph Thompson, MD.

Payment Reform Naysayers 'Better Wake Up'

"The financial picture for the state was coming into focus," says Andy Allison, Arkansas' Medicaid director, adding "the wave of disability" enrollment in Medicaid programs hits before the age of 65. "We have been receiving the baby boom in disability enrollments through the Medicaid program for several years… The program faced a real question of sustainability."

1 in 4 Uninsured
Arkansas has also faced a chronic healthcare coverage problem.

When Arkansas launched its new public health insurance exchange in the fall under the PPACA, about one quarter of the state's adult population below the age of 65 had no health insurance, Thompson says.

Of those half million Arkansans, about 250,000 were eligible to obtain insurance through the state's "private option" expansion of Medicaid and about 250,000 were eligible to obtain insurance through the new exchange with federal tax credit subsidies.

State reforms launched two years before the PPACA exchanges are now accelerating alongside federal reform initiatives. "We've been able to bring all the payers together," Thompson says of Arkansas' new public-private healthcare payment system, which includes Medicaid and the state's top private insurers.

The Natural State is building a robust electronic health records infrastructure, and is among the first in the country to move to Stage 2 of the federal Meaningful Use program.

PCMH
On the provider side, Arkansas has adopted the medical home model for team-based care. As is the case in most rural states, medical resources are scarce in Arkansas. One county is served by a single doctor.

But medical homes, which are linked to payers and other providers through EHR, can provide coordinated care at an affordable cost. With a widespread population and relatively modest medical infrastructure compared to more urban states, Arkansas officials decided the medical home model would be superior to accountable care organizations. "We've chosen to empower the local physician and put him in the driver's seat," he says.

"We are looking at a total system transformation," the pediatrician adds. "From our internal perspective, we're betting the farm on this."

Payment Reform Plays Key Role
The roots of Arkansas' push for a "patient-centered" healthcare system reach back to 1998, with the forming of the Arkansas Center for Health Improvement. On its website, ACHI bills itself as "a nonpartisan, independent health policy center dedicated to improving the health of Arkansans." Thompson, who joined the ACHI staff 15 years ago, serves as the organization's director.

The heart of the state's healthcare reform efforts is the Arkansas Payment Improvement Initiative, which was launched in 2012 and is expected to be fully in place by 2017. The payment initiative has "two complementary strategies" to use multi-payer market muscle to promote adoption of reforms among healthcare providers:

• Population-based healthcare services provided through medical homes and other "delivery models that bear responsibility for the complete needs of a population."
• Episode-based care with "team-based management of services provided to a patient frequently spanning multiple encounters with the delivery system, such as hip replacement."

The PCMH-based payment model is a key component of Arkansas' drive to create a value-based healthcare delivery system. It provides financial incentives for providers to excel in care coordination, quality and cost containment, according to ACHI: "Providers share in the savings or excess costs of an episode depending on their performance for each episode."

Payer's Perspective
The multi-payer payment system Arkansas has established pushes customary boundaries of healthcare insurance industry cooperation.

With the Medicaid shortfall looming in 2011, Democratic Governor Mike Beebe gave Arkansas' commercial health insurers a choice, "pay better as opposed to paying more," says Steve Spaulding, VP of enterprise networks at Arkansas Blue Cross Blue Shield.

When executives from the state's top commercial insurers—Arkansas BCBS, Humana, and QualChoice—sat down with state Medicaid officials, "we had more in common than we thought we did," Spaulding says. "We were both focused on creating more affordable healthcare."

Now Arkansas BCBS, Humana, and QualChoice are building a value-based payment system in a multi-payer format that includes the Medicaid program. One of the last hurdles for the payment reform initiative is to get Medicare on board.

"There's no other region that coordinates as well as Arkansas payers," says Alicia Berkemeyer, director of enterprise networks at Arkansas BCBS, "We're all in line for the same goal. At least once per week, all the payers get together… We've become friends. We check on each other at Christmas."

Spaulding says Arkansas is showing the nation, particularly rural states, a new way to deliver healthcare. "The time has passed for there to be adversarial relationships in healthcare delivery," he says. "If we can't do better, then shame on all of us."

This is Part I of a multi-part series on healthcare payment reform in Arkansas.
Part II will explore how payment reform was implemented.