On November 16, 2010, CMS sent a letter to State Medicaid Directors offering preliminary guidance on the implementation of the State Option to Provide Health Homes for Enrollees with Chronic Conditions, as provided in §2703 of the Patient Protection and Affordable Care Act (PPACA).

Section 2703 of PPACA offers States additional federal support for enhanced integration and coordination of primary, acute, behavioral, and long term care services for persons with chronic illness through the development and use of so-called “health homes” or “medical homes.” The State option to provide health home or medical home services to Medicaid beneficiaries with chronic conditions begins January 1, 2011. For states which develop these structures to meet the requirements of PPACA, an enhanced federal matching assistance percentage of 90% will be applied to the services (for the initial two year period).

The PPACA provision only permits states to offer the health home option to beneficiaries with “chronic conditions,” which includes individuals with a mental health condition, substance abuse disorder, asthma, diabetes, heart disease, and being overweight. In order to be eligible the individual must have at least one chronic condition and be at risk for (or have) another, or most have a serious and persistent mental health condition.

The PPACA provision provides States with considerable flexibility in designing the payment methodologies for health home providers. We should expect to see States experimenting with a variety of techniques in this regard. The act specifically allows States to structure a “tiered” payment methodology which takes into account a beneficiary's acuity level and the capabilities of the designated provider.

CMS has indicated it will be issuing a number of additional letters offering guidance to the States in this area over the coming weeks. The exact contours of the Medicaid health home projects will come into clearer focus when additional guidance becomes available.