The New Frontier in Medicaid Innovation: Financing the Delivery of Health-Related Social Needs

Social determinants of health are the social and economic conditions in which people are born, live, and work. Health behaviors and social determinants of health account for 80% of health outcomes across populations.^[1]Healthcare providers, social service providers, health policy experts, researchers, and patient advocates have known for decades that SDOH directly drive poor health outcomes and high-cost care. 

Addressing social determinant of health across communities, and the individual health-related social needs (“HRSNs”) resulting from those social determinants, has been a long-sought aspiration of many Medicaid programs. However, until recently, longstanding regulatory and programmatic barriers, have prevented states from leveraging the Medicaid program to address HRSNs.^[2] Among these restrictions, is the general prohibition of the use of Medicaid funds for many non-clinical interventions and the requirement that Medicaid 1115(b) Demonstration Waivers (a primary mechanism to test efforts at care transformation have) maintain “budget neutrality.” 

In recent years, the Center for Medicare & Medicaid Services (CMS) has taken steps to enable the testing and adoption of evidence-based health-related social needs interventions including updating the regulations governing Medicaid managed care plan administration. The greatest step forward, however, was in 2018, with the unprecedented approval of North Carolina’s “Healthy Opportunities Pilot” (NC HOP, HOP, or “Pilot”), through a Medicaid 1115(b) Demonstration Waiver, which, among other things, finances the delivery of evidence-based, non-medical interventions to qualified beneficiaries across three regional Pilot sites.

This is the first time Medicaid dollars have been authorized to fund non-clinical service interventions, enabling NC HOP to fund things like food boxes and limited rent assistance.^[3] North Carolina is over a year into the HOP’s implementation, and CMS and Medicaid administrators across the nation have been watching the program and its “rapid cycle assessments” closely. The structure of this Pilot continues to inform other state programs and indicates CMS’ evaluation of future demonstration programs. This is demonstrated in CMS’ “HRSN Framework for 1115B waivers,” published in December 2022, which provides the criteria the agency will utilize for future applications and reflects some of the lessons of North Carolina’s experiment. 

A Look Back: The Regulatory History of HRSN Interventions through Demonstration Pilots

Experimentation and the ability of states to operate as a “laboratory for democracy” has been built in from the beginning of the Medicaid program.^[4] However, while allowing for space for experimentation, there is also a critical need for accountability and stewardship of federal funds. There are two important mechanisms for controlling expenditures and maintaining program integrity and cohesion: the first is the general prohibition (promulgated by federal regulations and agency guidance) against directly funding most non-clinical interventions.^[5] This prohibition is predicated on ensuring that Medicaid remains a health insurance program, and is able to fulfill that mandate – and not as a catch-all social service entitlement benefit. 

The second mechanism is known as the “Budget Neutrality Rule.” This is not reflected in any statute or regulation but is instead programmatic practice dating back to the Carter Administration.^[6] Under the Budget Neutrality requirement, any demonstration waiver must not incur any (projected) “new costs” for the federal government. 

Budget neutrality calculation is a complex and sometimes arcane and arbitrary process.^[7] The Government Accountability Office (GAO) has (repeatedly) criticized CMS for the lack of clarity and specificity regarding its application of the Budget Neutrality doctrine, most recently in its 2017 evaluation when it concluded that federal action was needed to provide greater consistency and oversight of the rule’s application.^[8] The bottom line is the principle that Demonstration Programs are not intended to be sources of “new money” for a state’s Medicaid program – but to instead allow for the flexibility to deploy resources more efficiently.

