Governor Charlie Baker’s administration has drafted plans for the biggest overhaul of the state’s Medicaid program in two decades, changing the way doctors and hospitals are paid in an effort to rein in soaring costs.
Known as MassHealth, the program provides health coverage to about 1.8 million low-income people and accounts for the single biggest chunk of state spending. Without significant changes, administration officials say, the costs of MassHealth will continue to grow faster than state revenues, squeezing out other important programs.
Their solution is to move MassHealth away from a system that predominantly pays for each medical service provided. Instead, the administration wants to more widely implement a model known as accountable care, in which doctors and hospitals are paid set budgets to treat patients.
The idea is to compensate health care providers to coordinate care for patients, which could help cut much of the waste and unnecessary hospital visits that bloat the costs of the current fee-for-service system. State and federal officials and many analysts argue that accountable care (also called alternative or value-based payment models) can improve patient care even while containing spending.
“By restructuring, we can improve the member experience, and hopefully be more efficient in order to start to bend the cost trend,” Marylou Sudders, the state’s health and human services secretary, said in an interview on Thursday. “If not, we will look at having to reduce benefit programs.”
In moving away from fee-for-service, MassHealth will follow Medicare, the government program for the elderly, and commercial insurers, which have already begun to adopt new payment models.
Such models allow health care providers to take steps that might help patients but are not typically reimbursed under fee-for-service: for example, sending community health workers to check on patients at home, or providing rides for patients to get to medical appointments. Accountable care models give providers incentives to be as efficient as possible because they get paid per patient, not per service.
The shift will affect MassHealth patients in ways big and small. The transition to accountable care is likely to lead to narrower provider networks that give patients less choice over where they can see specialists.
Such changes can be difficult for families. The Globe reported last week that thousands of MassHealth members lost easy access to Boston Children’s Hospital because of an insurance policy change, forcing many families to find new specialists for their children.
The state has “a very ambitious plan to redesign MassHealth,” said Lora M. Pellegrini, chief executive of the Massachusetts Association of Health Plans, which represents health insurers. “The primary concern for many stakeholders is how patient care will be impacted by the development of accountable care organizations.”
Several health insurers currently contract with the state to manage care for MassHealth patients, and the state’s plan to overhaul MassHealth would keep insurers in a similar role. Under the state’s plan, doctor and hospital systems also could establish accountable care organizations and contract directly with MassHealth.
State officials say patients will be able to choose their primary care physicians and whether they want to participate in accountable care models. But their goal is to move the vast majority of MassHealth members into such models, by convincing members the new models will provide better, more coordinated care.
“We are at the forefront of doing something pretty big on how we structure the delivery system,” said Daniel Tsai, assistant secretary for MassHealth.
The state is already experimenting with accountable care, including in a pilot program called One Care, which provides extra health benefits to some of the most complex patients on MassHealth in an effort to avoid costly hospital visits.
MassHealth accounts for 40 percent of the state budget. Massachusetts is expected to spend at least $14.7 billion on MassHealth this fiscal year, which ends June 30, and more than $15 billion in the next year.
State officials did not explain exactly how much money they expect to save through their restructuring plan.
Studies have found that accountable care models so far are producing only modest savings, but Michael E. Chernew, an economist at Harvard Medical School who has studied accountable care, said savings could increase over time.
“Bending the cost curve is where the challenge is,” Chernew said. “We see very small savings [now] and some evidence of better quality and access.”
The redesign of MassHealth, scheduled to begin in October 2017, is dependent on federal funding, which is slated to run out next summer. State officials are seeking an agreement with federal officials for five years of funding, including $1.5 billion in new payments to help the state transition to accountable care.
MassHealth is administered by the state, but about half the costs are typically reimbursed by the federal government.
The administration’s plan generally has the support of the health care industry, though many people are waiting to read the details, some of which were released Thursday afternoon. The plans will be discussed at a public meeting April 20 and may be amended after state officials hear from the public.
Lynn Nicholas, chief executive of the Massachusetts Hospital Association, said her group supports the state’s move to accountable care, as long as hospitals are paid adequately under the new models. Hospitals have long complained that Medicaid payment rates fail to meet their costs of providing care.
“The concern our members have is Medicaid is already the lowest payer relative to cost,” she said. “This new system has to make sure that there’s enough payment to invest and make it work. If we do this well, we will save money in the long run.”
Audrey Shelto, president of the Blue Cross Blue Shield of Massachusetts Foundation, a research organization endowed by the Blue Cross insurance company, said the move to accountable care is necessary.
“The current fee-for-service system can result in very disjointed care with a variety of providers, none of whom communicate with each other,” Shelto said. “Any movement from paying for volume and focusing on paying for value is the right thing to do.”