California’s Marketplace Innovations: Driving Health Plan Accountability For Quality And Equity

The past decade has been marked by dramatic expansions of coverage driven by the Affordable Care Act (ACA), significant changes in the rules governing how insurers offer coverage, and a consensus among policy makers and purchasers that health care at all levels must be better anchored in rewarding and paying for “value” as defined by cost, quality, and increasingly, equity. This focus on value has resulted in a wide array of measurement and payment initiatives targeted at providers, from physicians to medical groups to hospitals. While patients assess value through the lens of their preferences and experiences, central to the concept of health-system value is the need to measure and reward care based on cost, quality, and equity at a population, not individual, level.

In our fragmented health care financing and delivery system, we have given health plans the primary responsibility to ensure the provision of high-quality care for populations. This is true across a wide swath of health care purchasers: the federal government for Medicare Advantage and Medigap enrollees; states and the federal government for Marketplaces and the vast majority of Medicaid enrollees; and—beyond those “three Ms”—many public and private entities that purchase for employees, Taft-Hartley Trust members, and others.

While the nation has made big strides in expanding coverage to the benefit of millions of Americans—and to the benefit of health plans—we have largely failed to improve health care outcomes, foster healthier communities, or substantively address disparities. While there are examples of staff model health maintenance organizations that have been able to achieve high levels of performance and even reduce all-cause mortality compared to nationwide trends, these are unfortunately the exception to the rule. In the context of substantive financial incentives tied to quality star ratings, Medicare Advantage plans have generally outperformed traditional Medicare, but the ratings have been critiqued as being opaque and focused primarily on process rather than outcome measures. The wide variation in care and the failure to improve overall quality outcomes has not been from lack of effort on the part of many purchasers and providers.

The past 20 years has seen purchasers drive measurement efforts as well as pay-for-performance and value-based payment programs with mixed results. More recently, the COVID-19 pandemic has heightened the nation’s awareness of longstanding issues of health equity and disparities. Unfortunately, these myriad activities have failed to lead to systemic improvements in care.

Our hypothesis is that a major reason for this failure is that health plans—which have been given the resources and responsibility to manage care for our population(s)—have generally not been held accountable for improving care in ways that are meaningful to their bottom line. In addition, the multiplicity of measures and the individualized approaches to addressing quality and equity from both public and private purchasers have created administrative burden for plans and a patchwork set of often inconsistent and diffuse signals for the delivery system.

We assert that health plans will never become reliable engines for quality improvement and disparities reduction if purchasers do not create clear economic incentives that make this work a priority. Financial consequences need to be substantial, tied to a small set of epidemiologically important measures that can be improved by effective access to and coordination of care, and monitored and enforced by an aligned set of purchasers.

Covered California is a state-based Marketplace formed in response to the ACA, currently serving about 1.8 million Californians. Since its founding, Covered California has been an “active purchaser,” which has included negotiating with and selecting participating health plans, requiring all selected plans to offer (only) a common set of patient-centered standardized benefits, and imposing contractual obligations on plans to address quality and disparities as well as engage in payment models to support better care for their enrollees. Despite these efforts, over the past eight years, the quality of care for Covered California’s enrollees—like that of Americans at large—has not appreciably or consistently improved.

This lack of progress has led Covered California to embark on the major new contracting and accountability effort described in this article that consists of two interrelated strategies. First, the Selective Contracting for Quality establishes a minimum level or “floor” of quality performance for existing carriers to participate in the Marketplace. Second, the Quality Transformation Initiative (QTI) incentivizes high levels of performance for a parsimonious set of measures selected in concert with other public purchasers. These measures are clinically important, disparities’ sensitive, and intended to encourage health plans to invest in systems to better coordinate and integrate care for enrollees. Our goal in sharing these strategies is to spur purchasers, both public and private, to work together to make quality and equity business imperatives for health plans.

Quality And Equity: Don’t Mistake Activity For Progress

In 2001, the Institute of Medicine released the landmark report Crossing the Quality Chasm documenting that only about half of Americans received recommended care and setting forth six aims for the health care system: care that is Safe, Timely, Effective, Efficient, Equitable, and Patient-Centered (often referred to as STEEEP).

