Early evidence from South Carolina’s Medicare-Medicaid dual-eligible financial alignment initiative: an observational study to understand who enrolled, and whether the program improved health?

Health insurance coverage in the United States (US) is fragmented and consists of a mixture of public and private sources of funding. The two major sources of public health insurance in the US are Medicare, which primarily covers adults aged 65 and older,¹ and Medicaid, which primarily covers low-income individuals and families.² In 2017, these two programs collectively provided insurance coverage to approximately 37% of the US population [1]. While most individuals with public health insurance qualify for either Medicare or Medicaid, some qualify for both types of coverage because of old age and low income.³ These individual, consisting primarily of the elderly poor and known as dual eligibles, have long been the subject of extensive policy debate because of their poor health, complex health conditions and attendant high costs of care [2, 3].

Dual eligibles are more likely than non-dual Medicare beneficiaries to report poor health (19% versus 7%), and are more likely to have limitations in activities of daily living (59% versus 33%) [4]. They are more than twice as likely as non-dual Medicare beneficiaries to have at least three chronic conditions, and three times as likely to have been diagnosed with a mental illness [5]. The 11.7 million Americans dually enrolled for Medicare and Medicaid benefits account for a disproportionately large share of expenditures in both Medicare and Medicaid. In 2012, dual eligibles represented 20% of Medicare enrollees but 34% of the federal program’s total expenditures [6]. They accounted for only 15% of Medicaid enrollees but over 33% of Medicaid spending [6]. In the same year, the combined federal and state expenditures to care for dual eligibles exceeded $306 billion [6].

These figures underlie the policy significance of testing appropriate models of care and payment for this particularly vulnerable group of elderly Americans. Because part of their care is covered by Medicare and part is covered by Medicaid, dual eligibles have to navigate both programs to receive care for their medical conditions. For dual eligibles, the lack of clinical integration between two separate programs has been faulted for lower quality of care [7, 8]. Separate delivery systems for dual-eligibles generally require them to seek medical care from poorly coordinated providers that have no incentive to interact given that they are paid by different insurers [9, 10]. The lack of interaction between providers, compounded by differential practices and poor communication, creates significant barriers to receiving coordinated care that is required for dually eligible individuals with multiple and complex chronic illnesses.

Moreover, the lack of financial integration of payments between (and at times, within) Medicare and Medicaid has resulted in conflicting incentives and cost shifting between payers. This lack of alignment in financial incentives between Medicare and Medicaid has been faulted to lead to higher overall healthcare costs [11]. Dual eligibles who are discharged from acute inpatient care often find their discharge delayed because appropriate long-term care in a nursing home or in the patient’s home cannot be arranged efficiently. The lack of a single payer exacerbates this problem because Medicaid, which pays for the long-term care, has no incentive to reduce acute hospitalization costs covered by Medicare [9]. Moreover, Medicaid provides less extensive coverage for home- and community-based programs than long-term care, creating an incentive for dually eligible individuals to seek costly institutional care even their preference is to remain in lower-cost community settings [9].

The literature on the consequences of care fragmentation among dual eligibles is vast. It is estimated that Medicare spent $3 billion in 2005 on potentially avoidable hospitalizations for dually eligible individuals [12]. Among the dual eligibles in long-term care or skilled nursing facilities covered primarily by Medicaid, more than two-thirds were hospitalized at least once, and 39% of these hospitalizations were deemed avoidable because they could have been prevented with timely and appropriate treatment at lower levels of care [13]. Overall, the literature suggests that rates of hospitalizations for some ambulatory care sensitive conditions among dual eligibles are twice those of the rest of the Medicare population [14].

As part of the Affordable Care Act, the Center for Medicare/Medicaid Services (CMS) encouraged state Medicare-Medicaid Financial Alignment Initiative demonstration projects to address conflicts in program incentives and access to care [15]. These demonstration projects are called financial alignment initiatives because they seek to align the conflicting financial incentives that arise when Medicare and Medicaid pay for different aspects of a patient’s health care. Fundamentally, financial conflicts of interest exist because the actions of one payer has financial implications for the other payer that also covers the same individuals. But the first payer only has the incentive to assess implications for its own costs, rather than the costs borne by the second payer. As a result, the first payer may make decisions that result in modest cost savings to itself with significantly higher cost implications for the second payer [10, 16].

