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Payer insights

Improving care delivery to individuals with special or supportive care needs

Filed under: Digital transformation, Hospitals, Medicaid, Medicare


Executive summary

Individuals with serious behavioral health (BH) conditions, and those in need of long-term services and supports (LTSS) because of aging, complicated medical conditions, physical disabilities, or intellectual/developmental disabilities (I/DDs), often require very complex care and diverse services. As a result, they account for a significant share (more than 35%) of annual national healthcare expenditures—at least $800 billion, including over $450 billion on non-medical services.a The Medicaid program bears most of these costs; nearly twothirds of its budget is spent on care for these individuals.

In the past decade, care delivery for these individuals has evolved significantly because of actions taken by state governments, private payors, and providers to control costs and improve outcomes. Technological advances are supporting many of the innovations. Because most of the innovations are comparatively new, rm evidence to support their use is still emerging.

States. Because they shoulder a meaningful percentage of all Medicaid costs, states have been at the forefront of innovation for these three groups. Most of the changes they have implemented focus on the following:

  • Shifting to managed care, either by including, or “carving in,” certain supportive services (most often, BH services) into existing managed care programs or by launching specialized programs (e.g., duals demonstration pilots for those eligible for both Medicaid and Medicare) 
  • Developing programs, such as health homes, that offer nancial incentives to providers to encourage more active care coordination and accountability
  • Using novel reimbursement models to shift financial accountability and risk to managed care organizations and providers as a way to reward efficiency and effectiveness, as well as to encourage additional innovations in care management
  • Standardizing how quality of care is measured to determine which programs are having the greatest impact

Payors. To date, private payor involvement with the services required by individuals with special or supportive care needs has largely been through Medicaid managed care programs.

Medicaid/Medicare-focused players, which currently provide coverage for almost one-third of all individuals enrolled in Medicaid managed care programs, have focused on programs for those with BH conditions or needing LTSS care (other than those with I/DDs). Blues plans, regional/local insurers, and national carriers are increasing the services they provide to those two groups, as well as to members with I/DDs. Over the past five years, for example, national carriers have more than doubled the number of affected individuals enrolled in their Medicaid managed care programs. In many cases, payors are gaining the capabilities required to serve these members through acquisitions or by subcontracting with specialty vendors. However, the pace at which private payors have been building their capabilities largely reflects the pace at which various states have been introducing managed care for the relevant populations. For this reason, few payors have focused until recently on individuals with I/DDs.

Providers. The providers that have traditionally focused on servicing the needs of these populations (mental healthcare centers, nursing facilities, intermediate care facilities, and others) have often been small, independently owned businesses. Provider consolidation is increasing, but it is affecting the different populations in different ways. Consolidation among BH providers has been comparatively slow; however, greater care integration and co-location with primary care providers are growing trends. The rate of consolidation among most LTSS providers has been relatively high. In some cases, consolidation is being driven by acute care providers that want to acquire or partner tightly with long-term-care providers, or by long- term-care providers that want to acquire home health agencies. In both cases, the goal is to control the total cost of care while improving care delivery. At present, there is little evidence of consolidation among I/DD providers.

Technology companies. Private investments in and capital transitions for healthcare technologies targeted at the three groups reached about $3.3 billion in 2014. Most of this money was spent in three categories: administrative tools, care plan/data exchange, and remote monitoring. However, investments in these categories have remained steady or declined in recent years. By contrast, investments are increasing rapidly for technologies that enable remote medical consultations; help providers make quality-oriented, cost- effective clinical decisions; or enable providers to reduce risk and increase their overall clinical effectiveness. Early evidence suggests that these technologies may be able to improve the quality of care delivered and the affected individuals’ quality of life, but whether they will be able to scale effectively remains an open question. 


Three groups of Americans can have especially complex care needs: those with behavioral health (BH) conditions, including substance abuse; those with intellectual or developmental disabilities (I/DDs); and those who need long-term services and supports (LTSS) because of chronic, complicated medical conditions or physical disabilities (both of which are often related to aging). These individuals typically require a combination of diverse medical and supportive services that must often be delivered for prolonged periods. (For simplicity’s sake, we use the term special/supportive care needs in this report to refer to the combination of services required by the three groups.) Although individuals with special/supportive care needs constitute less than 20% of the U.S. population, they account for more—perhaps far more—than 35% of total annual national health expenditures (over $800 billion, including more than $450 billion for non-medical services).

States, payors, and providers have an opportunity to improve care delivery for these individuals. Several reasons help explain why it is important that they do so now:

