Payment Arrangements Incentivizing Better Health Outcomes

Setting an appropriate payment amount is one of the most fundamental aspects of designing a well-functioning ACO. And these decisions have important implications for consumers, as payment arrangements are an important lever for encouraging providers to focus on particular aspects of care improvement and efficiency. It’s important for states to design payment arrangements so that they drive providers to address services that are important for patient outcomes, without incentivizing providers to reduce necessary services. For this reason, it is important that payment arrangements are considered in conjunction with strong, consumer-oriented quality measures, which are detailed in the previous section.

In addition to engaging in conversations around the overall payment models and amounts, consumer advocates should ensure their state Medicaid ACO program does the following:

  • Use community input to help develop payment models.

  • Reinvest savings into areas previously identified by the community. These could include health literacy, preventative services, community-based services, workforce enhancements or infrastructure.

    • The Trenton Health Team in New Jersey used quantitative data and community forums during their last community health needs assessment, to find out what health issues were most important to their community. Their Community Advisory Board (CAB), whose members include 50 community-based organizations, oversees each CHNA process. The CAB also directs grants to improve the community’s health, based on the needs identified in the CHNA.

    • Hennepin Health uses its savings  to hire community health workers and deploy community paramedics in homeless shelters, among other programs.

    • States could consider pooling savings as a way to finance a prevention fund to increase access to preventative health services, promote healthy behaviors, and address health disparities. Although not funded through shared savings arrangement, Massachusetts’s Prevention and Wellness Trust Fund provides a good model of what a fund like this might look like.
  • Use risk adjustment strategies to ensure that complex patients’ needs are met. Account for factors that affect health outcomes, such as socioeconomic status or functional status. Payment to providers should be based on the characteristics of the community they serve.

    • Minnesota and Massachusetts have implemented risk-adjustment strategies that encourage ACOs to better address the SDOH. Both models show promise.

  • Use a value-based payment model to incentive ACOs to offer substance use disorders and mental illness services and improve the quality of those services.

    • Maine includes spending on substance use disorders and mental illness services in its total cost of care benchmark. This incentivizes the ACO to provide these services and to coordinate them with physical health services.


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