In the intervening 20 years, there has been a proliferation of measurement efforts anchored in the logical premise that you can’t improve what you can’t measure. Organizations such as the Centers for Medicare and Medicaid Services’ (CMS’s) Center for Clinical Standards and Quality, the Agency for Healthcare Research and Quality, the National Quality Forum, the Joint Commission, and the National Committee for Quality Assurance, among others, have played a critical role in advancing the measurement enterprise.

There have been clear successes, particularly in the realm of hospital quality and safety such as the CMS-led Partnership for Patients, whose nationwide focus on hospital-acquired conditions resulted in an estimated $7.7 billion saved and 20,700 inpatient deaths avoided over a four-year period. However, the escalation of measures and measurement efforts has been overwhelming and has led to a system that has been decried as “ineffective, expensive, burdensome, no longer credible, and does not measure health or the outcomes of health care.”

Calls for simplifying quality measurement in health care are not new, and we have arguably made progress: CMS’s measurement portfolio has been whittled down from 905 measures in 2015 to 686 measures in CMS’s 2021 Quality Measures Report. Due to the sweeping nature of CMS funding, these measures necessarily span the entire gamut of delivery settings, specialties, providers, and payers. However, the majority of the measures are process or structure measures rather than related to outcomes or cost, and it is unclear that the resulting improvement is meaningful for population health outcomes or disparities. Moreover, commercial payers may require reporting on measures that are not included in the CMS portfolio.

For the major conditions that are the leading drivers of preventable morbidity and mortality—hypertension and diabetes in particular—progress has stalled and even declined, despite improvements in coverage and unchanged access to care. In terms of equity, in tracking 182 measures with racial/ethnic disparities at baseline over nearly two decades, the National Healthcare Quality and Disparities Report found that disparities improved over time in only 14 cases. Some would argue that, at this juncture, measuring and reporting quality has become a barrier to actually improving it, diverting resources from the provision of care itself.

Despite good intentions and much activity, there are multiple reasons that measurement and payment initiatives have not led to sustained and widespread improvement. Regardless of the reasons, what is clear is that doing more of the same will not achieve different outcomes. Covered California’s approach of applying significant incentives, targeting a small handful of important population health measures that can be improved through coordinated, integrated health care, and aligning those efforts with other purchasers, is an effort to chart a different path.

Covered California’s Approach To Plan Accountability For Population Health

All Marketplace health plans, including Covered California’s, are subject to CMS’s Quality Rating System (QRS), which comprises more than three dozen measures, including a subset of about two dozen clinical quality measures. Despite public reporting and performance guarantees tied to QRS performance, Covered California’s health plan performance has not consistently or substantively improved over time. Only two of 11 plans regularly receive four or five stars for clinical quality, and both are notably anchored in integrated delivery systems.

In the context of developing a new model contract for 2023–25, Covered California developed two novel, interrelated strategies to increase health plan accountability and spur improvements in quality and population health.

First, the Selective Contracting for Quality creates a minimum level of quality performance for participating health plans. Health plan products that perform below the 25th percentile of national performance on the QRS clinical measure set for two consecutive years will have two years to improve their performance. This means that after four consecutive years of poor performance, the health plan product will be removed from the Marketplace. Importantly, because of the fundamental need for health plan competition and choice in the Marketplace, this policy will not be applied in those regions where fewer than three carriers would remain after health plan product removal; at this time, more than 81 percent of enrollees have a choice of four or more plans. To our knowledge, this is the first “quality threshold” for health plan participation in a Marketplace.

Second, the Quality Transformation Initiative aims to improve population health for all Californians by tying significant financial consequences to health plan performance on a few epidemiologically important clinical measures chosen in concert with other public purchasers: blood pressure control, diabetes (hemoglobin A1c) control, colorectal cancer screening, and childhood immunizations. In addition, health plans are required to report on depression screening and treatment for opiate use disorders. QTI is guided by six core principles:

Make Quality Count

The foundational goal of QTI is to make improving quality and equity a business imperative for health plans. In the first year of the program, health plans are at risk for having to make quality improvement payments equivalent to approximately 1 percent of total premium, growing 1 percent a year up to maximum of 4 percent of premium in the fourth year of the program. For comparison, 4 percent is significantly larger than either the average health plan profit margin in the Marketplace (as well as small and large group coverage) or Covered California’s total annual health plan assessment (currently 3.25 percent) that funds the exchange’s operations. To the extent that health plans load QTI payments into their premium costs, they are likely to change their price position relative to other plans and experience a drop in enrollment.

