This report is one section of State Strategies to Leverage Medicaid Managed Care Contracting for Investments in Health and Housing Alignment. See the full resource guide.
For more information on financing housing-related services, please visit our Medicaid and Housing toolkit.
With the exception of services provided as value-added benefits, state Medicaid agencies pay MCOs for delivering covered services, including housing-related services and supports. Arizona and California offer examples of how states are factoring the cost of providing housing-related services into their capitation rates. Massachusetts offers an example of a cost-based reimbursement model. Finally, California and Oregon offer examples of state use of incentives for delivering these services.
Factor the Cost of Services into the Capitation Rate
Paying MCOs that accept financial risk for provision of services via capitation is fundamental to the MCO model. Indeed, states are required to incorporate the projected cost of any new Medicaid services that MCOs must cover into their capitation rate-setting process. States are also required to consider the effect of in-lieu-of services in the rate-setting process. So, if a state adds housing supports as an MCO covered service, either as a state plan benefit or an ILOS, these services must be factored into the rate setting process. (See the CMS “2023–2024 Medicaid Managed Care Rate Development Guide” and the January 2023 state Medicaid letter for more guidance on MCO rate setting.) Below are some examples of how states have approached this issue.
Arizona
Arizona adjusted the 2019 capitation rates for the ACC program for an expected increase in the number of SDOH screenings provided by MCOs. Arizona also adjusted the rate for the addition of Supplemental Security Income/Social Security Disability Insurance Outreach, Access, and Recovery (SOAR) as a Medicaid-reimbursable case management service, billable as procedure code T1016 HK. The HK modifier enables Arizona to review utilization of SOAR services. (SOAR increases access to Social Security disability benefits for people experiencing or at risk of homelessness.) Arizona based its adjustment on the amount paid for the new service and anticipated utilization — finding that neither change would have an across-the-board impact of more than 0.2 percent. (See pp. 31–32 of the “Contract Year Ending 2019 AHCCCS Complete Care Program Capitation Rate Certification.”)
California
California factored the cost of Community Supports (which includes housing supports, outlined above), and the associated care coordination provided as whole person care, into the capitation rates paid to MCOs in 2023. The adjustment amounts were based on information reported by the MCOs. Only those MCOs that agreed to provide community support services received those adjustments, and the amounts are MCO specific. As discussed below, California is currently offering MCOs incentive payments for building capacity and infrastructure necessary to deliver Community Supports, address homelessness, and for the provision of community support services through the Housing and Homelessness Incentive Program (HHIP). The Medicaid program reports that these incentive programs have no effect on the capitation rate. (See pp. 40–41 and 83–85 of California’s “2023 Rate Certification Report.”)
Leverage Cost-Based Reimbursement
Massachusetts Medicaid’s major investment in housing-related services is via its flexible services program, which is funded under its 1115 waiver as a delivery system reform incentive payment program (DSRIP). This authority provides the state with much flexibility in program design and payment approach. Flexible services are not Medicaid-covered services, nor are they an entitlement. Rather, the flexible services program offers accountable care organizations (ACOs) a limited amount of funding to test whether they can reduce the total cost of care and improve health outcomes by meeting enrollees’ health-related social needs through targeted evidence-based programs. The overarching ACO payment model creates strong financial incentives for ACOs to fully and effectively invest their flexible services funding. ACOs are paid via prospective capitation payments, but they also share financial risk with the state. Each plan’s performance in containing the total cost of care and achieving quality outcomes governs what amount of savings it may retain or losses it must pay.
ACO payment for the flexible services program is addressed in section 5.2C of the ACO Contract (begins on p. 361). The state has chosen to target nutrition and housing needs, and ACOs will only be paid for programs that target these needs and meet other criteria defined by the state. Essentially, each year, the Medicaid agency allots each ACO a specific amount of funding for its flexible services program, which varies based on the number of Medicaid beneficiaries enrolled in the plan. Then the agency pays each ACO in four equal quarterly installments calculated based on each ACO’s allotment and approved program budgets. To implement these provisions, the state issued extensive separate guidance about budget and spending requirements, allowable costs, financial reporting, and other aspects of the program. This guidance is updated annually.
Use Incentive Payments
Most MCOs do not have experience in delivering housing supports. They are likely unfamiliar with the services and providers that deliver them and often are still learning the circumstances under which such services are cost-effective. Many housing services are provided by community-based organizations that are not familiar with the contracting process and do not have existing systems they can use to bill MCOs. As a result, both MCO and housing providers need to make investments in infrastructure and develop new partnerships to enable MCOs to deliver housing-related services. Those states covering housing-related services as in-lieu-of services have the added complication that they cannot require MCOs to cover the service. Some states have established financial incentives to encourage MCOs to make the needed investments.