  • The size of this group is growing because of a number of factors, especially population aging, increased awareness of the conditions, and improved diagnostic criteria that make it easier to identify those affected. For example, estimates suggest that the number of people above age 65 will be 60% higher in 2030 than in 2010 and that at least 70% of those over 65 will eventually need LTSS.1,b
  • Inadequate coordination reduces the quality of care and drives up costs. Historically, supportive care programs have been managed by a range of public and private entities, especially state agencies, and services have been delivered by a variety of discrete providers. Because the structural incentives for collaboration among the providers are weak, care is often poorly integrated. One estimate suggests that closer integration of medical and supportive care for individuals with BH conditions could save the country $26 billion to $48 billion annually.2 Similar opportunities exist to improve the quality and cost of other special/supportive care services.
  • Frequently, spending levels do not align with the acuity of a patient’s condition or quality of care delivered. McKinsey research has found, for example, that in many cases the correlation between the level of need of individuals with I/DDs and the amount payors spend annually for their home- and community-based services (HCBS) is weak.3 Similarly, our research has shown that the correlation between the per-diem rates charged by nursing homes and the homes’ CMS star ratings (one broadly available proxy for quality) can be low.
  • Care availability is uneven. Many of the individuals with special/supportive care needs find it difficult to access services, largely because of the scarcity of specialist providers and high cost of care. For example, about 300,000 individuals with assessed I/DD needs remain on waiting lists for HCBS each year.4 Those with LTSS needs face these long waiting lists as well.

Many of the organizations involved in paying for or providing care to the three groups have innovated in recent years to improve care delivery. To investigate these innovations, we interviewed more than 10 state Medicaid directors and other experts, built a comprehensive managed care database of all programs nationwide, and analyzed publicly available databases and other sources. In this report, we present our findings and offer insights into how states, payors, and providers are attempting to increase the quality and efficiency of care delivery for these individuals. In addition, we discuss new technologies that could further improve care delivery to them. Wherever possible, we describe the results achieved through innovation; we acknowledge, however, that because many of these models are new, evidence of their impact is still emerging. 

It is worth noting that individuals with I/DDs are often considered a subset of those requiring LTSS care. In this article, however, we categorized the two groups separately because the primary services delivered to them are quite different.

Why are these populations important?

Determining the size of, and spending on, the three groups is complicated by the fact that there is overlap among them. Exhibit 1 provides estimates of both variables based on the most recent data available. 

Behavioral health

BH conditions affect a broad range of individuals—from the child with ADHD who often interrupts his teacher in school, to the young adult who recently realized that her drinking may be an addiction, to the adult with severe schizophrenia who is trying to control his psychotic episodes with a combination of three different medications. At present, about 67 million Americans have BH conditions. Many are young—between one-fourth and one-third of them are under age 18.1,2

Depending on the severity of the BH condition, individuals may be treated with medication, nonpharmacologic therapy, or both, delivered at community mental health centers, physicians’ offices, rehabilitation facilities, psychiatric hospitals, or other settings. Until recently, behavioral care and bene ts were usually managed separately from medical care and benefits. 

However, published studies suggest that closer integration between medical and behavioral care yields better outcomes,3 such as fewer inpatient visits, leading to lower costs. This evidence has led many states and organizations to attempt to more closely coordinate care delivery for this population, especially those with serious and persistent mental illnesses.

Exhibit 1

Long-term services and supports

The 13 million individuals in this group need assistance performing activities of daily living (e.g., bathing, cooking) for a prolonged period.b Roughly half of these individuals are above age 65 and generally have severe, chronic medical conditions or physical disabilities. The younger members of this group are more likely to have physical disabilities. In some cases, individuals are recovering after hospital discharge from an acute medical episode (e.g., hip surgery).

Nationwide, over two-thirds of individuals in need of LTSS care receive services at home or in the community. Estimates suggest that about half of them receive only informal care from family and friends.4 The cost of this care is not included in the figures cited in this report, but it was estimated to be about $470 billion in 2013 alone.5 The remaining individuals in need of LTSS services, 80% of whom are elderly, are cared for in institutional settings (e.g., nursing homes). 

Given that a high percentage of all individuals in need of LTSS care are eligible for both Medicare and Medicaid, an emerging trend is closer coordination between Medicaid support services and Medicare medical services to improve the quality and cost-effectiveness of care. For example, CMS is currently supporting financial alignment demonstration programs for dual eligibles in 12 states.c In addition, a number of states are leveraging Medicare Part C authority and the D-SNP (dual eligible special need plans) platform to align Medicare and Medicaid benefits for this population. 

Intellectual and developmental disabilities 

The supportive services offered to individuals with I/DDs are similar to those given to other persons in need of LTSS care. However, the roughly six million individuals in this group often need more highly specialized care, not only because of their underlying disability but also because they have a high rate of medical and behavioral comorbidities.

Individuals with I/DDs may experience difficulties communicating or accomplishing daily activities, such as taking medications regularly or performing basic hygiene tasks. Often, their disabilities are diagnosed at a young age, and they typically require special services for their entire life.

Delivering high-quality care through an integrated, person-centered approach is especially important for individuals with I/DDs because of the complexity of their needs. It also often necessitates increased family and caregiver involvement, particularly for HCBS care. The proportion of the I/DD population receiving HCBS care has risen significantly in the past several years; at present, about three-quarters of individuals with I/DDs who are given any type of formal care receive HCBS.

How are states innovating? 

The individuals discussed in this report—those with BH conditions or I/DDs and those requiring LTSS care for other reasons—constitute roughly one-third of all Medicaid patients but almost two-thirds of all Medicaid spending.a Specifically, Medicaid is responsible for about one-third of total expenditures on BH conditions and more than half of all LTSS costs, including the vast majority of I/DD spending.

