• Real-Time Data Analytics in Government Investigations and Reducing Exposure
• OIG Recommends Claims-Level Data Identify Medicaid MCO-Paid 340B Drugs
• Retail Clinics Drive New Healthcare Utilization—and That’s Good!
• Despite Differences in Coverage Markets, Regulatory Alignment Is Increasing
• Hospital Mergers: Is the FTC’s Winning Streak Over?
• Continued Concerns Regarding IRS Ruling on Accountable Care Organizations
• Moving Medi-Cal Forward: The Path to Delivery System Transformation
• Be Part of the “Manatt on Medicaid” Webinar Series

Real-Time Data Analytics in Government Investigations and Reducing Exposure

By John LeBlanc, Partner, Healthcare Litigation | Andrew Struve, Partner, Healthcare Litigation | Garrett Mott, Associate, Litigation

It is not every day that the words “innovative” and “nimble” are used when referring to an agency of the federal government bureaucracy. Yet, after studying the playbook of sophisticated corporations, the Health Care Fraud Prevention and Enforcement Action Team (HEAT), run jointly by the Department of Health and Human Services’ Office of the Inspector General (HHS-OIG) and the Department of Justice (DOJ), is changing this ingrained public perception. Under new authority conferred by the Affordable Care Act (ACA), the DOJ and the HHS-OIG have focused on replacing the slow “pay and chase” model, characterized by prolonged subpoena and account analyses, with real-time data analysis resulting in significantly shorter periods of time between fraud identification, arrest and prosecution, and larger monetary recoveries.

In 2016, DOJ and HHS-OIG issued the annual Health Care Fraud and Abuse Control (HCFAC) Program report showing that for every dollar spent on healthcare-related fraud and abuse investigations through this and other programs in the last three years, the government recovered $6.10.¹ “These impressive recoveries,” said former HHS Secretary Kathleen Sebelius in 2014, are due in large part to “the new computer analytics system that detects and stops fraudulent billing before money ever goes out the door.”²

At the 2015 HEAT Takedown Conference in Washington, D.C., current HHS Secretary Sylvia Mathews Burwell extolled the Medicare Fraud Strike Force (a division of HEAT) for “excellent investigative work, which included data analytics combined with real-time field intelligence” resulting in the “largest arrest in [its] history.”³ Most recently, at the 30th Annual National Institute on White Collar Crime, Laura M. Kidd Cordova, Assistant Chief, Criminal Division, Fraud Section, United States Department of Justice, discussed DOJ’s data-driven focus on corporate investigations and extrapolation from statistical samples in False Claims Act litigation.⁴

These pronouncements evidence a trend that sizable providers, particularly managed care organizations, hospitals and health systems, ancillary service providers, and medical device and drug companies, should reflect upon and address immediately.

Defining “Real-Time Data Analytics” and Recent Applications

The fiscal year (FY) 2015 HCFAC Program report explains that HHS-OIG’s “complex data analysis” tools include “data mining, predictive analytics, trend evaluation, and modeling approaches” that “better analyze and target the oversight of HHS programs.”⁵ The report further details that HEAT teams “use near-time data” to determine “fraud patterns, identify suspected fraud trends, and to calculate ratios of allowed services as compared with national averages, as well as other assessments.”⁶ These advanced technologies and techniques, taken from private industry,⁷ have led to historic efforts to bring innovation to the fight against healthcare fraud.

For example, in announcing the “largest criminal healthcare fraud takedown in the history of the Department of Justice,” Attorney General Loretta E. Lynch described HHS/DOJ’s cutting-edge process: “We obtain and analyze billing data in real-time. We target hot spots—areas of the country and the types of healthcare services where the billing data shows the potential for a high volume of fraud—and we are speeding up our investigations. By doing this, we are increasingly able to stop schemes at the developmental stage, and to prevent them from spreading to other parts of the country.”⁸ In this case, the data was first compiled by the HHS-OIG in its report titled, Ensuring The Integrity Of Medicare Part D, which helped federal authorities identify “hotspots” of potential billing abuse by area physicians.¹⁰ DOJ then investigated the pharmacies supplying those physicians.¹¹ The investigation revealed that 400 pharmacies filled, on average, a massive 62 prescriptions per patient.

Similarly, in March 2015, Dr. Shantanu Agrawal, the deputy administrator and director of Program Integrity for the Centers for Medicare and Medicaid Services (CMS) testified before the House Ways and Means Committee, explaining that CMS uses its Fraud Prevention System (FPS) to “apply advanced analytics on all Medicare fee-for-service claims on a streaming, national basis by using predictive algorithms and other sophisticated analytics to analyze every Medicare fee-for-service claim against billing patterns.”¹³ CMS announced last summer that it had identified or prevented $820 million in inappropriate payments over the past three years through FPS’s predictive analytics.¹⁴

In another case, HHS-OIG detected a healthcare fraud conspiracy through the analysis of aberrational data,¹⁵ culminating in the discovery of employees creating “phony medical notes in an attempt to back up the false billing and [forging] doctors’ names on prescriptions and charts.”¹⁶

As a final example, in a recent case, in which Ms. Kidd Cordova prosecuted, a former hospital president was sentenced to 45 years in prison for a $158 million Medicare fraud scheme.¹⁷ During the Health Care Compliance Association’s 20th Annual Compliance Institute, Assistant Attorney General Leslie R. Caldwell explained that the “catalyst for this investigation was the strike force’s review of aberrant real-time data trends.”¹⁸ Ms. Caldwell said that “real-time data analysis . . . has brought several significant benefits to the Medicare Fraud Strike Force[,]” including the ability to “bring cases more quickly,” identify “hot spots at the development stage by identifying data outliers,” and “track existing fraud schemes as they move to new geographic areas.”¹⁹

Key Takeaways

So what does all this mean for providers?

1. Government Sophistication

It is abundantly clear that the use of advanced technology and real-time data analytics is the future of healthcare fraud enforcement. To that end, providers should appreciate that the federal government is on the offensive when it comes to healthcare fraud and that increased use of real-time data analytics will lead to increased investigations and swift prosecutions.