Each of these rules reinforce program integrity, mission focus, and responsible stewardship of public funds which are most suitable where relatively minor “tweaks” or adaptations are contemplated to the status quo. But they are not suited when the objective is broad, complex system transformation, as is the case with CMS’ goal of driving the transition towards value-based care and integration of serves. Innovation and care delivery transformation generally take significant and sustained upfront investment. Budget neutrality has thus been a significant stumbling block in past Demonstration Pilots.^[9]

NC HOP in Focus

Enter the paradigm change. Under the Pilot, CMS allocated $650 million, divided between (1) the delivery and payment of 29 evidence-based services and (2) infrastructure investment and capacity development. Available Pilot services cover five domains: Housing, Nutrition, Transportation, Interpersonal Violence Support and Toxic Stress Support; and Cross Domain services.^[10]

The Pilot launched with the delivery of Nutrition support (food boxes, referral to food banks, assistance with public benefit enrollment) in March 2022 across three primarily rural, regional Pilot sites covering 33 counties in North Carolina. Three locally based nonprofits with experience serving as bridges between community organizations and resources and the local healthcare systems were tasked as Network Leads, responsible for administrating the Pilot in their respective regions. That responsibility included developing regional networks of local organizations, known as “Human Service Organizations,” to accept referrals and deliver services, and ensuring that organizations had the capacity to not only deliver (and bill for) services but to meet Medicaid contracting compliance requirements. They also manage the processing and oversight of all invoicing and payments between HSOs and the managed-care organizations (known as Pre-Paid Health Plans) in addition to conducting program integrity and operational oversight of the programs administration. Finally, and importantly, the Network Leads serve as a liaison across stakeholders, including the managed-care organizations (known as “Prepaid Health Plans”), the State, and the network of HSOs, enabling rapid-cycle performance evaluation and troubleshooting of operational issues “on the ground.”

Participation in each of the Pilot regions operates on a “no wrong door approach” for Medicaid beneficiaries residing in the Pilot regions: referrals can be self-initiated by the individual, by the individual’s provider or case manager, the Pre-Paid Health Plans, and by community-based organizations.^[11] Referrals are primarily conducted through the statewide public HSO directory, NCCARE 360, which also functioned as the primary data exchange platform and referral record across the Pilots. In anticipation of the Pilot’s launch, North Carolina developed a standardized screening tool to assist in the identification and referral or eligible individuals.

Given the complexity of the experiment, North Carolina deployed Pilot services in a staged approach. This enabled stakeholders to focus on one domain at a time and to apply the lessons of one implementation cycle to the next in an iterative manner. The last service domain (Interpersonal Violence Support) rolled out in April 2023. Over a year into implementation, North Carolina’s Department of Health and Human Services reported that over 61,000 services have been delivered to more than 8,500 beneficiaries. The majority of those services were delivered between January and May of 2023, following a concerted focus to raise awareness of the Pilot and ensure ease of access.^[12] Across all Pilots sites and services approximately 90% of those services related to food support.^[13]

CMS’ New HRSN Framework for 1115(b) Waivers

Since the launch of HOP, CMS has approved waiver programs in other states directly financing delivery of health-related social needs services.^[14] CMS has further signaled that integration of HRSN is the way of the future, a direction that aligns closely and intersects with the Biden Administration’s focus on Health Equity, as articulated by the agency’s Framework for Health Equity 2022-2023. Last summer, the agency approved the first data measures for evaluating interventions related to social determinants of health. In December 2022, during a regularly-scheduled All State Medicaid and CHIP call, CMS issued guidance on the criteria for 1115b waiver applications, including health-related social needs interventions. 

Under this framework, CMS preserves state flexibility in the design and adaptation of Demonstration Pilots, identifying requirements for applications involving the delivery of housing or nutrition supports. In addition to the requirement that interventions be evidenced-based and tailored to address a demonstrated population need, this also includes specific, objective, financial and operational criteria: 

• The Pilot cannot spend over 3% of the total budget on HRSN interventions.
• Medicaid funding cannot be used to supplant existing State spending. State spending on related social service programs must be maintained or increased during the course of the funding. 
• Infrastructure and capacity development budgeted funds cannot exceed 15% of the total HRSN waiver budget.
• Pilot programs integration with existing social services, including federal assistance programs and community-based organizations.^[15]

Further drawing upon North Carolina’s “Rapid Cycle” evaluation model, which both preserved flexibility for the state to adapt while ensuring rigorous data collection and evaluation, CMS also outlined the minimum expectations for programmatic monitoring and evaluation. This defined the questions that would need to be addressed in future waiver applications, including whether the intervention(s) (1) effectively address an unmet HRSN; (2) reduce avoidable utilization of health services (e.g. ER visits and institutional care); and (3) otherwise improves physical and mental health outcomes across the tested population.^[16]

