CHART Model Community Transformation Track: Value Proposition for States

 Anne Karl and Edith Coakley Stowe, Manatt Health

The one in five Americans who live in rural areas too often have less access to care and worse outcomes than their urban counterparts. Rural health care providers struggle to meet the needs of the people they serve, who are older and more burdened by chronic conditions, and face immense financial challenges and perennial staffing shortages—particularly in primary care and behavioral health.

Federal and state policymakers have long sought to address these challenges to improve rural health care. In August, the Centers for Medicare and Medicaid Services (CMS) announced its latest effort to strengthen rural health care across America: the Community Health Access and Rural Transformation (CHART) Model. The CHART model will be a voluntary opportunity for rural communities to test care transformation supported by payment reform. In September, CMS released the full Notice of Funding Opportunity (NOFO) for one of the two options under the CHART model. The NOFO provides additional details on the so-called “Community Transformation Track” modeled after the hospital global budget payment systems in Maryland and rural Pennsylvania. (Details on a second CHART track with an Accountable Care Organization (ACO) structure are expected in the coming months.) Up to 15 regions will be selected, with up to $5 million in grant funding available for each region participating in the CHART Community Transformation Track in addition to the new Medicare payment model for hospitals.

The timeline for interested parties to get involved is now closing in, with applications due to CMS on February 16, 2021. This expert perspective reviews the key features of the model and outlines considerations for states.

CHART Community Transformation Track Overview

The CHART Community Transformation Track offers states, rural communities, and their hospitals an intriguing opportunity to restructure hospital payments to enable broader facility transformation to best meet the needs of the community. This model is intended to free participating facilities from financial constraints that too often require hospitals to make decisions that stabilize revenue, rather than meet community need, like emphasizing higher-reimbursing specialty services over essential primary care and behavioral health capacity or maintaining inpatient beds to meet Medicare conditions of participation, even when not truly needed to serve the community. The CHART Community Transformation Track is predicated on the idea that with a predictable funding stream, hospital-based providers will be able to reorient services to better meet the needs of their communities while also becoming more financially stable.

The CHART Community Transformation Track will combine community-wide transformation planning with payment changes to rural hospitals over seven years. A “Lead Organization”—which can be a provider organization, payer, or the state itself— will coordinate efforts across a target community to design and implement a health care transformation plan for the community. The transformation plan must focus on at least one of the following areas: behavioral health, substance use disorders, chronic disease management and prevention, or maternal and infant health. CMS is specifically allowing transformation plans to include conversion of hospitals with inpatient units to freestanding emergency facilities, where appropriate for the community.

The Lead Organization has flexibility to define the “community” for the purposes of the model.  A “community” is defined as one or more counties or census tracts (may be contiguous or non-contiguous), all of which must be classified as rural, as defined by the Federal Office of Rural Health Policy. At the time of application submission, the region must have at least 10,000 Medicare fee-for-service (FFS) beneficiaries whose primary residence is within the region. Participating facilities must be located within the community or serve a large number of residents of the community. For the purposes of the application, facilities need only to express interest in the model; final commitments to the payment model would happen later in the process.

The model includes three components:

1. Funding to Establish Partnerships and Technical Support. The planning/administrative funding associated with the model (up to $5 million for each region, with up to $2 million available upfront) will support the work of the Lead Organization. The Lead Organization will be expected to lead transformation planning activities as well as procure the necessary technical supports to help the hospitals’ successful transition to the model. The Lead Organization could be a state Medicaid agency, but if it is not, the Lead Organization must share a portion of its funding with the state Medicaid agency, though the Lead Organization and state would negotiate the exact funding arrangement.

2. Regulatory Flexibility to Support Delivery System Redesign. CMS will provide participating hospitals with various regulatory flexibilities, many of which have been rolled out in other Center for Medicare and Medicaid Innovation (CMMI) models, but others of which are new. Regulatory flexibilities will include waivers of the Skilled Nursing Facility 3 day rule, telehealth [after the end of the current public health emergency (PHE) flexibilities], and care management home visits. Engagement of Medicare beneficiaries through transportation reimbursement, cost-sharing waivers and gift card rewards will be permitted.