Because states shoulder a significant proportion of Medicaid costs—on average, about 40%1—and are responsible for overseeing Medicaid programs, they have been at the forefront of innovation, changing the Medicaid services they provide to these groups in four primary ways: shifting to managed care, integrating care more effectively, adopting new payment approaches, and standardizing how quality of care is measured.

Shifting to managed care

A growing number of states (44 to dateb) have, to some degree, shifted away from fee-for-service (FFS) arrangements to Medicaid managed care programs. Since 2011, the proportion of all Medicaid beneficiaries nationwide who are enrolled in MCOs has risen from 50% to more than 64%.2 Between 2011 and 2013 alone, this move increased the money allocated to managed care capitation by $40 billion, and the amount has likely increased significantly since then.3

However, states have been slower to enroll Medicaid beneficiaries needing BH, I/DD,or LTSS care into managed care programs. At present, 39 states and DC include some or all of these beneficiaries into managed care, either by “carving in” appropriate services into existing managed care programs or by launching sometimes quite limited specialized programs (e.g., duals demonstration pilotsc or Pennsylvania’s Adult Community Autism Program).

The states differ considerably in terms of which populations, if any, they have moved to MCOs (Exhibit 2). (Only seven states have introduced managed care for all three groups.) As a result, roughly 70% of the cost of all Medicaid services is still managed directly by the states rather than through managed care programs.3 In recent years, the pace of change has accelerated, but considerable variability in terms of which groups are enrolled in managed care remains.

Behavioral health. Medicaid beneficiaries with BH conditions were the first of the three groups to be moved to managed care, beginning more than 20 years ago. At present, the proportion of Medicaid beneficiaries enrolled in MCOs is significantly higher among individuals with BH conditions than in the other two groups. Thirty-four states offer managed care programs that include BH treatment, and most of the MCOs in those states cover the full spectrum of inpatient and outpatient BH services. Together, the programs in these 34 states cover about 80% of all Medicaid managed care enrollees nationwide.d Several states (such as the 15 with PIHP and PAHP programse) also have stand-alone programs that cover BH services only. However, many of the states have been moving to integrate these programs into medical managed care programs, primarily for two reasons: evidence for the effectiveness of BH carve-outs for individuals with serious mental conditions is mixed,4 and medical costs are significantly higher for individuals with a BH comorbidity than for individuals without a BH comorbidity.5 Tennessee,  Arizona, and New York are examples of  states that recently made the move to integrate BH services into their MCO programs.

Long-term services and supports. The number of managed care LTSS programs has more than doubled in the past ten years.6 Twenty-seven states and DC have to some degree transitioned LTSS care into their managed Medicaid programs, either by integrating them into their general medical MCO programs or by developing a specialized  managed care program for this population.  

Exhibit 2

Together, these programs cover roughly  20% to 30% of all Medicaid beneficiaries  nationwide who are enrolled in an MCO.  Some states plan to transition these programs into duals demonstration projects for increased care integration. In addition,  30 states have established Programs of  All–Inclusive Care for the Elderly (PACE),  which also cover disabled Medicare beneficiaries.7 These programs deliver small- scale, fully integrated managed care through long-term-care providers that act as MCOs. However, PACE enrollment is only about 35,000 nationwide, and the programs have proved challenging to scale up because of fragmentation among the long-term-care providers involved. 

Intellectual or development disabilities. Until recently, I/DD services were largely  excluded from managed care. At present, 13 states and DC include medical care for Medicaid beneficiaries with I/DDs in some form of managed care (significantly more states than did so just a couple of years  ago), and 12 states include some or all of  the non-medical services these patients  also need, mostly through small-scale or  demonstration programs. The programs  offered by these 12 states cover only 10%  to 20% of all Medicaid beneficiaries enrolled in MCOs nationwide. At least 7 additional states have expressed interest in incorporating I/DD services and populations into their Medicaid MCOs within the next few years and are working with advocacy groups and stakeholders to develop a path forward.  

Because many of the innovative efforts to include supportive services in Medicaid  managed care programs are comparatively new, the evidence to support them is thin. Nevertheless, examples of how these efforts may improve quality and costs are beginning to emerge. Both carve-in and carve-out  managed care programs for individuals with BH conditions have been proved to decrease inpatient hospitalization rates (in comparison with fee-for-service programs), although there is not clear consensus on which approach  is more effective.8,9 Most studies of managed LTSS programs suggest that they increase the use of HCBS and decrease institutionalization, resulting in lower costs and greater consumer satisfaction.10,11 Managed care programs  for Medicaid beneficiaries with I/DDs are too new to provide data on outcomes or savings. 

The early evidence remains to be confirmed. Furthermore, investments in program design, quality oversight, and ongoing monitoring are needed to determine whether these programs can achieve impact at scale.  

Integrating care more effectively 

To promote closer care coordination and  integration, many states are pursuing a range of provider incentive programs (in addition to or as an alternative to managed care). These efforts include enhanced primary care case management (PCCM) and integrated health home programs. Uptake of health home programs, in particular, has  been boosted by the increased federal matching funds available to states that  chose to implement them. 

PCCM programs, which pay primary care  providers a fee to coordinate patient care,  exist in 19 states today.12 A handful of states, including Oklahoma, North Carolina, and  Colorado, have enhanced PCCM programs  in which the providers receive a higher fee  to manage the care of more complex patients. These programs (both basic and enhanced) provide incentive payments for quality but  do not require providers to take on additional financial risk. However, some states are now scaling down their PCCM programs and  shifting enrollees to managed care. 