Confirming the “North Carolina Model” Approach to Budget Neutrality Benchmark 

However, the most impactful element of the new framework is that it codifies the method used in the North Carolina HOP Pilot for “getting to” budget neutrality. Budget “offsets” are no longer required. Instead, CMS will include the cost of the proposed HRSN services and infrastructure assessments when calculating the benchmark (“without waiver”) spending to determine budget neutrality.^[17] This change in the calculation ensures that the benchmark from which budget neutrality is determined is based on the system that will be built rather than the paradigm of the past. 

Going Forward

CMS has unequivocally signaled its commitment to furthering care delivery transformation and the integration of social service supports and organizations. With the publication of new guidance on the “HRSN Framework,” as it applies to 1115(b) applications, CMS has removed one of the greatest barriers to “successful” implementation and innovation: the need to demonstrate immediate, short terms savings while undertaking system redesign and transformation by revising the way in which budget neutrality requirements will be applied. 

As North Carolina approaches the conclusion of its Pilot next year, it raises the question: what next? While 1115(b) waivers provide the flexibility and funding to test new interventions and delivery models – by design and intent – they are finite programs. Guidance from the North Carolina Department of Health Benefits (the State Medicaid Agency) clearly indicates an intended pathway to adopt Pilot services by the prepaid health plans as part of their plan through the acceptance of In Lieu of Services or as a Value-Added service. But will that be enough to sustain the Pilot’s infrastructure and services? And what is the time horizon for demonstrating the effectiveness of interventions and creating the objective criteria necessary to ensure effective integration into (and administration by) managed care organizations?

Judging from North Carolina’s approved waiver amendments, it is evident that North Carolina is preparing to expand the Pilot. As of July 2023, CMS approved a waiver amendment, allowing for the extension of existing capacity development funds (initially reserved for the first two years of implementation) through to the end of the Pilot.^[18] It also authorized North Carolina to appoint additional “managed-care entities” (excluding managed-care organizations or Pre-paid Health Plans) to administer Pilot services as Network Leads. Another amendment allowed for the expansion of Pilot services to new populations residing within the designated Pilot regions: the State’s Children’s Health Insurance Program (S-CHIP) beneficiaries (aged 6-19 with a family income up to 211% of the federal poverty line) and to expand conditions for eligibility to include additional chronic conditions and where a beneficiary has previously been placed in foster-care services.^[19]

As North Carolina continues and expands the Pilot, and as other states seek to implement new or expand existing HRSN initiatives, it is imperative to evaluate how these programs will be sustained. While CMS has emphasized the need for initial investment in infrastructure and capacity development, it is reasonable to expect that ongoing investment, beyond payment for services, will be needed to ensure continued capacity and quality. While value-based payment models, such as shared-savings arrangements with Accountable Care Organizations or the newly announced Making Care Primary prospective, population-based payments, provide funding sources that providers may use to sustain innovations, HRSN interventions rely heavily on community-based, nonprofit social service organizations.^[20] These organizations do not currently benefit from VBP arrangements or have significant sources of funding to continue to invest in infrastructure, personnel, or other operational requirements needed to continue to provide services to a growing population eligible for services. It is paramount that HRSN initiatives include from the outset an intentional process to ensure funding sustainability beyond the initial investment. That includes funding to support not only direct services, but also the infrastructure necessary to sustain the evolving, integrated healthcare ecosystem. The bottom line is that the flexibility enabled by CMS’ continuing evolution of longstanding programmatic guidance affords new opportunities to test and implement innovative solutions and to expand those models rapidly, but just as important, and the frontier on the horizon, is how the agency adapts when evaluating the success (or failure) of these demonstrations and the degree to which there is a sustainable foundation for continued growth after a Demonstration ends.

Copyright 2023, American Health Law Association, Washington, DC. Reprint permission granted on August 15, 2023.