3. “Capitated Payment Amount” Payment Model. CMS will pay fixed, prospective payments to participating hospitals that will replace Medicare fee-for-service. The stable revenue stream [called the “Capitated Payment Amount” (CPA) although it is not strictly speaking “capitated”] is intended to incentivize participant hospitals to lower fixed costs, and engage in activities that improve quality of care and best serve the needs of the community. The value proposition for facilities is payment stability and predictability, as well as the freedom to invest in new service lines. The COVID-19 PHE, under which there have been sharp swings in utilization and therefore revenue, has generated interest in such payment models. The Medicare[1] CPA will be calculated by determining baseline Medicare FFS revenue based on historical expenditures; applying prospective adjustments to account for inflation and other factors; applying a discount (starting at 0.5 percent in the first year) to ensure savings to the Medicare program; and applying mid- and end-of-year adjustments (e.g., to account for population fluxes). While no hospital will be eager to accept a discount on Medicare payments, the predictability of the payment levels may be sufficiently enticing, especially for smaller facilities prone to large shifts in payments. Hospitals can also earn additional performance-related payments, though there are few details on these payments at this time.

Key Considerations for States

For any CHART Community Transformation Track application to be successful, the Lead Organization (if not the state) must demonstrate through a memorandum of understanding that the state’s Medicaid agency is engaged and is committed to implementing an aligned alternative payment model in Medicaid. The Lead Organization must pass through a portion of its eventual grant dollars to the state to support implementation efforts. For states considering an application or support for an application, the key considerations are:  

1. Regional Readiness. Shifting to a global budget-like payment model is a significant undertaking, with potentially long-lasting implications for the participating hospitals and their communities. States will want to consider whether the conditions are right for taking such a leap. Key considerations include:
   1. Does the region have strong rural hospital leaders with an appetite for change?
   2. Does the community have a clear sense of the transformation priorities and what it would take to act on those priorities?
   3. Do the would-be participating rural hospitals have enough population health infrastructure on which to build stronger care management and outpatient services?
   4. Does the region contemplated have enough Medicare fee-for-service beneficiaries to meet the minimum standards? (This may prove challenging in states with significant Medicare Advantage penetration.)
   5. Does the state Medicaid agency have the capacity and capabilities to design and implement the model? Does the state have the staff availability and expertise to participate actively in designing the payment model for Medicaid and other payers? Does the state believe its data and IT systems can accommodate a novel payment methodology?

2. Implementation of Aligned Medicaid Payment Model to Rural Hospitals. The state Medicaid agency will need to stand up the aligned payment model to hospitals by mid-2023, at which point at least 50 percent of each participating hospital’s Medicaid revenue will need to be derived from the new payment model. Thus, while there is some planning time available, states need to put the following “stakes in the ground” as part of the forthcoming application:
   1. How closely will the state seek to align with the Medicare payment methodology?
   2. Will the model be implemented in managed care, fee-for-service, or a combination?
   3. If implementing through managed care, how prescriptive will the state be on the plans regarding payment design, and will the state offer performance incentives to plans under the Managed Care Rule?
   4. Will the model require an amendment to an existing 1115 waiver, or a new 1115 waiver, or will the state submit a State Plan Amendment?

As part of the application, states must commit to working individually with the Center for Medicaid and CHIP Services (CMCS) on Medicaid implementation starting in mid-2021.

3. State’s Desire to be an Early Adopter on Rural Health Reform. The Community Transformation Track will be operationally challenging and at this time includes key unknowns for hospitals. Nevertheless, it presents an opportunity for states to take a leadership role nationally on rural health reform. Beyond the Medicaid payment model, each state is required to be fully “at the table” in the implementation of the model locally, as a member of the Advisory Council; and participating states will become a national learning community that will likely become a leadership group for CMS and Congress to draw on as further rural payment reform is contemplated. At a time when financing for rural health care is due for an overhaul at the federal level and the COVID-19 crisis has moved the issue further up the policy agenda, states with relatively large rural populations may want to consider making an application to shore up a role as leaders and influencers nationally.

For the right communities and facilities, the CHART Community Transformation Track presents an interesting opportunity to restructure rural hospital payments and enable broader transformation to better meet the needs of rural communities. Optional non-binding letters of intent are due January 18, 2021 and applications are due February 16, 2021. More details are available in the Notice of Funding Opportunity.

[1] Excluding Medicare Advantage. Medicare Advantage plans may participate as independent payers aligned with CMS.