HHS/DOJ will likely continue to expand its real-time data analytic approach. Indeed, HHS-OIG has noted that, “[t]he availability and proactive use of data are essential to identify and address program vulnerabilities; identify providers with questionable billing; and meaningfully target program integrity resources to the areas of greatest vulnerability.”²⁰

Similarly, with the creation of the Chief Data Officer post in late 2014, CMS has indicated that it is committed to using real-time data analytics to identify fraud.²¹ Niall Brennan, CMS’s first Chief Data Officer, has said in an interview that CMS is “using predictive modeling to identify fraud before it happens” and will be “moving more and more to real-time delivery system monitoring,” such as “tracking readmissions in real time” and “tracking emergency visits in real time.”²²

2. Partnership Opportunity

Providers should consider partnering with HHS through the Healthcare Fraud Prevention Partnership (HFPP), which is a voluntary public-private partnership between the federal government, state agencies, law enforcement, private health insurance plans, and healthcare anti-fraud associations.²³ HFPP partners “share data and information for purposes of detecting and combating fraud, waste, and abuse in healthcare” and are praised for their assistance and cooperation.²⁴ Ultimately, through the use of real-time data and information exchanges with the private sector, CMS, along with HHS-OIG and the FBI, have secured 200 indictments, informations, and complaints in fiscal year 2015.²⁵

3. Preventative Treatment

Because of increased government sophistication and attention, providers can expect continued scrutiny. To reduce such scrutiny, providers should follow a two-pronged approach: (1) develop a robust compliance program; and (2) be proactive in developing systems that evaluate real-time data.

First, it is as important as ever for providers to maintain robust and up-to-date compliance programs, which, as DOJ has suggested in the latest Corporate Integrity Agreements,²⁶ include:

• Hiring a compliance officer/appointing a compliance committee,
• Developing written standards and policies,
• Implementing a comprehensive employee training program,
• Retaining an independent review organization to conduct annual reviews,
• Establishing a confidential disclosure program, and
• Restricting employment of ineligible persons.

Second, providers should prepare their internal compliance systems to account for the paradigm shift in government oversight by data mining and real-time data analysis. Specifically, it is essential that providers are timely in identifying statistical deviations that may draw the attention of HHS/DOJ. This is particularly true for Medicare and Medicaid providers, who may be audited by CMS Recovery Audit Contractors (RAC) who aggressively use real-time data analytics to find potential fraud, misuse, and/or abuse.²⁷ Providers must have their own robust data systems if they are going to challenge the findings of a RAC. Finally, providers should ask themselves whether their current internal compliance systems can identify patterns that signal external fraud, waste, or abuse. Providers should also query whether routine triggers are in place to keep suspect claims from going out the door to payers.

In sum, the key takeaway for providers is to know what patterns in the data may trigger further investigations and audits and to understand how to head off problems before they occur. By engaging in proactive pattern and compliance data analysis, providers can minimize the effect of any audits that are triggered by patterns in diagnosis, treatment and billing.

Conclusion

Providers should recognize the government’s increasing technological sophistication in analyzing claims. Providers also should evaluate their compliance and oversight programs and identify weaknesses. Finally, providers should determine whether their current internal compliance systems are capable of identifying the statistical anomalies that attract HHS/DOJ’s attention, and immediately develop such systems if none are currently in place. Ultimately, an understanding of HHS/DOJ’s goals and new data analysis tools should encourage providers to be proactive about their own data analysis and remain vigilant in an era of rising enforcement actions.

_{¹The Department of Health and Human Services and the Department of Justice Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2015 at 8, Dep’t of Health and Human Servs. & Dep’t of Justice (Feb. 2016), last accessed at http://oig.hhs.gov/publications/docs/hcfac/FY2015-hcfac.pdf.}

_{²Departments of Justice and Health and Human Services Announce Record-Breaking Recoveries Resulting from Joint Efforts to Combat Health Care Fraud, Dep’t of Health and Human Servs. and the Dep’t of Justice (Feb. 26, 2014), last accessed at http://www.hhs.gov/about/news/2014/02/26/departments-of-justice-and-health-and-human-services-announce-record-breaking-recoveries-resulting-from%20joint-efforts-to-combat-health-care-fraud.html.}

_{³HEAT 2015 Takedown Press Conference, Dep’t of Health and Human Servs. (June 18, 2015), last accessed at http://www.hhs.gov/about/leadership/secretary/speeches/2015/heat-2015-takedown-press-conference.html.}

_{⁴Laura M. Kidd Cordova, Assistant Chief, Criminal Division, Fraud Section, United States Department of Justice, Remarks at “Emerging Enforcement Trends in Health Care,” 30th Annual National Institute on White Collar Crime (Mar. 3, 2016).}

_{⁵Supra note 1 at 44.}

_⁶Id.

_{⁷Testimony On Fighting Health Fraud Tells Of Digital Tools, Law360 (Apr. 10, 2015), last accessed at http://www.law360.com/articles/640835.}

_{⁸National Medicare Fraud Takedown Results in Charges Against 243 Individuals for Approximately $712 Million in False Billing, Dep’t of Justice (June 18, 2105), https://www.justice.gov/opa/pr/national-medicare-fraud-takedown-results-charges-against-243-individuals-approximately-712.}

_{⁹Ensuring the Integrity of Medicare Part D, Office of Inspector Gen., Dep’t of Health and Human Servs. (June 18, 2015), last accessed at http://oig.hhs.gov/oei/reports/oei-03-15-00180.pdf.}

_{¹⁰Analysis Of Big Data Leads To Big Arrests In Medicare Part D Fraud, Forbes (July 2, 2015), last accessed at http://www.forbes.com/sites/walterpavlo/2015/07/02/analysis-of-big-data-leads-to-big-arrests-in-medicare-part-d-fraud/.}

_¹¹Id.

_¹²Id.

_{¹³Supra note 7.}

_{¹⁴CMS Fraud Unit Uncovers $820 Million in Healthcare Scams in Past 3 Years, Healthcare Fin. (July 15, 2015), last accessed at http://www.healthcarefinancenews.com/news/cms-fraud-unit-uncovers-820-million-healthcare-scams-past-3-years.}

_{¹⁵US Healthcare: Big data Diagnoses Fraud, The Big Read (Jan. 12, 2015), last accessed at http://www.ft.com/intl/cms/s/2/d9b181da-8b83-11e4-be89-00144feabdc0.html#axzz4AoSUSeP1.}

_{¹⁶ Brooklyn Clinic Owner Sentenced for Role in $77 Million Medicare Fraud Scheme, Dept’ of Justice (Nov. 12, 2013), last accessed at https://www.justice.gov/opa/pr/brooklyn-clinic-owner-sentenced-role-77-million-medicare-fraud-scheme.}

_{¹⁷Ex-Hospital Admin Gets 45 Years For $158M Medicare Fraud, Law360 (June 10, 2015), last accessed at http://www.law360.com/articles/666050/ex-hospital-admin-gets-45-years-for-158m-medicare-fraud.}

_{¹⁸Assistant Attorney General Leslie R. Caldwell Speaks at Health Care Compliance Association’s 20th Annual Compliance Institute, Dep’t of Justice (Apr. 18, 2016), last accessed at https://www.justice.gov/opa/speech/assistant-attorney-general-leslie-r-caldwell-speaks-health-care-compliance-association-s.}

_¹⁹Id.

