Medicaid and Safety-Net Providers: An Essential Health Equity Partnership

Abstract

• Issue: Medicaid’s dramatic growth, coupled with its transformation into an active health care purchaser, has elevated the role of safety-net providers in ensuring health care access and promoting health equity. Given the heightened focus on equity for low-income populations, communities of color, people with complex medical conditions, and medically underserved communities, it is a particularly important time to examine the implications of Medicaid’s evolution for these essential providers.
• Goal: To describe Medicaid’s evolution as a health care purchaser, examine the implications for safety-net providers, and discuss strategies to better ensure health equity for enrollees.
• Findings and Conclusions: Safety-net providers play an essential health equity role in Medicaid by virtue of their location in high-risk communities, their obligation to serve all community residents, and the ways in which they have adapted services to meet community and patient needs. Two key strategies could strengthen the health care safety net while promoting greater alignment with modern Medicaid practice and policy: 1) ensuring that managed care organizations include safety-net providers as in-network providers for all services covered under their agreements with state purchasers; and 2) introducing value-based payment strategies that reward providers for achieving health equity goals for the communities and populations they serve.

Introduction

Medicaid operates alongside a number of federal grant programs that directly support “safety net” health care providers. The best-known programs are community health centers, the Ryan White CARE Act, the Title X Family Planning Program, the Title V Maternal and Child Health Block Grant, and programs that fund community-based mental health and substance use treatment services. Providers funded under these programs share features emblematic of health equity: a mission of service to medically vulnerable and underserved patients; location within impoverished communities experiencing elevated health risks and a shortage of medical and health professionals; and a legal obligation to serve patients without regard to ability to pay or source of health insurance.¹ These providers are experienced in adapting their services to patients who experience a variety of barriers, such as a primary spoken language other than English, homelessness, exposure to serious occupational health risks (for example, farm labor), sexual orientation or gender identity, and the presence of chronic and serious physical and mental disabilities.

Interdependence has long characterized the relationship between Medicaid and safety-net providers. The safety-net providers on whom most Medicaid beneficiaries depend for their care rely heavily on Medicaid revenue to meet the costs of providing care. The reverse is also true: because these providers serve communities and people who otherwise would lack access to care, state Medicaid agencies depend heavily on these providers as crucial partners. Table 1 presents an overview of the key federal grant programs that support safety-net providers.

In creating and expanding safety-net health programs, Congress not only assumed an interdependent relationship but sought to strengthen it. For example, in designing the original community health centers demonstration, policymakers assumed that as Medicaid expanded and the number of health centers grew, Medicaid eventually would account for 80 percent of health centers’ operating revenue.² The Medicaid–community health center relationship culminated in 1990 with amendments that established “federally qualified health center” (FQHC) services as a mandatory Medicaid benefit, along with a special payment methodology for these services to ensure alignment between the costs health centers incurred in treating Medicaid patients and actual payment rates.³

Similarly, the federal amendments enacted in 1972 to add family planning as a mandatory Medicaid benefit followed the 1970 establishment of the Title X Family Planning program, which seeded development of a nationwide network of family planning clinics serving low-income communities. Congress further strengthened the Medicaid–family planning relationship in 1981 by creating a unique out-of-network access guarantee that protects beneficiaries’ ability to receive care from the family planning clinic of their choice.⁴

Medicaid’s Evolution and the Implications for Safety-Net Providers

Over decades, Medicaid has undergone a far-reaching evolution that carries major implications for its relationship with safety-net providers. This is a particularly important time to examine these effects, given the heightened focus on greater equity in health and health care for low-income populations, communities of color, people with complex medical conditions, and medically underserved communities.

The COVID-19 pandemic, which has so disproportionately affected these communities and populations, has only deepened the need to focus on reducing barriers to accessible services that can improve and enhance health. Indeed, the Biden administration is now engaged in the development of policies that can better “ensure equitable access to health care” for the tens of millions of people who depend on the program.⁵ Inevitably, such an effort will require policies that strengthen Medicaid’s role in health care delivery while also bolstering the programs and providers on which beneficiaries’ access to care depends.

As discussed below, Medicaid’s evolution has taken two basic forms.

Medicaid Expansion and Enrollment Growth

Perhaps the single most important development has been Medicaid’s decades-long expansion, which has dramatically extended its reach into the low-income, medically underserved, and vulnerable populations that safety-net providers serve. In 1966, Medicaid enrolled slightly fewer than 1 million people; today enrollment tops 80 million.