Similarly, integrated health home programs pay providers a higher care coordination  fee for intensive team-based case management of patients with chronic conditions.  In many cases, this is an opportunity to  have care management embedded in the  provider setting, rather than administered solely through a payor or MCO. At present, CMS-approved integrated health home  models that include coverage for individuals with serious mental illnesses exist in 17  states; health homes targeting only at this population exist in 11 states.f,13 In these  programs, pay-for-performance metrics  (e.g., rate of inpatient readmission; percentage of patients screened for depression) help  measure care quality and indirectly control costs while increasing provider accountability for patient outcomes.  

Although these programs help address  the need for more integrated care delivery, most are too new to have produced evidence of quality or cost impact, especially for those with complex care needs. However, many states are moving ahead with their efforts  to coordinate care more effectively, either through these programs or other innovative approaches. Advanced analytics is now  making it possible to tailor programs to  specific subsets of patients (Exhibit 3).

Exhibit 3

Adopting payment innovations  

To encourage innovations in care management, many states are exploring new reimbursement mechanisms as a way to share financial accountability with Medicaid MCOs and, in some cases, providers.  

A variety of models are being used to incentivize the MCOs. A handful of states have already achieved results through the use of capitated rates to increase care quality. Although many states have achieved improvements by shifting to community-based care, this shift continues to be one of the single largest value drivers (for both cost and quality) in LTSS care. Arizona, for example, has used a combination of capitated payments and incentives for more than 20 years to improve the services delivered to individuals in need of LTSS care; through this program, it has rebalanced the percentage of these individuals being cared for in nursing facilities from 95% to 30%.14 Furthermore, nearly 75% of the 39 states with Medicaid MCOs have put some type of quality bonus or incentive structure in place.2 Louisiana, for example, has developed an innovative program that includes a benchmark for what the state would have spent in the absence of managed care. The program also includes safeguards to ensure care quality and access. The state shares up to 60% of the savings achieved (in comparison with the benchmark) with the MCOs, and those organizations then share up to 50% of the savings they receive with their providers.15 In addition, 10 states are testing capitated duals demonstration projects that include a three-way contract signed by the state, CMS, and an MCO. The MCO receives combined Medicare and Medicaid funding streams to provide comprehensive, coordinated care and take on risk.  

To align provider incentives, some states are introducing episode-based payment models for the services needed by one or more of the three groups, which give a single “quarter-–back” provider full accountability for the cost, quality, and coordination of care. To date, five states have launched,h or have announced plans to launch, these models, enabled by CMS State Innovation Model grants. The episode-based payments can be given prospectively (the appropriate amount is determined and provided ahead of time for care delivered for a set time period) or retrospectively (the amount is calculated after care delivery based on the average expenditures—including charges from specialists and ancillary providers—for a given condition within that provider’s panel). In Arkansas, retrospective episode-based payments have been launched for ADHD and oppositional defiant disorder; positive results (lower costs and improved care quality) have already been reported for ADHD episodes.16 The prevalence of such reimbursement mechanisms is likely to increase over the next several years, fueled by many states’ commitment to having the majority of their healthcare spending in value-based arrangements.  

A few states have also introduced payment innovations for a purpose other than aligning financial accountability with MCOs and providers. These states have chosen to offer Medicaid beneficiaries with I/DDs the option of receiving needed services through self–directed care. A variety of approaches are being used under two major models. In some cases, the individuals and their families are given the right to decide who should provide care, what services are needed, and when those services should be provided. (This approach allows the individuals or their family to act, in some ways, as the “employer” of the caregivers, and is referred to as the “employer authority” model.) In other cases (under the “budget authority” model), the individuals/ families are given a capitated sum by the state and can choose for themselves how and where to spend the dollars, not only on caregivers but also on disability–related goods and services.  

Standardizing how quality of care is measured

As states have increased their focus on quality improvement through new managed care programs and reimbursement models, national quality standards for the care delivered to individuals needing BH, I/DD, or LTSS care have begun to emerge. A number of widely accepted metrics that cover some of the services required by these groups have been established. However, most of the current metrics focus on clinical services. National standards for measuring and reporting the quality of most or all of the supportive services these groups require are still in development, as are metrics that would gauge, from each individual’s perspective, the impact the services have on quality of life. A key challenge has been the difficulty in identifying objective metrics that could be used not only to assess quality but also to influence payment.  

Behavioral health. The Healthcare Effectiveness Data and Information Set (HEDIS) includes a few BH metrics, such as the percentage of patients who received a follow–up after mental health hospitalization. However, the HEDIS metrics do not address access  to care or the quality of supportive services. In 2012, the Substance Abuse and Mental Health Services Administration (SAMHSA) developed national standards that have been endorsed by National Quality Forum and comprehensively address care quality for this population.17 However, it is unclear how widely these metrics have been linked to payment by the states.  