_{²⁰Supra note 9 at 5.}

_{²¹CMS Creates New Chief Data Officer Post, Ctrs. for Medicare and Medicaid Servs. (Nov. 19, 2014), last accessed at https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2014-Press-releases-items/2014-11-19.html.}

_{²²Big Data Byte: Niall Brennan, Chief Data Officer of CMS, Healthcare IT News, last accessed at http://www.healthcareitnews.com/video/big-data-byte-niall-brennan-chief-data-officer-cms.}

_{²³Obama Administration Announces Ground-breaking Public-private Partnership to Prevent Health Care Fraud, Dep’t of Justice (July 26, 2012), last accessed at https://www.justice.gov/opa/pr/obama-administration-announces-ground-breaking-public-private-partnership-prevent-health-care.}

_{²⁴Testimony of Gary Cantrell, Deputy Inspector Gen. for Investigations, Office of Investigations, Office of Inspector Gen., Dep’t of Health and Human Servs., Before the United States House of Representatives Committee on Ways and Means: Subcommittee on Oversight (Mar. 24, 2015), last accessed at http://oig.hhs.gov/testimony/docs/2015/cantrell-032415.pdf.}

_{²⁵Supra note 1 at 10.}

_{²⁶Corporate Integrity Agreement between the Office of Inspector General and St. Joseph Hospice et al., Office of the Inspector Gen. (Aug. 20, 2015), last accessed at http://oig.hhs.gov/fraud/cia/agreements/St_Joseph_Hospice_LLC_08202015.pdf.}

_{²⁷See Recovery Audit Contractors (RACs) and Medicare: The Who, What, When, Where, How and Why?, Ctrs. for Medicare and Medicaid Servs., last accessed at https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Recovery-Audit-Program/Downloads/RACSlides.pdf.}

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OIG Recommends Claims-Level Data Identify Medicaid MCO-Paid 340B Drugs

By Helen Pfister, Partner, Manatt Health

Editor’s Note: Earlier this month, the Office of the Inspector General released a report titled “State Efforts to Exclude 340B Drugs from Medicaid Managed Care Rebates.” Based on interviews with states that pay for drugs through managed care organizations (MCOs) to determine how they identify 340B drug claims when collecting Medicaid rebates, the report assesses states’ methods and identifies potential vulnerabilities that could inhibit correct rebate collection. Key findings and conclusions are summarized below. Click here to download free a copy of the full OIG report.

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The Office of the Inspector General (OIG) has released a report finding that the provider-level methods used by many states to identify 340B claims for drugs paid for by Medicaid managed care organizations may not accurately identify 340B drugs. The OIG recommends that the Centers for Medicare and Medicaid Services (CMS) and Health Resources and Services Administration (HRSA) require claims-level methods to be used instead. If adopted, this would be a significant change in the methods that the majority of states—and the 340B covered entities within those states—use to identify 340B drugs so that they may be excluded from the rebate requests state Medicaid programs submit to pharmaceutical manufacturers.

Under federal law, a drug may not be subject to both a 340B discount and a Medicaid rebate. This prohibition has become increasingly important since the Affordable Care Act (ACA) expanded the Medicaid drug rebate program to cover drugs paid for by MCOs (rather than just drugs paid for by Medicaid fee-for-service), particularly in light of the fact that the proportion of states paying for prescription drugs through MCOs has increased from less than one-quarter in 2011 to more than two-thirds in 2014.

The OIG report describes states’ methods for identifying 340B claims for MCO drugs, and assesses vulnerabilities in those methods. The report does not attempt to determine whether duplicate discounts for MCO drugs actually occurred.

To collect Medicaid rebates properly and prevent duplicate discounts, state Medicaid programs must ensure that the fee-for-service (FFS) and MCO utilization data they use to bill pharmaceutical manufacturers for rebates do not include drugs purchased under the 340B program. The methods used by states to identify 340B claims generally fall into two categories: (1) provider-level methods, which identify covered entities that use 340B drugs for Medicaid patients and exclude drug claims submitted by those entities from such utilization data, and (2) claims-level methods, which exclude individual drug claims that covered entities have explicitly identified as 340B claims from such utilization data.

Key Findings

Report findings include the following:

• Most states use provider level-methods for identifying 340B claims for MCO drugs. 30 of the 35 states that report having methods for identifying 340B claims for MCO drugs use provider-level methods. Of those states, 22 reported using only provider-level methods, and eight reported using provider-level methods in conjunction with another type of method, such as a claims-level method.
• Many states use the Medicaid exclusion file to identify 340B claims for MCO drugs despite HRSA guidance. Of the 30 states that report using provider-level methods, 24 report using HRSA’s Medicaid Exclusion File to identify whether or not covered entities use 340B drugs for MCO patients, and 17 report using only the Medicaid Exclusion File—despite the fact that in December 2014, HRSA issued a notice advising that the Medicaid Exclusion File is intended to help prevent duplicate discounts specifically for FFS drugs.
• Provider-level methods may not accurately identify 340B claims. The report found that provider-level methods may not accurately identify 340B claims for some covered entities, because covered entities use 340B drugs for FFS patients but not for MCO patients (or vice versa), or because covered entities that generally submit 340B claims to MCOs may, for various reasons, sometimes submit non-340B claims.
• Claims-level methods can improve accurate identification of 340B claims. The report found that, because claims-level methods allow covered entities to specifically identify some claims as 340B and others as non-340B, the use of claims-level methods can help states more accurately identify 340B claims.
• Claims-level methods can be used in the contract pharmacy context. The report acknowledges that the structure of many contract pharmacy arrangements creates technical challenges to the use of claims-level 340B identifiers, because drugs dispensed by contract pharmacies are often determined to be 340B-eligible retroactively—i.e., after they have been dispensed to patients and billed. However, the report found that two states address this by requiring contract pharmacies to regularly submit spreadsheets identifying all previously-billed claims that were subsequently determined to be 340B-eligible, and that six other states require contract pharmacies to retroactively reverse and re-bill any claims retroactively determined to be 340B-eligible.

Report Conclusions

The report concludes that the methods used by states may not permit them to accurately identify 340B claims for MCO drugs, and makes the following recommendations:

• CMS should require states to use claims-level methods to identify 340B drugs. Since claims-level methods can help states more accurately identify 340B claims and reduce the risk of duplicate discounts, the report recommends that CMS require states to use such methods, rather than relying on provider-level methods.
• HRSA should clarify guidance on preventing duplicate discounts for MCO Drugs. Rather than establishing a new Medicaid Exclusion File to identify whether covered entities use 340B drugs for MCO patients (as contemplated by the proposed 340B Omnibus Rule released in August 2015), the report recommends that HRSA should require covered entities to follow state instructions to facilitate states’ claims-level identification of 340B drugs.

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Retail Clinics Drive New Healthcare Utilization—and That’s Good!

