The U.S. Department of Health and Human Services Centers for Medicare & Medicaid Services (CMS) announced late last week that it has selected the Commonwealth of Massachusetts to test a new model for serving dual Medicare/Medicaid recipients.

The demonstration will be of keen interest to revenue cycle professionals as the test also will include two of the innovations of payment reform, capitation and patient-centered medical homes (PCMH).

The demonstration covers “dual eligibles” — the more than 100,000 commonwealth residents ages 21-64 who qualify for both Medicare and Medicaid because they fall under the income guidelines of the former and also have a significant disability required for the latter. The Massachusetts Duals Project “seeks to provide Medicare-Medicaid enrollees with a better care experience by testing a person-centered, integrated care program that provides a more easily navigable and seamless path to all covered Medicare and Medicaid services,” according to the CMS fact sheet released about the test.

The project will also demonstrate the effectiveness of the capitated model of payment, “in which a State and CMS contract with a health plan or other qualified entity that receives a prospective, blended payment to provide enrolled Medicare-Medicaid enrollees with coordinated care,” as well as the managed fee-for-service model “in which a State and CMS enter into an agreement by which the State would be eligible to benefit from savings resulting from initiatives designed to improve quality and reduce costs for both Medicare and Medicaid.”

According to the Massachusetts proposal, the CMS and the commonwealth’s Medicaid program would coordinate payment to an Integrated Care Organization (ICO) that will administer the care for the duals. Each enrollee in the program would then be assigned to one of the 46 PCMHs that are currently being established as part of an earlier CMS project. The ICO, as managed by CMS, will determine an “actuarially developed, risk-adjusted, prospective, blended, capitated monthly payment to the ICOs for all the enrollees, and the ICOs will then do the same for the PCMHs.

The project documents (proposals, white papers, fact sheets, etc.) reviewed for this article do not indicate what mechanisms will be used to handle payment for services to the duals, either by the members of the PCMH or non-PCMH providers, such as hospitals, laboratories or outside specialists.

What the project documents do indicate is an expectation of significant savings using this new managed approach. “The lack of alignment between Medicare and MassHealth [the agency that manages care for the commonwealth's Medicaid population] coverage rules creates incentives for providers to shift costs by transferring patients from one service or setting to another,” states the Massachusetts proposal for this project. “In addition to not serving members in the best way possible, this shifting increases both state and federal spending over time.” By consolidating payment from Medicare and Medicaid, and creating an ICO bureaucracy to manage those funds, the theory is that this will result in savings over current spend of more than $300 billion per year.

According to CMS, the program will officially begin in April 2013, at which time the duals can enroll with one of the PCMHs. Those who do not enroll by October will be assigned to a PCMH. The program is voluntary, and dual Medicare/Medicaid patients can continue with the traditional fee-for-service model if they so choose.