Essentia enters Medicaid pilot program to save state $90 million

A pilot program introduced in Minnesota on Friday will reward health care providers for keeping patients out of their hospitals.

Duluth-based Essentia Health is one of six providers that agreed to a “shared-savings” Medicaid reform, which Department of Human Services Commissioner Lucinda Jesson said is expected to save the state $90 million over the next three years.

It works like this: The state and the providers will agree on targets for cost and quality, such as meeting standards of quality care for heart failure. If the targets are met, the shared savings will be divided between the state and the providers.

It’s a sea change from the traditional form of payment, known as fee-for-service.

“In the past, we were paid for the services we rendered,” said John Smylie, Essentia’s chief operating officer. “We just submit a charge to the state and then we’re reimbursed at a rate that the government has said that’s what you’re going to get paid. Under this new agreement … we now have a partnership with the state that if we can manage the total cost of care for the group of patients that we’re serving, we get to share in some of that savings.”

That fits with Essentia’s ongoing effort to improve overall health in its service areas and reduce overall costs, Smylie said. For example, Essentia uses its electronic health records to pinpoint patients with complex, multiple health needs. A “care coordinator” is appointed to patients in that category, working with them to improve their health and reduce their costs.

One of the program’s goals is to reduce emergency room visits.

“Some people are just in the habit of only going to emergency rooms,” Jesson said in a news conference on Friday. “We need to stop that. It’s expensive, and it’s not good for people.”

The shared-savings concept isn’t new. Essentia participates in a similar program through Medicare, called the Shared Savings Accountable Care Organization.

Fairview Health Services has a shared-savings arrangement with Medica, said Lynn Blewett, a professor in the School of Public Health at the University of Minnesota. And the state of Oregon last year set up coordinated-care organizations throughout the state with a lump sum Medicaid payment of $2 billion from the federal government.

The anticipated savings of $90 million in the Minnesota pilot program was arrived at by an independent actuary, Jesson said. But those savings aren’t figured in to Dayton’s budget proposal. “I think we do need a track record of a year or two,” she said.

It will be a better way of managing Medicaid costs than the present approach, she said.

“I think, frankly, providers are tired of seeing their rates cut,” Jesson said. “What we’ve done to solve a lot of budget crises in the past years has been to cut provider rates.”

Like most providers, Essentia loses money on Medicaid reimbursements, Smylie said.

The pilot program is a move in the right direction, said Blewett, who specializes in health policy.

“I think it’s the wave of the future,” she said. “We can’t rely on the system we have now, and I think the providers are trying to get up front and saying we can manage some of these costs ourselves.”

Essentia and the other five providers that have signed on to the program are responsible for 100,000 of the 700,000 Minnesotans covered by Medicaid, according to Gov. Mark Dayton’s office. Of those, 31,000 are Essentia patients, the most of any of the six providers. The best-known among the others is Children’s Hospitals and Clinics of Minnesota.

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