What is the Centers for Medicare and Medicaid Services’ New AHEAD Model?

In September 2023, the Centers for Medicare and Medicaid Services (CMS) announced a new opportunity for states to leverage federal funding on health care: the Advancing All-Payer Health Equity Approaches and Development (AHEAD) model. With this model, CMS–under the auspices of the CMS Innovation Center, also known as CMMI–aims to reduce the rate of growth in health care spending, improve people’s health, and reduce disparities in health outcomes. To achieve those broad aims, state demonstration programs will involve multiple programs and strategies, but the key feature of the model is prospective lump sum payments to participating hospitals that cover the costs of providing all inpatient and outpatient care to a pre-defined patient population. The lump sum payments would cover Medicaid enrollees, certain Medicare beneficiaries, and people who are covered by one or more private payers. Up to eight participating states would also be eligible for a planning grant of up to $12 million each to design and implement the model. This issue brief answers some key questions about the new model and explores considerations for potential state and private participants.

What is the AHEAD model?

The AHEAD model is an 11-year program (2024 – 2034) offering states the opportunity to leverage federal funding to make broad changes in the way health care is provided and paid for. The optional program would involve multiple payers of health care, including Medicaid, fee-for-service (FFS) Medicare, and at least one private payer. Applicants must be state agencies and include the state’s Medicaid agency, and the demonstration may be either statewide or limited to a particular region within the state. CMS developed the model to encourage and build on the successes of existing programs in Maryland, Pennsylvania, and Vermont (Box 1). AHEAD aims to limit total health spending, increase investments in primary care, change the way hospitals are paid, and connect people with increased social services that are important in supporting health. Specific components of the model include the following.

• The AHEAD model aims to increase the percentage of health care spending that goes to primary care, and participating primary care practices will receive new care management fees to promote person-centered care. The specific mechanisms for supporting primary care will vary by state, leveraging existing Medicaid and Medicare models, but in general, participating practices will receive new funding to improve health care coordination, integrate behavioral health care, and identify and facilitate interventions to address social needs such as housing, food, and energy insecurity. Participants will be held accountable for meeting pre-specified performance targets related to quality and equity.
• Participating states are required to recruit hospitals, but participation for hospitals within the state is voluntary. Participating hospitals would switch from being paid primarily based on the number of people served or number of services provided to a “global budget,” under which the hospitals receive a prospective, predetermined amount to provide all inpatient and outpatient care to specified patient populations. The global budgets are established using payer-specific historic spending and updated annually to account for population changes and inflation, providing hospitals with a predictable funding stream. Hospital-specific performance and equity targets will be established to deter hospitals from stinting on high-cost procedures, avoiding high-risk patients, and reducing quality.
• To promote the model’s equity goals, participating states and hospitals must develop their own health equity plans. Health equity tools will include—at a minimum—adjusting payment rates for people’s health and social risk factors and providing hospitals with bonus payments if they meet performance targets on equity.
• States will be accountable for limiting the growth of total health care spending within the state and are expected to leverage their legislative or regulatory authority to hold private payers accountable too. By the end of the second year, participating states must have at least one private payer participating in hospital global budgets. States may meet that requirement with participation from one or more of the following: private insurance plans, state employee health plans, Medicare Advantage (MA) plans, and others.

What are the opportunities and requirements for states that participate?

The AHEAD model offers states many opportunities, but also includes many requirements, and may not be a viable option for all states. CMS describes the requirements for state, hospital, and primary care provider participants in its overview of the AHEAD model, in the frequently-asked-questions page, and in the description of the grant opportunity. Those resources summarize program goals and benefits for certain participants, but success will depend on a state’s ability to engage private parties, which in turn, face their own opportunities and requirements for participation (Table 1). AHEAD offers states the opportunity to leverage federal funding to achieve statewide improvements in health and equity while restraining total health spending, including state spending for Medicaid. But the model makes major changes to how providers are paid and requires buy-in from private entities. After the model begins, participating states, hospitals, and primary care practices will be required to meet a wide range of participant-specific performance targets with corrective action plans required for states that do not meet the specified targets.

Of the model’s requirements, hospital global budgets may be the most potentially controversial because of the significant regulatory framework they require. States must develop and implement Medicaid global budgets and may need to support global budget methodologies for other payers, including private insurers. CMS will develop and maintain a standardized methodology for Medicare FFS global budgets, but states may develop and implement state-specific systems with CMS’ approval.

What to watch as the model unfolds?

Will states be interested in applying when the application period opens in the spring of 2024? It is not clear whether states are interested in applying yet. The model will require significant state efforts and it is unknown whether participation will yield reduced spending or improved outcomes. Existing multi-payer models in Maryland, Pennsylvania, and Vermont have shown promising—but limited (Box 1)—results and are one of the motivations for CMS’ broader AHEAD model. (CMS has encouraged those three states to apply as a strategy to sustain their initiatives currently underway.) When states submit their applications, they select one of three cohorts to participate in, with cohorts having rolling start dates to being their planning, and eventually, implementation activities. Timing will depend on the cohort, but in general, planning activities will occur between July 2024 and December 2026 and implementation will occur between January 2026 and January 2027. The models will run through the end of 2034.