Previous literature suggested that coordination of care delivery could be effective in improving clinical outcomes for patients with chronic illnesses [17‐19]. The CMS Financial Alignment Initiative builds upon such integrated clinical care models by financially integrating Medicare and Medicaid for dual-eligible beneficiaries. The financial integration of the two payers is theorized to overcome the inherent agency problems with multiple payers cover different aspects of a single population’s health [20]. Thirteen states, including South Carolina (the subject of our study), submitted memoranda of understanding to CMS that were approved [21, 22]. Each demonstration state designed and implemented its own version of the Financial Alignment project, and in South Carolina, the particular version of the demonstration project is known as Healthy Connections Prime (HCP). In this state, Medicare and Medicaid combined their payments to “Coordinated and Integrated Care Organizations” (CICOs), which would coordinate and integrate the care of dual eligibles enrolled in HCP. Implemented in phases with a voluntary opt-out option, HCP is based on the patient-centered medical home model with increased attention to primary and preventive care; adoption of best practices in care coordination and holistic team-based care; establishment of health information technology to provide efficient care; and integrated payment structures to address conflicting incentives [22].

To South Carolinians, HCP was promoted as an integrated program superior to separate coverage under Medicare and Medicaid. On the HCP website, the program is billed as “one card, one plan” and described to be “an enhanced program that combines all of the benefits of Medicare and […] Medicaid under a single Medicare-Medicaid Plan to make it easier to get the health services you need [23].” The primary goals of HCP are listed as:

By design, then, South Carolina’s version of the Financial Alignment Initiative, or HCP, is meant to overcome the fragmented care faced by dual eligibles by implementing both clinical and financial integration of Medicare and Medicaid. The question, then, is whether such voluntary opt-out integrated clinical care and financial incentives programs attract enrollment, and if so, do they improve health outcomes? Thus far, there exists only a small body of literature on the utilization, health and financial outcomes of such programs, warranting further empirical study [7]. A study by Grabowski of eight demonstration programs (excluding South Carolina’s project because of the recency of its implementation), found that only 26.7% of qualified dual-eligibles actually passively enrolled, and the programs experienced high opt-out rates, casting doubt on the effectiveness of passive enrollment mechanisms [24]. An analysis of Massachusetts’ Senior Care Options (SCO) for dual eligibles found no statistically significant effect of SCO on hospital readmission rates, suggesting that managing care for dual eligibles in this manner may not be sufficient to significantly improve their certain aspects of their health status [25].

Our study proposes to contribute to the literature by analyzing the CMS Demonstration Project as implemented in South Carolina. We aim to answer two empirical questions: (1) Who enrolled in HCP, given its voluntary opt-out nature, and (2) whether enrollment in HCP reduced avoidable ED encounters, inpatient admissions, and discharge to skilled nursing facilities. Our study adds to the literature in two important ways. First, it complements the previous Grabowski et al. study by investigating a demonstration state explicitly excluded from their study. Second, this research studies a vulnerable elderly population in a state with particularly high chronic illness burden and health disparities [26]. Finally, by understanding the characteristics of those who opted not to enroll, and those who disenrolled after enrolling, we gain a better understanding of the type of patients that HCP is failing to reach. This will shed important light on possible failures and barriers in the HCP program if lack of participation is associated with specific patient characteristics, such as having more complex medical conditions. It is hoped that our study, in combination with other evaluations of the CMS Financial Alignment Initiative demonstration states, will help policymakers further refine a program meant to improve the health of and decrease costs associated with a particularly vulnerable elderly population.

Our data show that of the 260,325 dual eligibles in South Carolina, only 13,370 individuals ever joined HCP. Initial uptake of HCP in the first quarter of 2015, the first enrollment quarter, was relatively modest, with only approximately 4% of eligible individuals joining HCP. The percentage never surpassed 5.7% by the end of the study period in December 2016, when 9442 individuals out of 165,277 dually eligible beneficiaries enrolled in HCP. See Fig. 1.

Healthy Connections Prime (HCP) was expected to move more than 53,000 South Carolina seniors eligible for both Medicare and Medicaid coverage into integrated managed care programs [31]. But the results as of 2016 show that dual-eligibles in South Carolina were very hesitant to join HCP; and that for those who do, do not show statistically significant improvements in various health outcomes. Dual-eligibles with certain comorbidities (hypertension and vascular disease, COPD, diabetes, renal failure, liver disease, AIDS and cancer) and higher Charlson comorbidity indices are less likely to sign up for HCP. Once enrolled, patients with more complex conditions appear more likely to drop out.

South Carolina’s low enrollment is similar to other states that are in various stages of demonstration project development, whose initial enrollments generally ranged from 5.3 to 29% [24]. Only three states exceeded 30% in enrollment, including Michigan (35.8%), Virginia (42.5%), and Ohio (62.4%). These early findings call into question whether passive enrollment will necessarily encourage dual-eligibles to participate in integrated care models. South Carolina, like 10 of the 13 demonstration states, chose an enrollment process in which an initial period of voluntary enrollment is followed by passive enrollment. Therefore, our findings are particularly surprising because in South Carolina, enrollment in HCP is the default option for all dually eligible individuals, and occurs unless a Medicare-Medicaid dual eligible enrollee takes the extra effort to opt out of HCP. Indeed, existing literature in behavioral economics shows that individuals often passively “choose” the default presented to them because faced with complex decisions, simple heuristics and rules of thumb are easier to follow than elaborate problem-solving [32‐37].