Medicaid expansion was driven by a wide range of underlying economic, social, public health, and demographic trends that, in turn, triggered a lengthy series of eligibility reforms. In the 1970s, Congress expanded Medicaid eligibility for adults with disabilities and extended its reach to children with disabilities as well. This was followed by major reforms in the 1980s granting eligibility to low-income children, pregnant women, parents, additional groups of low-income Medicare beneficiaries, and people living with extensive health needs who could receive care in their communities. These reforms were followed by the Affordable Care Act (ACA), which recognized Medicaid eligibility for all low-income working age adults. This final step effectively completed Medicaid’s transformation into the nation’s principal source of health insurance for low-income and medically vulnerable Americans.⁶

The magnitude of the impact of Medicaid expansion on the safety net can hardly be overstated, with community health centers offering a prime example. In 1985, 24 percent of all patients served by health centers nationwide were enrolled in Medicaid.⁷ By 2020, Medicaid insured nearly half of these patients,⁸ with far higher figures in states that adopted the ACA’s Medicaid expansion.⁹ With expansion came both a greater ability to appropriately manage patient care (especially access to specialty care) along with the revenue that health centers needed to expand services, recruit staff, and modernize information systems.¹⁰

Similar trends occurred among other safety-net providers that likewise experienced major growth in Medicaid-insured patients. By 2015, Medicaid covered 26 percent of adults with serious mental illness and 17 percent of adults with substance use disorders,¹¹ becoming the single largest purchaser of behavioral health services. For these services, beneficiaries depend heavily on safety-net behavioral providers serving low-income and underserved communities.¹² Today Medicaid insures nearly half of all births, and safety-net providers, such as community health centers and clinics funded through the Title V Maternal and Child Health block grant, play an outsize role in maternal and infant health.¹³

The COVID-19 pandemic, which pushed Medicaid enrollment still higher, has further magnified Medicaid’s importance to providers serving underserved communities and populations disproportionately affected by the pandemic.¹⁴ With additional emergency funding from Congress and the support of Medicaid agencies, safety-net providers were able to rapidly add telehealth services and anchor COVID-19 testing, treatment, and immunization services in particularly hard-hit and medically isolated communities.¹⁵ These providers, in turn, became a principal source of access to immunization and treatment.¹⁶

Medicaid’s Transformation from Claims Payer to Health Care Purchaser

Beginning in the early 1970s, Congress began to encourage states to transition Medicaid from a passive claims payer into an active purchaser through prepaid health care.¹⁷ Today, managed care, as it is now known, serves as a principal Medicaid operating tool. Through active purchasing, states are shaping the accessibility and quality of health care in their detailed contracts with the managed care organizations (MCOs) that administer state plans and develop and oversee provider networks.¹⁸ In 2019, nearly 70 percent of the Medicaid population was enrolled in managed care,¹⁹ which now reaches not only the low-income population but also beneficiaries with serious and chronic physical and mental illness and disability. Increasingly, states have sought to use contracts to move toward a managed care model that reaches beyond clinical care to address underlying social determinants of health.²⁰ In the underserved communities in which Medicaid beneficiaries disproportionately reside, safety-net providers have become a staple of MCOs’ primary and specialty care provider networks.

In recent years, Congress has further expanded Medicaid’s role in developing and shaping health care.²¹ Examples include health homes for beneficiaries with long-term health needs,²² certified community mental health clinics,²³ and, most recently, community-based mobile crisis units.²⁴ Legislation now pending in Congress would extend this system of incentives to the creation of maternal health homes in response to rising maternal mortality and morbidity.²⁵ These legislative reforms are in addition to the U.S. Department of Health and Human Services’ expanded use of its special 1115 demonstration authority, which enables states to fund and shape delivery redesign efforts by pursuing Medicaid Delivery System Reform Incentive Payment demonstrations.²⁶

Safety-net providers have been integral to successful Medicaid delivery reform. Community health centers now serve one in six Medicaid beneficiaries,²⁷ and their presence in underserved communities forms the primary care foundation on which Medicaid managed care rests. Participation in managed care is now a standard operational choice for Title X family planning clinics, as family planning has come to represent a universal expectation of comprehensive Medicaid managed care plans.²⁸ With Medicaid as the single largest payer for mental health services, and its growth in substance use disorder treatment and recovery,²⁹ community mental health centers and substance use treatment providers also have been closely integrated into managed care systems.³⁰

In so many ways, Medicaid programs and safety-net providers are joined at the hip. But more could be done to strengthen the relationship in an era in which health care access and health equity have become a central concern for federal and state policymakers and in which coverage and delivery have effectively been merged through managed care systems. The COVID-19 pandemic has only intensified the importance of these relationships for the well-being of the communities and populations that have been affected the most seriously and are likely to continue to face impacts over the long term.

