SIMulating Lessons in Aligning Health Care Payers

Focus Area:
Primary Care Transformation

The Affordable Care Act (ACA) was Christmas for health policy engineers—especially at the state level. With the stroke of the pen (and some divisive procedural maneuvering by Democrats), supporters of a strong state government role in health policy were handed a gift box of new tools—an individual mandate, an employer mandate for larger businesses, Medicaid coverage expansions, individual market premium subsidies, insurance rating reforms, provider payment reforms for the 600-pound gorilla, Medicare, and trunk-loads of implementation money.

It was also put up or shut up time. Could these engineers deliver on their belief that states—as “laboratories of democracy”—could do what seemed impossible in Washington and develop sufficient political will and policy consensus to build a health care system that balanced calls for personal freedom, collective well-being, and economic sustainability?

A key environmental reality they faced was the existence of multiple sources of financing for health care. There was no way the ACA would tear down our multi-payer system of Medicare, Medicaid, and employer-based financing. Yet each of these payers operates with different rules and levels of coverage, and—more crucially—payments to providers. These different payment methods constitute—many experts maintain—a shaky foundation on which to build the health system dream home. Nothing stable or sustainable, this reasoning went, can come from a financing system that promotes specialty care over primary care, allows hidden cross-subsidies among payers, and encourages differentiation among commercial payers, resulting in costs and confusion among providers.

Never fear—the ACA had answers for that too. Intrepid states, under the State Innovation Models (SIM) Initiative administered by the Centers for Medicare and Medicaid Services (CMS) would be given scads of money to align payment methods among payers. The lessons they learned about building this strong foundation would be passed on to others.

The SIM money—about $250 million—started flowing in 2013 to six states for five years. Two more waves of funding have since followed for other states, but the first wave of funding is complete. As required by the ACA, CMS commissioned an independent evaluation of the initiative that is summarized in three new articles in the Milbank Quarterly. The evaluation delivers, at best, a mixed verdict for the states involved and raises important questions for anyone who maintains that they can lead in the work of restructuring 20% of our economy.

In the SIM design, state governments would start by adopting value-based payment (VBP) models in their Medicaid programs, with an eye towards what was being done by Medicare under the ACA and MACRA (the Medicare Access and CHIP Reauthorization Act of 2015), and would then cajole, badger, or require commercial payers to align with them. With payments suitably aligned, providers would respond with activities that produced more value for everybody—coordinating care for the seriously ill and identifying other vulnerable patients before they became so.

The SIM funding was apportioned in roughly equal amounts to six politically and geographically diverse states: Maine, Massachusetts, Vermont, Arkansas, Minnesota, and Oregon. The evaluation found that the states spent almost all their funds in two broad categories—plans to develop and implement payment reform, and data analytics and health information technology.  Within these categories, however, were several different strategies—building the state’s own capacity, buying technical assistance and consulting for the states and for providers, and grants to providers themselves to get ready for the world of new payment models.

The effects of these spending decisions varied somewhat, but were generally quite limited. Multi-payer alignment, it turns out, is tough. No state came close to achieving the Holy Grail of an agreement with CMS to have Medicare align with the state’s payment methodologies. Three states (Oregon, Vermont, and Arkansas) achieved some measure of payer alignment but “in general, states fell short of meeting the SIM Initiative‘s expectations for garnering multi-payer alignment around VBP models and, regardless of payment model, alignment on quality measures reporting required of providers,” writes Kissam et al. in one of the Milbank Quarterly papers.

Why could states not get payers together? Commercial insurers saw no compelling business reason to align payment or even provider measurement, and were worried about contributing to the success of their competitors. Efforts to share patient data to improve care coordination faced technological and legal barriers. Providers complained of increased reporting burdens and financial uncertainty. And some consumers worried about the loss of contact with their personal doctors and the financial motivations that might result from different methods of provider payment.

The states that made progress tended to have fewer commercial insurers and a dominant in-state plan. They made strategic investments in data sharing—both in state government and in the community. Their Medicaid programs did not rely on their contracting managed care organizations to lead payment reform activities for the state but instead drove it themselves. Finally, relatively successful states did multi-stakeholder work—convening employers, payers, providers, and consumers in an often grueling process to align goals, assuage fears, and build momentum for change.

The SIM Initiative continues with additional states and, as the country lurches ahead in health policy discussions, the decidedly mixed verdict on states’ abilities to align payers can still inform that discussion.

Wrong Goal?

Is it possible that multi-payer alignment is just not that important for a better performing health care system? This seems doubtful. That sound you hear is economists grinding their teeth as they remind us of the importance of economic incentives. If we are sending health care providers mixed signals, we should expect static in return—and that is what we have.

Right Goal, Wrong Strategy?

Maybe Alexander Hamilton was right—aligning health care financing is a job for the federal government. Consumerism is of little value in the hands of the 5% of people who drive 50% of our health care spending, and only the power of the purse, firm resource constraints, and a federal statute can assure alignment of purpose and payments for health care. A dominant role for Medicare in US health policy could certainly increase payer alignment. State governments, in this view, are too divided and too weak to address the barriers identified in SIM—self-interested national payers, fragmented technology and rules for data sharing, resistant providers, and worried consumers.

Patience and Persistence?

The glass remains half full in this view. SIM progress was limited because states were preoccupied with the necessary first-order task of getting almost everybody covered. Money is printed nationally but health and trust both happen locally. Now with nearly everybody in the boat, states can engage in the hard work identified by SIM—building the multi-stakeholder process to align visions and set goals. Medicaid, public employees programs, and commercial insurance regulation can act on these visions, and payers will fall into line.


Aligning payers, it turns out, is not for the faint of heart. Absent a full national health care takeover, the states and federal government will continue to be partners in this work. The carrots extended by the SIM Initiative were clearly not enough. To address the challenges encountered by the first six SIM pioneers, the feds may need to think about a few policy sticks as well—both for states and the payers they are trying to align.