February 5, 2023

Volume XIII, Number 36

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February 03, 2023

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February 02, 2023

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Value-Based Care Comes Full Circle: New CMS Guidance for Medicaid Programs

This fall, the Centers for Medicare & Medicaid Services (“CMS”) published new guidance on the implementation of value-based care (“VBC”) and payment models focused on the Medicaid Program.1 This guidance fits within the context of the American health care system’s effort to shift towards value-based arrangements generally, but also reflects a desire to provide stability to health care providers in the context of disruptive economic and healthcare circumstances, like the present COVID-19 pandemic. CMS focused this guidance on the Medicaid Program because of an imbalance in the adoption of VBP between Medicare and Medicaid. 2018 data indicates approximately 90% of traditional Medicare payments were made through some type of value-based arrangement; but only one-third of Medicaid dollars met the same criteria.2 Recognizing the Medicaid Program’s longstanding history providing a “laboratory” for state experimentation in health care delivery and payment models, CMS promises to work with states to implement value-based arrangements that promote for each state’s unique population and programmatic goals. CMS Policy for Expansion of Value-Based Care in Medicaid Broadly speaking, CMS views VBC and alternative payment methodologies as part of a continuum developed by the Health Care Payment Learning and Action Network (“HCP-LAN”).

These models range from the most basic fee-for-service methodology through comprehensive population-based payments and integrated finance and delivery systems. In between are a number of proposed models familiar to providers already participating in VBC in such as payment for achievement of specific performance metrics, shared savings models, and bundled payments tied to specific conditions or procedures. CMS is clearly attempting to build upon a number of models that already exist in the context of the Medicaid Program, or that have been implemented already by Medicare providers. For example, CMS amplifies the use of primary care case management (“PCCM”) and patient-centered medical homes (“PCMH”), models that have already been adopted in a number of states. CMS also notes the Medicare Bundled Payments for Care Improvement (“BPCI”) and Comprehensive Care for Joint Replacement (“CJR”) initiatives in the context of bundles payments, and the broader Medicare Shared Savings Program as options to promote more comprehensive patient and risk management. One complexity for the widespread adoption of VBC in Medicaid is the significant penetration of Medicaid managed care, which now covers more than two-thirds of Medicaid beneficiaries. CMS recognizes that the Medicaid managed care rules limit the degree to which state Medicaid programs can direct or restrict MCO expenditures beyond actuarially sound capitation rates.3 The managed care rules do, however, permit states to direct MCOs to implement value-based payment arrangements that conform to specific federal requirements, including CMS approval and incorporation into managed care contract and rate certifications.4 Outside of managed care environments, CMS will consider alternative payment models with downside risk related to direct contracting relationships between state Medicaid agencies and providers.5 Notably, CMS specifically references the Social Security Act requirements at 42 U.S.C. § 1396a (a)(30)(A) that payments be adequate to enlist sufficient providers, and ensure payments are consistent with efficiency, economy, and quality of care. Thus, these requirements would apply even if a provider is participating in a downside risk alternative payment methodology. 6

What Does this Mean for Providers?

This new guidance from CMS reinforces at least two longstanding policy positions from CMS: 

  • Encouraging the growth and expansion of value-based arrangements across all categories of government health care spending. 

  • Providing states with maximum flexibility to design and operate their own Medicaid Programs in line with state-focused policy goals. Depending on current CMS leadership, the latter of these two positions may be walked back somewhat by an administration with a more national policy focus for Medicaid. But as with other payers, the drive toward value based care is here to stay regardless of political leadership. As a result, this guidance is likely to raise a few key issues for health care providers — particularly providers with large Medicaid patient populations. While some of these challenges are present for the adoption of any value-based arrangement, many are exacerbated by the funding and administrative mechanisms unique to the Medicaid Program.

Where Does the Money Come From?

Any provider who regularly cares for Medicaid beneficiaries will recognize that the Medicaid Program does not pay providers well — often not enough to even cover costs to furnish services to a given beneficiary. Alternative payment methodologies that offer upside must fund those opportunities from somewhere, but it is not clear from where a broad alternative payment methodology in the Medicaid would do so. There are few good options for providers. Holding back a portion of Medicaid payments to fund a quality bonus pool further reduces already weak reimbursement for the underlying services. Funding a bonus pool directly, however, would require additional funds from the state (or other sources) to draw down the necessary federal share to support program development. In an era where state budgets are increasingly constrained by falling tax revenue and other major revenue issues (such as COVID-19), additional state funds are not available.7 Finally, moving toward a capitated payment mechanism for either specific populations or the Medicaid Program more broadly will only work if:

  • The capitated payments are sufficient to support both the administrative burden of managing patients and furnishing health care services.

  • Providers can meaningfully resolve issues of cooperation or collaboration across a full spectrum of care to allow effective care coordination. Resolving this issue would seem to promote further integration and consolidation within the health care provider marketplace, potentially raising concerns related to patient choice and potential antitrust risk.

Who Runs the Show?

