Swimming Upstream in Medicaid Delivery Reform Waters to Improve Downstream Outcomes

Jul 10, 2018

Fish swimming upstream

Starting in 2010, a dozen states launched ambitious efforts to control the growth of Medicaid costs and improve health outcomes by transforming how health care is delivered. Through a strategy called “delivery system reform,” the idea is to make upstream investments that help Medicaid enrollees and people without insurance get timely primary and preventive care to avoid more costly and often unnecessary care in hospitals and emergency rooms downstream.

These state initiatives, known as delivery system reform incentive payment (DSRIP) demonstrations, invested nearly $50 billion by mid-2017. In the initial years of the demonstrations (which typically last five years), hospitals, physician groups, community health clinics, and other providers serving Medicaid and uninsured patients invest DSRIP funds in the building blocks of reform, such as expanded primary care capacity, improved health information technology systems, and workforce development. In later demonstration years, they are expected to report their performance on quality and other indicators and earn incentive payments based on improved performance relative to specified targets.

Mathematica’s initial evaluation of three state demonstrations, as part of the National 1115 Demonstration Evaluation, suggests the challenge of swimming upstream in DSRIP waters. Results from early experiences in California, New Jersey, and Texas indicate little or no improvement in three key indicators: (1) emergency department (ED) visits, (2) follow-up visits after ED visits for chronic health conditions, and (3) regular blood tests for patients with diabetes.

Because these states were among the first to launch DSRIP demonstrations (in 2010–2012), it may simply be too soon to detect real effects. The results were based on data available for just the first year of the program in New Jersey, the first two years in Texas, and the first three years in California. Changes in how care is delivered to millions of Medicaid and uninsured patients, served by multiple providers and numerous health plans, may take several years to yield tangible improvements.

Certain features of the demonstrations may also explain the results. The three early-adopter states gave safety net hospitals, which serve disproportionate shares of Medicaid and uninsured patients, flexibility to craft their own reforms, rather than taking a more prescribed approach required by more recent DSRIP demonstrations in other states. Getting the payment incentives and improvement targets just right—ambitious, but achievable—can also be difficult. States need to offer enough funds to motivate providers to spend the time and effort to make tough changes, but states cannot set the performance bar so high that providers will fail and become discouraged.

State Medicaid leaders and safety net providers also faced operational hurdles. For example, directing people who are sick away from hospitals toward community-based providers requires that the two sets of organizations cooperate. As New York’s DSRIP leaders succinctly put it: “Collaboration is, essentially, the work of delivery system transformation." However, state funding rules do not always support such partnerships. New Jersey, for instance, encouraged these types of partnerships, but disbursed payments to hospitals only, creating challenges engaging community partners and funding their efforts to participate in DSRIP.

However, promising signs of progress are emerging as states learned from their early experiences and changed course. For example, New York, which started its program in 2014, made a conscious effort to promote shared accountability by all stakeholders—hospitals, community-based providers, managed care organizations, and the state itself. All parties bear at least some risk of losing funds if they do not meet statewide goals, including a 25 percent reduction in avoidable hospital use by 2020, which the state has made notable progress toward meeting. DSRIP funds in states with more mature programs enabled providers to build data and information systems to track their performance against quality improvement targets. A provider in Massachusetts said the state’s initial program had a “ripple effect across the organization…in understanding and using data, process and outcome measures, and accountability.” These investments are also helping safety net providers become better prepared to participate in value-based payment arrangements with Medicaid managed care plans.

Challenges remain in making sure adequate funding flows to safety net providers, whose profit margins are often razor thin. There are also looming questions about whether hard-won changes can be sustained after demonstration periods end and funds run out. A year from now, though, when Mathematica is able to take a longer look at DSRIP effects in a final outcomes evaluation, it will become clear if the downstream effects on hospital and ED visits, and returns on upstream investments, are flowing in the right direction.

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