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CMSLibrary C2-07-13 7500SecurityBlvd. Baltimore, Maryland 21244 Paying Managed Care Plans in a Capitated Medicaid Program: Lessons from the Oregon Health Plan Preparedby: SusanG.Haber,Sc.D. JanetB.Mitchell,Ph.D HealthEconomicsResearch,Inc. 411WWaavletrhlaemy,OMaAks0R2o4a5d2,-8Su4i1t4e330 October18,2001 JanetB.MitcheU,Ph.D. GregoryC.Pope,M.S. ProjectDirector ScientificReviewer TheresearchpresentedinthisrepotwasperformedunderHealhCareFinancingAdministration(HCFA)ContractNo.500-94-0056,PaulBoben, ProjectOfficer.ThestatencntscontainedinthisrepotaresolelythoseoftheauthorsandnoendorsementbyHCFAshouldbeinferredorimplied. TableofContents Page Introduction -1- RateSettingMethodology -4- RateCategories -4- DataUsedtoSetRates -10- SettingCapitationRates -15- AltemativestoRateSetting -18- CapitationRateTrends -19- RiskAdjustment -30- LessonsLearned -33- References R-1 HealthEconomicsResearch,Inc. EvaluationoftheOregonMedicaidDemonstration: i Oreg\raiesettiiig\TOC.WPD\mb DRAFT TableofTables,FiguresandExhibits Page Exhibit1 OHPRateCategories -5- Figure1 OHPGeographicPaymentAreas -9- Table1 StatewideAverageFCHPMonthlyCapitationRatebyEligibiUtyGroup, 1994-1999 , -21- Table2 PercentChangeinStatewideFCHPMonthlyCapitationRateby EligibilityGroup,1994-1999 -23- TableS AverageSF-12HealthStatusScoresbyEligibilityGroup -25- Table4 FCHPMonthlyCapitationRateasaPercentofStatewideAverage, 1994-1997 -29- TableS RiskAdjustmentScoresAppliedtoOctober1998CapitationRates ... -34- HealthEconomicsResearch,Inc. EvaluationoftlieOregonMedicaidDemonstration: ii Oregtateselting>TOC.WPD\mb DRAFT I PayingManagedCarePlansinaCapitatedMedicaid Program:LessonsfromtheOregonHealthPlan Introduction State Medicaid programs are increasingly enrolling Medicaid beneficiaries in managedcareplanswiththegoalofcontrollingprogramcosts,whileimprovingaccessto servicesandqualityofcare. AcrucialpolicyquestionforstatesthatimplementaMedicaid managedcareprogramishowtosetthecapitationratesforthemanagedcareplanswith whichtheycontract. Manystatesuseanadministeredpricingsystem,wherebythestatesets capitationratesthatanyplanwishingtoparticipateintheprogrammustagreetoaccept. Otherstatesuseacompetitivebiddingsystem,inwhichcapitationpaymentsarebasedon planoffersofratesatwhichtheywillprovideservicestotheirenrolledpopulations. The statethendecideswhichoftherateoffersitiswillingtoaccept. Stillothersnegotiaterates withplans. Regardlessofwhetherastateusesadministeredpricing,competitivebidding, ornegotiatedrates,thereareseveralkeyquestionsthatmustbeaddressedwhensetting paymentsorevaluatingofferingsfiromplans. Theseinclude: • Howshouldratecategoriesbedefined? • Whatdatasourcesshouldbeusedtosetratesorevaluaterateofferings? • Howshouldutilizationderivedfi-omthesedatasourcesbeadjustedwhen settingratesorevaluatingplanofferings? • DoratesettingmethodsneedtobemodifiedasaMedicaidmanagedcare programagesandanincreasingproportionofthepopulationisenrolled inmanagedcare? • Shouldpaymentratestoplansvaryinordertoaccountforenrollmentof populationswithdifferingriskcharacteristics? HealthEconomicsResearch,Inc. EvaluationoftheOregonMedicaidDemonstration: 1 Oreg^TateseItmg\altext.wpd\inb Thisreportdescribesexperiencewithsettingcapitationratesduringthefirstsixyears