Not Your Mother’s Value-Based Care: The Path to Value in Pediatrics

Although there is no steady pace of market evolution toward value-based care, there is little doubt that federal mandates and the opportunity to capitalize on financial savings will continue to drive the transformation to value for adult populations. The pediatric shift to value, on the other hand, is driven by changes to Medicaid delivery at the state level and led by engaged physician leaders. Given the fragmented payment landscape for pediatrics, we see the largest strides coming from institutions that own health plans.

In Pediatrics, Slow, Incremental Shift to Value Varies Significantly by State

No federal mandate has pushed the transition to value in pediatrics, and commercial payers, who lack financial incentive and pediatric experience, have been slow to partner. The Medicaid-dominated payment landscape, combined with children’s unique clinical needs, has made the shift to value incremental and significantly varied across states. However, we are seeing momentum build as many Medicaid programs have experimented in value-based payment initiatives in recent years. While most pending and recently approved Medicaid waivers exclude or protect children from coverage and benefit loss as this experimentation goes on, there are exceptions. For example, both Iowa and Maryland include children over the age of 1 in their waivers to eliminate retroactive eligibility.

Children’s Hospitals Demonstrate Impressive Results With Medicaid Managed Care

Although Medicaid managed care has been around for several years under waiver authority, it doesn’t generate the same headlines as many of the other recent proposed changes to Medicaid. However, it is arguably one of the most significant drivers of value in pediatric care. Facing significant budget pressures, state Medicaid programs are eager to explore contracting options with entities willing to take on financial and clinical risk. The truly impressive financial gain has been realized by children’s hospitals with their own networks or managed care plans. This in-house structure allows for a more direct impact on the total cost of care, especially for children with medical complexities. In fact, a growing list of children’s hospitals and health systems own a managed Medicaid health plan (eg, Nationwide Children’s, Children’s Mercy Hospital, Johns Hopkins Children’s Center).

Pediatric Populations Require Distinct Approaches

Strategy aimed at maximizing savings is critical in pediatric models since an overwhelming majority (approximately 90%–95%) of children require little medical expense beyond wellness and low-acuity complaints. Only 5% of the pediatric population is considered medically complex, but that 5% accounts for 40% of pediatric medical spend. Approaches to value vary considerably among the 2 populations.

Successful Initiatives Target High-Volume, Common Conditions
Adults suffer from a short list of high-volume, acquired conditions with known treatments that are compatible with alternative payment models. Children’s diagnoses are heterogeneous, rare and often congenital. Successful pediatric value-based initiatives target common conditions, recognizing that volume and growth can be leveraged when cost opportunities are minimal.

Lessons Learned Support Risk Taking

Pediatric care transformation will result when health systems have revenue at risk, either from their own health plans, or through alternative payment models with significant downside risk. Although there will be less external pressure for pediatric providers to adopt a value-oriented strategy, the evolving payment landscape indicates this will be a critical success factor for the future of care delivery.

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Sources: Section 1115 Demonstrations; Managed Care: Authorities. Perrin JM et al. Pediatric accountable care organizations: insight from early adopters. Pediatrics. January 2017; American Academy of Pediatrics. Medicaid ACO Pediatric Quality Measures and Innovative Payment Models. Summer 2015; Kelleher KJ et al. Cost saving and quality of care in a pediatric accountable care organization. Pediatrics. February 2015; Arkansas Center for Health Improvement. Arkansas Health Care Payment Improvement Initiative Statewide Tracking Report web page. Georgia: Section 1115 Family Planning Demonstration Fact Sheet. Updated November 3, 2011; Children’s Hospital Association. Policy Position: Section 1115 Medicaid Waiver Principles. February 9, 2018. ADAP Advocacy Association et al. Re: Children’s Health Groups Oppose Policies and Proposals That Create New Barriers to Medicaid Coverage (letter to Secretary Alex Azar). March 6, 2018; All websites accessed May 2018.

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