Last week, the Centers for Medicare and Medicaid Services (CMS) announced that Colorado is joining its Financial Alignment Initiative to pilot a managed fee-for-service model for people enrolled in both Medicare and Medicaid (commonly known as dual-eligibles).[1]

Dual-eligibles—low-income seniors and people with disabilities enrolled in both programs—often have health needs that would benefit from better care coordination but instead experience significant fragmentation as they navigate multiple sets of benefits, rules, and providers. Perhaps unsurprisingly, then, they account for a high and disproportionate share of spending in the programs. Both the CMS initiative and the Colorado pilot aim to improve the cost and outcomes of care for this population by focusing on coordinated, patient-centered care and reducing unnecessary expenditures (such as duplicative services).

Colorado is not the first to test managed fee-for-service in the dual-eligible population. Still, as the tenth state approved for a demonstration project with CMS, it is only the second to test this particular model (after Washington).  Pilots of a capitated model are underway in eight states (Washington, California, Illinois, Massachusetts, New York, Ohio, South Carolina and Virginia).

What is the central difference for the Colorado program? Under Colorado’s approach, CMS and the State contract. If certain savings and quality targets are reached, the State will be eligible for retrospective payments from CMS. In a capitated model, CMS, the State and a health plan enter into a three-way contract. Health plans receive a prospective payment from CMS and are the primary entity responsible for care coordination, taking on more of the potential risk and reward.

Starting July 1, 2014, Colorado will expand for some 48,000 dual-eligibles the managed fee-for-service program it has had in place for Medicaid beneficiaries since 2011. Under the program, the State contracts with seven Regional Care Collaborative Organizations, which are entities responsible for creating and managing networks of primary care providers, as well as for ensuring care coordination. Participating providers also contract with the State. They are eligible to receive per member per month payments for the provision of coordination services, in addition to regular fee-for service payments for medical care services. This is a different approach from the Washington managed fee-for-service program, in which care coordination and medical care services are provided by separate entities.

To ensure that Colorado dual-eligibles maintain access to all of the benefits they currently receive, the State, regional organizations, and primary care providers are expected to work together to ensure integration across five key areas: primary care, acute care, prescription drugs, behavioral health care, and long-term services and supports systems. To this end, arrangements with behavioral health services organizations and long-term services and supports systems are in development. The regional organizations are also responsible for establishing relationships with specialists and ancillary providers. In addition, beneficiaries maintain the right to choose their provider. These features, among others, act as assurances that the pilot will meet certain network adequacy standards—a key condition set forth by CMS and one addressing the concern that if limited networks are used as a primary approach to reduce spending, it will be to the detriment of care quality and access.

It will be interesting to note how Colorado works to integrate behavioral health services, which can play a very important role in dual eligible utilization rates.  Note also that this approach puts a lot of eggs into the Regional Care Collaborative Organizations (CCO) “basket.” Will the CCOs be able to effectively contract a quality-driven, cost-effective provider network that is sufficiently narrow to achieve the pilot goals, keeping in mind that traditional industry network wisdom suggests that a Medicaid network has to be very narrowly tailored to be effective in quality and cost control?  Also, who will truly control the CCOs?  In other states that have taken this CCO approach with managed Medicaid programs, we have seen heavy payor and local hospital involvement in the CCO that drives network selection and certain programmatic objectives.  Who watches the watcher?  Here, unlike certain other models, the State of Colorado has clear financial incentives to watch the CCOs and ensure a high level of performance. It will be interesting to watch the Colorado first year performance numbers next year.

[1] CMS’ announcement of the Colorado Demonstration is available here.