As U.S. health care spending continues to grow every year, the State Innovation Model (SIM), a first-of-its-kind grant that provides a large federal investment to state-led health care reform, aims to address the Triple Aim to improve care, improve population health, and reduce health care costs. Since 2013, six Round 1 test states have been using the $250 million, five-year grants to accelerate their own state-led, multi-payer health care transformation.
Although it is too early to tell if SIM is contributing to a decline in health care costs, it is helpful to understand how states are defining and tying cost reduction or savings targets to their initiatives. Round 1 Test states (Arkansas, Maine, Massachusetts, Minnesota, Oregon, and Vermont) are working to not only reduce health care costs, but also to define reduced costs. All the information presented in this analysis is from publicly available state SIM operational plans, and the Centers for Medicare & Medicaid Services (CMS) first year evaluation report. The analysis also includes cost reductions or savings documented in any state evaluation reports publicly available.
A requirement of the SIM program is that all states have a goal of reducing health care costs. States are taking varying approaches to achieve this goal.
To reduce costs, all Round 1 states are implementing initiatives to shift the state’s health system from encounter-based service delivery to coordinated care, and from volume-based to value-based payment mechanisms. The principle behind these initiatives is that more coordinated and accountable health care leads to higher quality care at lower total cost, and ultimately, to improved population health.
The test states are taking different approaches with their SIM awards to achieve reductions in costs. To varying degrees, states are focusing their reform models on advancing patient-centered medical homes (PMCH) and Accountable Care Organizations (ACO); integration of primary care and specialty care and behavioral health; and the adoption of payment reforms such as episode-based payment and shared savings. In addition to implementing brand new strategies, many states are also building off previous state transformation efforts. All six test states are also using a variety of enabling strategies, such as building health information technology infrastructure and workforce development, to facilitate their health system transformation. Additionally, some of the test states are tying parts or all of their approaches to concrete cost or savings targets.
[For high-level details on Round 1 Test states aims and reforms, see Table 1 below.]
Arkansas, Massachusetts, and Oregon included concrete reductions in cost or savings targets as part of their original operational plans
Arkansas’ SIM model integrates population- and episode-based care delivery strategies to coordinate care across a team of providers, incentivize quality and cost effectiveness, and improve outcomes. In its 2012 State Innovation Plan, the state credited the success of controlling the cost of health care as saving the system $1.1 billion over the 3-year Model Testing period ($8.9 billion through 2020) relative to baseline spending, net of delivery system re-investments (i.e., care coordination fees and incentive payments / savings shared with providers).[i] Gain sharing with providers offers them an incentive to share in the benefits of implementing and coordinating improvements in efficiency and quality.
Massachusetts’ SIM operational plan is using the state’s broader cost reduction targets, and measurement approach to evaluate the effect of SIM on health care costs. Before receiving SIM funding, Massachusetts’ Health Care Quality and Cost Council, a public entity responsible for setting quality and cost targets for the Commonwealth, developed the “Roadmap to Cost Containment.” This Roadmap details eleven strategies (e.g., transparency, reducing provider determined demand for low-value care) that the Council sees as having the potential to reduce health care costs, or cost growth. Many of these same strategies made it into Massachusetts’ Health Reform 2.0 legislation. [ii]
SIM complements and reinforces that statute, which sets a first-in-the-nation target for controlling the growth of health care cost and methodology to measure the progress of its cost containment efforts. The law holds the annual increase in total health care expenditures to the rate of growth of the state’s Gross State Product (GSP) for the first five years. In 2014, the Health Policy Commission set the health care cost rate to +3.6%. After 2017 the target lowers to a growth rate that is half a percentage point below the economy’s growth rate, and then back to GSP. Total health care expenditures includes health care expenditures for Massachusetts residents from public and private sources, including (i) all categories of medical expenses and all non-claims related payments to providers; (ii) all patient cost-sharing amounts, such as deductibles and co-payments; and (iii) the costs of administering private health insurance (called the Net Cost of Private Health Insurance or NCPHI). It does not include out-of-pocket payments for goods and services not covered by insurance, such as over-the-counter medicines, and also excludes other categories of expenditures such as vision and dental care. Total health care expenditures are calculated on a per capita basis to control for increases in health care spending due to population growth. The inclusion of public and private payers in the measure is intended to reduce the likelihood of “cost-shifting” among different payer types and ensure that gains are shared with both public and private purchasers.