By Deborah Bachrach, Partner, Manatt Health | Jonah Frohlich, Managing Director, Manatt Health

Editor’s note: Retail clinics—offering convenient, low-cost primary care treatment, screening and diagnostic services—are becoming an integral part of a U.S. healthcare system facing a growing shortage of primary care physicians. With the demand for accessible primary care treatment surging while the number of available providers declines, it is not surprising that retail clinics are becoming increasingly prevalent, now accounting for 10.5 million patient visits annually. What impact are these clinics having on cost, access and quality? Manatt Health responds to research suggesting that retail clinics increase utilization and cost in a recent post for the Health Affairs Blog, summarized below. To read the full post, click here.

In addition, Manatt Health prepared a white paper for the Robert Wood Johnson Foundation, taking an in-depth look at the value proposition of retail clinics in building a culture of health. To download a free PDF of the white paper, click here.

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Once the stepchild of the American healthcare system, primary care is now the linchpin of efforts to improve healthcare and reduce costs. The problem is that we have a shortage of primary care physicians—already acute in some areas and expected to grow significantly—just as the demand for accessible primary care treatment, including through retail clinics, is on the rise.

In the March 2016 edition of Health Affairs, J. Scott Ashwood and coauthors published a study that addressed the impact on spending related to the use of retail clinics. The researchers found that 58 percent of retail clinic visits represent new utilization rather than substitution for more costly primary care or emergency department visits. The net cost of this new utilization was determined to be $14 per person per year.

Since convenience is central to retail clinics’ business model, one would expect that retail clinics trigger new utilization, as well as substitution for more costly services. While the study found that retail clinics increased costs by creating new utilization, it did not consider the value of the new utilization for patients who previously did not or could not access such services.

We would posit that given the small amount of spending associated with the additional utilization, retail clinics have a meaningful role to play in improving access to primary care for patients with low-acuity conditions, especially for underserved and uninsured individuals. In short, the increased utilization may be well worth the associated costs.

The Cost of Enhanced Access

Retail clinics emerged more than 15 years ago to solve the problem of how to make routine primary care services convenient and accessible. Their model of low-cost, basic primary care services in settings that most Americans can readily access has proven popular. There are now more than 1,800 retail clinics across the country.

It’s important to note that the findings in the Ashwood study—that 58 percent of retail clinic cases represent new utilization, with an associated cost of $14 per person per year net increase in spending—did not consider uninsured individuals or Medicaid beneficiaries. These populations are less likely to have a usual source of care or less able to access care during regular business hours. Therefore, for these individuals, retail clinics may be a much needed access point.

What does $14 per person per year really mean when considering the cost of providing healthcare services for an entire population? Only 3 percent of the Aetna enrollees studied in the Ashwood research actually used a retail clinic. If we spread $14 across all Aetna enrollees, the cost per member would be 42 cents per year—less than 4 cents per month.

Could we use this cost in any better way to improve primary care access? We are assuming there is value in both the kind of care received at retail clinics and improving access to that care. There are some data to back these assumptions:

• Approximately 50,000 adults die nationally from vaccine-preventable diseases in the United States. Nearly one in five adults receives a vaccination in a retail or pharmacy clinic. If we removed retail clinics as a vaccination source, how many more people might suffer an adverse outcome?
• More than half of uninsured retail clinic users went to a retail clinic, because they did not have a usual source of care.

It is hard to fathom a better way to increase access, at low cost, in a manner that doesn’t generate excess utilization.

The Perfect Storm—More Coverage, Fewer Providers

Since implementation of the Affordable Care Act, 20 million people have gained coverage, approximately 12 million through Medicaid. These newly-covered individuals are seeking primary care in the midst of an expected shortfall of 31,000 primary care physicians. As many as 65 million people nationwide—many who live in rural and poor communities—live in “primary care deserts” with no providers.

Filling the Primary Care Gap

Most families that use retail clinics do so because of their long hours of operation, location and walk-in policies, in addition to low costs. These are especially critical attributes for many lower income and uninsured individuals who may not have a regular source of care, are less mobile and have less flexible work schedules. Retail clinics with extended hours, no appointments and little wait time can serve as an effective complement to primary care providers—as long as they open their doors in neighborhoods where these populations work and live.

So far, retail clinics have not stepped up fully to fill the gaping primary care void. Retail clinics tend to be placed in higher income, urban and suburban settings. If retail clinics are to be part of the solution to primary care shortages in underserved neighborhoods, they’ll need to open more clinics in those communities.

Ensuring the Value Proposition of Retail Clinics

The excess utilization driven by retail clinics would seem to be a tiny price to pay for the increased primary care access they enable. Indeed, the lower cost of retail clinics is the very reason to assure that we are maximizing their value and that means, among other things, linking retail clinics or integrating them into health systems to support care coordination, chronic disease management and prevention. Incorporating retail clinics into accountable care arrangements in partnership with regional health systems and making all parties accountable for cost, access and quality would prove a powerful motivator to ensure appropriate access and utilization across all sites of care.

For those who do not have a usual source of care, having access to a provider to confirm that a fever isn’t strep throat or just to get a flu shot is enough value for them. It is difficult to contemplate the harm that comes from a potentially unnecessary visit to a retail clinic. Policy and business decisions should focus on how to maximize the intrinsic value that retail clinics can provide and minimize the waste they may generate, rather than on their use as a blunt instrument to reduce healthcare costs.

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Despite Differences in Coverage Markets, Regulatory Alignment Is Increasing

By Chiquita Brooks-LaSure, Managing Director, Manatt Health

Healthcare coverage in the U.S. is highly decentralized, with multiple coverage markets, including employer-sponsored insurance, Medicare, Medicaid and the individual market. While there are and continue to be distinct differences in the ways Medicare, Medicaid and the individual market are regulated, there is increasing regulatory alignment, particularly among those primarily regulated by the Centers for Medicare and Medicaid Services (CMS) and/or states. Several factors are encouraging this growing trend toward alignment:

• More individuals transition among different types of coverage throughout their lifetimes. The Affordable Care Act (ACA) increased healthcare coverage options by expanding Medicaid, eliminating rating rules by health status in the individual market, and subsidizing coverage for certain individuals in marketplaces or exchanges. With these changes in place, most people are now eligible for some type of healthcare coverage. Given the number of increased options and the frequency with which people change employers and experience income fluctuations throughout a lifetime, many people find themselves transitioning between employer-sponsored coverage, Medicaid, individual market coverage and, as they reach 65, Medicare. Some, known as the dual eligibles, may even have both Medicare and Medicaid at the same time. In addition, members of the same family may be enrolled in different types of coverage concurrently.
• Insurance coverage has grown through public programs. The percentage of Medicare and Medicaid beneficiaries enrolled in Medicare Advantage (MA) and Medicaid managed care respectively has been growing. Currently, 31 percent of Medicare beneficiaries are in MA, and as baby boomers age into Medicare, MA enrollment is likely to surge. More than 70 percent of Medicaid beneficiaries are in managed care, with several states considering moving more of the long-term beneficiaries and/or services under managed care plans.
• Health insurance companies sell products in multiple markets. Increased insurer participation in Medicare, Medicaid and the individual market has led to more insurance companies offering coverage in two or more major markets.