Finally, as the pandemic begins to recede and the federally declared public health emergency finally ends, the continuous Medicaid enrollment guarantee that has been part of the emergency also will cease. As state Medicaid programs resume normal redetermination procedures, millions of beneficiaries face the prospect of coverage interruption or loss. Safety-net providers potentially will play a key role in helping to ensure some level of care continuity for millions facing the loss of insurance.³¹

Strengthening the Medicaid–Safety-Net Provider Relationship to Promote Equity

In Medicaid’s modern managed care era, a premium is placed on clinical and financial integration, delivery and payment reform, and innovations that go beyond health care to address health itself. Two important and related policies could help attain these goals:

1. An inclusive provider network policy to ensure the fullest possible integration of safety-net providers.
2. Payment reforms designed not only to achieve greater clinical quality and efficiency but also to recognize and reward the health equity mission and activities of safety-net providers, whose role in anchoring care in underserved communities is so vital.

Promoting Inclusive Provider Contracts

Unlike commercial insurance, which typically provides partial coverage for most nonemergency out-of-network care (subject to higher cost sharing and balance billing),³² Medicaid managed care does not guarantee out-of-network coverage other than emergency care and family planning, since Medicaid beneficiaries are unable to supplement Medicaid payments with additional cost sharing.

But managed care plans also may choose to run narrow provider networks in order to hold down costs. Plans with narrow networks may offer providers network agreements that do not include all of the covered Medicaid services that those providers are qualified to furnish. For example, a plan may choose to contract with a community health center to deliver medical care but exclude an in-network agreement for Medicaid-covered vision and dental care services. This has the effect of relegating the health center to out-of-network status for the covered services that fall outside its network agreement.

Similarly, a plan may contract with independent family planning clinics for counseling, exams, and contraception but could exclude coverage and payment for HPV immunizations, diagnosis of sexually transmitted infections and treatment, and HIV assessment and counseling — instead requiring members to return to their primary care provider for these services. The effect of selective network agreements is that safety-net providers become out-of-network for covered services that they are fully qualified to furnish. In this way, plans further narrow health care access for their members and exacerbate an already significant access problem. The practice of selective contracting and narrow networks raises additional concerns for safety-net providers, since they have a federal obligation to furnish the care they offer on a free or reduced-cost basis and thus may incur costs for services that are covered but considered out-of-network.

To guard against artificial constraints on provider network size and thereby reduce the potential for network exclusionary practices that carry serious access and financial implications, states’ MCO contracts could specify that plans afford safety-net providers in-network status for all Medicaid-covered services they are qualified to furnish and that are included in plans’ agreements. Such a strategy would not only strengthen access but could also emphasize “access inclusiveness” for the high-priority populations that are frequently a special focus of safety net providers: LGBTQ youth, high-risk pregnant women, immigrants, children with developmental disabilities and special needs, and previously incarcerated adults, among other groups. A comprehensive in-network contracting strategy also would better ensure access to high-value services that safety-net providers typically offer, such as health and social risk assessments, patient supports, and assistance with enrolling in Medicaid and other health, nutrition, and social services programs. All these activities could be built into comprehensive provider network agreements.

States have two basic choices for strengthening their provider network expectations when it comes to safety-net providers. Either would meaningfully advance health equity. First, a state could stipulate a broadly inclusive safety-net provider network as a basic contract expectation. Second, it could designate broad inclusion as a desired outcome and a value indicator that could qualify a plan for:

• additional payments
• public recognition as a leader in health equity
• eligibility for a special risk-adjusted premium policy that accounts for the greater care utilization that may result from broader networks and highly accessible locations
• preferential treatment when it comes to member autoenrollment — that is, the assignment of beneficiaries who do not select a plan and who typically use fewer services.

