Significant movement has occurred over the past few years among states, managed care organizations (MCOs), and providers, including federally qualified health centers (FQHCs), to adopt value-based payment (VBP) arrangements. In California, FQHCs and the state came together to design an Alternative Payment Methodology (APM) Pilot to allow greater flexibility for improving care delivery, reducing costs, and simplifying the burdensome payment system. Under the proposed pilot, the Prospective Payment System (PPS) payment and wrap-around would be replaced by an upfront, clinic-specific capitation rate.

For both the FQHCs and the state, one of the biggest selling points of the proposed approach was the flexibility that it would afford FQHCs to innovate with how care is delivered to patients. While ultimately California did not move ahead because the proposed model would have required a federal waiver of PPS and a change in state law, many positive lessons can be drawn from California’s design and the extensive pilot development process.

Under the pilot, FQHCs would have received a comprehensive payment from health plans on a monthly basis rather than waiting until year end for a supplemental payment. This more frequent payment would have been particularly beneficial to cash-strapped health centers. The pilot would have allowed FQHCs to use flexible resources in innovative ways to expand primary and specialty care access. Other benefits of the pilot included a simplified payment process and better coordination of care.

Lessons Gleaned from the Process

The policy development and stakeholder engagement work associated with the pilot have provided a number of useful lessons for ongoing and future FQHC payment reform efforts in California and other states:

  1. States should engage and partner with health center associations and managed care associations early on. Given that states cannot require FQHCs to participate in an APM, the pilot’s traction was driven in part by ongoing partnerships with health centers to develop the program goals and overall pilot approach. Engaging the FQHCs helped ensure that participation among the health centers would be sufficiently high to warrant state investment in the program. Involvement of the managed care plans was critical as well, since implementation requires their knowledge, time, data, and resources.
  2. Be clear on care delivery transformation goals before turning to the issue of payment methodology. From the outset, California set a primary pilot goal to make it easier for FQHCs to innovate with how care is delivered. To support innovation, the pilot was designed to: (1) enable health centers to address the increased demand for services; (2) attract and retain providers; and (3) improve patient care and satisfaction. These goals tie directly to the upfront capitation approach that the state developed. Other care delivery goals may have led to other types of APMs, such as shared savings or pay for performance.
  3. Align the initiative with existing state policy goals. California has a strong commitment to improving the health care delivery system. This is evidenced by the focus of the state’s Section 1115 Waiver Renewal, known as Medi-Cal 2020, that contains a multitude of delivery system and payment reforms.
  4. Address payment flow and administrative issues with an eye toward reducing the burden on payers and providers, creating a compelling reason for FQHC participation. Payment reform initiatives present an opportunity not only to pay for value and provide greater flexibility in care delivery, but they can also be structured to reduce administrative burdens and expenditures, which can be a powerful incentive to participate.
  5. Have stakeholder work groups in place to help identify and address technical issues. Creating technical work groups that included relevant experts from both the managed care plans and FQHCs enabled the state to work through and come to agreement on highly complex issues, such as rate setting and contracting.
  6. Allocate actuarial resources for data modeling and methodology testing. From the beginning, the state recognized the value of having actuaries involved in technical aspects of the pilot planning process. The state was able to include actuaries in early discussions with staff and stakeholders about: (a) data needs for the pilot; and (b) how to build a model for pilot rate setting.  
  7. Understand how health plan contracts with FQHCs are structured and may vary. In California, FQHCs often contract directly with health plans and with Independent Physician Associations (IPAs), to whom plans delegate risk and delivery of primary care services. The state needed to understand the various ways in which these existing contracts might be structured and what it would take to revise them. For example, for contracts between the health plan and the health center, changes would address new: roles for the health plans; timelines; rate methodologies; scope of services, and reporting requirements.
  8. Develop a strategy for communicating the state’s vision to the Centers for Medicare & Medicaid Services (CMS) before submitting the State Plan Amendment (SPA). In an informal and pre-SPA submission approach, it was helpful to share a concept paper with CMS to identify items that required adjustment. Providing this preview also gave CMS an opportunity to understand the state’s model before the SPA was submitted for approval.

Review of the pilot design by CMS was very positive. However, the sticking point centered on the state’s proposed reconciliation process, which would have established a threshold for reconciliation that would deviate from the reconciliation process required under federal law, putting health center payments at risk. The decision to modify the reconciliation process was the most significant challenge in the pilot development, but was agreed to by both the state and the health center associations early on in the process. Ultimately, CMS would not allow this approach unless the state formally requested that CMS waive the PPS equivalency provision through an amendment to the state’s 1115 waiver. Doing so would have required a change of state law, thus the state decided not to pursue the pilot further.

Looking Ahead

Although the state and FQHC stakeholders have agreed to not move forward with the pilot for now, the goodwill established between the state and the health center associations has helped lay the groundwork for creating VBP arrangements among California’s FQHCs and health plans that can be accomplished without a federal waiver. There is interest among a significant number of FQHCs to move beyond the PPS and even a willingness to assume some level of risk. For example, the Center for Care Innovations launched the Population Health Learning Network, with support from the California Health Care Foundation and the Blue Shield of California Foundation, to bring together safety net primary care organizations to strengthen and advance their population health management strategies. As part of the project, the Center for Health Care Strategies will help the participating clinics understand more about what opportunities might exist to develop a VBP arrangement to support their investment in care transformation. Nationally, the Delta Center for a Thriving Safety Net, an initiative supported by the Robert Wood Johnson Foundation, is providing technical assistance to primary care associations as well as behavioral health state associations to advance VBP in health care settings, particularly ambulatory care. Efforts like these are moving FQHC payment reform forward in California and other states across the country.

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Bob Russell
5 years ago

State practice laws should also provide flexibility in utilization and training of FQHC health care providers that maximizes full scope of licensing duties and extenders that offset high cost and difficult to recruit providers like MDs and DDS.

Ed Schor
5 years ago

Changing state law is what legislatures do, so it is not clear why this innovative process was stopped prior to seeking such action.

Gregory Howe, Senior Program Officer, CHCS
5 years ago
Reply to  Ed Schor

The bill (SB 147) that was signed into law and directed the state to develop the pilot specifically prohibited the state from seeking federal approval to waive PPS to implement the initiative. Waiving PPS for California’s pilot has national implications that would likely have played out in California’s legislature, and potentially threaten the goodwill that was developed among the stakeholders. The consensus was to look for other solutions that would advance the goals of the pilot.