All of these factors have led to an increased focus on aligning the regulatory rules. A quote from Marilyn Tavenner, American Health Insurance Plan’s (AHIP’s) CEO and CMS Administrator captures the issues: “One day I might be in employer-sponsored coverage. The next day I might be in Medicaid. The next day I might be in an exchange, and ultimately I’m going to be in Medicare. I shouldn’t have to relearn how the world works every time I move from payer to payer. The payers feel this way as well.”

Evaluating Provider Networks

The current Administration has made a point of attempting to align the regulatory rules where possible, as recently noted in the Medicaid managed care final rule and the MA call letter. We are starting to see this attention to alignment across a variety of elements, including quality measures, consumer transparency, appeals processes, and, particularly, the evaluation of provider networks.

Network adequacy is a hot topic across the coverage programs for many reasons. A key reason is the focus on narrow networks. Marketplace plans tend to have more narrow networks than employer-sponsored insurance. An Avalere study found that QHP (Qualified Health Plan) networks were typically two-thirds the size of employer-sponsored insurance networks. This discrepancy is likely due to the emphasis on premiums. Surveys of enrollees have found that most are ranking costs as more important than network size in their choice of plans. A May 2015 Kaiser Family Foundation survey of the individual market found that 82 percent of enrollees listed cost as very important compared to 60 percent for networks.

Because individuals transition between coverage and/or plans often, ensuring continuity of care is another reason that network adequacy is a critical issue. Being able to switch plans becomes important as personal factors, such as age and employment, change. Consumers often want the option to keep the same providers even if their insurance coverage changes, and for those with severe health conditions, maintaining care regimens is vital.

Up-to-date provider information is a way for consumers to ensure continuity of providers while shopping for new coverage options. CMS strengthened provider directory requirements for QHPs, requiring up-to-date provider directories to be available online and in machine readable formats for those in the federally-facilitated marketplace. In its May 2016 rule, CMS strengthened Medicaid managed care requirements to a similar standard. In addition, in the April 4, 2016 MA call letter, CMS indicated that revisions to the Medicare provider directory requirements are forthcoming to better align with Medicaid managed care and QHP requirements.

Finally, the ACA requires increased protection for in-network cost sharing with a cap on in-network out-of-pocket costs for both QHPs and employer-sponsored insurance, but protections are limited for out-of-network cost sharing. Surprise billing, usually described as when a patient chooses to have a covered service provided by an in-network provider but receives care from an out-of-network provider without his or her knowledge or consent, remains an issue.

There are some protections at the federal level, but for now the states are leading the way, with a variety of initiatives and approaches being adopted across the country. As state policies protecting consumers of different types of insurance become more ubiquitous throughout the nation, federal policies around out-of-network protections will eventually catch up and are likely to continue driving toward alignment across Medicaid managed care, MA, and the marketplace.

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Hospital Mergers: Is the FTC’s Winning Streak Over?

By Lisl J. Dunlop, Partner, Litigation | Shoshana Speiser, Associate, Litigation

Following a winning streak dating back to its 2007 win in Evanston,¹ the Federal Trade Commission (FTC) has suffered two losses over the last month in two of its three pending hospital merger challenges. On June 14, 2016, a district court judge for the Northern District of Illinois denied the FTC’s motion for a preliminary injunction in FTC v. Advocate Health Care.² This order follows last month’s denial of the FTC’s request for a preliminary injunction in FTC v. Penn State Hershey Medical Center³ by a federal district court judge for the Middle District of Pennsylvania. While the full details of the basis for the Advocate/NorthShore decision are not yet available,⁴ the Hershey/Pinnacle decision is notable for its very different analysis of market definition, efficiencies, and the impact of the Affordable Care Act (ACA) from prior FTC successes.

Background to Hershey Challenge

Penn State Hershey Medical Center (Hershey) and PinnacleHealth System (Pinnacle) first announced their merger plans in April 2015. Hershey, a 551-bed hospital in Hershey, Pennsylvania, is a leading academic medical center and the primary teaching hospital for Penn State College of Medicine. Pinnacle is a not-for-profit health system with 646 beds across three community hospitals in Harrisburg and Cumberland County, Pennsylvania, focused on cost-effective acute care.

In December 2015, following an eight-month investigation, the FTC filed an administrative complaint to block the proposed merger. According to the FTC, the transaction would create a dominant provider of general acute care inpatient hospital services in the Harrisburg area, with a combined share of 76% in the area defined by the FTC. In March 2016, the FTC together with the Pennsylvania Attorney General also filed a complaint in the District Court for the Middle District of Pennsylvania seeking a preliminary injunction to stop the deal pending the administrative trial.

Court Rejects FTC’s Case

After conducting expedited discovery and a five-day evidentiary hearing, Judge John E. Jones denied the FTC’s motion for a preliminary injunction, finding that the FTC failed to demonstrate a likelihood of success on the merits in its underlying merger challenge. The reasoning stands in stark contrast to recent decisions in favor of the FTC, such as the Idaho District Court and Ninth Circuit Court of Appeals in the St Luke’s case.⁵

As with St Luke’s, the Court’s decision turned on the definition of the relevant geographic market. In finding the FTC’s market definition too narrow, the court focused on the “commercial realities faced by consumers in the region” and based its market definition on patient location. The decision cited evidence that more than 40% of Hershey’s patients traveled to Hershey from outside of the FTC’s designated geographic market, half of Hershey’s patients travel at least 30 minutes for care, and 20% of Hershey’s patients travel over an hour. In addition, several thousand of Pinnacle’s patients resided outside of the FTC’s designated area. In a broader geographic market of 65 minutes travel time, there were 19 hospitals that competed with Hershey and Pinnacle.

Geographic market definition also was hotly contested in the Advocate/NorthShore case, with the merging hospitals complaining that the FTC had gerrymandered its market definition, and even within the alleged market had excluded key competitors. Presumably, the court accepted these arguments in finding against the FTC, although it remains to be seen whether patient draw or other evidence formed the basis for those findings.

The Court in Hershey/Pinnacle also considered whether the merging hospitals would be able to raise prices. The Court found it “extremely compelling” that the hospitals had already taken steps to preserve the hospitals’ rate differential and prevent rates with the two largest payers from increasing post-merger for at least five years. The Court explained that it simply could not ignore the hospitals’ inability to walk away from the payers’ rates and categorized the FTC’s arguments that short-term agreements should be disregarded as “essentially asking that the merger be blocked based on a prediction of what might happen to negotiating position and rates in 5 years.” The Court also ignored the FTC’s evidence of insurer concerns, as well as arguments that the agreements would do nothing to address anticompetitive effects of non-price competition, such as quality of care, expansion of services and innovation, which have been effective in prior cases.

