Worried about APGs? Maryland tests a new Medicaid payment plan ACGs
Some providers worry capitation dollars will fall under new formula
A unique capitation system in Maryland that adjusts Medicaid payment rates by severity of illness has gotten the nod from the Health Care Financing Administration (HCFA). But despite the plan’s aim of making capitation rates more equitable, Maryland hospitals and physicians may not see a penny more under the new Medicaid program. Baltimore-based HCFA has given Maryland the go-ahead to use a payment methodology called Ambulatory Care Groups (ACGs) in setting rates for the state’s managed care organizations (MCOs). The program is scheduled to kick off June 1 and could pave the way for adoption in other states with similar Medicaid waivers.
ACGs were designed to risk-adjust payments to MCOs based on patient demographics, such as age and gender, and categories of illnesses. Under the formula, MCOs would get special capitation amounts from the state for covering enrollees suffering from certain high-cost illnesses such as cancer and heart disease.
Most Medicaid managed care programs pay providers a negotiated capitation rate that does not adjust for high-risk patient populations. The Maryland system applies only to outpatient services.
Providers everywhere have balked that capitation doesn’t adequately account for the treatment of high-cost patients. Typically, hospitals and physicians have to cover their risk-exposure by negotiating separate rates with insurers for these expensive diseases.
But if the Maryland plan works, there could be efforts to duplicate ACGs elsewhere. However, there are no immediate plans of expanding the system, according to Maryland officials. Currently, 13 states, including Arizona, Pennsylvania, and Hawaii have been granted Medicaid managed care waivers.
But critics of ACGs in Maryland contend that despite the effort to financially level the playing field, providers may not necessarily see the fruits of the plan. The formula, they argue, could have little or no effect on hospital or physician payments.
"MCOs will be under no obligation to pass on the adjustment to providers. In fact, some [providers] will actually lose ground financially," notes Bobbi Seabolt, executive director of the American Academy of Pediatrics’ Maryland chapter.
Here’s why:
• The higher payment rates to cover high-cost diseases will probably come out of primary care, Seabolt says. Therefore, hospital outpatient departments and family physicians could see their total capitation dollars shrink for general medicine such as X-rays or lab work.
System requires more work
• Payment rates will depend on clusters of diagnosis codes that will be grouped into ACGs by severity.
Therefore, physicians and hospitals will have to regularly submit lists of meticulous ICD-9-CM codes to their contracting MCOs. If they don’t, as a group their capitation rates could fluctuate due to changes in the overall value of the ACGs, Seabolt says.
• The state expects to save $56 million in the first year of implementing ACGs. Payments will be reduced to 90% of the old fee-for-service rates compared with 94% under the present managed care program.
But based on early contract discussions between the state and some MCOs, rates could end up 30% lower than the old fee-for-service rates, which were then already low, according to Seabolt. Capitation rates in Maryland currently range between $45 to $1,100 per member/per month under Medicaid managed care.
John G. Folkemer, deputy director of medical policy administration for the Maryland Department of Health and Mental Hygiene, acknowledges that Medicaid officials will be unable to control what rates MCOs ultimately pay providers.
But he also indicated that MCOs will be carefully monitored to make sure they spend 80% of their total capitation budgets on direct medical care. (The second year’s allowance is 85%.) If the MCOs don’t, they could lose whatever wasn’t spent on services in the following year.
State will monitor MCOs
Furthermore, state officials plan to track patient encounters and conduct regular outcomes studies, provider profiles, and medical record reviews to ensure that the system is equitable, Folkemer says. Initially, the plan will cover about 75% of Maryland’s 450,000 Medicaid recipients.
The argument was sufficient to sway executives at Johns Hopkins Health Care in Baltimore. The integrated health care system has applied to the state for an MCO license in order to participate in the program.
John Stobo, MD, chairman and chief executive officer of Johns Hopkins believes ACGs will be fair to providers. "Discrepancies between [providers] that suggest differences in the way they serve patients could, when analyzed by ACGs, reveal that certain providers are treating far sicker patients," Stobo says. Hospitals and physicians should not be financially penalized for treating sicker people, he says.
"This is really an issue for managed care organizations. It doesn’t affect individual hospitals," says Li Su Huang, director of health care finance and program analysis with the Maryland Hospital Association in Baltimore.
Huang means that hospitals won’t have to calculate their payments under ACGs because the formula directly applies only to MCOs. But others in the medical community think differently.
Many providers privately worry that ACGs will penalize healthy patients and will favor certain hospitals and physicians willing to accept lower per member/per month rates than others in treating seriously ill patients.
Furthermore, under ACGs, providers will have to negotiate harder than ever to ensure that rates are fair and accurately based, which will be difficult, says Seabolt.
Most physicians don’t understand how ACGs work, and "nobody has figured out yet how much money should actually go to specialized and primary care," says Seabolt. Despite the shortcomings, however, Seabolt’s organization has endorsed the plan and still supports it, she says.
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