On April 4, another legal layer to introducing Regional Care Organizations (RCO) into Alabama officially hit the books. Senate Bill 459 set the stage for publication of rules and other actions that will transform the state’s Medicaid Agency from a fee-for-service system into a capitated, coordinated care model.

“The new law is based on considerable input and discussion by physicians, hospitals and other healthcare providers,” says Don Williamson, MD, State Health Officer and Chair of the Medicaid Transition Task Force.

The Agency expects over a half million people — around two-thirds of the state’s Medicaid population — to be part of the new RCO system. Exemptions include long-term and institutionalized care, such as hospice and nursing home patients, along with anyone dually enrolled in Medicaid and Medicare.

“This is the attempt to push results-oriented medicine into Medicaid,” says Bill Cockrell of Cockrell and Associates. “The RCO will theoretically be set up to pay based on performance. To me, all that is good.”

The new Medicaid model creates five regions in the state with the expectation — but not a limitation — of one RCO per region. RCOs will receive a set per-patient amount each month from Medicaid. The RCO then assumes the financial risk of providing quality care for every beneficiary in their region.

Providers will contract directly with RCOs for treating Medicaid patients. “We are creating a market where we hope to have better care at a lower cost, in a market created by the various providers working to develop and implement the RCO,” Williamson says.

The law protects providers from receiving less than Alabama Medicaid’s current fee schedule for procedural codes. However, it opens up the option for RCOs to offer other forms of compensation to providers.

“Shared savings is a common one, and Medicaid uses that now,” says Robin Rawls, director of communications for Alabama Medicaid Agency. “Basically, if you help save me money, I’ll share what I save. The main thing is that the savings have to come from not denying care, but helping patients become healthier.”

An RCO run by a hospital may offer a provider use of equipment or services for their practice’s entire patient base, offer software or access to their claims processing department, or offer a buy-in to the RCO itself. “It creates an environment where lots of things are possible,” Rawls says. “The concept is to be innovative with options that we as a government entity can’t get.”

With hospitals expecting to step in as RCOs in Alabama, Cockrell sees dilemmas for them. One will be a lack of data to identify the high-quality, low-cost providers needed to make the model fiscally feasible. The other will be excluding those who don’t make the mark.

“They’re going to be reluctant to not include those doctors who are on staff because of the potential of losing referrals to all their patients who aren’t on Medicaid,” Cockrell says. “RCOs have to be willing to tell physicians that you’re not meeting the necessary standards.”

The newest legislation amends the 2013 Alabama RCO law to protect providers in several ways. The Agency will establish the minimum reimbursement rates along with reviewing all RCO contracts and agreements. It also revises the membership of and eligibility requirements for an RCO’s governing board and requires the creation of a provider standards committee by each RCO.

Though the rules and regulations are only beginning to trickle in, potential RCOs must apply by October. At that point, they’re designated as Probationary RCOs. “A year from that, they must prove they have the finances to pull it off,” says Rawls. “We’ll have rules for such things and how they must demonstrate that they meet those rules.”

By October 2016, those RCOs that fulfilled the requirements will transition to official status.

“The big take-away for Medicaid providers is to consider now how you will practice in this new environment,” says attorney Andy Andrews with Sirote & Permutt’s healthcare group.

He recommends providers assess three aspects of their practice right now: their Medicaid patient load, what the referral sources in the area are doing about the transition, and what others in their specialty are doing.

“RCOs have lots of flexibility to meet broad goals described in the law. It’s a good idea to ask what role your practice will play in addressing some of those goals,” Andrews says.

Mergers or other combinations could be an answer, especially among smaller entities. They keep quality measures high and costs down through sharing back-office functions, equipment costs, and the ability to contract as a group. “Step one for this is making sure you have a Certificate to Collaborate,” Andrews says. Otherwise, antitrust issues could arise. The online application for the certificate can be found at www.medicaid.alabama.gov.

“This is happening,” Andrews says. “The structure of Medicaid in Alabama is changing. So it’s a good idea to ask yourself now, what’s the best way for your practice to participate?”