The Medicare-Medicaid ACO Model: Addressing Dual Eligibles’ Costs

Dual eligibles, individuals enrolled in both Medicare and Medicaid, are among the highest-need, highest cost patients in the United States. Although it is difficult to determine the exact number of dual eligibles, a 2012 Kaiser Family Foundation report estimates that dual eligibles comprise 21 percent of the Medicare population and 15 percent of the Medicaid population. However, the same report notes that this population accounts for 31 percent of total Medicare costs and 39 percent of total Medicaid costs. Kaiser further concluded that in 2011 these costs amounted to approximately $319.5 billion, or 35 percent of total spending by Medicare and Medicaid combined, in 2011. In December 2016, the Centers for Medicare and Medicaid Services (CMS) announced the Medicare-Medicaid ACO Model (MMACO), a new ACO model that specifically focuses on simultaneously improving the quality of care and reducing costs.

As health care entities look to reduce rising expenditures, dual eligibles present an opportunity to reduce costs through improved care management and coordination. Improving care and reducing costs for dual eligibles have been attempted in the past. However, these attempts have proven difficult and produced mixed results. In 2011, CMS announced the Financial Alignment Initiative, designed to provide dual eligibles with better care and to better align the financial incentives of Medicare and Medicaid through two models: a capitated model and managed fee-for-service (MFFS) model. The 2012 Kaiser report also examined nine capitated programs and found that only two reduced hospitalization and spending. The report found similar results for MFFS programs though some programs have been successful. For example, the Washington Health Homes demonstration is one MFFS program that has shown promising results, reporting more than $21 million in shared savings between the state and federal government in the first 18 months of operation.

One of the primary reasons it is difficult to improve care and reduce costs is the “lack of alignment and cohesiveness between Medicare and Medicare programs” according to a CMS report. Medicare is a federally run program whereas Medicaid is a joint federal-state program in which states have a degree of flexibility in program design. Because the two programs were developed separately, they were not built to ‘talk’ to each other making coordination difficult. Modifying existing IT systems to enable effective communication between the two systems is expensive and difficult to implement further complicating efficient care. Also, different program administration requirements and eligibility criteria make coordination difficult. Furthering complications, dual eligibles encompass a wide variety of demographics including elderly seniors with and without chronic conditions, children with disabilities, and individuals with mental illness. Many dual eligibles see more than one provider or specialist, have more than one chronic condition (66 percent have three or more chronic conditions), or have multiple physical impairments. The demographic range and complex medical conditions of these people make care coordination difficult as well as expensive.

The MMACO Model hopes to side-step some coordination issues previously run into by building on and working in conjunction with Medicare Shared Savings Programs (MSSPs) ACOs. MMACOs will be aligned with MSSP ACOs, resulting in the ACO being responsible for both Medicare and Medicaid expenditures and quality. CMS also hopes to encourage participation among safety-net providers in Alternative Payment Models by making them eligible to receive prepayment of Medicare shared savings if the MMACO qualifies as a “Safety-Net ACO.” Although certain aspects of the MMACO models will vary by state, the over-arching principles and parameters will be the same. If savings are achieved by a MMACO, the MMACO and state it is located in may be eligible to share in those savings with CMS.

CMS will partner with up to six states to test the model beginning in 2018, prioritizing low-ACO-saturated states. Letters of Intent for the first round were due from states on January 20, 2017, and are due August 4, 2017 for the second round starting in 2019. It is uncertain which states have applied.

As health care expenses for all individuals continue to rise, better integrating and coordinating care (thereby reducing duplicative services) for dual eligibles could save as much as $20 billion a year alone. In essence, dual eligibles present a clear opportunity to curb rising health care costs, an opportunity CMS is attempting to act upon. As a leader in ACO intelligence, Leavitt Partners will be watching closely how the model performs and whether it will reduce costs for dual eligibles in multiple states equally or more successfully than previous attempts.