A Different Take on Efficiencies

Although not necessary for the outcome, the court in Hershey/Pinnacle went on to discuss the hospitals’ efficiency justifications for the merger. The merging hospitals claimed two major areas in which there would be efficiencies: better use of facilities to alleviate overcrowding and avoid capital expenditures, and movement to risk-based contracting.

Hershey provided evidence of routine overcrowding and capacity problems at Hershey, renovation efforts to remedy the problem being insufficient, and how such problems would be alleviated by the merger. The Court accepted as procompetitive the plan that Hershey could transfer patients to Pinnacle’s less expensive, lower-acuity facilities, and allow Hershey to forego the expense of constructing a new bed tower to address its capacity concerns.

The Court also relied on testimony from Hershey’s CEO that the merger would provide the scale and ability to spread healthcare costs across a larger system to enable the hospitals to adapt to risk-based contracting. That transition to risk-based contracting is one of the changes promoted by the ACA and was further support of the value of these factors.

Efficiencies of a different nature were at issue in Advocate/NorthShore. In those proceedings, the parties introduced evidence of a new health insurance plan that the merged system planned to offer that would cost 10% less than the lowest-priced comparable product available, saving consumers $210 million to $1.1 billion a year. Although the FTC disputed whether these claims were substantiated or needed a merger to be achieved, it remains to be seen whether they were persuasive to the Court.

Key Takeaways

Unsurprisingly, the FTC has appealed the Hershey/Pinnacle decision to the Third Circuit, and the FTC’s administrative case has been temporarily stayed. The FTC has also announced that it will appeal in Illinois.⁶ While these two losses present a sharp contrast to the FTC’s recent winning streak, their full implications will not be realized until the appeals processes have been completed.

As the FTC has pointed out, Hershey/Pinnacle represents a stark departure from how courts in the past have viewed certain issues, such as geographic market definition.⁷ On the other hand, the Hershey/Pinnacle case does reflect a potential for judges to have greater sensitivity to the realities of the healthcare field. While the FTC is firmly focused on competition, the parties seek quality improvements and to remedy a broader array of other social issues, including access to low-income care. The merging parties in this case may also have more effectively quantified their claimed efficiencies to contradict the FTC’s position.

At this stage, the future of hospital merger enforcement is unclear. Are the recent FTC losses a coincidence? Only time will tell if these cases are a real change in the tides for the FTC’s hospital merger enforcement efforts.

_{¹In the Matter of Evanston Northwestern Healthcare Corporation and ENH Medical Group, Inc., D-9315, FTC File No. 011 0234 (order issued Aug. 6, 2007).}

_{²Case No. 1:15-cv-11473-JLA (N.D. Ill. June 14, 2016) (Order).}

_{³Case No. 1:15-cv-02362-JEJ (M.D. Pa. May 9, 2016) (Mem. Op. & Order).}

_{⁴The court’s order in Advocate/NorthShore explained that: “After a six-day hearing and consideration of the parties’ evidentiary submissions and arguments, the court finds that plaintiffs have not met their burden of showing that there is a likelihood that they will succeed on the merits of their antitrust claims.” The full decision will not be released until the parties have redacted confidential information.}

_{⁵St. Alphonsus Med. Ctr.-Nampa, Inc. v. St. Luke’s Health Sys., Case No. 1:12-cv-00560-BLW, 2014 U.S. Dist. LEXIS 9264, 2014 WL 272339 (D. Idaho Jan. 24, 2014) aff’d 778 F.3d 775 (9th Cir. 2015).}

_{⁶On June 17, 2016, the District Court judge granted an injunction preventing the deal from closing pending the FTC’s appeal to the Seventh Circuit.}

_{⁷Keynote Address of FTC Chairwoman Edith Ramirez, Antitrust in Healthcare Conference, Arlington, VA (May 12, 2016), available at https://www.ftc.gov/public-statements/2016/05/keynote-address-ftc-chairwoman-edith-ramirez.}

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Continued Concerns Regarding IRS Ruling on Accountable Care Organizations

By Megan Christensen, Partner, Tax, Employee Benefits and Executive Compensation | Helen Pfister, Partner, Manatt Health

Last month, the American Hospital Association asked the Internal Revenue Service (IRS) to reconsider its position, articulated in a final adverse determination the agency issued in April of this year, which denied tax exemption under Section 501(c)(3) of the Internal Revenue Code for an accountable care organization (ACO) serving the commercial market. The ACO was created by a not-for-profit health system, but approximately half of the participating physicians were independent or employed by other hospitals and healthcare systems.

To the surprise of many in the healthcare community, the IRS had found that the ACO did not engage primarily in activities accomplishing one or more of Section 501(c)(3)’s exempt purposes, and that more than an insubstantial part of the ACO’s activities furthered non-exempt purposes, because a substantial part of the ACO’s activities conferred a non-incidental impermissible benefit on private interests, rather than for the benefit of public interests, as required by Section 501(c)(3).

While recognizing that the ACO was engaged in the promotion of health, which has long been established as a charitable purpose, the IRS pointed out that not every activity that promotes health furthers a charitable purpose. It noted, for example, that selling prescription pharmaceuticals promotes health, yet pharmacies are not qualified for exemption under Section 501(c)(3). The IRS also noted that one of the ACO’s substantial activities is the negotiation of payer agreements on behalf of the ACO’s independent healthcare provider participants, and that negotiating with private health insurers on behalf of unrelated healthcare providers generally is not a charitable activity, regardless of whether the agreement negotiated is a program aimed at achieving cost savings in healthcare delivery.

The IRS’s position on commercial ACOs stands in sharp—and to many, surprising—contrast to its position on ACOs that participate in the Medicare Shared Savings Program (MSSP), which the IRS views as furthering the charitable purpose of lessening the burden of government because certain provisions of the Patient Protection and Affordable Care Act (ACA) “encourage and support” ACOs and cost sharing arrangements, and because Congress established the MSSP to be conducted through ACOs in order to promote quality improvements and cost savings in health care. The IRS ruling leaves open the question of whether an ACO that does participate in the MSSP, but also participates in the commercial market, would be eligible for tax-exempt status under Section 501(c)(3).

Ruling Raises Issues Around the Viability of ACOs Serving Commercially-Insured Patients

The IRS ruling was unexpected, given the emphasis throughout the healthcare industry on shifting from traditional fee-for-service models of healthcare delivery to alternative payment models that are intended to reward providers for value rather than on volume. ACOs are on the vanguard of the volume to value shift. However, the IRS ruling raises a number of issues about the viability of the ACO model when it comes to serving commercially-insured patients, rather than just Medicare and Medicaid patients. In particular, hospitals and other tax-exempt organizations that form or participate in ACOs that serve commercial patients must now worry about whether any income they derive from those activities constitutes taxable income, and, if the income is substantial, whether such income might jeopardize their own tax-exempt status.

