Health care is a heavily regulated industry that impacts most Americans—whether as patients or providers—and currently accounts for 16 percent of the national GDP.
The Patient Protection and Affordable Care Act (known as ACA) was signed by President Barack Obama on March 23, 2010 and is believed to be the most significant regulatory overhaul of the U.S. healthcare system since the establishment of Medicare and Medicaid in 1965.1 Notably, New York had in place many of the insurance coverage protections and Medicaid program expansion reforms even before ACA was enacted.
Spring 2012 brought much speculation about the future of ACA and the impact on New York's progressing Medicaid reforms. ACA focuses on reforming the private insurance market through coverage mandates, state-based health insurance exchanges, increased regulation of health insurers, and increased taxes on submarkets within the health care system (drug and device taxes and taxes on "Cadillac" insurance plans), which will pay for subsidies of insurance premiums for individuals purchasing insurance from the newly established health insurance exchanges. Expanding eligibility within the existing Medicaid program is also a key component of ACA.
On June 28, 2012, the U.S. Supreme Court decision on the constitutionally of ACA in National Federation of Independent Business v. Sebelius2 put an end to the prediction culture and unleashed the machinery of federal and state regulatory reform to implement ACA.
But by this time, New York was already 18 months into the most sweeping reform of the state's Medicaid program in decades. While the national focus of health care reform was on ACA, New York Governor Andrew Cuomo issued Executive Order #5 on Jan. 5, 2011, establishing the Medicaid Redesign Team (MRT) to address "New York's bloated Medicaid program, which spends at a rate more than twice the national average, [and] must be reformed to help our state begin to make ends meet."3 The New York Medicaid program spending per enrollee is the second highest in the nation, yet New York ranks 21st in overall health system quality and ranks last on the measure of avoidable hospital use and costs.4 The budget crisis in New York, highlighted by the governor as driven predominantly by New York's expensive Medicaid program, meant that New York's health care reform had to go beyond the insurance reforms ACA will ultimately effectuate to address the actual cost of health care by changing the health care delivery system and how Medicaid incentivizes quality care.
MRT: Key Reforms in 2012
The MRT currently has 32 members consisting of provider representatives, insurance representatives, policymakers and state legislators. In 2011, the MRT prepared and submitted to the governor a plan containing 79 recommendations to reform Medicaid. Seventy-eight of the recommendations were included in the 2011-2012 enacted state budget.5 The key MRT reforms can be broken down into three broad reform categories—(1) Rate reforms, including (a) a Global Medicaid Spending Cap implemented as an across the board 2 percent reduction in Medicaid payments for all dates of service April 1, 2011 through March 31, 2013, and (b) interim rate adjustments to incentivize decreased utilization by providers and address costly benefits like pharmacy, dental and transportation services; (2) Care Management structures which combine a transition of Medicaid enrollees to Medicaid managed care organizations and new care management structures (including Patient Centered Medical Homes, Health Homes, Behavioral Health Organizations, Managed Long Term Care, and state authorized Accountable Care Organizations (ACOs)); and (3) Medical Malpractice Reform through a medical indemnity fund to address certain birth-related negligence costs.
Implementing the Reforms
Much of the cost savings proposed by the MRT relies upon the transition of many Medicaid benefits from a traditional fee-for-service model to the managed care model. But new care management regulatory reforms are also a crucial component of New York Medicaid reform and must still be approved by CMS though a process authorized by §1115 of the Social Security Act.
Section 1115 Waiver. Medicaid is a shared federal and state program, administered by the states within broad federal rules and financed jointly by state and federal governments. For the federal fiscal year 2013, the state and federal government generally each pay 50 percent of New York's Medicaid costs.6
Section 1115 waivers are approved at the discretion of the Secretary of Health and Human Services through negotiations between the state and CMS. The §1115 waiver allows the federal government to waive certain of the broad federal requirements for Medicaid to enable states to experiment with innovative ways to administer the Medicaid program. Although no regulation requires it, longstanding CMS administrative policy requires §1115 waivers to be budget neutral for the federal government. In its Aug. 6, 2012 comprehensive §1115 waiver, the New York Department of Health (DOH) requested that $10 billion of the projected $17.1 billion of savings to the federal government through implementation of the MRT reforms be returned to New York for reinvestment into further MRT reforms.7
(1) Patient Centered Medical Homes. New York implemented financial incentives through the Medicaid program for office-based health care providers and Article 28 clinics that successfully achieved one of three levels of the National Committee for Quality Assurance recognized Patient Centered Medical Homes in 2009, well before ACA.8 In the Patient Centered Medical Home model, patient coordination of care is managed by a single provider or practice that implements referral tracking, electronic health records and enhanced data communication with patients and other providers and intensive disease management and test result analysis.
The MRT found that the costs involved in implementing a Patient Centered Medical Home are burdensome and require a significant up front financial investment by primary care providers. The MRT §1115 waiver has requested that savings in the New York Medicaid program be reinvested to primary care as capital funding grants for select providers to modernize facilities so that National Committee for Quality Assurance/Patient Centered Medical Home status can be achieved and the already authorized enhanced Medicaid reimbursement can be realized by more primary care providers.
Legal and administrative barriers to implementation of the Patient Centered Medical Home model exist. The Patient Centered Medical Home statute recognized that legal and administrative barriers may exist to the shared care management function in such a home, but such barriers have yet to be specifically identified or addressed in implementing regulations. The Patient Centered Medical Homes have not been given reprieve from the state based prohibition on physician fee splitting9 although the statute does provide certain antitrust immunity. Certain Article 28 clinics are constrained by the restrictions on management agreements in 10 N.Y.C.R.R §405.3(f) that do not similarly constrain private physician practices. Moreover, New York's proposal to co-locate primary care in emergency room departments will require further regulatory reforms to remove reimbursement, licensing and structural barriers to this model.
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