Oregon’s original Operational Plan laid out specific financial goals under its SIM grant. Under the plan, the state’s Coordinated Care Organizations (CCOs), are the key to the cost reduction. First, Oregon aims to reduce Medicaid per member per month (PMPM) cost growth one percentage point in FY 2014 (from a 2011 baseline) and by two percentage points in subsequent years, through the expansion of CCOs. Next, by expanding the CCOto the state’s public employee coverage (PEBB), Oregon also aims reduce PMPM cost growth by one percentage point in FY 2015 and two percentage points FY 2016 for the public employee population. The state expects to see savings in PEBB by achieving reductions in ambulatory-care sensitive hospital admissions and potentially avoidable emergency department visits. Lastly, the state also aims to reduce the Medicare dually eligible cost trend by one percentage point in FY 2016, through increased use of primary care homes and other key elements of the CCO.
As part of its SIM strategic plan, Maine set the specific goal to lower the total cost of care PMPM in Maine to the national average by 2017.[iii] In Minnesota’s Operational Plan, the state did not set a specific cost reduction or savings target. However, that state has been tracking and publicly reporting against a specific target to reach one million dollars in savings through their Medicaid Integrated Health Partnerships (IHPs). In both Maine’s Medicaid ACOs and Minnesota’s IHP, providers have the opportunity to share in savings if quality targets are met, and they share in downside risk if the quality targets are not met. Vermont’s Operational Plan does not set specific cost reduction or savings targets for its testing and implementation of new payment models and practice transformation. Although these three states do no have specific cost reductions or savings targets in their plans, they are all taking steps to reduce costs.
Arkansas, Minnesota, Massachusetts, and Oregon have reported on their evaluation of cost reduction or savings to date
In January 2015, Arkansas reported cost savings from some of its initiatives, although, to date, it has not reported on its overall goal to save the health care system $1.1 billion. The state’s Medicaid growth rate has fallen to 2‐3 percent. The state reported that 73 percent of Medicaid and 60 percent of the commercial payer, Arkansas Blue Cross Blue Shield, Principal Accountable Providers (PAPs) improved costs or remained in a commendable or acceptable cost range for episode-based care (the other commercial payer QualChoice was not highlighted). Also, the AR BCBS hip/knee replacement costs, one of the episodes-based payments adopted under the SIM initiative, were reduced by 1.4 percent (7 percent below projected).
Minnesota’s Medicaid IHPs have demonstrated savings of $14.8 million in their first year (2013). In 2014, that number has more than quadrupled to a savings of $61.5 million. The savings are coming from providers offering more intensive primary care and implementing processes to better coordinate with mental health providers and other specialists. The number of IHP providers has grown from nine in 2014 to 16 in 2015. The IHPs, formerly called the Health Care Delivery System demonstration, originated before SIM funding, but SIM has allowed the state to spread and expand to more providers and perhaps therefore offer savings and with improved quality.
In 2014, Oregon reported on the success of its CCOs by meeting its commitment to reduce Medicaid spending trend on a per person basis by two percentage points.
In accordance with Chapter 224, the Massachusetts’ Health Policy Commission produces an annual report that examines health care cost trends in the Commonwealth, including trends by payer, type of service, and share of costs covered by insurance/individuals. As mentioned earlier, Massachusetts has combined SIM cost tracking with the required Chapter 224 annual report. The state did not meet its target to control cost increase in 2014. As reported in September 2015, in 2014, total Health Care Expenditures (THCE) in Massachusetts grew 4.8 percent from the prior year to $8,010 per resident ($54 billion statewide). This growth rate exceeded the target benchmark set by the Health Policy Commission (+3.6 percent), and reflected faster growth than projected national health care expenditures per capita, state inflation, and the Massachusetts economy. According to the Chapter 224 statute, the Health Policy Commission will notify all health care entities—hospitals, physician groups, ACOs, and payers—that exceeded the cost growth benchmark. The HPC may require these health care entities to file and implement performance improvement plans.
Vermont has not to date made publicly available any evaluation information including cost savings from its SIM initiatives. On its SIM website, Maine makes publicly available its annual evaluation reports as well as quarterly newsletters on the progress of their SIM operational plan. The evaluations to date have not included cost or savings analysis. The next state annual report is set to be complete in October, so there may be more information from Maine then.
Looking Ahead
The six Round 1 SIM Test States are implementing multi-payer delivery and payment reforms with their own specific aims and structures, but with an overall drive to reduce health care costs. SIM is an important investment, but time will tell whether the states will be able to demonstrate real reduction in costs over the coming years. The question may still remain about how much any cost savings were due to SIM, since many states are using SIM to accelerate and expand reforms that were beginning pre-SIM. No matter whether savings are due to just to SIM, money talks, lessons learned in the SIM test states that successfully lead to or contribute to reductions in costs can be models to be considered by other states in their own delivery and payment reform efforts.