Any funds that are collected will be used to offset and lower the annual health plan assessment for all participating plans. This means that plans with high quality that do not make any QTI payments may experience a net financial benefit from both a lower Marketplace assessment and the potential for more enrollment.

Less Is More

Given the widespread concern for measure overload, Covered California’s aim was to select a parsimonious (fewer than 10) set of measures that were established, feasible, and readily available with minimal additional burden on providers and health plans. Starting from an initial set of 28 measures representing key quality domains (including patient experience, use, and cost), each measure was assessed on strength of evidence base, expected benefit, breadth of impacted population, and opportunity for improvement in both overall performance and in disparities reduction.

Measures That Matter

In assessing measure candidates, Covered California considered key drivers of population health morbidity and mortality—namely, cardiovascular disease and cancer—as well as the ability of a measure to be improved by access to high-quality, coordinated health care. Given this attention on health outcomes and the need for established comparators, we narrowed our focus to four measures within the QRS clinical measure set (exhibit 1). Behavioral health was a priority as well, but the current QRS measures in that realm are not widely used by other purchasers. As a result, we decided to include non-QRS behavioral health measures for reporting only, with the intention of adding financial consequences to performance on behavioral health measures in the future.

Exhibit 1: Quality transformation initiative measure set

Source: Authors’ analysis. Notes: (1) Centers for Disease Control and Prevention (CDC). High Blood Pressure: Facts About Hypertension. Atlanta (GA): CDC; 2022; (2) California HealthCare Foundation. California Health Care Almanac. Oakland (CA): 2015 Apr; (3) CDC. Polaris: Health Topics—Heart Disease And Heart Attack. Atlanta (GA): CDC; 2021; (4) Babey SH, Wolstein J, Diamant AL, Goldstein H. Prediabetes in California: Nearly Half of California Adults on Path to Diabetes. Policy Brief, UCLA Center for Health Policy Research. 2016 Mar; (5) American Diabetes Association. Economic Costs of Diabetes in the U.S. in 2017. Diabetes Care. 2018;41(5):917-28; (6) CDC. An Update on Cancer Deaths in the United States. Atlanta (GA): CDC; 2022; (7) Doubeni CA, Corley DA, Quinn VP, Jensen CD, Zauber AG, Goodman M, et al. Effectiveness of screening colonoscopy in reducing the risk of death from right and left colon cancer: a large community-based study. Gut. 2018;67(2):291-8; (8) California Department of Health Care Services. Childhood Immunization Status—Combination 3. Sacramento (CA): DHCS; 2021; (9) Ettman CK, Abdalla SM, Cohen GH, Sampson L, Vivier PM, Galea S. Prevalence of Depression Symptoms in US Adults Before and During the COVID-19 Pandemic. JAMA Network Open. 2020:3(9):e2019686; (10) Mental Health America. The State of Mental Health in America, Alexandria (VA): MHA; 2022; (11) CDC. Drug Overdose: Understanding The Epidemic. CDC; 2021; (12) Wu L-T, Zhu H, Swartz MS. Treatment utilization among persons with opioid use disorder in the United States. Drug and Alcohol Dependence. 2016;169:117-27.

Aim High

For each measure, health plan performance is compared against national benchmarks. For any measure below the 25th percentile national performance, the health plan is assessed the full QTI payment amount. The payment amount declines in a linear fashion until measure performance reaches 66th percentile of national performance, at which point the health plan owes no money. For three of the four measures, performance at 66th percentile national performance translates to approximately 60 percent of enrollees receiving recommended care. To provide absolute (not relative) targets for improvement, Covered California is using static benchmarks.