In addition, the Centers for Medicare and Medicaid Services (CMS) could encourage inclusive network practices through access guidance that emphasizes the value of broader networks in accessible locations; identifies state options for establishing inclusiveness as an expectation or a desired practice; and emphasizes the equity value of such a strategy for highly vulnerable populations that disproportionately depend on safety-net providers because of disability, limited English proficiency, or the need for additional accommodations or culturally competent patient communication.³³

Building Health Equity into Payment Reform

State Medicaid agencies increasingly are turning to value-based payment models as a basic feature of care delivery reform. Federal regulations authorize states to build value-based payments into their managed care contracts to promote clinical quality and efficiency at the point of care.³⁴ Furthermore, payment reforms have long been a feature of Section 1115 delivery reform demonstrations.³⁵ Of special focus are models that promote health homes for complex patients and experimentation with prospective budgeting, as well as bundled and global payment approaches that can couple spending growth control with flexibility in delivering care (such as telehealth or techniques to promote more active patient self-care).

The question is how the Biden administration and state purchasers might incorporate principles of health equity into managed care payment reform models that are applicable to safety-net providers, whose core mission to serve historically underserved populations is the primary focus of the administration’s governmentwide equity policy.³⁶

Recent Payment Reform Efforts

Over a number of years, the federal government, state purchasers, and safety-net providers themselves have increasingly focused on payment reform strategies to promote greater access, better quality, and improved health outcomes while also providing revenue and creating new investment opportunities that can strengthen health care and population health integration. Congress has shown an ongoing interest in how Medicaid pays providers dedicated to reaching underserved populations. As noted above, the original FQHC payment model was designed to ensure that Medicaid payments — which have been chronically and persistently low, particularly in ambulatory care settings — would be sufficient to cover the cost of care and thereby preserve health centers’ limited grant funding for new investments, care for uninsured populations, and provision of services not covered by insurance.³⁷ Later amendments streamlined the FQHC payment model through a prospective payment system (PPS) while allowing states and health centers to collaborate on designing and testing “alternative payment models.”

Similar reforms have followed. In 2014, Congress established a special demonstration around community-based mental health services that has enabled states to test payment reform approaches with providers that, like community health centers, are obligated to serve all patients regardless of ability to pay.³⁸

In recent years, U.S. Department of Health and Human Services has pursued safety-net payment reform through initiatives such as the federally funded Health Center Resource Clearinghouse,³⁹ which supports community health centers wishing to undertake payment reform. In addition, the Center for Medicare and Medicaid Innovation (CMMI) has specifically targeted inclusion of community-based safety-net providers in demonstrations that test payment and delivery reforms aimed at improving health and health care for vulnerable populations.⁴⁰

Two other developments have generated higher interest among safety-net providers in payment reform. The first is the COVID-19 pandemic, which effectively eclipsed the face-to-face encounter model that has historically characterized provider payment. The pandemic’s initial blow was offset by supplemental federal appropriations, special programs (such as the Paycheck Protection Program and the Provider Relief Fund), and advance Medicaid payments from state agencies. Even as in-person care rebounded, revenues remain depressed for many safety-net providers.⁴¹ This has elevated interest in alternative payment and delivery models capable of maintaining revenue flow while reducing the need for providers to generate a high volume of encounters. Of special interest has been the increased use of virtual visits and telehealth, particularly by community health centers,⁴² family planning programs,⁴³ and mental health care providers.⁴⁴

The second development is recognition of the shortcomings of existing encounter-based payment models, exemplified by the experiences of community health centers. As noted, Medicaid payments to health centers are governed by the PPS requirement that seeks to align Medicaid revenue with the cost of furnishing covered services. Under this system, states set a prospective, health center–specific encounter payment rate for the year in question. However, health centers in many states do not receive their full prospective rate in the current service year (Table 2). Instead, states and managed care plans make interim payments, followed by a process that reconciles the partial interim payments received throughout the service period against the agreed-upon PPS rate for the year. Only through this two-stage process do health centers in many states receive their negotiated PPS rate.

Data reported by community health centers suggest that lagging PPS supplemental payments can amount to a large percentage of Medicaid revenue owed. Because such a large proportion of funding is initially withheld, health centers may lack the revenue needed to improve the reach of their services, add staff, and improve technology and information systems — in short, make the very investments that can promote health equity. Supplemental payments account for 27 percent of Medicaid payments received by health centers (and in some states, a substantially higher share), yet payment delays can be considerable. In Indiana, for example, supplemental payments represented 56 percent of health centers’ Medicaid revenue in 2020. Of this supplemental amount, 21 percent was paid for care furnished in prior years.

