Health Affairs Blog publishes Nicholson Foundation article on New Jersey Medicaid Accountable Care Organization (ACO) Demonstration Project

This story first appeared on the Health Affairs Blog on August 25, 2015. To view this post and other articles on the Health Affairs Blog, click here.

New Jersey's Approach To Medicaid ACOs

Is An Experiment Worth Watching

By Joan Randell

August 25, 2015

As the July issue of Health Affairs recognized, Medicaid has become a hotbed for health care transformation, with states increasingly turning to Accountable Care Organizations (ACOs) and medical homes to reduce costs and improve care delivery in their Medicaid programs. New Jersey joined the ranks in July by certifying three of six applicants for the New Jersey Medicaid Accountable Care Organization Demonstration Project—the Camden Coalition of Healthcare Providers, the Healthy Greater Newark ACO, and the Trenton Health Team.  

Although the New Jersey ACOs were authorized by a 2011 law signed by Governor Chris Christie, this approach to care for Medicaid patients did not originate within state government, and the state did not invest in their formation. Rather, this approach grew out of work by Dr. Jeffrey Brenner and the Camden Coalition of Healthcare Providers, famously chronicled in Atul Gawande’s 2011 The New Yorker article, “The Hot Spotters.” Brenner and his colleagues analyzed local hospital claims data and discovered that a small percentage of patients were responsible for a substantial proportion of hospital costs. These findings were a wake-up call for the need to implement a new model of health care delivery for the state’s Medicaid enrollees. Subsequent advocacy by Brenner and other stakeholders led to the 2011 legislation.

A Community-Based Approach To ACOs

The legislation requires each Medicaid ACO to be a nonprofit corporation. Their governing boards must include “general hospitals, clinics, private practice offices, physicians, behavioral health care providers, and dentists; patients; and other social service agencies or organizations.” The board must include voting representatives from at least two consumer organizations that advocate for patients.

Following the law’s passage, community representatives, advocates, health and social service providers, and foundations worked with the Camden Coalition and several other community-based health care coalitions to prepare them to become successful ACOs. The Nicholson Foundation invested considerable resources in a program of complementary projects to develop and strengthen the coalitions. This included direct support for the coalitions’ infrastructure, care coordination activities, business plans, and health information exchanges. The Foundation also commissioned data analyses to identify opportunities to improve care and reduce costs and funded a statewide learning network so the health care coalitions could support and learn from each other.

How these three community coalitions fare in the three-year demonstration project bears watching for two reasons. One is that their community-based approach offers an exciting new model for providing care to Medicaid recipients. This approach can be seen in the geography, composition, and governance structure. The ACOs must service a specific locale they define and it must include at least 5,000 Medicaid recipients. They must include all hospitals within their defined area, even if the hospitals are competitors, as well as 75 percent of Medicaid primary care providers and at least four qualified behavioral health providers.

The second reason to pay attention to this Medicaid demonstration project is its potential to align quality objectives with payment incentives. The ACOs must have a strategy to enhance outcomes. These outcomes incorporate the quality and efficiency of health care; patient safety; and patient satisfaction for all 5,000-plus Medicaid recipients in the designated area. The hope is that the ACOs will be able to engage and coordinate services for the most complex and costly patients. Similar to national data, in New Jersey just 5 percent of Medicaid beneficiaries account for more than half of all Medicaid spending and 1 percent account for more than 25 percent of total spending.

If the ACOs are able to meet these performance improvement targets while reducing costs, the law allows them to keep a share of any Medicaid savings. The ACOs can reinvest these savings to fund additional service improvements. 

Medicaid Managed Care And ACOs

Although gainsharing appears to provide a financial path to sustain the ACOs, the future remains uncertain. Ultimately, the ACOs’ path to financial sustainability will depend on decisions made by New Jersey’s Medicaid Managed Care Organizations (MMCOs) and the state. States have turned to managed care to manage cost, utilization, and quality in their Medicaid programs. The states contract with MMCOs, which accept a per-member per-month (PMPM) payment for these services. Enrollees receive part or all of their Medicaid services from health care providers in the managed care plan’s network.

When the 2011 law passed, a transition was already well under way in New Jersey from fee-for-service Medicaid to the use of MMCOs to organize and pay providers. Today, about 95 percent of Medicaid patients are enrolled in one of the state’s five MMCOs. Therein lies the potential rub: the law and NJ’s regulations do not require the MMCOs to contract with the Medicaid ACOs. Without contracts, the ACOs will not be reimbursed for the additional services, such as care coordination, they provide to high utilizers or be able to share in any savings. Unless the state changes its policy, the financial future of the Medicaid ACO movement in New Jersey rests in contract negotiations between the MMCOs and the fledgling ACOs. As of mid-July, two contracts have been executed between ACOs and MMCOs.

Recognizing that managed care is now the “dominant delivery system for Medicaid,” this May, the Centers for Medicare and Medicaid Services issued proposed regulations to update the rules for Medicaid managed care to “support state efforts to deliver higher quality care in a cost-effective way.” In New Jersey, ACOs can assist the MMCOs meeting this goal by delivering better health care to New Jersey‘s most vulnerable citizens and saving money by keeping them out of the hospital. New Jersey and its MMCOs should offer top-down support for the ACOs, just like the communities that built them from the ground-up. The ACOs deserve a chance to do the job they were designed to do.

Joan Randell, New Jersey's Approach To Medicaid ACOs Is An Experiment Worth Watching, Health Affairs Blog, August 25, 2015, Copyright ©2015 Health Affairs by Project HOPE – The People-to-People Health Foundation, Inc.

Note: Joan Randell is the Chief Operating Officer of The Nicholson Foundation.