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Moving Medi-Cal Forward: The Path to Delivery System Transformation

By Cindy Mann, Partner, Manatt Health | Naomi Newman, Director, Manatt Health | Alice Lam, Director, Manatt Health | Keith Nevitt, Consultant, Manatt Health

Editor’s Note: Over the past few years, California’s Medicaid program, known as Medi-Cal, has been catapulted into a new role. It has evolved from a program designed to provide health coverage to a subset of low income individuals and help counties meet their longstanding obligations to provide indigent care to a program that is the largest single source of health insurance in California and the foundation of the state’s healthcare coverage continuum for people who do not have affordable health insurance through the workplace. Medi-Cal needs a vision, structure and plan that recognize and support this evolution.

In a new report for the California Health Care Foundation (CHCF), Manatt Health considers the current state of Medi-Cal and potential pathways for the next chapter of delivery reform, focusing particularly on Medi-Cal managed care. The report, summarized below, provides an overview of the Medi-Cal landscape, shares perspectives from a diverse array of Medi-Cal stakeholders, assesses key challenges and opportunities, and articulates a route for advancing Medi-Cal delivery system and payment reform. In addition, Manatt Health produced a companion chart pack with a landscape assessment of how the Medi-Cal program operates, is financed and performs, as well as how some individuals use the system. Click here to download a free PDF of the full report and chart pack.

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Medi-Cal Today

Medi-Cal is the largest Medicaid program in the nation, as measured by both enrollment and total spending. Its purchasing power has enormous potential to improve care and outcomes.

• Enrollment. Medi-Cal covers more than 13 million individuals—more than 30% of the state’s population. Between December 2013 and January 2015, Medi-Cal enrollment grew by 41% as a result of Medicaid expansion.
• Spending. Medi-Cal costs have grown nearly threefold over the last decade and today total $92 billion in annual expenditures. Spending growth has been driven largely by new coverage. Even with expansion, most of the spending remains focused on high-needs beneficiaries, with 5% of beneficiaries accounting for 51% of spending. While Medi-Cal is the largest Medicaid program in the country in terms of enrollment and expenditures, its spending per enrollee ranks among the ten lowest in the country.
• Managed care. Nearly 80 % of Medi-Cal beneficiaries are now enrolled in managed care, including most of the elderly and people with disabilities that the program covers. As a result, the state and managed care organizations (MCOs) are changing their contracting and care management models to serve beneficiaries with very different healthcare needs than those who traditionally have been cared for through managed care.
• Medi-Cal delivery system. Beneficiaries covered by Medi-Cal get their primary and acute care in doctors’ offices, community clinics, health centers and hospitals. Federally-Qualified Health Centers (FQHCs) play an important role, serving 41% of Medi-Cal MCO enrollees.
• Beneficiary characteristics. Medi-Cal beneficiaries are, by definition, low income. Coverage expansion has spurred an influx of adults, such that nonelderly adults and children now make up 84% of the population. Even with expansion, senior and nonelderly adults with disabilities—now served mostly through managed care—account for 60% of spending. Medi-Cal covers a diverse population in terms of age, employment status, ethnicity, language and educational level. Overall, Medi-Cal beneficiaries report lower health status than other Californians. Mental health illnesses are some of the most commonly treated conditions among Medi-Cal patients and tend to co-occur with physical health conditions.
• Access, quality and health outcomes. Reports suggest that Medi-Cal is not meeting expectations for health access, quality and equity. For example, adult Medi-Cal enrollees are twice as likely as Californians with employer-sponsored insurance to report difficulty getting care from a provider due to insurance. Within Medi-Cal managed care, reports show that MCOs have highly variable performance on quality of care indicators.

Medi-Cal Managed Care Vision

In its “Medi-Cal 2020” waiver application, California articulated a high-level vision for Medi-Cal—to foster “shared responsibility among all providers to achieve high-value, high-quality and whole person care.” Stakeholders interviewed for Manatt Health’s report strongly agreed with this vision, focusing on three components:

• Coordinated systems of care, with special focus on the integration of physician and behavioral health services;
• Value and accountability, with mechanisms for holding the components of the systems accountable for achieving results;
• Stable and adequate financing and strong state-level leadership, with stakeholders noting that delivery system and payment reform will only be successful if built on a platform of sustainable financing and guided by strong management at the state level.

Stakeholders also articulated barriers to achieving this vision for Medi-Cal. Their vantage points varied, but they told a similar story of structural roadblocks to reform:

• Fragmented administration and delivery of care. The current Medi-Cal system is composed of a complex mix of plans, counties and provider systems with lines drawn based on geography, beneficiary age and health condition, funding source and a mix of older and more recent policy goals. California’s managed care system typically involves multiple layers of delegation and sub-delegation of risks and responsibilities for the coordination and provision of care. Plan-to-plan delegation in Los Angeles County adds another layer to an already complex system. The two plans that contract directly with the state subcontract to other plans, retaining a portion of the premium for administrative services that may be redundant to services delivered by the delegated entity. These complexities are further exacerbated because certain services (i.e., treatment for serious mental illness, pediatric services for certain complex conditions and some long-term services and supports) are “carved out” of the primary health plan’s responsibilities, leaving no single entity responsible for the whole person.
• Fragmented financing. Like the delivery system, financing of the care to managed care enrollees is highly fragmented with large dollar amounts being transferred as institutional subsidies rather than as payments for services and outcomes. About 25% to 30% of the payments for hospital services provided under contracts to the plans are made through supplemental payments that are passed through to the counties and hospitals at the end of the plan year. FQHCs also are compensated for their care of Medi-Cal beneficiaries through supplemental payments, required by federal law, based on the volume of care provided to patients.
  
  Medi-Cal’s payment structure is further fragmented by carve out arrangements. Under federal law, the state is responsible for the care provided to Medi-Cal beneficiaries for mental health conditions, but in California, the funds for the care of people with serious mental illness go to the counties (which pay the nonfederal share). The state Medi-Cal agency has no authority over how those funds are spent.
  