Will states be able to engage employers and private insurers to meet the goal of restraining the growth in spending on health care? The AHEAD model only requires one private payer to participate in hospital global budgets, and that requirement may be met by participation from a MA or state employee plan, among others. However, states may have difficulty meeting spending targets in the absence of meaningful participation from private payers. To measure performance in curbing spending growth, CMS will develop projected growth rates for Medicare and all-payer health care spending using state-specific historical spending data. States will be held responsible for keeping actual spending by Medicare FFS and all payers below those projected growth rates. States may use their legal authority to compel participation or other changes among private insurers, but that approach could create political resistance. Further, states do not have legal authority over employer plans in which the employer pays some or all costs directly from their own funds (e.g., self-funded plans). Therefore, achieving buy-in from all payers will require models that private payers and employers see as advantageous and opt to join.

Will states with significant enrollment in Medicaid managed care or MA elect to participate? States with significant enrollment in Medicaid managed care organizations (MCOs) or MA will need to engage those plans to meet spending targets. Significant use of Medicaid MCOs or enrollment in MA does not preclude participation in the model but will require states to partner with the private plans delivering services if the state is to meet overall spending targets. (Applicants will also need to make sure they have at least 10,000 Medicare beneficiaries enrolled in Medicare’s FFS program.) Maryland and Pennsylvania are useful examples for states to consider if they are interested in AHEAD and have significant MCO or MA enrollment because CMS has modeled the program after their demonstrations and encouraged both states to apply. The two states rely heavily on MCOs to provide Medicaid services: 85% of enrollees in Maryland and 92% in Pennsylvania are enrolled in Medicaid managed care. Both states also have measurable enrollment in MA, although, Maryland’s rate is lower than that of most states: 52% in Pennsylvania and 24% of Medicare beneficiaries in Maryland are enrolled in MA.

What types of hospitals will be able to participate most easily? For hospitals, the shift from emergent and inpatient hospital care to primary and outpatient care could mean forgone revenues from high-cost services. Hospitals that have already acquired primary care practices may be keener to participate as forgone revenues would be replaced with increased payments for primary care. In states where participating hospitals have already acquired a greater share of the region’s outpatient practices, the global budgets will capture a larger percentage of overall health care spending.

Could AHEAD encourage hospitals to acquire additional physician practices (vertical consolidation)? The AHEAD model only applies to services that are provided by participating hospitals and primary care providers. If the model spurs additional vertical consolidation (such as hospitals buying new specialty groups), a bigger share of health care spending would fall under the model’s global budgets. Previous research shows that vertical consolidation often results in higher prices without any corresponding gains in quality. However, the AHEAD model’s global hospital budgets will be set to limit the growth of health care spending. To the extent that vertical consolidation increases in AHEAD states and regions, private payers may be encouraged to participate in hopes of limiting their cost increases stemming from higher prices for vertically integrated systems.

How will CMS evaluate improvements in population health, equity, and the quality of care? The AHEAD model’s goals—lower health care spending, improved population health and health equity, and higher-quality care—may in some cases be in conflict; and CMS has included a multi-faced quality and population health strategy to ensure that reduced spending does not result in inferior health-related outcomes. Key to measuring outcomes will be enhanced demographic data collection, which requires participating hospitals and primary care practices to collect and report self-reported patient demographic data. Under the quality and population health strategy (Appendix X in the grant application materials), participating states, hospitals, and primary care providers will be evaluated on outcomes related to population health and the quality of care. Measures will be evaluated for subpopulations using demographic data to address health disparities within the state. Participating states and providers will be required to meet overall targets and targets for sub-populations. Specific sub-populations are not enumerated in the grant materials, but they will be defined based on currently observed health disparities.

Given the broad range of quality measures participants must meet, will there be sufficient providers and social resources for participants to meet those goals? States will be required to select at least one quality measure from the following categories: population health (measures will be drawn from the Behavioral Risk Factor Surveillance System), prevention and wellness (e.g., cancer screening), chronic conditions (e.g., management of high blood pressure or diabetes), behavioral health (e.g., treatment of opioid use disorder or depression), quality of care (e.g., hospital readmissions), and other measures (maternal health, preventive care, or social drivers of health). The quality and population health strategy will include people’s experiences with care, including outcomes from the Hospital Consumer Assessment of Healthcare Providers and Systems survey. For states to improve population health across all dimensions, people will need access to health care and in some cases, assistance with social needs such as housing, food, and energy insecurity. While it is accepted that access to housing, food, and energy has a direct impact on health, health programs have traditionally had a limited role in addressing those issues. For example, Medicaid managed care plans may screen for unmet needs, refer people to services, and work with community-based organizations to provide access to assistance, but few plans directly deliver the services or track outcomes. Recent guidance has expanded opportunities for states to use Medicaid to address social needs. Recognizing that many people have insufficient access to housing, food, and energy assistance, states may find that increasing Medicaid’s role in providing such assistance supports meeting the broad goals enumerated under the AHEAD model.