Equity Is Quality

Given pervasive and worsening racial/ethnic disparities in health outcomes, Covered California has concluded that quality improvement without a concomitant focus on equity is insufficient. Covered California has had health plan contractual requirements related to disparities reductions for several years, including meeting targets for collection of self-reported race and ethnicity data and engaging in disparities reduction initiatives. Building on this, all QTI measures will be stratified by race/ethnicity. When we finalize the methodology and measure specifications for disparities reduction targets, these will also be tied to QTI payments.

Amplify Through Alignment

Perhaps most importantly, the QTI measures were selected in concert with Medi-Cal, California’s Medicaid program, and CalPERS, the state agency that purchases health coverage on behalf of state and other public employees across California. Collectively, these three purchasers cover roughly 42 percent of the entire state’s population. In addition, the health plans these three purchasers contract with collectively cover more than 75 percent of Californians. Our hypothesis is that by aligning on a small set of clinically impactful, disparities sensitive quality measures linked to substantial financial incentives, purchasers can foster measurable improvement in population health, reduce administrative burden on health plans and providers, and mitigate the fragmentation and diffusion that occurs when each purchaser has different priorities and requirements. To this end, Covered California is sharing its approach with other private and public purchasers in an effort to foster even greater alignment.

Covered California is embarking on these new contracting requirements to improve health outcomes for millions of Californians by incentivizing investments and improvements in quality. Our goal is to foster tangible improvements in care that will result in fewer Californians experiencing heart attacks and strokes, developing colorectal cancer, or contracting vaccine-preventable childhood infections. Covered California is working with the National Quality Forum to quantify the potential lives saved and harms avoided at different levels of incremental improvement in care. While that analysis is in progress, preliminary results suggest that if all Californians who are currently receiving care below the 66th percentile of national Marketplace health plan performance instead received care at the 90th percentile for blood pressure control, diabetes control, and colorectal cancer screening, tens of thousands of deaths would be avoided.

We hope to work with our health plans to avoid collecting quality improvement payments or excluding plans from the Marketplace. Our health plans are developing a range of strategies in response to both Selective Contracting for Quality and QTI, including improved data submission, consumer incentive programs, provider pay-for-performance programs, practice engagement and technical assistance, partnership with chronic disease management vendors, and use of social media campaigns. Our belief is that while ensuring complete and accurate data is foundational, and consumer and provider incentives may (or may not) be efficacious, the path to improving enrollee outcomes and population health lies in health plan engagement and support of providers to improve coordination and integration of care delivery.

We are also mindful that health plan actions will need to be monitored closely for unintended consequences. For example, there are concerns that exclusive focus on the four core QTI measures could lead to neglect of other conditions. To address this, we will continue to track and publicly display the full range of QRS scores on our consumer health plan selection website and are tying performance guarantees to health plan performance on enrollee experience. There are also concerns that health plans may terminate contracts with providers with lower scores tied to serving higher-risk, more vulnerable enrollees. We will ensure that network adequacy standards continue to be met, even as we consider options for incorporating social risk factors into our quality assessments.

Summing Up

Over the past two to three decades, managed care has become the predominant form of health care coverage in our country, with fewer than 1 percent of Americans now in conventional indemnity plans. Medicare Advantage enrollment is expected to surpass 50 percent within the next year, and more than 90 percent of Medicaid beneficiaries are enrolled in some form of managed care.

During this time, the quality improvement enterprise has expanded while performance on clinical quality and equity outcome measures in many areas has remained stagnant and worsened in some cases. This has been driven in part by increasing fragmentation of our health care financing and delivery system, which creates misaligned financial incentives and uncoordinated care for patients. The associated multiplicity of purchaser-payer-delivery system-clinician relationships results in a confusing medley of competing quality initiatives.

We believe that there is an urgent need for purchasers, both public and private, to make improving quality and equity of health care a business imperative for health plans, and to do so in a manner that reduces complexity and creates focus. Our hope is that Covered California’s new quality initiatives, in alignment with Medi-Cal and CalPERS, can serve as a national model to advance population health.

Authors’ Note

The authors wish to thank Bob Kocher, MD, and Ted von Glahn, MS, for their thoughtful review, and Margareta Brandt, MPH, for her instrumental role in program implementation.