Many providers are facing financial shortfalls due to postponed elective surgeries and decreased patient visits during the COVID-19 pandemic. While some aid is available through the CARES Act and the Centers for Medicare & Medicaid Services (CMS), many providers, especially safety net practices serving Medicaid members, are experiencing dire fiscal problems that may lead to closure. Much of the financial crisis confronting providers is due to the fee-for-service model that reimburses providers based on patient visits in many managed care contracts.

Managed care organizations (MCOs) have an opportunity to improve this situation by transitioning to prospective payment, wherein providers are paid upfront — typically on a per member per month (PMPM) basis — to care for members. As a result, prospective payments can give providers the flexibility to do what they need to do during the COVID-19 pandemic, whether it’s treating patients in hard-hit areas, or delaying elective surgeries and focusing on urgent/critical care. Such payments also allow providers the ability to substitute telehealth visits for in-person visits for prenatal care, behavioral health counseling, or well visits without decreasing compensation.

As stated in a recent CMS informational bulletin, MCOs have broad flexibility to implement prospective payments. MCOs can modify Medicaid payment models through contract amendments with provider organizations far more quickly than states, which often require a waiver, state plan amendment, or other federal mechanisms to change provider payments. Many MCOs and providers already have experience with prospective payments. In California, for example, many hospitals and independent provider associations have received capitated payments from MCOs since the 1970s. MCOs involved in Comprehensive Primary Care Plus (CPC+) paid providers participating in a Track 2 arrangement an advanced payment for their patients. Recently, MCOs in Washington State worked with the state’s Health Care Authority to deliver prospective payments to behavioral health providers. In addition, many MCOs within the Association for Community Affiliated Plans are helping providers transition to advanced payment and capitated arrangements during COVID-19.

Design and Implementation Considerations for Prospective Payments

While prospective payments are a compelling solution to providers’ short-term financial solvency, rapidly implementing these payments in an unpredictable environment can be challenging. Therefore, as MCOs look to increase upfront support to providers through prospective payments, there are important considerations in launching these models.

What type of prospective payment model should be used?

Two types of prospective payment models to consider are an advanced payment for services or a capitated model. For an advanced payment, such as CPC+ Track 2, a portion of expected payments to a provider is paid up front, with the remaining portion paid as services are delivered. Under a capitated arrangement, providers receive a PMPM payment for each patient and must manage patient utilization over a set period. There are many factors to consider in determining how to select a prospective payment model, including: (1) the providers’ capacity or experience with managing financial risk; (2) the level of upfront support that the provider may need; and (3) if a provider and MCO are in an advanced payment arrangement with shared savings/risk, whereby the provider can potentially pay back an advanced payment in a designated timeframe.

How can MCOs calculate prospective payments?

Given the service disruptions caused by COVID-19, determining capitated rates or total cost of care for 2020 and beyond will be no small task. Because existing 2020 benchmarks, trend rates, and risk adjustment are likely wrong given the unprecedented nature of this pandemic, adjustments will need to be made to estimates. Some potential solutions could be a partial year cost estimate based on 2020 performance prior to COVID-19, similar to an option that CMS gave accountable care organizations participating in the Medicare Shared Savings Program (MSSP). Another potential solution is using cost information from prior years, perhaps trended forward, to estimate a capitated or advanced payment, which is how MCOs would have estimated a capitated payment at the start of 2020.

How, if at all, will quality metrics be incorporated?

In addition to cost, quality benchmarks will also be affected greatly by COVID-19. Particularly, metrics related to hospitalizations and process metrics linked to health screenings will be impacted. Patients are not seeking routine well care, and many are even forgoing care to manage chronic conditions because of fear of visiting a provider. While MCOs could lift quality reporting or payment adjustments for this year, or change to more relevant or impactable metrics during the pandemic, they could also consider strategies like pay-for-reporting or applying a standard quality score across providers. A partial-year strategy, similar to what MSSP offers, is another viable option. Other strategies include assigning a quality score based on HEDIS performance in prior years or incorporating member experience measures into quality measure sets.

Should MCOs encourage the provision of alternative services?

Many MCOs have already provided greater flexibility to offer telemedicine services, but some could consider going a step further. Given that many patients’ health-related social needs have been exacerbated by economic conditions and social distancing measures, MCOs could use prospective payments to encourage in lieu of services or value-added services that could be delivered or supported by health care providers.

Is this a temporary or permanent shift?

Finally, MCOs will need to think about whether the prospective payments they offer during COVID-19 are time-limited or more sustainable. Prospective payments offer clear benefits to fee-for-service for providers experiencing financial shortfalls during COVID-19, but they also offer promise beyond the pandemic as well. Prospective payments offer a predictable revenue stream for providers and incentives to keep patients well, as compared to the incentive to drive more utilization under fee-for-service. In addition, such models offer potential flexibilities to providers and patients on whether services take place in-person or virtually, or if addressing a patient’s health-related social needs may be more impactful than medical care. For these reasons, MCOs may want to consider extending prospective payments to providers on a permanent basis to focus on wellness as opposed to episodic care.

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