Stay tuned for more from NASHP analyzing SIM initiatives and efforts to date and what they can mean for state health policymakers.
Table 1: Summary of Round 1 Test SIM States (Source: SIM Test States Annual Evaluation Report (Year 1))
Overarching SIM Aim
Delivery System Features
Payment Models
Participating Payers
Arkansas
Shift health care from encounter-based service to care coordination by incorporating two complementary strategies statewide: (1) episode-based payment; and (2) population-based advanced primary care via patient-centered medical homes (PCMHs) and health homes for medically complex patients.
Principle Accountable Provider (PAP) responsible for services across an episode; Patient-centered medical homes (PCMH); Health Homes for Long Term Services and Supports (LTSS), Developmental Disabilities and Behavioral Health
Episode-based payments for medical and behavioral conditions; Per Member Per Month (PMPM) payment for PCMH and Health Homes; PCMH eligible for shared savings
Medicaid in all of the episodes, Commercial in subset of episodes; Medicaid, Commercial and Exchanges in PCMH; Medicaid in Health Homes
Maine
Strengthen and expand health care transformation efforts currently under way in the state by providing an overarching framework to align payment and delivery systems statewide
Accountable Communities (AC) which are like ACOs; PCMHs and health homes for those with complex conditions; Behavioral Health Homes; new workforce models which include Community Health Workers
PMPM payment for PCMHs, health homes and Behavioral Health Homes; Shared savings for ACs
Medicaid in all reforms; Medicaid, Commercial, Medicare in PCMHs; Medicaid in ACs but some are also Commercial and Medicare ACOs
Massachusetts
Develop both provider capacity and the infrastructure tools necessary to enable delivery transformation statewide. Support the state’s payment and delivery system reform legislation, Chapter 224 of the Acts of 2012
Primary Care Payment Reform which supports delivery of care in primary care practices that are like PCMHs with integrated behavioral health
Risk-adjusted capitation with shared savings/risk and quality incentives for participating primary care providers (in Year 1 no providers opted for downside risk)
Medicaid only; State employees (Group Insurance Commission) is receiving some funding for research of their payment models
Minnesota
Accountable Health Model – Expand the number of providers participating in and patients served by accountable care organizations (ACOs) and other accountable provider mechanisms
Medicaid ACOs called Integrated Health Partnerships (IHPs); Health Care Homes which are like PCMH; Accountable Communities of Health (ACO like with clinical and community partnerships)
IHPs include shared savings/shared risk; Health Care Homes receive additional PMPM; ACHs receive financial assistance to start up and shared savings/risk
Medicaid only payer in IHPs, but align with Medicare and Commercial ACOs in the state; Medicaid, Medicare and Commercial in Health Care Homes; Medicaid only for ACHs
Oregon
Support the acceleration of health care transformation and the spread of its recently implemented Medicaid delivery and payment model to new populations
Coordinated Care Organizations (CCOs) integrate and coordinate physical, mental, behavioral, and dental health care; Patient Centered Primary Care Home (PCPCH); Long term Services and Supports (LTSS) alignment with CCOs
CCOs use a global budget, goal of incentivizing alternative payment models in 2015 state employee plans; PMPM tied to PCPCH tiers
CCOs are Medicaid, CHIP and now state employees and Exchange populations; All but Medicare in PCPCH; Medicaid and Medicare in LTSS
Vermont
Expand existing payment and delivery system reform activities, and strengthen its infrastructure to support implementation, coordination, and evaluation of the reforms
ACOs; build infrastructure to support existing reforms (e.g., clinical data transmission, analytics)
ACO use shared savings; Episodes of care based on Medicare models; Medicaid pay for performance
Medicaid and Commercial participate in ACOs and episodes of care
[i] These targets are based on a scenario in which there is a 3-10% reduction in costs due to eliminating inefficiencies (over 4 years) and a 1-2% reduction in the medical inflation trend (over 4-7 years), and that approximately 40% of savings are re-invested in delivery system (e.g., through gain sharing to providers), with the balance passed on to customers in the form of lower-than anticipated premiums for individuals and employers with private insurance and lower than-anticipated public program expenditures.
[ii] Also called Chapter 224 of the Act of 2012 “An Act Improving the Quality of Health Care and Reducing Costs Through Increased Transparency, Efficiency and Innovation.”
[iii] According to the Kaiser Family Foundation, Maine’s annual expenditures for a Medicaid enrollee was $6, 761 compared to the national average of $6,502.
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