Medicaid programs play a key role in supporting the health care system’s transition to the new normal created by the COVID-19 crisis. States and managed care organizations (MCOs) are considering how to stabilize the finances of provider organizations and support new care delivery capabilities, including telehealth. This work includes assessing the impacts of the COVID-19 pandemic on value-based payment (VBP) programs and adapting these models to a new health care context.

VBP arrangements — provider payment models that move away from fee-for-service to alternative arrangements that incentivize value — are increasingly widespread in Medicaid. Most Medicaid programs either incentivize VBP through Medicaid managed care targets and/or have implemented state-designed VBP programs. COVID-19 has put an unprecedented financial strain on providers and is shifting the underlying care delivery structure. Given the wide-ranging impacts of the pandemic on the health care system, states and MCOs need to reassess the design of existing VBP models and consider altering the focus of VBP approaches for 2020, 2021, and possibly beyond.

Challenges Introduced by COVID-19

In disrupting typical health care utilization patterns and requiring providers to adapt models of care to social distancing requirements and evolving health needs, the pandemic has introduced a new set of challenges for VBP models. To adapt the design of VBP models for the near-future, payers may consider how to respond to:

• Provider financial strain. Many provider organizations are under enormous financial strain resulting from COVID-19. As patients and providers seek to follow social distancing guidelines, many outpatient providers have seen sudden declines in visits, only a fraction of which are replaced through telehealth. Hospitals have similarly postponed non-essential care and procedures as an emergency response. At the same time, providers have had to increase purchasing of personal protective equipment and, in COVID-19 hotspots, hospitals face the high cost of treating COVID-19 patients.
• Rapid changes in care delivery. As patterns of care are disrupted, providers are faced with the burden of quickly adapting to evolving public health, regulatory, and payment guidelines; developing COVID-19 emergency response plans; and implementing new workflows for non-urgent care. Despite the hardships of the pandemic response, providers are demonstrating a tremendous capacity for innovation. One example is the rapid provider shift to telehealth at a scale that was unimaginable just months ago.
• Exacerbated health disparities. COVID-19 has exposed and exacerbated long-standing health disparities in the country. Communities of color are being disproportionately impacted by COVID-19 due to a wide range of interwoven factors rooted in legacies of racism and discrimination. Living conditions, type of employment, barriers to health care access, discriminatory social structures, and physical and psychological impacts of discrimination all contribute to health inequities.
• Technical challenges to VBP programs. In addition to the immediate impact on provider finances, disruptions in care are introducing unprecedented uncertainty into cost projections, making it difficult to accurately estimate the costs of care, which are needed to set cost benchmarks or rates for VBP programs. Similarly, reduced care-seeking and postponed care may negatively impact quality measures, such as those related to access and prevention.

Reconsidering the Focus of VBP Programs in Response to the Crisis

Given these challenges, states and health plans will need to consider how to adapt VBP models to the pandemic context, which is a key step is considering how to adjust VBP program goals and expectations. While reduced cost and increased quality have historically been the leading measures of success, the realities of COVID-19 may require a new or adapted VBP focus in the near-term. Specifically, payers may consider:

• Increasing the focus on supporting providers financially, with less emphasis on near-term cost savings. Given reductions in utilization and increased investments required by providers, VBP efforts should focus on supporting providers financially through the crisis. Moreover, the unpredictability of COVID-19 spread means payers should consider how to reduce provider exposure to financial risks outside their control. For example, payers may consider temporarily limiting or eliminating shared-risk penalties or developing models based on prospective payments.
• Reducing administrative burden on providers. States and payers may consider how to temporarily reduce the administrative burden of value-based payment models to allow providers to focus on crisis response. For example, while critical to improving care and monitoring performance, quality measurement and reporting can take considerable administrative resources. Accordingly, payers may consider how to balance delaying or pausing VBP reporting requirements with the need for continued focus on immediate quality priorities such as pandemic response, the reduction of pandemic-related health disparities, and vaccination rates.
• Explicitly focusing on health equity. Data on disproportionate COVID-19 infections and deaths among communities of color furthers the imperative for states and health care organizations to directly address longstanding health disparities. VBP models can play key roles in directing, incentivizing, and providing the payment flexibilities required for this effort. VBP models can hold providers financially accountable for reducing health disparities and/or implementing interventions that advance health equity. For example, VBP models can encourage the use of community health workers (CHWs) to provide community-based care and address health-related social needs.
• Supporting and sustaining innovations. The rapid shift to telehealth, enabled by emergency policies allowing increased telehealth reimbursement, has been an important factor in maintaining access to care during the pandemic. Telehealth also holds promise for providing more efficient and patient-centered care in the long term. Beyond telehealth, COVID-19 may also spur innovation in other areas such as the use of texting/mobile platforms, expanded use of and roles for CHWs, and new models for integrating care. States and payers should consider how to sustain telehealth, and other innovations that emerge, once emergency measures end. This could be done through levers such as maintaining increased telehealth reimbursements in the long-term; increasing use of upfront, flexible payments; and including quality metrics or care delivery requirements incenting specific capabilities.
• Maintaining VBP momentum. Despite the challenge of adapting VBP programs to the COVID-19 context, it is important not to abandon the progress that has been made in this arena, given the success some VBP models have shown in controlling cost and improving quality. If anything, the pandemic further highlights the flaws of a fee-for-service system that ties provider payment to volume. Moreover, an effective COVID-19 response benefits from the population health focus incentivized by VBP including identifying high-risk patients and providing more coordinated and integrated care to better meet patient needs.

Looking Ahead

Many VBP models showed promising results prior to the pandemic and VBP programs can help build a more robust and resilient health system in the long term. To realize this potential, states and health plans need to tailor their VBP approaches to be responsive to provider realities and priorities in the context of the COVID-19 crisis. Refocusing VBP programs to further support providers financially and promote health equity and innovation would support the crisis response and maintain momentum for VBP implementation into the future.