Introduction

On December 30, 2015, the Centers for Medicare and Medicaid Services (CMS) approved California's request to renew its waiver under Section 1115 of the Social Security Act. A significant component of the waiver is the Delivery System Reform Incentive Payment or DSRIP. DSRIP waivers provide states with significant federal funding that can be used to invest in delivery system transformation, including positioning hospitals and other providers for changing how they provide care to Medicaid beneficiaries, and how they are reimbursed for that care, as long as the waiver, overall, is budget-neutral. California's waiver renewal reflects CMS's emphasis on moving Medicaid programs toward value-based purchasing—reimbursing healthcare providers based on the quality and cost-effectiveness of care that they provide to Medicaid beneficiaries, rather than the volume of care—and on reducing reliance on DSRIP funding over time.

The original "Bridge to Reform" waiver of 2010 played a major role in expanding coverage, expanding managed care, and initiating delivery system reform efforts with the public hospitals. Today, after implementation of the Affordable Care Act (ACA), one in three Californians is covered by Medi-Cal, and 80% of full-scope beneficiaries are in a Medi-Cal managed care plan. Referred to as "Medi-Cal 2020," the new five-year demonstration will provide $6.2 billion in initial federal funding to California, which will be used to support four major initiatives:

  1. Public Hospital Redesign and Incentives in Medi-Cal (PRIME), an investment pool intended to support projects that will position the public hospitals to enter into alternative payment methodologies (APMs) with Medi-Cal plans;
  2. Global Payment Program (GPP) for the Public Health System,reforming how the public hospitals are reimbursed for care for the remaining uninsured;
  3. Dental Transformation Initiative (DTI), to address a major shortage in Medi-Cal dental providers; and
  4. Whole Person Care (WPC) Pilot Program, a program aimed at providing more integrated care for high-risk, vulnerable populations.

An additional important component of the waiver is that the state conduct independent assessments of access to care for Medi-Cal managed care beneficiaries, and of uncompensated care and hospital financing.

Key Features of California's DSRIP Waiver Renewal

1. Public Hospital Redesign and Incentives in Medi-Cal (PRIME). PRIME provides funding for designated public hospitals (DPHs) to improve their delivery of ambulatory and primary care and provide cost-effective care, thereby strengthening their ability to enter into APMs with Medicaid managed care plans. APMs refer to payment models that shift risk for cost and/or outcomes to PRIME entities, such as through capitation. The waiver defines four tiers of capitated or alternative payment: (1) partial (primary care only); (2) partial-plus (primary care and some specialty care— varies); (3) global (primary, specialty, ancillary and/or hospital care); and (4) additional payment methodologies approved by the state and CMS.

The waiver requires DPHs to transition a greater share of payments from Medicaid managed care plans to APMs over the course of the five-year renewal, with the target of having 60% of all Medi-Cal managed care beneficiaries assigned to DPHs receiving all or a portion of their care under a contracted APM by 2020. Moreover, the waiver requires that DPHs contract with at least one Medi-Cal managed care plan using APM methodologies by January 1, 2018. To facilitate this transition to APMs, PRIME funding will be used to support delivery system redesign projects in the following domains:

  • Domain 1—Outpatient Delivery System Transformation and Prevention. DPHs will be required to participate in the following projects:
    • Integration of Physical and Behavioral Health;
    • Ambulatory Care Redesign: Primary Care;
    • Ambulatory Care Redesign: Specialty Care; and
    • One other project related to prevention, early diagnosis, and treatment.
  • Domain 2—Targeted High-Risk or High-Cost Populations. DPHs will be required to participate in the following projects:
    • Improved Perinatal Care;
    • Care Transitions: Integration of Post-Acute Care;
    • Complex Care Management for High-Risk Medical Populations; and
    • One other project related to a high-risk or high-cost population.
  • Domain 3—Resource Utilization Efficiency. DPHs must select one project related to evidence-based use of diagnostics and treatments, such as antibiotic use, high-cost imaging studies, high-cost pharmaceutical therapies, or use of blood products.

District/municipal public hospitals (DMPHs) will also participate in PRIME; however, given their varying sizes and rural to semirural locations, DMPHs will only be required to implement a project from a single domain. Federal funding for PRIME over the five-year period includes $3.3 billion for DPHs and $466.5 million for DMPHs, with funding subject to meeting a core set of performance targets for each project. These performance measures will shift over the five years from process to outcome measures. Available funding is scheduled to phase down by 10% in the fourth year and by an additional 15% in the fifth year of the demonstration.

DPHs and DMPHs must submit five-year PRIME project plans to the state by February 1, 2016, or 30 days after approval of PRIME protocols (whichever is later).1 By April 1, 2016, or soon thereafter, the Department of Health Care Services (DHCS) will approve or disapprove each plan.

2. Global Payment Program (GPP) for the Public Health System. The GPP pilots a new way of compensating Public Health Care Systems (PHCSs) for the care they provide to the uninsured, with the goal of shifting care out of high-cost settings and into more appropriate care delivery sites. PHCSs will receive global payments and be incentivized through a "value-based points methodology" to deliver preventive, primary care, and care management services to the uninsured, including through the use of telehealth and other innovative mechanisms. The GPP will be funded by Disproportionate Share Hospital funding that otherwise would have been allocated to DPHs, along with $236 million in federal funding for the first year. Amounts for years two through five will be determined after completion of an independent assessment of uncompensated care.

3. Dental Transformation Initiative (DTI). The state will provide financial incentives to dental providers for the provision of preventive services and continuity of care to Medicaid beneficiaries under the age of 21. The DTI funding pool will not exceed $750 million.

4. Whole Person Care (WPC) Pilot Program. The WPC Pilot Program gives a county, a health or hospital authority, or a regional consortium of these entities new options to provide coordinated physical and behavioral healthcare as well as social services targeted to high-risk, high-utilizing Medicaid beneficiaries. The WPC funding pool can support infrastructure to integrate services among local entities that serve the target population; services not otherwise covered or directly reimbursed by Medi-Cal to improve care for the target population, such as housing; and other strategies to improve integration, reduce unnecessary utilization of healthcare services, and improve health outcomes. While federal financial participation is not available for housing units or housing subsidies, up to $1.5 billion in federal funding is available over the five years to support other services and activities. This county-based program is voluntary and the WPC Pilot entities will provide the nonfederal share of expenditures.

Also of note is that, in the waiver, DHCS agrees to amend its contract with its External Quality Review Organization, an independent contractor, to perform an assessment of access and network adequacy. The assessment must evaluate primary, core specialty, and facility access for Medi-Cal managed care beneficiaries. The waiver also requires the state to commission two reports from an independent entity on uncompensated care, with the goal of determining the appropriate level of Uncompensated Care Pool funding for DPHs in years two through five of the demonstration, and inform broader payment reform efforts for Medi-Cal and the uninsured.

Moving Forward

In the past few years, a number of states have added DSRIP programs as part of their 1115 waivers, including Massachusetts, Texas, Kansas, New York, New Jersey, and New Hampshire with Washington pending review. But California is the first state to receive CMS approval for a DSRIPrenewal albeit with a declining federal investment in years four and five. Broadly, California's DSRIP Demonstration seeks to provide the continued investment for public hospitals to evolve into systems of care positioned to take risk for the cost and quality of care from Medi-Cal managed care plans. The DPHs and DMPHs, however, account for about one-fifth of the state's Medicaid inpatient discharges, so the shift to greater value-based purchasing in the Medi-Cal program more broadly will require transformation efforts that go beyond just the public hospitals, efforts that can be pursued without a waiver.