Besides low rates of initial enrollment, another problem facing HCP is patients with multi-morbidity are more likely to opt out of the program. We did not interview patients to assess their reason for disenrolling from a program that is intended to improve their care. However, the Massachusetts study found that patients feared losing relationships with trusted providers [38]. They also were worried they might face new service restrictions. It is possible that had HCP done more education outreach early on with this population, especially with providers, the dropout rates would be lower. The elderly poor are likely a difficult group to target efficiently for education and outreach. Nevertheless, almost all states that chose the capitated model⁴ for their demonstration project contract with a third party that markets and promotes the integrated program to dually eligible populations subject to stringent state laws on marketing. This critical period can be used to provide information that is tailored to the concerns of dual eligibles who choose to opt out of or later disenroll from HCP or equivalent programs in other states.

Our findings in health outcomes differ from those in the Washington State’s preliminary evaluation [39]. The reported preliminary outcome measures indicated that 30-day all-cause risk-standardized hospital readmission rates dropped from 22.9 to 17.7% during the baseline period. During the demonstration period, the readmission rate continued to drop to 15.4%. ED visits per 1000 eligibles dropped from 200.5 to 184.9 during the baseline period. During the demonstration period, it increased to 189.2. Evaluations of these measures should be interpreted with caution, however, as they have not been tested for significance and a conclusive connection cannot be made between the measure outcomes and the related to the demonstration. In addition, due to relatively short post-period, our findings may not capture HCPs true effects on health outcomes.

Further study should also focus on the design of the integrated payment system, as it is possible that participating physicians are concerned about protecting their revenue stream in a system designed to reduce redundant care. Beyond quantitative studies of secondary data, future work should include qualitative studies that evaluate how HCP is being implemented in the field and in practice. Many questions remain to be resolved, such as: Did clinical integration actually result in better coordination among health professionals to provide integrated care? What level of understanding do patients have about the potential benefits of integrating the two systems, in terms of quality of care, better experiences and improved health outcomes? Understanding the barriers on both the patient demand and provider supply side will be instrumental in improving the enrollment process for HCP and other demonstration projects. Above all, it is essential that further studies be conducted to assess whether the Financial Alignment Initiative improves health outcomes, as theory predicts. If so, a question is whether these demonstrative projects should implement mandatory enrollment, which would entail legal challenges because by law Medicare must provide enrollees a choice between a managed care and fee-for-service program. Other methods to encourage enrollment may be required.

This research has several limitations. The Emergency Department Algorithm (EDA) developed at New York University uses administrative discharge data to distill hundreds of International Classification of Diseases-9 codes for emergency department (ED) visits into 4 categories. Therefore, the Algorithm may be insufficiently sensitive to changes in ED utilization patterns to be useful in assessing HCP’s effects. Also, despite the unique strengths of the AHRQ PQIs, for some PQIs, differences in socioeconomic status have been shown to explain a substantial part of the variation in PQI rates across areas. To address these concerns, we also conducted all-cause ED and inpatient admissions, and do not find significant differences in results. Moreover, for all regressions, we also controlled for observable measures of socioeconomic status such as race and ethnicity to attenuate the concern that socioeconomic status drove any results related to PQIs.

Although the results of this early evaluation do not indicate HCP achieved its intended goals, and may cause policymakers to question the success of the demonstration, experience from states such as Minnesota and Massachusetts—which had a fifteen-year history of integrating Medicare and Medicaid services for dual-eligible beneficiaries aged 65 and over—indicates that care integration may lead to improved outcomes [38, 40]. Positive outcomes include a reduction in ED visits and hospital admissions. Moreover, given that so few dual eligibles enrolled in the earlier waves with longer follow-up periods, positive outcomes may require time to manifest themselves. Further observation and more structural changes in the demonstrations, such as better alignment of program administration, greater account of provider incentives, and greater up-front infrastructure investments in the early years, could potentially result in long-term savings, improved quality of care, and greater availability of services in the home, rather than costlier institutional care. We hope that the observed early challenges may be remedied with revisions in law and program guidelines.

Although HCP was implemented with the goal of improving the coordination of Medicare and Medicaid services for dual eligible in South Carolina, our results show that uptake of HCP was very low. People with multi-morbidity and greater severity of illness are less likely to join HCP, and once they join, are more likely to quit. In addition, our analyses show that there was little difference in observable measures of health outcomes, including avoidable ED admissions and avoidable inpatient admissions, between HCP and non-HCP members. The early results from this study show that HCP may require further refinement to encourage enrollment and achieve its stated purpose of reducing avoidable ED and inpatient admissions.