{"subscriber":false,"subscribedOffers":{}} Value Veneers And How To Enable Value In Medicaid Care Delivery | Health Affairs

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Editor’s Note

This article is the latest in the Health Affairs Forefront series, Accountable Care for Population Health, featuring analysis and discussion of how to understand, design, support, and measure patient-centered, cost-efficient care under the umbrella of accountable care. Additional articles will be published throughout 2023. Readers are encouraged to review the Call for Submissions for this series. We are grateful to Arnold Ventures for their support of this work.


Over the past decade, adoption of value-based care (VBC) has accelerated considerably. Some estimates show that as early as 2025, one in five insured Americans will be covered through a VBC model. But growth in VBC has been driven primarily by traditional Medicare and Medicare Advantage (MA) plans, with almost 60 percent of payments occurring in a value-based arrangement. Conversely, VBC uptake in Medicaid programs has been comparatively slower, with only 17 percent of payments structured in a value-based arrangement.

Given the promise of VBC to improve quality of care and health equity for our most vulnerable populations, we would expect greater acceptance of VBC among Medicaid managed care organizations (MCOs) and primary care providers. Why has VBC adoption in Medicaid been slow compared to Medicare? Here, we argue that adoption of VBC in Medicaid has been limited due to a lack of revenue optimization opportunities via risk adjustment (one of the main drivers of VBC in Medicare), the complexity of implementing VBC models across state Medicaid programs, high member churn, and—perhaps most critically—the growth of “value veneers,” or modest value-based arrangements that nominally pass as VBC but do not meaningfully alter care delivery.

VBC In Medicare

Today, roughly one-third of people receiving traditional Medicare benefits are covered through accountable care organizations (ACOs). In 2022, leaders at the Centers for Medicare and Medicaid Services (CMS) announced their goal to increase that number to 100 percent by 2030. The strong growth of value-based arrangements in traditional Medicare can be attributed to policy makers continually improving the financial incentives of the program—including both carrots (Advanced Alternative Payment Model bonuses) and sticks (Merit-Based Incentive Payment System) for providers to join ACOs. Strong CMS leadership across multiple administrations has reinforced expectations for clinicians to move to value-based models, which in turn spurred the development of an ecosystem of enabling services to facilitate the transition.

However, not all VBC in Medicare is about transforming care delivery. In some arrangements, the focus of VBC is revenue optimization through risk adjustments, in which changes to coding and scoring of patients’ diagnoses can result in increased payment. These value arrangements typically allow provider groups to capture premium as revenue, and the incremental gains or “value” belong to the provider group (and are often shared with an intermediary that facilitates).

While revenue optimization is not directly tied to changes in care delivery, when additional revenue is directed to providers, it may have other benefits: More providers may remain engaged in primary care, providers may be able to reduce panel sizes and give more attention to patients, or providers may remain independent from larger health systems, enabling them to refer to more cost-effective centers.

Barriers To VBC Adoption In Medicaid

State Medicaid agencies have traditionally relied on their contracted MCOs to create value-based payment models in Medicaid. This has created a fragmented approach toward VBC implementation in Medicaid, with varying care delivery models (ACOs, patient-centered medical homes, and health homes) as well as payment models (pay-for-performance, shared savings, and episode of care). For primary care providers working with multiple Medicaid MCOs, the variability and complexity of these different approaches has made it difficult for any VBC arrangement to meaningfully impact their clinical practice. Providers need consistency in how they practice medicine, and unless they are entirely in VBC (for example, Kaiser Permanente), partial transformations can be costly and inefficient.

Challenges with member churn are also responsible for slow uptake of VBC arrangements in Medicaid. Because Medicaid eligibility is tied to income level, estimates show that anywhere from 14 percent to 24 percent of members lose coverage during an average year due to income fluctuations (before the COVID-19 public health emergency that extended eligibility). High rates of churn combined with relatively low payment rates for outpatient care have discouraged primary care providers from increasing their Medicaid panel sizes and investing in VBC management infrastructure.