oftheOregonHealthPlan(OHP),Oregon'sSection1115Medicaidwaiverprogram. OH? beneficiariesinnearlyeveryeligibilitycategoryarerequiredtoenrollinacapitatedmanaged careplaninallareasoftheStatewherecontractingplansareavailable.' Inareaswithouta planorwherecapacityisinadequatetoservetheentireOHPpopulation,beneficiariesare enrolledinprimarycarecasemanagementor,whennecessary,remainintraditionalfee-for- service. OtherimportantinnovationsadoptedaspartofOHPincludetheuseofaprioritized listofmedicalconditionsandtreatmentstodefinethebenefitpackageandexpanding Medicaideligibilitytoincludeallresidentswithincomesbelow100percentoftheFederal PovertyLevel(FPL). AsofApril2000,OHPcontractedwithfiillycapitatedhealthplans(FCHPs)to providephysicalhealthservicesinallbut4ofOregon's36counties. FCHPscoverafiiU rangeofacuteservices.^Managedcareplansreceiveamonthly^capitationpaymentforeach enroUee''thatvariesbyratecategoryandgeographicarea. Oregonusesanadministered pricingsystem. TheState'sactuarialconsultant^setsthecapitationratesandOregon Certainbeneficiariesareexemptfrommanagedcareenrollment,includingMedicaredualeligibleswhoareenrolled inaMedicare4-ChoiceplanthatdoesnotcontractwithOHP,NativeAmericans,womenwhobecomeeligibleduring thethirdtrimesteroftheirpregnancies,andotherindividualsforwhommanagedcareenrollmentwouldcreate accessbarriersorwoulddisruptcontinuityofcare. ^ Separatemanagedcareplanscoverdentalandmentalhealthservices. ' OInHitPialblye,gannewwemeekmlbyeernsrowlelrmeenotnloyfebennreoflilceidariinesa.maPnlaangserdecceairveepplraon-orantetdhecafipristtadtiaoynopfatyhmeemnotnstfho.rmIenmJbaenurasrytha1t99a7r,e notenrolledforafiillmonth. * Unlikecommercialinsurance,Medicaidprogramstypicallymakeseparatecapitationpaymentsforeach memberofafamilyenrolledinaplan. ' PricewaterhouseCoopers,formerlyCoopersandLybrand. HealthEconomicsResearch,Inc. EvaluationoftheOregonMedicaidDemonstration: 2 Oreg\raiesening\altext.wpd\mb contractswithanyplanwillingtoacceptthepaymentamountsandthatmeetscontracting standardsinareassuchasaccess,financialsolvency,andqualityassuranceactivities. ThemethodsusedtosetratesinOHPhaveevolvedconsiderablyoverthelifeofthe program. Thenumberofratecategorieshasexpandedfi-om9to16inresponsetoprogram eligibilitychanges,aswellassubstantialutilizationdifferencesacrosssubgroupswithinrate categories. Settingcapitationratesforeligibilitygroupswithwhichtherewaslittleorno priorexperience,suchastheexpansionpopulations,hasprovenparticularlychallenging. Initially,capitationrateswerebasedonpre-OHPclaimsdata. However,astheprogramhas aged,thesedatabecameincreasinglyout-of-dateandOregonhasbegunusingencounterdata instead. Nonetheless,usingencounterdatamaybeproblematicbecauseofconcernsabout theircompletenessandaccuracy. Thepossibilitythatplanswillenrollpopulationswith differingriskcharacteristicsposesseriouschallengesforsettingequitablereimbursement ratesundercapitatedprograms. OHP,whichbeganriskadjustingcapitationpaymentsfor selectedratecategoriesduringits fifthyearofoperation, isoneofthefirststatesto implementriskadjustmentforaMedicaidpopulation. ManyofthechangesinOregon'sratesettingmethodsoverthecourseoftheprogram addressissuesthatwillbefacedbyotherstatesenrollingasubstantialportionoftheir