  Medi-Cal’s rate setting methodology further undermines efforts to advance accountable, coordinated systems of care and reward value. Rates are generally based on prior year utilization and pegged at the lower end of the range of what is actuarially sound. There is no mechanism for the state to share savings to provide financial incentives that drive improvements in care delivery and redirect care to less costly settings.
• Uneven access to providers. Historically, provider participation in Medi-Cal has been lower than participation in the commercial market. California falls significantly short of the national benchmark for a sufficient supply of Medi-Cal participating primary care providers to meet the needs of beneficiaries. While the data indicate the California has a sufficient supply of Medi-Cal specialty care providers, there is variation in access by specialty and geography.
• Workforce challenges. Stakeholders noted challenges recruiting primary care physicians and specialists, particularly to safety net institutions and FQHCs, that do not have the resources to offer salaries on par with health systems that serve an exclusively or heavily commercially insured population.
• Lack of transparency and effective accountability mechanisms. Under federal law, the Department of Health Care Services (DHCS) is accountable for the overall administration and oversight of Medi-Cal, including its managed care system. DHCS works with the Department of Managed Health Care (DMHC), the state agency that oversees full-service health plans. There are concerns that the state’s oversight activities do not ensure accountability, with some stakeholders noting that the DMHC’s requirements are typically more process- than outcome-oriented. Compounding the challenge of program oversight is the limited visibility into the networks and performance of contracted and delegated entities. In addition, the state has limited levers for achieving a high degree of accountability.
• Under-resourced program management. Stakeholders interviewed noted that the bandwidth, skill sets and infrastructure for accountability have not kept pace with the growth and changes in Medi-Cal managed care.

A Path Forward

It is time to reconsider the longstanding assumptions and constraints that underpin Medi-Cal. The recently renewed “Medi-Cal 2020” waiver will contribute to positive change but does not tackle the significant realignment, restructuring and financing issues critical to successful transformation. While the waiver presents new opportunities and investments, implementation will generally not address the system as a whole.

Achieving the broadly-shared vision of accountable, coordinated systems of care will require a phased, multi-year approach. Below are a set of near-term priorities to improve care and strengthen the foundation for reform.

1. Intensify efforts to coordinate care for people with serious mental illness. The state and counties should establish a clear set of expectations and milestones for achieving integration of care; actively engage plans, providers and consumer groups in implementation; and ensure that care teams have the systems in place to communicate and coordinate patient care across the physical and mental health divide.
2. Invest in initiatives that address the pressing health-related needs of the Medi-Cal population with complex health conditions. The Medi-Cal 2020 waiver includes funding to implement voluntary, county-based “whole-person” care pilot programs, bringing together healthcare, social services and community-based service providers to design and test innovative models of care. To supplement waiver funds, revisions in rate setting can help support these efforts.
3. Strengthen accountability by revising rate setting methodologies. Given the strong message from plans and other stakeholders that the current rate setting methodology is actually a disincentive for care improvements, a change in rate setting and payment strategies is needed. One approach would be to allow plans to share savings achieved through improvements in care. A variation to this approach would be to develop a new rate setting methodology that allows plans to keep savings if those savings are reinvested in care improvements.
4. Align incentives across Medi-Cal and across the marketplace. With some exceptions, Medi-Cal lacks common goals across its managed care delivery system. A core set of initiatives can help stimulate reform while allowing for local strategies that take into account regional assets, challenges and community needs. Medi-Cal also should intensify its collaboration with Covered California and CalPERS to promote opportunities for the three payers to align their delivery system reform strategies.
5. Focus on data improvement. Cost, quality, utilization, patient satisfaction, equity and access data from all plans and subcontractors/delegated entities (by entity) should be made publicly available for ongoing assessment of the system’s health, ability to meet the needs of diverse members and effectiveness of resource deployment.
6. Invest in health information technology and health information exchange across the state. The state should deepen its efforts to help equip providers with the tools, technology and incentives to go digital.
7. Address workforce shortages. Though not approved as part of the renewed waiver, workforce investments are necessary to ensure access to care and the cultural competence of the workforce to treat the Medi-Cal population—many of whom don’t speak English as their first language.

Structural Transformation

A far more ambitious agenda of restructuring the underlying Medi-Cal delivery and payment system is needed to achieve the vision of coordinated and accountable systems of care:

• Re-think the core structure of the Medi-Cal managed care delivery. The current structure of Medi-Cal’s managed care delivery system was designed when a much smaller and more homogenous group of enrollees was enrolled in managed care; much has changed since the system first took shape in 1993. It is time to consider whether the current delivery models are best suited to reach the level of performance and accountability that Californians expect.
• Re-examine Medi-Cal’s financing system. Financing needs a thorough examination, including resolving the following four questions:
  1. Is the overall level of funding sufficient to support adequate networks and encourage coordinated systems of care?
  2. Is it possible to move to a value-based system of paying for care given how much money is directed to hospitals through supplemental payments?
  3. Should the financing for serious mental healthcare be revised so that payment strategies support integration between mental healthcare and physical healthcare?
  4. What are the implications of these issues for the nonfederal funding of the program?

Conclusion

California is a national leader in extending Medicaid to low-income people and other aspects of health reform. Yet Medi-Cal’s current status and trajectory raise deep concerns. Open dialogue is required to address the structural impediments to change. Medi-Cal is too large and important to miss the opportunity to achieve the vision of accountable, coordinated systems of care.

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Be Part of the “Manatt on Medicaid” Webinar Series

Click Here to Register Free for Our Medicaid Managed Care Program—and Here for Our Medicaid LTSS Program.

Medicaid continues to gain scale and importance—both as the leading source of health coverage for Americans and as a driver of reform in the healthcare marketplace. To give you in-depth insight into the forces reshaping Medicaid, their impact on the future and their implications for stakeholders, Manatt Health has created a new webinar series. The series will kick off in July with our first two programs on Medicaid managed care and Medicaid long-term services and supports (LTSS)—and resume in the fall with added critical topics.

• The New Managed Care Rules and Their Implications. (July 20) Almost three quarters of Medicaid beneficiaries access all or part of their benefits through a Medicaid managed care (MMC) plan. The Centers for Medicare & Medicaid Services (CMS) recently made significant revisions to its MMC regulations. This program details key takeaways from the changes and what they mean for plans, providers, states and beneficiaries. Understand the new limits—and new opportunities—on pass-through payments. Explore leveraging MMC payments to advance payment and delivery system reforms. Discuss additional consumer transparency in MMC and other products on the coverage continuum. Learn about special protections for enrollees who use LTSS. Click here to register free.
• Reforming Medicaid’s LTSS System. (July 27) LTSS is undergoing massive expansion, fueled by an aging population and rising demand from people with disabilities and chronic conditions. This session will explore LTSS’s critical role in the care continuum. Learn about key trends affecting LTSS utilization and spending—and why Medicaid is disproportionately impacted. Explore state efforts to integrate comprehensive care for people who need LTSS, and examine recent developments in LTSS delivery system and payment reform. Click here to register free.

Even if you can’t make the original airings, register now and receive links to view the webinars on demand.

Presenters

MMC:

Patricia Boozang, Senior Managing Director
Alice Lam, Director
Kinda Serafi, Counsel

LTSS:

Stephanie Anthony, Director
Carol Raphael, Senior Advisor

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