Long-term services and supports.  Standard Medicare quality indicators exist for nursing facilities and home health, but validated national outcomes metrics for HCBS services are lacking. As a result, many states use very different measurement sets,h which makes national comparisons and validation challenging. Recognizing this gap, CMS has prioritized the creation of a uniform set of quality metrics to measure functional improvement in individuals receiving LTSS care as part of its electronic LTSS (eLTSS) effort and its Testing Experience and Function Tools (TEFT) grants. Organizations may be able to adopt and use these metrics in their payment strategies by the end of 2017.18 In addition, the National Association of States United for Aging and Disabilities (NASUAD) has adapted the National Core Indicators (NCIs, described below) to create a set of person-centered measures appropriate for the aged and physically disabled (NCI-AD). NASUAD piloted use of the NCI-AD metrics in three states beginning in June 2014 and expanded the program to 14 states in June 2015. Time will tell whether these metrics prove to be effective.  

Intellectual or developmental disabilities.  Academic organizations and interagency groups have been developing process and survey metrics for individuals with I/DDs. The National Core Indicators (NCIs),19 used by 39 states, are the most widely reported metrics. The NCIs track person-centered indicators such as independence, quality of life, and family involvement in the care of individuals with I/DDs. Given the relative subjectivity of these metrics, however, the outputs do not lend themselves easily to statistical analysis and thus make the link to payment challenging.  

Some of the emerging metrics are likely to become widely adopted national standards, especially because many MCOs are pushing for standardization across the states they serve. Once this occurs, we expect to see the movement to shift the three groups into managed care and payment innovations to accelerate. However, more work remains to be done until there are national standards that truly measure quality of care and quality of life outcomes for these individuals.  

What moves are private payors making?

Because a significant portion of private payor involvement with the BH, LTSS, and I/DD populations is through Medicaid managed care programs, our discussion focuses primarily on those programs. Note, however, that private insurance pays for the majority of all spending on BH conditions, and that Medicare and Medicare Advantage programs provide coverage for the medical needs of most individuals in need of LTSS.  

Which payors are active—and where

Medicaid/Medicare-focused carriers provide coverage for almost one-quarter of all individuals who are enrolled in Medicaid MCOs (Exhibit 4). These carriers’ overall earnings have typically been higher than those of other payors involved in Medicaid managed care.1  

However, provider-owned plans, Blues plans, and regional/local payors are increasing their presence in Medicaid managed care, as are some national players. The pace at which states have been adopting managed care for individuals in need of these services has been a key determinant of the pace at which private payors launch Medicaid managed care programs and build capabilities in that area.  

Behavioral health. The types of payors offering managed care programs covering BH services are roughly the same as those offering managed care programs to the general Medicaid population. The majority of large payors subcontract with specialty BH vendors to manage benefits for both their commercial and Medicaid lines of business. These specialty BH vendors, which include companies like Beacon Health Options (formerly Value Options) and Magellan Health, have shown strong growth over the past several years. Value Options, for example, increased its revenues 50% between 2012 and 2013 alone.2 Magellan has also reported revenue growth.3 Some large payors, how- ever, have established internal BH capabilities. For example, Centene’s internal BH organization (Cenpatico) is active in 19 states.4 Nationwide emphasis on BH care (as indicated by such actions as the introduction of BH parity laws and the ongoing shift to managed care) may lead many large payors to continue investing in internal BH capabilities.  

Long-term services and supports. Most payors have recognized the opportunity to control costs and improve quality of life for patients in need of LTSS through effective care coordination and care provision in the right setting. Large insurers are increasing their involvement in LTSS services; many of them have indicated that they see the states’ managed LTSS and duals programs as critical strategic areas for future investment and expansion of their Medicare and Medicaid lines of business.5 However, a number of comparatively small provider-owned plans and Blues carriers have, in the aggregate, already enrolled a large portion of the Medicaid beneficiaries in need of LTSS. These carriers may have advantages in their regional population knowledge, relationships at the state level, close provider networks, and, in the case of the Blues, strong local brand. Given the proposed investments from large insurers, it is likely that states (and, in some cases, their Medicaid beneficiaries) will be able to select from a wider array of MCOs that cover LTSS.  

Intellectual and developmental disabilities. Because only a small number of states offer I/DD services under managed care plans, few large payors have focused on this area. There are, of course, a few exceptions, one of them being Centene, which has a presence in three of the states that cover I/DD services.6  In 2015, Centene also acquired LifeShare, a provider of home and community-based services for people with I/DDs. Given the pace at which states have been carving I/DD services into managed care, it may not be surprising that payors have been slow to develop capabilities in this area. This may be changing, 

Exhibit 4

though—some payors appear to be thinking about innovative ways to offer services to individuals with I/DDs through their Medicaid MCOs.  

Strategic moves

The leading payors in managed care for individuals requiring BH, I/DD, or LTSS services have gained their positions primarily through acquisitions and partnerships, reflecting the difficulty of building capabilities in these areas from the ground up. For example, the two largest payors (UnitedHealthcare and Anthem) gained share through the acquisition of Medicaid/Medicare-focused players (Americhoice and Amerigroup, respectively). We anticipate that more such partnerships and acquisitions are likely to emerge, because these deals help payors gain the specialized staff and skill sets needed for increased care coordination and management. Specialized capabilities in these areas will be particularly important for payors that want to expand their service offerings to include options that promote independence and increase quality of experience (e.g., supportive employment, peer support programs). Many payors are also leveraging their existing relationships with states to begin serving these populations. (Almost 50% of the managed care states use the same MCO for more than one state program.6) As new programs are proposed and launched, payors can build on their existing relationships and knowledge of the local landscape to demonstrate enhanced capabilities.  

