Since being enacted by Congress in 1965, Medicaid has become vital to our country’s health care coverage. With the expansion under the Affordable Care Act, Medicaid now serves more than 75 million low-income and medically vulnerable individuals, including children, pregnant people, the elderly and people with disabilities. Perhaps most importantly, accumulating evidence demonstrates that Medicaid improves health, reduces mortality and increases economic security for those it serves.

All states — whether they have embraced expansion under the ACA or not — face many challenges in assuring the ongoing success of this important federal-state partnership. Medicaid costs represent a significant and growing portion of state budgets, and the ability of states to manage these costs is perhaps the greatest of those challenges.

The good news is that states, acting as what Justice Louis Brandeis called “laboratories of democracy,” are testing solutions to the economic and clinical challenges of Medicaid. These fresh approaches often begin with paying for care differently — in particular, moving away from fee-for-service and toward value-based payment — in ways that can incentivize more efficient models of care. States’ attempts to transform care have been further catalyzed by Center for Medicare & Medicaid Innovation models and federal waivers that enable them to invest in promising strategies for reducing costs and improving outcomes.

Many state efforts drive innovation by empowering local communities to design and implement cross-sector interventions tailored to their own capabilities and needs. New York’s Performing Provider Systems, Oregon’s Coordinated Care Organizations and Washington’s Accountable Communities of Health are noteworthy examples. Common themes across these initiatives include:

• Integrating the delivery of physical and behavioral health
   
• Establishing care management models that effectively address social determinants of health for those with complex medical and/or behavioral health needs
   
• Building Health Information Exchanges that enable better care coordination
   
• Tying payment to outcome metrics

As chief medical officer for Washington State’s Medicaid program, I often observed local communities putting aside ideological differences and crafting solutions for their Medicaid populations.

Going forward, Medicaid agencies will have to figure out how to sustain their successful local practice transformation efforts. Some key challenges include:

• Assuring an adequate health care workforce, such as case managers, care coordinators, behavioral health providers, community health workers
   
• Overcoming public sector silos to find ways that savings that accrue to one sector — for example, criminal justice — as a result of successful Medicaid innovations are reinvested in the initiatives that generated those savings
   
• Providing technical assistance to practices and community-based organizations that enable them to participate in an integrated system of care
   
• Continuing to build and optimize the use of HIEs
   
• Perhaps most difficult of all, convincing state legislatures to think beyond annual budget cycles when investing in and evaluating the outcomes of Medicaid innovations
   

Some cost challenges of state Medicaid agencies cannot be solved at the local level. Among the most pressing is the rapidly rising cost of pharmaceuticals. Although the ultimate solution to this serious problem likely requires action at a federal level, at the state level, Medicaid agencies are pursuing novel ways to contract for pharmaceuticals. For example, both Louisiana and Washington State Medicaid have announced their intent to contract for hepatitis C medications using a “Netflix” model — paying a fixed annual price for medications that is independent of the number of people treated.

Medicaid provides a crucial safety net for millions of people, including some of the most vulnerable members of our society. Although they face numerous obstacles, state Medicaid agencies have historically demonstrated their ability to overcome challenges through innovation, and it is essential that they continue to function as “laboratories of democracy.”

About the Author

Dan Lessler serves as physician executive for community engagement and leadership. Previously, Dr. Lessler was the chief medical officer for the Washington State Health Care Authority, where he successfully led multiple statewide efforts to improve public health. See his full bio.