Finally, unlike MA plans, there is no significant revenue optimization opportunity via risk adjustment for Medicaid MCOs. This brings care delivery differentiation into sharper focus for providers seeking value-based success in Medicaid. Practices are unlikely to sign on to a VBC arrangement in Medicaid without the incentive to optimize or increase their revenues—which appears to be an important driver of VBC in Medicare.

Value Veneers

Perhaps the biggest obstacle to scaling true VBC in Medicaid are what we call “value veneers.” Thes are modest pay-for-performance programs, bonuses, or shared savings arrangements based on the total cost of care. What makes a value arrangement a veneer is two-fold. First, beyond modest care coordination efforts, these programs often do not incentivize any significant change or differentiation in care delivery. Second, these programs typically are not financially meaningful for providers, as success or failure in the value-based program does not determine the overall success of the provider.

For example, a Medicaid MCO may enter into an arrangement with a major provider system or federally qualified health center and call it an ACO by putting in place a small bonus program tied to quality improvement. This checks the box for “value-based care” for the state Medicaid agency but may not have changed the clinical practice to align to value and outcomes or resources available to patients for better care.

With growing pressures to increase VBC, value veneers have proliferated rapidly in recent years. In Medicaid, state agencies have set targets for the percentage of providers in a VBC program—without requiring any changes to care delivery. This is the most common approach among states working to encourage VBC adoption in Medicaid. In response, MCOs have also set such targets, prompting the growth of these value-light arrangements. Since a patient can typically only be assigned to one value-based program, the growth of value veneers limits the population that can be served by true VBC programs that prioritize care delivery differentiation.

Building Value-Enabled Care In Medicaid

Despite the recent growth of value veneers, we are seeing new VBC models emerge that aim to enable care delivery transformation. Where a traditional provider may not have the infrastructure or the incentive to change care delivery, a third-party enabler can enter into a risk arrangement with the payer to provide services that align the provider’s clinical practice to value and outcomes.

The third-party enabler typically works with the provider to deliver “wraparound services” to patients, thus enabling care delivery transformation. This “value-enabled care” may be the future of value-based care in Medicaid, in which the economics and clinical realities make value-based care outside the scope of what traditional providers are most experienced with.

Across both Medicare and Medicaid, wraparound services such as community health worker programs that deliver community-based care are a common example of value-enabled care. These services can be delivered by multidisciplinary teams who work in partnership with the primary care provider to address both health- and social-related needs of patients. Care is delivered in the community and enabled by technology that a single provider would be unable to invest in. Here, the wraparound service provider enters into a risk agreement (from shared savings to full capitation) with the payer and enables care delivery transformation for the provider—with no or limited financial risks to them. Studies have shown that community-based care can improve patient outcomes, and CMS recently released guidance to allow Medicaid MCOs to offer community-based care services as substitutes for standard Medicaid benefits. In this model, care delivery is transformed via an enabler—who could only exist in a value-based arrangement—working in coordination with local providers.

For providers, value-enabled care may be the most promising approach that allows for care delivery differentiation while limiting the risk that the provider is exposed to. It is important for leaders at Medicaid MCOs and state Medicaid programs to facilitate the transition from value veneers to value-enabled care that prioritizes changes to care delivery. Such leadership may mean guidance that value-based arrangements need to extend beyond bonus payments for cost and quality targets and provide net-new services for patients that are not possible under fee-for-service arrangements. Without such leadership, we risk stagnation of value veneers that simply “check the box” on value-based care without actually improving care delivery.

Authors’ Note

Rajaie Batniji is the CEO of Waymark, which partners with health plans and primary care providers to deliver community-based care to people enrolled in Medicaid programs. Will Shrank is a venture partner in a16z, which is an investor in Waymark. Will Shrank is affiliated with the Duke Margolis Health Policy Center, which has published research on value-based models in Medicaid.