The federal HCBS setting rule of 2014 has also altered how MCOs must operate under contract with state Medicaid agencies. Among the capabilities MCOs must now have are person-centered planning and also employment and community integration.  

What are providers doing?

The organizations that provide services to individuals with special/supportive care needs include hospitals, mental healthcare centers, HCBS providers, home health agencies, nursing facilities, intermediate care facilities, and others. Until recently, most of these providers (with the exception of hospitals) were small, independently owned businesses. However, the rate of consolidation is increasing, albeit at a variable pace in the three needs areas. Analysis showed that the number of mergers and acquisitions for BH, home healthcare, and long-termcare services grew 19% annually between 2012 and 2014,a and the average deal value increased 25% during that time.1 About 75% of all of the deals were interstate, showing the geographic reach of this consolidation.

In some cases, consolidation is being driven by acute care providers (e.g., hospital systems, integrated delivery networks) that want to acquire or partner tightly with long-term-care providers so they can more closely integrate and better control the cost of care, especially for individuals in need of formal LTSS or other types of long-term care. A key factor the acute care providers frequently consider is whether the long-term-care providers have a similar geographic footprint, given the length of post-acute care that is often needed and patients’ desire to remain close to home. In other cases, long-term-care providers are joining forces with home health agencies.

Three primary factors underlie the desire for increased scale of specialized providers. First, new reimbursement models are intensifying the financial risks they face and compressing their margins, making operational efficiencies increasingly important. Second, the providers must be able to invest in backoffice infrastructure to measure and report quality, decrease costs, and improve operations. Third, they must build contracting capabilities with managed care companies if they are to respond to the growing adoption of managed care for individuals in need of BH, LTSS, or I/DD services.

Behavioral health. Consolidation among providers of BH services has been relatively low (only 50 deals nationwide in the past three years).1 Nevertheless, care integration has been a key trend among these providers, which are adopting a variety of models.2 The models being used most often are case management, care coordination, and colocation of services.

Physical co-location of behavioral and medical professionals is a model that is being piloted and implemented in small pockets nationwide. It has been shown to improve service access and quality, especially when coupled with integrated clinical workflows and care management. 3 As part of their effort to enable this new care model, some primary care practices have begun to develop basic capabilities for treating mild BH conditions, such as having specially trained staff on site and using standard screening tools. Co-location has the potential to help more individuals with milder BH conditions gain access to treatment; however, it does not, in and of itself, provide the intensive follow-up that is often required for those with serious conditions, who typically require additional case management.

Long-term services and supports. Home healthcare and long-term-care providers have been consolidating with each other at a faster pace (827 deals in the past three years). Many of the providers that are not consolidating are forming networks of close collaboration to build managed care contracting capabilities and undertake quality improvement projects. Private equity investment interest in long-termcare providers—particularly skilled nursing facilities and assisted/senior living communities— is also growing: real estate investment trusts made 29% of the acquisitions of longterm- care providers in the past three years, and both the number of deals and the deal prices have been increasing.4

Consolidation is occurring across as well as within provider types. For example, about 15% of the organizations that acquired home health agencies in the past three years were long-term-care providers. In many cases, the acquirers were seeking to offer the full spectrum of post-acute services. As hospital systems increasingly take on risk for readmission metrics and the total cost of care (beyond what is incurred within their own facilities), they need post-acute partners with a comparable geographic presence and the scale that would enable them to coordinate across the full continuum of care and keep total costs low. In addition, changing reimbursement regulations governing where patients discharged from a hospital can seek care have put providers that can offer post-acute care settings and services at an advantage.

At the same time, some LTSS facilities are differentiating themselves by providing smaller, more home-like environments. Some individuals prefer these settings to traditional nursing homes because of the personalized attention they receive, and these environments have been linked to better outcomes and lower cost. For example, the home-like Green House model has been shown to have lower hospitalization rates and costs than traditional nursing homes do.5

Intellectual and developmental disabilities. There is little evidence of consolidation among most providers of I/DD services. However, advocacy for deinstitutionalization and the continued movement of individuals to HCBS settings has caused more than 80% of large state facilities to close down over the past 30 years; only about 130 such facilities still exist nationwide.6

Even among HCBS providers, case management models for individuals with I/DDs have been changing in recent years. Rather than relying on their traditional single-dedicatedcase- manager model, these providers are experimenting with ways to give beneficiaries and their family members increased decision making and autonomy. Another important issue for individuals with I/DDs is the seemingly perpetual waiting list for waiver services (primarily HCBS services, not residential care) resulting from continuing budget shortfalls, provider shortages, and the widespread lack of infrastructure to support HCBS providers.

What are technology companies doing?

