Payment Reforms Paying Off in Arkansas, For Now

Payment reform is the glue holding Arkansas' ambitious healthcare reform efforts together, according to top leaders in the state. Some legislative hurdles remain.

This is the third and final part of series on healthcare payment reform in Arkansas.

An ambitious plan to build the country's first public-private, universal payer, value-based healthcare delivery system is playing out in Arkansas and the preliminary results look promising.

"One of the reasons we have been successful with the legislature is we tackled cost containment first before we expanded insurance," Arkansas Surgeon General Joseph Thompson MD said in a phone interview earlier this month. "We didn't have any votes to spare."

Arkansas' payment reform push started several years before the cliff-hanger votes over the past year that expanded Medicaid to more adults through the state's new public exchange.

"Delivery system costs were going to force the state to do something dramatic [with Medicaid]," the surgeon general said, adding that the existing fee-for-service program faced insolvency unless there were deep cuts to provider payments or patient benefits. "Our private sector carriers were having the same issue."

Payment Reform Naysayers 'Better Wake Up'

Gov. Mike Beebe's administration began designing the Arkansas Payment Improvement Initiative in 2011 and started launching reforms in 2012. The essential elements of the initiative are two-fold:

• A gainsharing/cost-penalty payment system for physicians with as many as 150 "episodes" of care for conditions ranging from upper respiratory infections to clogged coronary arteries
• Patient-centered medical homes that bear financial responsibility for the healthcare needs of a population

Arkansas has 15 episodes either established or launching this summer.

By setting standards for care alongside the cost thresholds, Arkansas' payment system is intended to make value a driving force in the state's delivery of healthcare services. Physicians who provide services above the cost threshold have to pay money back. "It's not just about lowering cost," Thompson said. "The idea is to improve quality first, then achieve efficiency to lower cost."

PCMHs help physicians coordinate care, marshal resources, and provide the best value to their patients, said Steve Spaulding, VP of enterprise networks at Arkansas Blue Cross Blue Shield, the state's largest private healthcare insurer. "When they refer to somebody, they can be sure they're referring to the best value in the system," he said of the doctors who lead medical homes.

PCMH: Shouldn't Patients Have Their Say?

Not surprisingly in the home of college football's Razorbacks, Thompson calls medical home leaders "quarterbacks."

"We're wrapping a team around a lead physician," the pediatrician said, adding that a doctor working in a medical home practice could have as many as 5,000 patients. "The team helps carry the load. It helps their efficiency. It helps their effectiveness."

Medical homes will be crucial in helping physicians treat thousands of previously uninsured Arkansas residents, said David Wroten, Executive VP of the Arkansas Medical Society.

"The Payment Improvement Initiative, particularly the primary care medical homes, is hopefully how we will be able to handle this increased access to medical care," he said of the half million previously uninsured Arkansas residents who now have the option to obtain healthcare coverage through Medicaid or the state's new public exchange, Arkansas Health Connector.

"The system you have out there right now, you add 250,000 people to it and you're going to have a bottleneck. That's why the state is pushing so hard to get those medical homes up and running."

Early Results Promising
"We're starting to see improvement in quality and efficiency of services that is generating savings," Thompson said. "We have some clinics that are knocking the ball out of the park."

The Arkansas Center for Health Improvement, which Thompson leads as director, recently began analyzing payment data from the first episodes of care launched in October 2012, he said. Data for upper respiratory episodes from October 2012 to September 2013 shows more physicians had to pay back than gained a share of cost savings, the surgeon general said.

Gainsharing for treatment of upper respiratory infections during that period was about $60,000 and cost-penalties were about $92,000. "We've had remarkably little provider pushback to date," he said.

Thompson says the new payment system features rational incentives and simplicity for physicians because Medicaid and commercial payers are playing by the same rules. "What we're not doing is putting a new management system on top of a provider's delivery system. We are highlighting for the provider the inefficiencies in the system."

Andy Allison, Arkansas' Medicaid director, says the new payment system is already bearing fruit. "What we've achieved in the last two or three years is, in my view, without precedent. We've heard multiple stories of providers who didn't believe the numbers… Once you start paying that way and showing providers what actually is going on, the providers are very willing to make a change. History tells us payment drives change."

Allison says the Payment Improvement Initiative is pushing for system-wide change and driving to include all healthcare payers operating in the state. "Experiments don't work because they're experiments. Providers don't change their business model on a whim."

Physicians, who have been among the most skeptical Arkansas healthcare reform stakeholders, are cautiously optimistic about the Payment Improvement Initiative. "They're busy, they're seeing 40 or 50 patients a day, and they're just seeing how this works," Wroten said. "We need to look beyond the data at this point and find out what really is going on."

Like Thompson, he has not heard complaints from doctors. "We did not get any calls from physicians who were in a position to pay money back to the state," Wroten said.

Robert "Bo" Ryall, president of the Arkansas Hospital Association, believes the new payment system is on the right track. "The pace of it has been good," he said in a phone interview. "Medicaid spending is down to flat. So we know this is working to some degree."

'A Huge Impact'
In Arkansas, there is widespread agreement that building a public-private, universal payer, value-based healthcare delivery system would have a host of benefits for many states.

"It's a huge impact," Ryall said. "You're talking about having a healthy workforce. It's also important for the health of hospitals… Having a more insured population helps the health of hospitals."

The healthcare reforms Arkansas has embraced are relieving financial pressure on providers, many of whom previously faced budget-busting uncompensated care as well as shrinking Medicaid and Medicare reimbursement rates, Gov. Beebe said in a phone interview. "You can't stay in business if you're giving away 25 percent of your services for free," he said.

Spaulding said Medicaid expansion through the Arkansas Health Connection's "private option" has had a palpable effect on many people who have never had health insurance before. "Regardless of how you feel about it politically, it was expanded and there are thousands of people who are benefiting from it," he said, adding several of the newly insured have suffered with untreated chronic diseases for years. "The fact is, what has been done in Arkansas, it's created an opportunity for the overall health of the state of Arkansas to improve."

Medicaid expansion will be a financial bargain for the state even after the federal government tapers its support for the expansion program from 100 percent to 90 percent after 2020, Wroten said. "The economic benefit we will get from insuring all those people will more than offset the cost. In order to have a medical practice, you have to have enough patients with insurance or who can otherwise pay for care."

Arkansas officials face several remaining barriers in their quest to transform the state's healthcare system, including annual legislative votes on Medicaid expansion that require 75 percent majorities and convincing Medicare to join the state's new payment system.

"We need Medicare to join completely," Thompson said. "We're losing some of the fidelity of the signal to our providers."

The surgeon general said the top two candidates seeking to succeed Beebe, who is ineligible to run for re-election due to term limits, have "both signaled willingness to continue" the Payment Improvement Initiative, but he noted healthcare "is usually not the first choice" for any new governor.

"We're not at the home stretch yet," he said. "It still could go wrong."