Medicaidpopulationinmanagedcare. Theremainderofthisreportisorganizedasfollows. WebeginwithadescriptionofOHP'sratecategoriesandthemethodsusedtoestablish capitationrates.Wethenlookattrendsincapitationpaymentsovertime,aswellasvariation byregionoftheState. Thefollowingsectiondescribesmethodsthathavebeenusedtorisk adjustpaymentrates. ThereportconcludeswithadiscussionoflessonslearnedfromOHP's experienceswithratesetting. HealthEconomicsResearch,Inc. EvaluationoftheOregonMedicaidDemonstration:3 Oreg\ratesetting\alIexl.wpd'inb RateSettingMethodology RateCategories Ideally,ratecategoriesshouldcapturegroupsofbeneficiariesthatarerelatively homogeneouswithrespecttoexpectedcost. Ifthereisnon-randomvariationwithingroups, plansmaybeabletoidentifylower-costbeneficiariesandselectivelyenrollthem. While definingratecategoriesmorefinelycanreduceopportunitiesforriskselection,thereare limitstothenumberofcategoriesthatarefeasible. First,agreaternumberofcategories increasethecomplexityofadministeringaprogram. Second,costestimatesmaynotbe stableifthereareaninsufficientnumberofbeneficiariesinagivencategory. Third,ifrate categoriesarenotexogenous(i.e.,arebasedonfactorssuchasdiagnosisoruseofparticular typesofservice),havingmorecategoriesincreasesthepossibilitiesforproviderstogamethe classificationsystem. Thus,thereisatrade-offbetweenminimizingpotentialforselection biasandadministrativefeasibility. Overtime,OHPhasincreasinglydisaggregateditsratecategories. Initially,four categorieswereestablishedforthePhase1populationandfiveforthePhase2population.^ ThesecategoriesareshowninExhibit1. ThebulkofthePhase1populationwascovered bytheOHPbasiccategory,whichincludedallPhase1beneficiarieswithincomesbelow FPLexcepttheGeneralAssistance(GA)population. Alongwithseveralcategoriesof traditionalMedicaideligibles,OHPbasicincludedthetwoexpansionpopulationgroups. Theeligibilitygroupsthatcomprisedthebasicratecategorywere: ' bPrhoausgeht1oinfOtoHOPHbPeguanndeirnPFheabsreua2r.y1994.InJanuary1995,theaged,blind,disabled,andchildreninfostercarewere HealthEconomicsResearch,Inc. EvaluationoftheOregonMedicaidDemonstration:4 OTeg\ratesetting\altext.wpd^b Exhibit1 OHPRateCategories Effective2/94through9/97 Effective10/97 Effective7/98 PhaseI PhaseI PhaseI "tanf TANF OHPBasic PPLLMMPChrielgdnraenntbWoommeafnte<r1100/01/%83FP<L100%FPL PPLLMMaPrnedgSnaCnHtIWPoCmhielndr<en160-01%8FPL NewFamilies NewFamilies _NewAdults/Couples NewAdults/Couples PLMPregnantWomen100-133%FPL PLMPregnantWomen100-133%FPL PLMPregnantWomen100-170%FPL PLMChildren<6100-133%FPL PLMChildren<6100-133%FPL ~PSCLHMIPChCihlidl<d<11 _PLMandSCHIPChild1-5 GeneralAssistance GeneralAssistance GeneralAssistance Phase2 Phase2 Phase2 AgedwithMedicare AgedwithMedicarePartA&B/PartAonly AgedwithMedicarePartA&B/PartAonly AgedwithoutMedicare _AAggeeddwwiitthhoMuetdMiecdairceaPraertBonly' AAggeeddwwiitthhoMuetdMiecdairceaPraertBonly' BlindandDisabledwithMedicare BlindandDisabledwithMedicare BlmdandDisabledwithMedicare BlindandDisabledwithoutMedicare BlindandDisabledwithoutMedicare BlindandDisabledwithoutMedicare ChildreninFosterCare ChildreninFosterCare ChildreninFosterCare 'AseparatecategoryforagedbeneficiarieswithMedicaidPartBwentintoeffectinMarch1997. • TemporaryAssistancetoNeedyFamilies(TANF)beneficiaries^; • pregnant women (called povertylevel medical, orPLM, adults) in