MICHIGANS CAPITATED FINANCING PROGRAM

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MICHIGANS CAPITATED FINANCING PROGRAM
FOR CHILDREN WITH SPECIAL HEALTH CARE NEEDS
Stephen Fitton
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CHOICE OF BROAD STRATEGY

• Advantages of Separate Initiative

• Focus on CSHCN specifically/not competing
• Attract organizations with interest and
  specialization in CSHCN
• Tailor standards and financing to CSHCN
• Disease management principles

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Disadvantages

• Family members in different health plans
• Does not push managed care industry to respond to
  special needs children

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MICHIGANS CSHCN (Title V) PROGRAM
CHARACTERISTICS

• Long history as independent program
• Strong advocacy base (families and advocates)
• Unique relationship with state Medicaid program
• Large program
• gt20,000 Active children
• gt100 million budget

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MCH and RWJ Grants

• Provided focus
• Provided resources
• Provided expertise
• Medicaid Working Group
• Rick Kronick

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FINANCING PRINCIPLES

• I. Partial Risk, Not Full Risk

• Create an incentive toward efficient care with
  some reward
• Protection for plans and state given the state of
  the art of capitated rate-setting for high risk
  populations

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II. No Discounting

• Rates set at 100 of Fee-For-Service
• Budgetary objectives were to improve
  predictability of expenditures and future growth
  rather than short term savings

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III. Fair Method of Payment

• Analysis to identify key predictive variables
• Develop risk adjustment methodology using those
  variables

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Initial Assumptions

• Build in reinsurance (stop-loss) at 90 above
  100,000
• Develop overall risk-sharing on profits and
  losses
• Incorporate diagnosis as risk adjuster

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Rate-Setting is Data Dependent

• MA eligibility file
• MA Eligibility
• Insurance Status
• Age
• Gender
• County
• Program Category
• Scope
• Coverage
• Level of Care

• CSHCS Eligibility File
• Title 5 Eligibility
• Primary Eligibility Diagnosis
• Insurance Status
• Age

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Claims Data

• Extract of automated claims for any child
  eligible for CSHCS at any time during 1994 or
  1995
• Fully adjusted claims paid

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Risk Adjustersor How to Divide the Rate Base
into Rate Cells

• Approach Adopted for CSHCS
• Medicaid
• Private Health Insurance
• Primary Enrollment Diagnosis or Age or Hourly
  In-Home Services
• Region(Geographic)

• Traditional Medicaid Approach
• Program(AFDC vs. Disabled)
• Age
• Gender
• Region

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Computation of Final Rates

• Followed standard Medicaid rate setting
  methodology
• Start with raw rates from claims
• Apply various adjusters and factors
• i.e. incurring factor (IBNR)
• hospital capital costs
• third party recoveries
• administration costs
• trend factors (inflation)

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Rate Add-On for Immunizationsand Well Child
Visits

• Itemization of Services
• Comprehensive according to accepted periodicity
  schedules
• Pricing
• Used Medicaid rates
• Immunizations reflect only the costs of
  administration

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Modifying Full Risk

• Reinsurance - Individual Recipient
• Risk Sharing - Total QHP Enrollment

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Reinsurance

• State pays for 90 of covered expenditures above
  100,000 per year for an individual child
• 100,000 threshold prorated for children with
  fewer than 12 months of enrollment

• For children enrolled for fewer than 12 months,
  threshold is 100,000 multiplied by (M/12) where
  M is the number of months enrolled. Minimum
  threshold of 50,000 for children with 6 or fewer
  months of enrollment.

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Risk Sharing

• State proposes to share in individual QHPs
  profit or loss
• Four risk corridors are defined using the
  following ratio
• Total allowable expenses ? Total capitated
  payments

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• Risk Sharing (cont.)

• Total allowable expenses include all allowable
  medical expenses and all administrative expenses
  up to 10 of the total capitated payments
• Case management is defined as allowable medical
  expense up to 5 of total capitated payments

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• Proposed Risk Corridors
• Between 85 and 105 - Full risk for QHP
• Between 105 and 120 - QHP and DCH share losses
  equally
• Above 120 - DCH absorbs 90 of losses and QHP
  absorbs 10 of loss
• Less than 85 - DCH retains savings

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Rate Discussions with Health Plans

• A p p r e h e n s i o n
• and
• C a u t i o n

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Major Concerns of Plans

• Start-up costs (investment)
• Low enrollments associated with voluntary choice
  by consumers
• Cost limits on administration and case management
• Adverse selection even within risk adjustment
  structure

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Major concerns of Health Plans (cont.)

• Ability to achieve significant savings on medical
  care costs
• Ability to get providers to accept risk or
  Medicaid rates

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Major Changes Negotiated in Final Contract

• Five year contract period
• Change risk corridors so that state holds more
  risk
• Guarantee revised risk corridors for 3 years
• Add 3 - 1 performance incentives
• Agreed to a rigorous risk selection study with
  attached financial commitment
• Updated rates to 1998 levels with new trend
  factors (10 increase)

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Negotiated Risk Corridors

• Less than 85 of the total capitated payments
• DCH retains 100 of savings
• Greater than 85 and less than 92 of total
  capitated payments
• Contractor and Department share profits on 50/50
  basis, i.e., they both assume 50 of the risk
• More than 92 and less than 103 of total
  capitated payments
• Contractor at full risk, i.e., profits or losses
  are 100 in this range

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• Risk Corridors (cont.)

• Greater than 103 or less than 110 of total
  capitated payments
• Contractor and Department share losses on 50/50
  basis, i.e., they both assume 50 of the risk
• Greater than 110 of total capitated payments
• Department assumes 90 of these excess costs
  while the contractor retains 10 responsibility