Priming the Pump: Strong Fiscal Incentives Are Needed to Ensure CalAIM’s success

By Jason Bloome

On January 2022 California embarked on their ambitious California Advancing and Innovating Medi-Cal (CalAIM) program: a 5-year $6 billion initiative intended to realign and streamline care delivery to Medi-Cal recipients using Managed Care Organizations (MCOs). Two components of CalAIM are Enhanced Care Management (ECM) and In Lieu of Services (ILOS). ECM and ILOS will address clinical and non-clinical needs of the highest-cost and highest-need enrollees through intensive coordination of health and health-related services and/or the option of offering these members community support alternatives “in lieu of” expensive state plan services (e.g., Medi-Cal payments to skilled nursing facilities – SNFs). The expectation is ECM and ILOS will enable CalAIM MCOs to provide medically appropriate and cost-efficient quality care while saving state and federal Medi-Cal dollars by reducing unnecessary hospital admissions, emergency room stays and SNF admission.

Capitated Rate Erosion

Historically, California set capitated rates, a Per Member Per Month (PMPM) payment paid to MCOs, by using the data from utilization and cost of services rendered from the prior year. Consequently, MCOs that wanted to offer more cost-efficient care delivery systems that were more affordable than state services were disincentivized by suffering capitated rate erosion: the more cost-efficient the care the less money they would receive when capitated rates were readjusted for the following year. To mitigate capitated rate erosion and to encourage CalAIM MCOs to develop fiscally efficient ECM and ILOS programs, DHCS will use new tools: incentives, reimbursable ILOS, blended capitated rates and shared risk/shared saving programs.

Incentive payments

The Department of Health Care Services (DHCS) will pay performance incentives to CalAIM MCOs, starting in 2022, based on quality improvement measures in LTSS and other cross-delivery system metricsⁱ including:

1. Building appropriate and sustainable ECM and ILOS capacity
2. Driving MCP investment in necessary delivery system infrastructure
3. Incentivizing MCP to use ILOS
4. Bridging current silos across physical and behavioral health delivery
5. Reducing health disparities and promoting health equity
6. Achieving improvements in quality performance

Reimbursable ILOS

California began the California Coordinated Care Initiative (CCI), a demonstration program for managed care for Medi-Cal recipients, in 2014. Despite CCI’s noble goals of reducing health care costs and preventing unnecessary institutionalization, CCI has systemic flaws including non-reimbursable ILOS: CCI MCOs were allowed to offer ILOS to their members, but the state would not reimburse them for the ILOS expenses. In December 2022, CCI will end and transition into CalAIM along the pathway for full implementation of statewide Managed Long Term Support and Services (MLTSS) in 2027. Starting in January 2022, under CalAIM, MCOs will be reimbursed for their ILOS expenditures through the annual capitated rate setting process.

Blended Capitated Rate

The state will adopt a new blended capitated rate model for CalAIM MCOs to include members who receive LTSS who reside in the community and in SNFs. Since this blended rate would compensate CalAIM MCOs by combining institutional and non-institutional expenses, plans could receive and retain earnings if they successfully adopt ECM and ILOS measures that eliminate the costly steps for unnecessary hospital, emergency and SNF stays.

Shared Risk/Shared Savings

CalAIM MCOs that develop successful ECM and ILOS systems that save the state and federal government money will receive part of the Medi-Cal shared savings. DHCS will use historical cost and utilization data (beginning in 2023 when sufficient historical data is derived from ILOS and the delivery of LTSS) to determine Medi-Cal shared savings. CalAIM will also incorporate shared risk: the state and MCO share the fiscal risk for high cost, high care needs members.