Future of Payment Reform, Health Equity, and Safety-Net Payment Reform

This is an important time to pursue payment reform that promotes quality and efficiency in caring for individual patients while also accounting for safety-net providers’ broader contributions to health equity. In treating health equity as a value-added factor, the principal consideration is payments that recognize the added value that these providers bring by anchoring health care in communities, and within populations, that otherwise would lack access to care. Without safety-net providers, health care and health equity improvement strategies would be virtually impossible: state purchasers, managed care organizations, and, indeed, CMS itself simply could not pursue an equity agenda without the health care safety net as the foundation for their operations. In this way, the value of safety-net providers transcends clinical performance for specific patients, since the benefit they bring is communitywide. Investing in these providers through a special location payment add-on thus becomes a matter of health equity, a means of addressing the additional staffing and operational costs of serving complex communities and populations.

Beyond their locations, safety-net providers bring considerable equity strengths whose costs are recognized under federal Medicaid policy and could be built into alternative payment structures. These strengths include: accessibility strategies (locations, in-home care, telehealth adapted to low-income populations); a focus on the highest-need patients with specially trained staff; accessibility modifications to promote language and physical access; coverage enrollment and renewal services and enrollment in related social services programs; and safety-net provider involvement in communitywide health improvement efforts.⁴⁵ Payment enhancements also could recognize the higher health risks posed by Medicaid patients, particularly those with multiple physical and mental health conditions.

CMS, through its Section 1115 demonstration authority and through CMMI, can pursue collaborative development of safety-net payment models designed in consultation with states, managed care organizations, providers, and consumers. CMS collaborations can include the federal agencies that play a central role in building and supporting the safety net, including the Health Resources and Services Administration (which administers the community health centers program, the Ryan White Care Act, and the Maternal and Child Health Block Grant), the Substance Abuse and Mental Health Services Administration (which administers the mental health and substance disorder services block grants), and the Office of Population Affairs, which administers the Title X Family Planning Program. A collaborative built around health equity could explore bundled and global payment models that focus on strengthening the scope of care and location and reach of safety-net providers, either generally or with an eye to high-priority populations like high-risk pregnant beneficiaries and infants during the 12-month postpartum period, people living with HIV/AIDS, and family planning programs for adolescents.

Safety-net payment reform raises several fundamental considerations. The first is upfront funding to enable safety-net providers to develop the financial, operational, and information management capacity for moving away from a traditional encounter model to a system for managing costs and investments on a populationwide basis. Doing so takes sophisticated information management technology as well as highly skilled staff, better integration with community resources, and advanced operational skills. In essence, payment reform for safety-net providers likely begins with “readiness” investments — perhaps in already established multiprovider networks — that enable safety-net providers to test and adopt new models.

A second consideration is the need for safeguards against financial risk. Safety-net providers operate under stressful financial conditions: a high number of uninsured patients and patients with complex needs, little-to-no access to better-paying commercial insurance, and limited grants. These providers have no capital reserves; their grants are not guaranteed and are not intended for use in offsetting losses. Furthermore, safety-net providers are expected to play a nimble, first-responder role, exemplified by the degree to which the Biden administration has correctly depended on community health centers to reach underserved populations throughout the COVID-19 pandemic. That is why they need nimble payment models that can quickly adjust to account for public health challenges that demand a rapid deployment of personnel and the reconfiguration of health care itself.

Some large safety-net providers may have the resources and skills to manage a portion of financial risk for certain populations and services.⁴⁶ Others may achieve additional financial strength by joining together into community practice networks that similarly may be able to assume a degree of financial risk. But like their private counterparts, smaller providers and practices are not candidates for downside financial risk. These providers would benefit enormously from investment in upgrades linked to operations, information technology, and financial management and would be ideal candidates for value-based encounter payment models that reward performance and health outcomes.

But willingness to accept exposure to significant financial losses should not be a criterion for moving forward.⁴⁷ To succeed, payment reform need not promote better care and health outcomes at the expense of the limited funds safety-net providers have to care for all patients.

Conclusion

Achieving greater health equity demands a fundamental rethinking of the ways in which care is organized and delivered, a more expansive view of what constitutes “basic health care,” and payment reforms that support models that can serve as anchors in the highest-need communities and can ensure continuity of care. Achieving these models requires partnerships between payers and the providers serving high-need communities and populations. In this regard, the Medicaid program, which so singularly reflects a blend of insurance coverage and public health funding flexibility, possesses a unique ability to undertake, in partnership with safety-net providers, payment and delivery reforms that enhance equity and access in the nation’s underserved communities.