familieswithincomesunder100percentofFPL; • PLMchildrenbomafterSeptember30,1983infamilieswithincomes under100percentofFPL; • expansion-eligiblesingleadultsandchildlesscoupleswithincomesunder 100percentofFPL(NewAdults/Couples);and • expansion-eligiblefamilieswithincomesunder100percentofFPL(New FamiHes). Separateratecategorieswereestablishedfor: • PLMpregnantwomenwithfamilyincomesupto133percentofFPL; • PLMchildrenundertheageof6withfamilyincomesupto133percent ofFPL;and • GeneralAssistance(GA)beneficiaries,whichincludeslow-incomeadults whoareunabletoworkduetoamedicaldisabilityandarenototherwise eligibleforMedicaid. PLMpregnantwomenandchildrenabovepovertywereexpectedtohavehigher monthlycoststhanthecorrespondingPLMbeneficiariesbelowpoverty. Althoughtotal expectedcostspereligibilityspellaresimilarforPLMpregnantwomenaboveandbelow poverty,theydonothavethesameexpectedmonthlycostsbecauseofdifferencesin eligibilityrulesforthesetwogroups. PLMpregnantwomenbelowpovertyhavelonger guaranteedeligibilitythanthoseabovepoverty,sotheirmaternitycosts(themainexpense forthispopulation)arespreadoveralongertimeperiod. Asaresult,PLMpregnantwomen belowpovertyshouldhavealowermonthlycapitationpayment. PLMchildrenbelow povertyhaveanolderagedistributionthanthoseabovepovertyduetodifferencesinage TheTANFprogramwaspreviouslyreferredtoasAidtoDependentChildren(ADC)inOregon.For consistency,werefertodiiseligibilitygroupasTANFthroughoutthereport. HealthEconomicsResearch,Inc. EvaluationoftheOregonMedicaidDemonstration:6 Oreg\ratesetting\altext.wpdMnb limitsforeligibility. PLMchildrenbelowpovertyare,therefore,expectedtobelowercost onaverage. GAbeneficiaries,whoqualifyforOHPbyvirtueoftheirdisability,areexpected tohavehigherexpensesthanothereligiblesbelowpoverty. Phase2eligiblesweredividedintofivegroups,definedbybasisofeligibilityand Medicarecoverage. Theseincludedagedbeneficiaries,withandwithoutMedicare;blind anddisabledbeneficiaries,withandwithoutMedicare;andchildreninfostercare. In1997,OHPincreasedthenumberofratecategoriesfi-om9to14. Asshownin Exhibit1,changesappliedtotheOHPbasicandagedwithMedicarecategories. Themost significantchangewasthatseparateratecategorieswereestablishedforthefivegroups withintheOHPbasiccategory. Althoughthebeneficiarygroupswithinthiscategoryhad differentutilizationpatternsandexpectedcosts,accordingtoOHPadministrators,thissplit wasnotdrivenbyconcernsaboutselectionbias. Rather,theStatehadfounditdifficultto accuratelyestimatetherelativesizeofeachgroup. BecausetheOHPbasicratewasa weightedaverageofthecostsforthefivesubgroups,calculatingthecapitationpaymentwas dependentonaccuratelymeasuringthesizeofeachgroup. Afterseparateratecategories wereestablished,therelativesizeofthesubgroupswasnolongerrequiredfortherate calculation. ThePhase2ratecategorieswerelargelyunchanged,althoughtheagedwith MedicarecategorywasdividedintothosewithPartBcoverageonlyandthosewithbothPart AandBorPartAonly. BeneficiarieswitiiPartBcoverageonlyaresignificantlymore costlybecause Medicaid is theprimarypayerforhospital services. Although aged beneficiarieswithPartBonlyareasmallshareofallOHPeligibles,theycompriseabout one-fifthoftheagedintheMedicarepopulation. OHreeg\araltteshettiEngc\ao]tnexot.mwpid\cntsbResearch,Inc. EvaluationoftheOregonMedicaidDemonstration: 7