September 24, 2014

Oregon Experiment with Medicaid Reform Begins to Reap Dividends

As more people obtain health insurance through the Affordable Care Act’s exchanges and its expansion of Medicaid -- the federal-state program for low-income individuals -- policymakers should focus on ensuring that the health care system can meet the increased demand for services.

As people gain insurance, they tend to increase their utilization of health care. (See, for example, this report from the Medicare and Medicaid actuaries.)

Thus federal and state policymakers need to work together to make the health care system more efficient so that expenditures on health care don’t crowd out other important government programs. Possible solutions to this challenge can be found in Oregon, which has experimented with payment and delivery reforms in Medicaid in ways that could serve as a model for the rest of the country.

Reforming the delivery of care for Medicaid patients is not an easy task. An analysis of a landmark study of Medicaid in Oregon, based on a unique 2008 lottery for individuals to gain entry into its system, showed a 40 percent increase in emergency department visits by new Medicaid enrollees. It is posited that this use of emergency care -- as opposed to care in less expensive settings -- is due to barriers faced by the low-income population such as inflexible work schedules, transportation difficulties and lack of child care. Nevertheless, the finding provides evidence that simply expanding coverage does not necessarily result in fewer emergency room visits.

However, Oregon’s Medicaid program and health care system have undergone dramatic changes since 2008, due in part to increased fiscal pressure on the Medicaid program and budget.

The results from these changes exemplify how experimentation with health care payment and delivery reform is essential to curbing federal and state health care costs in the coming years.

A second study, by the state of Oregon, measured how effective those reforms to the state’s Medicaid program have been in slowing the growth of the program’s costs. One result was that the reforms decreased emergency department visits for Medicaid enrollees between 2011 and 2013.

In 2011, before the ACA Medicaid expansion, Oregon faced a $2 billion deficit in its Medicaid program and received permission from the federal government to restructure. Under the deal, Oregon also would receive federal payments to fill its budget gap.

The state, along with much of the country, had been paying providers for each separate service they provided. But the state divided its Medicaid providers into 15 regions to be served by coordinated care organizations; each organization receives a fixed amount of money to provide care for each patient. So instead of receiving funds for each service, providers have a fixed budget -- or as Oregon calls it, a global budget -- to care for every patient in their region. This has encouraged providers to find new and more effective ways to deliver care.

As part of the agreement with the federal government, Oregon’s Medicaid program has to grow at a rate that is two percent slower than the rest of the country and achieve certain quality metrics for patient care. If that doesn’t happen, the federal government will stop its payments to close Oregon’s Medicaid budget gap. If Oregon achieves this slower growth rate over the next decade, it would produce an estimated $11 billion in savings.

The Coordinated Care Organization (CCO) system encourages providers to integrate their efforts and invest in only the most cost-effective technologies and techniques. For instance, some hospitals in Oregon started placing community health workers in emergency rooms and behavioral specialists in clinics to become familiar with Medicaid patients’ medical histories, help plan their care, encourage healthy behaviors and divert less urgent cases to less costly settings.

By encouraging cooperation among providers and introducing patients to less expensive types of care, the CCOs have allowed Oregon to make progress towards providing higher quality care that leads to better health outcomes at lower overall costs.

Oregon’s reforms are similar to proposals by bipartisan commissions and health experts to slow Medicaid cost growth and shift to a more patient-focused health care system.

The recent numbers provided by the state of Oregon show these reforms decreased emergency department visits by 9 percent between 2011 and 2013. Medicaid spending on emergency department care dropped 18 percent over the same period. Hospitalizations for chronic diseases have decreased. Additionally, primary care visits and the use of electronic health records -- a cost-saving technique used in integrated health systems -- have increased.

As Oregon’s Medicaid population continues to expand, its reforms hold the promise of higher quality care at reasonable costs. If Oregon’s reforms continue to be effective, the projected savings would be much larger than the federal government’s payments to close the state’s Medicaid budget gap.

States that seek to close their own budget gaps, expand Medicaid and provide care to a growing Medicaid population should consider Oregon’s forward-thinking payment and delivery reforms as a model to produce savings and create a more integrated and effective health care system.