Shared Savings for SNF transition from SNFs to RCFEs

In 2022, six CalAIM MCOs have chosen to offer the ILOS for SNF Diversion/Transition to Residential Care Facilities for the Elderly (RCFEs). This ILOS is available for members at the SNF level of care who are medically appropriate to reside in RCFEs. Since RCFE care costs are, on average, half the cost of Medi-Cal reimbursed SNFs, CalAIM MCOs with successful SNF transition to RCFE programs will generate considerable Medi-Cal shared savings. For instance, for every 100 members that transition from SNFs to RCFEs the state and federal governmentⁱⁱ will save approximately $4.2 million Medi-Cal dollars each year.

Example #1:

SNF Medi-Cal rate: $84,144/year or $7,012/monthⁱⁱⁱ

Average RCFE cost: $42,000/year or $3,500/month^iv.

1000 residents in SNFs costs payors: $84,144,000/year

Transferring 100 of these residents from a SNF to a RCFE:

900 in a SNF: (84,144 x 900=75,729,600) + 100 in a RCFE (42000 x 100 = 4,200,000) = 75,729,600 +4,200,000 = 79,929,600

State Annual Medi-Cal Savings for transferring 100 LTSS members from SNF to RCFEs: $84,144,000 – $79,929,600 = $4,214,400

Shared Savings for SNF Diversion to RCFEs

According to the Center for Medicare and Medicaid Services, 20% of Medicare recipients return to the hospital within 1 month of discharge and, among this population, are dual-eligibles (members on Medicare and Medi-Cal) who have a much higher hospital readmission rate than their Medicare-only counterparts. Dual-eligibles with insufficient care at home repeatedly cycle from home-hospital-SNF-home with some eventually becoming SNF LTSS residents. SNF diversion to RCFEs will open pathways to 24-hour care homes which, for some-dual-eligibles, will result in less frequent admission to hospitals, emergency rooms and SNFs. Fewer steps along the care continuum will result in Medicare and Medi-Cal dollars savings which should be factored into shared savings calculations.

Useful data to calculate shared savings can also be derived from IHSS regarding the number of recipients who exit the program each year to become SNF LTSS residents. For example, in 2018, 5112 IHSS recipients exited IHSS to become SNF LTSS residents^v: diverting 10% (500) of this population from SNF to RCFEs will result in recurring annual Medi-Cal cost savings of $21 million.^vi

Tracking the Success of CalAIM

In their February 2021 budget analysis of CalAIM, the California’s Legislative Analyst Office said obscure current Medi-Cal budget documents would make it difficult to track CalAIM’s expenses and cost-savings. They suggested DHCS invent new budget supporting documents to track the success of CalAIM components. DHCS should develop an easy-to-read website which shows the progress of each CalAIM MCO in transitioning or diverting LTSS members into ECM and ILOS tracks with the associated Medi-Cal cost savings. Performance incentives awarded should also be publicly available to show which CalAIM MCOs have reached target goals.

Jason Bloome is owner of Connections – Care Home Consultants, a care home placement agency in Southern California.

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ⁱ https://www.dhcs.ca.gov/Documents/MCQMD/CalAIM-Incentive-Payment-Stakeholder-Webinar-6-30-2021.pdf

ⁱⁱ According to Kaiser Health News, in California the federal share of Medicaid spending is 63% and the state share is 36%. Source: https://www.kff.org/medicaid/state-indicator/federalstate-share-of-spending/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D

ⁱⁱⁱ ALW Renewal Document Sent by DHCS to Center for Medicare and Medical Services: “Nursing Facility (NF) rate of $76,157.00 ($6,346/month) plus the estimated state plan costs for persons in the NF setting of $8,000.00 ($666/month) = 6,346 + 666 =$7,012/month or $84,144/year.” See Appendix B, B-2: https://www.dhcs.ca.gov/services/ltc/Documents/ALW-Renewal-2019-2024-Approved.pdf

^iv Midpoint RCFE rate in Los Angeles and surrounding counties.

^v https://cdss.ca.gov/portals/9/acin/2019/i-22_19_es.pdf

^vi $4.2 million (see Example #1) x 5 = $21 million.