California: Incentive Payments Outside the Capitation Rate
California has two housing-related incentive payments. One supports the delivery of Community Supports (which include housing services), and the other is for the state’s Housing and Homelessness Incentive Program (HIPP). Both are structured similarly, and both are voluntary for MCOs. California’s Medicaid agency provides each MCO that chooses to participate in an incentive payment program with the total amount of funds it could earn through its performance, including performance on a set of metrics that includes both narrative and quantitative measures. The Medicaid agency establishes benchmarks for performance on each measure for each reporting period. To meet the benchmarks, MCOs need to improve their performance in each reporting period. Participating MCOs receive a set number of points for each benchmark they achieve, and the amount of the incentive payment each MCO receives is dependent on the number of points each earns. The Medicaid agency does not direct how MCOs spend the incentives they earn and does not require MCOs to share the earnings with providers. However, the agency anticipates that to earn the incentives MCOs will need to invest in partnerships with relevant providers. Some of the specifics of each program are detailed below.
- The HIPP operated from January 1, 2022, through December 31 2023, with a total of $1.288 billion in funding from the American Rescue Plan Act. (See pp. 24–25 of California’s approved Home- and Community-Based Services Spending Plan.) Participating MCOs were eligible for four payments. To qualify for payment MCOs had to work together with the local CoC and other MCOs to prepare and submit a joint local homelessness plan for each county in which the MCO is participating, submit an individual MCO investment plan, and report required measures. (These requirements are summarized in an all-plan letter.)
- The CalAIM Incentive Payment Program (IPP) will operate from January 1, 2022, through June 30, 2024. The 2021–2022 state budget allocated $1.5 billion for this program. Participating MCOs are eligible for five payments. The IPP is designed to support implementation of multiple aspects of the CalAIM program, including encouraging MCOs to choose to provide community support services. To qualify for payments MCOs have to submit a needs assessment, a gap-filling plan, and required measures. (Note: Year one measures differed from year two and three measures.) The number of points that MCOs may earn for performance are allocated across priority areas. Initially, there were three priority areas, one of which was community supports provider capacity building and take-up. This priority was worth at least 30 percent of the available points — and each MCO could choose to allocate more points to performance in this area. (The requirements are summarized in an all-plan letter.)
Oregon: Using the Capitation Rate-Setting Process and Medical Loss Ratio Requirements as Incentives
Oregon uses both its capitation rate-setting process and medical loss ratio (MLR) requirements to create incentives for CCOs (Oregon’s term for MCOs) to offer health-related services (HRS), which include housing services.
Oregon implemented a performance-based reward (PBR) pool as part of its capitation rate-setting process. The intent of the PBR pool is to “incentivize CCOs to pay for HRS that will improve health and reduce medical cost.” The PBR pool does this by ensuring that the capitation rates paid to CCOs do not decline due to successful investments in HRS — and the resulting reductions in medical costs. Oregon Medicaid created a statewide PBR pool based on the historical spending of its CCOs on HRSs, and each year the state adjusts the amount for trends in cost. The amount in the PBR pool is then allocated to individual CCOs based on their approved HRS spending and all capitation rates paid to that CCO are adjusted based on the CCO’s allocation. (See p. 37 and Appendix K of “CY23 CCO Program Capitation Rate Development and Certification.”)
Under federal law, states must require MCOs to calculate and report an MLR and may require MCOs to meet an MLR of 85 percent or more. (An MLR defines the minimum percent of premiums that an MCO must spend on clinical services and quality improvement.) Oregon has chosen to require its CCOs to maintain an MLR of at least 85 percent; CCOs with an MLR of less than 85 percent are required to pay a portion of their payments back to the state Medicaid agency. To leverage these requirements as an incentive, Oregon defined an HRS service to include only services that count as spending on quality improvement (i.e., the services improve health care quality or are “related to health information technology and meaningful use requirements to improve health care quality”). This approach incentivizes MCOs to spend their payments on HRS because doing so helps them achieve the 85 percent ratio. (See Oregon’s “Health-Related Services Brief.”)
Acknowledgements
The authors would like to thank Robin Wagner, Elaine Chhean, and all the state officials who reviewed this brief for their thoughtful feedback. This resource is supported by the Health Resources and Services Administration (HRSA) of the U.S. Department of Health and Human Services (HHS) under the National Organizations of State and Local Officials as part of a three-year award totaling $2,632,044 with 0% financed with non-governmental sources. The information, content, and conclusions are those of the author(s) and do not necessarily represent the official views of, nor an endorsement, by HRSA, HHS, or the U.S. Government. For more information, please visit HRSA.gov.
