With support from the Robert Wood Johnson Foundation, CHCS is examining how Pay for Success (PFS) can help Medicaid stakeholders achieve policy and program goals. A companion blog and a recent book chapter authored by CHCS recently summarized how PFS can support Medicaid objectives, but also highlighted some of the limitations to widespread PFS adoption at the state level. This blog post looks at a new adaptation of the PFS model: outcomes rate cards. This approach offers the potential to bring the benefits of PFS to state government, while mitigating limitations.

Defining Outcomes Rate Cards

In an outcomes rate card, a state agency, local government, or other organization identifies a problem, a target population, and a set of outcomes for which the entity wishes to contract. The set of outcomes may include ultimate goals, as well as progress-oriented steps toward those goals.

For example, a government agency or managed care organization (MCO) might want to improve health outcomes for children with aggravated asthma. Instead of modifying asthma-specific service descriptions and fee-for-service payment methodologies, the agency or MCO could define outcomes that would align with this goal, as measured over a particular time period: (1) removal of asthma triggers from the home; (2) average (or above) school attendance; (3) no emergency department visits; (4) no urgent care visits; and (5) no inpatient stays (Figure 1).

Figure 1: Illustrative Outcomes Rate Cards

Click to enlarge
Source: “Outcomes Rate Card Development Competition Round 2 Webinar.” Social Finance, December 2017.

The agency would then assign a rate for each outcome. To address “cherry picking,” the agency would stratify rates based on the target population, geography, and priorities. For example, providers serving populations with more complex needs would receive a higher rate than those serving easier-to-impact populations. In this asthma example, the agency or MCO could stratify rates based on asthma severity or the age of the child.

Then, the agency would publish a request for proposals (RFP) with this “menu” of outcomes and rates. It would review submitted proposals, select service providers, and engage in multiple PFS projects that seek to achieve the stated outcomes in the rate card. As with traditional PFS projects, the agency would only make a payment when the service provider achieves the outcomes specified on the rate card. Instead of paying for services that may or may not improve health outcomes, the agency only pays for desired results.

What are the benefits of an outcomes rate card approach?

The outcomes rate card takes the best of PFS approaches — the outcomes-based payment — and economizes government efforts. It is a replicable, scalable, and versatile PFS approach that can factor in cross-agency savings, as discussed below.

1. The outcomes rate card is a scalable and versatile PFS approach.

Unlike typical PFS transactions, which tend to be painstakingly negotiated and specifically tailored to a particular intervention, the outcomes rate card frontloads work and economizes efforts. Outcome metrics, measurement methodology, and the amount of the outcome-based payment are all determined at the beginning of the rate card process — before service providers are selected. And, whereas all of this work is done for a single project under traditional PFS approaches, the RFP process for an outcomes rate card can produce multiple PFS projects — operating within the same locality, in different geographies, or statewide, depending on the needs of the payer.

Various levels of government can use the outcomes rate card. Cities and counties can use an outcomes rate card to launch local projects, and a state agency can use it to implement statewide programs. But, the approach is not limited to governmental entities. Accountable care organizations (ACOs) and MCOs may also play similar roles in developing an outcomes rate card.

The outcomes rate card is also adaptable to different problems. Each RFP may have a different focus — homelessness, child welfare, or opioid dependence — and facilitate diverse, but unified responses to these issues. For example, many of the outcomes rate cards in the United Kingdom have targeted young adults that were not in employment, education, or training (NEET), and two of the three outcomes rate card projects in the United States target at-risk children.

2.   The outcomes rate card can address cross-agency savings.

With the outcomes rate card, states and localities may leverage PFS approaches by prioritizing problems with cross-agency impacts. For example, the opioid epidemic may increase costs across several state programs, e.g., child welfare services, correctional services, and Medicaid. The outcomes rate card allows states to quantify how much a particular outcome is “worth” to the state as a whole — not just one agency. It provides a mechanism to value and aggregate cross-sector impacts, getting beyond narrower agency-specific budget constraints. While this approach most likely requires legislative consensus and a reallocation of funds, there is undoubtedly a benefit to a comprehensive, “zoomed-out” approach on the complex issues facing states and localities today.

For example, states have increasingly focused on the importance of social determinants of health (SDOH) and prioritized cross-sector collaboration. Even though Medicaid beneficiaries (and Medicaid budgets) may benefit from more comprehensive social service supports, SDOH interventions are often outside the scope of the Medicaid program and, if provided at all, are limited ancillaries to health services provided under the program. Emphasizing cross-sector impacts, the outcomes rate card can recognize and capture the wide-scale benefits of an intervention — thereby addressing the “wrong-pockets problem” and its associated misallocation of resources.

Upcoming Opportunities

Like PFS, the outcomes rate card originated in the United Kingdom. While the United States has few examples of outcomes rate cards, Social Finance, a national nonprofit organization dedicated to mobilizing capital to address social challenges, is helping three entities develop this approach: (1) the Yale Child Study Center and Connecticut Office of Early Childhood, focusing on early childhood outcomes; (2) the Riverside County, California Executive Office, focusing on the children of incarcerated parents; and (3) the Workforce Investment Network, in Memphis, Tennessee, focusing on employment opportunities for individuals at moderate or high risk of reoffending. Social Finance is hosting a second round of its outcomes rate card competition, and CHCS encourages states, localities, and nonprofit organizations to apply. Applications are due January 31, 2018.

Outcomes rate cards allow governments to leverage procurement processes and directly pay for desired outcomes, rather than services. It is a new approach to contracting and, naturally, requires governments to reimagine the federal, state, and local agreements that undergird their health and human services programs.

In this vein, CHCS is exploring how to implement outcomes rate cards in the context of Medicaid rules and statutes. CHCS welcomes the opportunity to explore potential Medicaid-specific outcomes and outcomes rate cards with states and other Medicaid stakeholders; if you are interested, contact Diana Crumley at dcrumley@chcs.org.

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David Edwards

Hmm, intriguing idea, but feels risky and would require detailed parameters or conditions. If I were contemplating such an arrangement I would desire to guarantee a certain amount of funding either up front or as installments as that is how our costs would be set up. This would turn it into a more traditional fee for work arrangement basically with a bonus potential dependent upon outcomes. Most NFP don’t have large margins by which to take this type of risk and spread the losers over the “big winners” and thus come out ahead. My sense is this would only appeal… Read more »

Diana Crumley, CHCS

Good points. The Pay for Success (PFS) component of outcomes rate cards provides a way for providers to manage this risk and raise startup, working capital. Through PFS, service providers can seek upfront funding from private investors, who assume the financial risk if outcomes are not met. Additionally, the outcomes payer may choose to structure the outcomes rate card to incorporate interim outcomes and allow for a steadier stream of funding. PFS and outcomes rate cards are most appropriate for interventions in which there is a strong evidence base linking those interventions with better outcomes, such as the removal of… Read more »