Private investments in and capital transactions for healthcare technologies continue to grow— in 2014, more than $5 billion was invested in healthcare technologies, up 15% to 20% from 2013.1 Because many of the new technologies are relevant to individuals needing BH, I/DD, or LTSS services, we analyzed the top 80% of investments and transactions by size to determine how much money was being invested in relevant offerings. The answer: about two-thirds of the total (about $3.3 billion), most of which was clustered into three categories: administrative tools, care plan/ data exchange, and remote monitoring. It is noteworthy, though, that investments in these three categories have remained steady or declined in recent years (Exhibit 5).

Exhibit 5

In 2013 and 2014, about 20% of all private investments focused on administrative tools, which may be especially important for providers of BH, I/DD, and LTSS services, given their generally small size. The adoption of managed care by state Medicaid programs and changing reimbursement approaches for individuals with commercial insurance are continuing the trend toward integration and imposing new requirements (e.g., quality reporting). Administrative tools help by automating many aspects of practice management, streamlining electronic health records, facilitating reimbursement requests, and more. Although many of the tools are geared to physical health and traditional medical providers, technology companies (e.g., Homecare Homebase or NextGen) are expanding their focus to address the administrative needs of supportive services providers, such as electronic health records (EHRs) designed specifically for BH treatment.

Care plan/data exchange tools and remote monitoring (which have some overlap with the administrative tools discussed above) each received about 15% of the 2013–2014 private investments. A number of mid-size players with similar technologies are developing care plan/data exchange tools, which allow providers to easily share medical data with other supportive care providers, payors, and patients. These tools could become critical enablers as states and payors increase coordination within fragmented delivery systems. However, many of them are relatively new and have not been extensively implemented, and thus there are no clear widely preferred tools currently in the market.

Remote monitoring has drawn attention as payors and providers experiment with different ways to capture real-time patient data and test whether the data can improve outcomes. At present, several smaller players are working on remote monitoring devices, but only a few companies are doing it at scale. Some providers are piloting the use of the real-time data to adjust patients’ care plans on a monthly or weekly basis. Studies have shown that remote monitoring has measurable impact in reducing readmission rates and improving early detection and diagnosis of certain conditions. 2,3 In other cases, remote monitoring is being used to check for—and address—potential gaps in care. Many states are using remote monitoring this way to help ensure that needed services are delivered in timely fashion, to gather point-of-service quality satisfaction data, and to engage the on-site care provider as a member of the care team (e.g., the provider can send real-time status updates to a care coordinator regarding changes in status that warrant intervention.

Private investment levels, although still small, are growing rapidly in several areas that have strong potential to influence care delivery for individuals needing BH, I/DD, or LTSS services. These areas include:

In addition, many states are investing, or mandating that the MCOs they work with invest, in needs assessment tools that measure how well individuals can perform activities of daily living (ADLs). These tools are particularly important to ensure that individuals with BH conditions or I/DD and those needing LTSS receive the level of care appropriate for their level of functionality; however, they remain difficult to administer logistically and sometimes show poor inter-rater reliability. As the use of these tools has expanded, new technologies have been emerging to streamline data collection and care plan development. An evolution of this concept is to utilize remote monitoring to enable real-time ADL assessment.

However, it is not yet clear which of these tools and technologies will be most effective, or what type of impact they will have on the quality of care delivered, outcomes achieved, or the affected individuals’ perception of quality of life.

What types of innovations are happening?

Across the country, state governments and other organizations have adopted a range of new approaches for delivering services to Medicaid beneficiaries with special or supportive needs. The examples given below, although far from exhaustive, demonstrate the breadth of that range. In many cases, the innovations were put in place only recently and hence proof of efficacy has not yet emerged.

Kansas: KanCare

The state’s KanCare program covers more than 90% of its Medicaid population, including those in need of BH, I/DD, or LTSS services. The state contracts with three commercial MCOs to deliver and coordinate care.1 When the program was launched in 2013, Kansas estimated that the savings it would realize over five years was $800 million; $126 million of this was expected to come from I/DD services.2 Results to date have not yet been reported, but the state is tracking not only cost data but also specific quality indicators for various patient groups to monitor the success of the program over time. If the projected savings from I/DD services are realized, Kansas has said that it plans to reinvest the money in increased supportive services.

  • Remote medical consultations, which have proved in many cases to be just as effective as in-person consultations.4 (For more information about the use of remote monitoring, see p. 24.)
  • Technologies that can help providers reduce risk and increase their overall clinical effectiveness, such as patient profiling and risk assessment tools, and population health analytics. Given their small size, providers of BH, I/DD, or LTSS services often band together to implement these solutions more effectively.
  • Decision support tools that help providers make quality-oriented, cost-effective clinical decisions at the point of care (an increasingly important issue as providers take on risk for the total cost of care).