Value-based care and payment arrangements necessarily involve a lot of moving parts. Data must be collected, analyzed, and reported in a compliant manner, patients must be coordinated and assigned to specific providers to permit tracking, anomalies in patient care rhythms must be tracked and addressed, and at the end of the day someone must figure out who is owed what money — and why. The administrative structure of the Medicaid program is not necessarily well-built for the management of these complicated initiatives. Many states have chosen (and will continue to choose) to administer value based models through their existing MCOs. Doing so, however, removes a layer of state agency control, inserts an intermediary, and potentially complicates the funding and review mechanism for successful model adaptation. States that choose to administer value-based arrangements directly must devote sufficient time and resources to these models’ implementation, but may not have the necessary capacity to successfully run these programs. Finally, the issue of who gets to decide whether savings, quality, efficiency, or other goals have actually been achieved (and to what degree) creates both the opportunity for provider confusion regarding what funds they are actually entitled to, and the potential for costly administrative action or litigation in the event of a dispute. If value-based arrangements do not offer clear guidelines for objective measurement and achievement, then provider administrative costs related to obtaining those payments are likely to increase and will discourage Medicaid participation by providers. CMS recognizes these challenges, and will require states to submit their plans for beneficiary attribution, claims tracking, reconciliation of payments, and measurement of quality initiatives as part of their state plan amendments to implement value-based arrangements. It remains to be seen if it will actually be able to manage these initiatives successfully, or whether providers will suffer additional payment cuts once Medicaid programs adopt VBC.

Who Gets to Come Along?

To be successful in a VBC, providers must also add capacity. For example, providers implementing a fee-for-service based model requiring advanced care coordination (such as PCCM programs) must invest in care coordination personnel, medical record integration, and other processes so patients can be appropriately managed within the expectations of the program. Not all providers can afford this investment, or are prepared to move down that path. Thus, mandatory adoption of resource-intensive value based initiatives poses a significant risk to health care providers — particularly those with large Medicaid patient populations. Providers and state Medicaid agencies will need to work closely together to ensure that value based arrangements designed to improve the quality and efficiency of Medicaid services do not inadvertently create an access to care crisis. What Now? For now, CMS’s guidance only lays out the framework for increased adoption of value-based arrangements within the context of the Medicaid program. Before significant change takes place, state Medicaid agencies will need to make policy decisions regarding the types of value-based arrangements the state would like to implement, and lay the groundwork with CMS through changes to their Medicaid state plans.

As states continue to face budget crises, and the overall trend toward value-based care continues across the health care system, providers should anticipate that state proposals for value-based arrangements will continue, and there are a few steps providers should take to prepare:

Continue Infrastructure Investment

Most providers will be familiar with VBC models that CMS has proposed to import to the Medicaid program, meaning that many providers have already begun the process of investing in infrastructure support to adapt to these new programs. Continuing this investment, and refining processes so that data collection and aggregation, service patterns, care coordination, and other program elements can be operated efficiently is crucial for provider success.

Take Stock of Lessons Learned

Providers should take the experiences they have learned from participation in other VBC arrangements and consider how they might apply in the context of a Medicaid-focused initiative. CMS’s guidance suggests Medicaid-focused programs will build upon initiatives already underway in the context of Medicare and commercial arrangements.

Engage Now

Over the coming months, many state Medicaid agencies will start to design and implement new value-based care initiatives. Providers must get a seat at the table, to avoid a mandatory value-based program without advance notice and the opportunity to adapt processes and procedures to a new value based reality.

Find Like-Minded Partners

More comprehensive value-based payment models are difficult for providers to navigate on their own. Models that focus on population-based care, for example, require coordination of services across the continuum of care — meaning that providers will not be able to influence or control patient care at every access point. Forging relationships with like-minded organizations (consistent with applicable law) can help mitigate these risks and provide a solid platform for engagement between providers and their patients.


1 CMS, State Medicaid Director Letter #20-004, Re: Value-Based Care Opportunities in Medicaid (Sept. 15, 2020).

2 See SMD-004 at 2.

3 SMD 20-004 at 14-15.

4 See 42 C.F.R. § 438.6(c).

5 SMD 20-004 at 18.

6 Id.

7 This issue is complicated by the current administration’s overall hostility to supplemental payments and common funding mechanisms for state share (e.g., provider fees), which offer alternatives to state general fund allocations to support Medicaid services. Although CMS recently withdrew a proposed rule that could have limited supplemental payments, that rule may be re-introduced at some point, and the overall policy position of CMS on this issue does not appear to have changed. See, e.g., SMD 20-004 at 15-16 (specifically noting that approval of a directed payment to MCOs does not constitute CMS approval of the financing mechanism for non-federal share funds).

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume X, Number 296

About this Author

Ryan Thurber Health Care Attorney

Ryan Thurber brings a lifelong passion for health care to his work for clients at Polsinelli. Prior to joining Polsinelli, Ryan spent time working in human resources and the legal department of a major hospital system. In those roles, he worked to resolve a number of issues unique to health care, including the Stark law, Anti-Kickback Statute, HIPAA, and hospital/physician contracts. This experience gives him a deep understanding of the legal issues facing health care providers. Ryan’s practice focuses on helping health care providers solve their legal challenges so they can continue to...

Jennifer L. Evans, Polsinelli PC, Denver, healthcare fraud matters lawyer, medicare reimbursements attorney

Jennifer Evans brings legal, legislative and operational experience to health care matters. Her legal practice is focused on fraud and abuse, Medicare and Medicaid reimbursement issues, and regulatory compliance. Jennifer has experience working with clients that include multistate service providers to chronic patients, multistate pharmacies, Durable Medical Equipment companies, hospitals, physician practice managers, laboratories, health care management franchisors, and a specialty services extension of a physician practice.

Jennifer also served...