September 16, 2020

The Centers for Medicare & Medicaid Services (CMS) issued guidance to state Medicaid directors designed to advance the adoption of value-based care strategies across their healthcare systems and align provider incentives across payers. Under value-based care, 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. Value-based care arrangements may also permit providers to address social determinants of health, as well as disparities across the healthcare system. Moving toward a more value-driven healthcare system allows states to provide Medicaid beneficiaries with efficient, high quality care, while improving health outcomes. Value-based care may also help ensure that the nation’s healthcare system is better prepared and equipped to handle unexpected challenges, including the ongoing COVID-19 pandemic. 

This guidance includes an assessment of key lessons learned from early state and federal experiences in implementing value-based care reforms, as well as a comprehensive toolkit of available federal authorities for states to adopt innovative payment reform efforts within their individual programs. It stresses the importance of multi-payer alignment in value-based care to drive care transformation, and supports state efforts to align new payment models in Medicaid with Medicare and other private payers.

CMS has made a strong commitment to advancing value-based care in Medicare for its 61.7 million enrollees. This guidance is designed, with the understanding that many of the providers overlap, to ensure that this same commitment can be made at the state level through Medicaid with its nearly 74 million beneficiaries by aligning strategies and common understanding of effective approaches. While these programs serve different populations, they share common goals of lower costs and improved health outcomes, and reduce burden if payers are aligned with value-based care.

“The Trump Administration has long worked to accelerate the overdue move to value-based care, but for too long these efforts have been piecemeal,” said CMS Administrator Seema Verma.  “Our health care providers need Medicare, Medicaid and private insurance payers to work in tandem with one another, and I am calling on our state partners to use this guidance to develop a plan to improve quality for their Medicaid beneficiaries by advancing value-based care in their own programs.”  

With Medicaid costs rising and continuing to consume a greater share of state budgets, and with federal costs forecasted to continue to grow according to the CMS Office of the Actuary[1], CMS has a duty to ensure the program remains sustainable. Moving toward more value-driven reimbursement models is a critical part of this effort, as fee-for-service payment incentivizes higher volume and greater spending, rather than accountability for costs and outcomes. This guidance is designed to support states as they develop plans to increase Medicaid provider participation in and adoption of value-based care models.

In taking this new direction, CMS is building on its experiences and lessons learned from states and other payers. Since 2010, CMS has engaged in cooperative partnerships with states and providers to test payment and service delivery models that aim to achieve better care for patients, smarter spending, and healthier communities. The CMS Innovation Center is testing a growing portfolio of various payment and service delivery models. All of these models have enabled CMS to better understand the opportunities and challenges that states should consider as they move toward a more value-driven system. Building on the lessons learned from these models, this guidance discusses those considerations, including multi-payer participation, delivery system readiness, stakeholder engagement, and the scope of financial risk to providers. In addition, this letter describes pathways, including flexibility available under the state plan, towards the adoption of value-based care models in Medicaid. States are invited to choose the pathway that best meets their reform goals, and do not need to rely only on time-consuming, complex demonstrations or waivers to achieve better value in their programs, where their proposals can be implemented under a state plan or managed authority. The guidance discusses how states can build payment models that promote value-based care under both fee-for-service and managed care.    

The guidance encourages states to consider the adoption of models in the context of their individual circumstances and the lessons learned from implementing previous payment and service delivery models. Examples of payment models include advanced payment methodologies under fee-for-service, bundled payments, and total cost of care models. Each of these models, and others described in today’s letter to state Medicaid Directors, reflect the Administration’s priorities for a value-driven health care system, such as by:

• Improving quality of care for beneficiaries;
• Rewarding providers for reducing the effects and incidence of chronic disease and for helping patients improve their health;
• Improving value in the larger healthcare system by aligning provider incentives across multiple payers; and
• Helping the United States and its healthcare system handle unexpected challenges and disruption, including those experienced from the ongoing COVID-19 pandemic.

Many states have made progress in moving toward value-based payments in healthcare, yet there are still growth opportunities for more states to improve health outcomes and efficiency across payers including Medicare, Medicaid, and private insurance, by ensuring healthcare systems are financially incentivized to deliver the best quality, best value care. Aligning value-based care programs across payers could reduce the burden on providers who participate with multiple payers and improve the healthcare experience for patients.

To view the Value-Based Care Opportunities in Medicaid SMDL, please visit: https://protect2.fireeye.com/url?k=9c9690c2-c0c399d1-9c96a1fd-0cc47adb5650-e4057606ced02c16&u=https://www.medicaid.gov/Federal-Policy-Guidance/Downloads/smd20004.pdf

For a fact sheet on the Value-Based Care Opportunities in Medicaid SMDL, please visit: https://www.cms.gov/newsroom/fact-sheets/value-based-care-state-medicaid-directors-letter