Missouri: Health homes

Missouri has implemented a state-wide system of health homes for Medicaid beneficiaries with serious and persistent mental illness. The health homes, which are community mental health centers, coordinate all medical and BH care, help patients access services, and provide extensive follow-up. These homes have already enrolled more than 10,000 individuals. Preliminary results showed a 27% decline between 2011 and 2012 in the number of individuals who needed one or more hospitalizations.3

Ohio: Improved medication adherence

Medication adherence is an important aspect of effectively serving individuals receiving HCBS care. CareSource, an MCO in Ohio, has implemented an intensive medication management program using enrollment and claims records to identify non-adherence. It then uses a web-based interface to notify pharmacists, who follow up with patients as appropriate. The program has already produced several favorable outcomes, including reduced emergency room utilization, resulting in an estimated return on investment of 8:1.4

Oregon: Coordinated care organization (CCO) model

Oregon’s CCO model covers about 90% of the state’s Medicaid population, including all of those with BH conditions or I/DDs and those in need of LTSS.5 The model consists of 15 regional networks of providers, each of which receives a capitated payment to deliver and coordinate all care. When the model was launched in 2012, projections suggested it could save the state $11 billion over ten years and improve health outcomes.6 Although estimates of cost savings have not been released, some evidence of quality improvements has emerged: between 2013 and 2014, the program bettered its scores on more than half of the 44 metrics it is tracking. In particular, the program nearly tripled the percentage of adults screened for alcohol or substance misuse and increased the proportion of infants screened for developmental problems by almost 30%.7

Washington: Expanded employment programs

Washington is a leader in supported employment programs, having inaugurated its Medicaid- funded competitive employment program, called “Employment First,” in 2005. The program has helped an increasing number of individuals with I/DDs hold jobs (5,314 people, according to the most recent report). As a result, Washington has significantly improved its performance on I/DD National Core Indicators and has shown that the program can produce a positive ROI to the state from income taxes alone.8 Washington has since acted as a mentor to other states launching similar programs.

Remote monitoring initiatives

Remote monitoring programs for individuals in need of BH, LTSS, or I/DD services are emerging across the country. However, remote monitoring is being used somewhat differently in each of the three groups, as the examples below illustrate.

BH., a smartphone app, detects symptomatic flare-ups in individuals with mental illnesses based on their smartphone activity (e.g., lethargy, lack of social interaction). It then alerts providers to intervene before the individuals require inpatient care. Preliminary evidence from a pilot program suggests that the app reduces hospitalization rates and improves patient-reported outcomes.9

LTSS. Eleven states have implemented a remote monitoring program for Medicaid beneficiaries receiving LTSS. Many of these programs also include telehealth services. In Colorado, for example, Centura Health at Home implemented a program that includes remote monitoring of vital signs, weight, and behavioral health status, as well as a clinical 24/7 call center to monitor results and coordinate care. This small-scale program achieved a 62% reduction in 30-day rehospitalizations and a significant decrease in emergency room visits.10

I/DD. In 2011, the Ohio Medicaid program was one of the first to receive a waiver to use remote monitoring specifically for individuals with I/DDs.11 Since then, it has reimbursed for the use of such technologies as door monitors, video cameras, shock sensors, and biometric sensors, as well as 24/7 staff for monitoring and support. Participating individuals have reported significantly increased independence, security, and quality of life.


The evolution of care delivery for individuals needing BH, I/DD, or LTSS services holds promise of significantly improving quality of care and outcomes achieved while controlling costs. However, it requires that most states, private payors, and providers develop new capabilities.

A state, for example, should have a detailed understanding of the current and future demographics of the three groups within its own borders, the services utilized by each group, and variations in the cost of these services. To develop this understanding, most states will have to be able to integrate data from multiple agencies to get a holistic view of these issues. In addition, a state should have a long-term strategy for managing the three groups. A critical enabler of this strategy would be robust analytics to identify opportunities for care improvement, enable innovative reimbursement models, and measure performance (including metrics for quality of care) across its provider and managed care networks.

A state that is considering implementing new programs (e.g., health homes) as a way to address the needs of these groups should also develop expertise in program design. In particular, it should be able to accurately ascertain how well the program complements or fits within its existing managed care strategy (if applicable); focuses on the segments of the population that require enhanced care management; ties incentives directly to measurable outcomes; and ensures that providers have, or are on the path to developing, the ability to manage risk over time.

A private payor that wants to offer coverage for the full range of BH, LTSS, and I/DD services, or for just one of those segments, would need care management capabilities targeted to one or more of the three populations, as well as the tools required to manage a large network of specialized providers. The payor might also have to build the infrastructure required to support the new services (e.g., updated billing and claims systems, new utilization management policies). The extent to which it makes economic sense for a payor to invest in capabilities, tools, and infrastructure will depend on its overall corporate strategy, its Medicare Advantage strategy, the type(s) of additional populations or products it wants to develop, and the number of states it would like to offer the programs in.

The capabilities a provider would have to consider acquiring depend, in part, on the answers to two questions:

  • Does it wants to be a first mover in more closely integrating care delivery (e.g., a BH provider that integrates with a primary care, an LTSS provider that offers a range of long-term-care services, an acute care provider that wants to increase its ability to control the full spectrum of costs related to a given episode)?
  • Does it need to increase its scale before it can justify investments to improve operational efficiency and adapt to new reimbursement models?

A specialized provider that wants to join forces with an acute care system would have to prove its ability to positively influence the total cost of care or demonstrate strong willingness to learn how to do that. However, a specialized provider that wants to remain independent would require the skill to create a distinctive value proposition, especially if its market became increasingly consolidated and efficient.

Only time will tell whether the evolution of care delivery for individuals needing BH, I/DD, or LTSS services lives up to its promise. Emerging evidence suggests, however, that there is reason to hope.

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