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Medicaid is undergoing a massive expansion nationwide, but there are a few states taking it a step further by transforming the way Medicaid is delivered. Year one of New York state’s ambitious Medicaid reform initiative, which is called the Delivery System Reform Incentive Payment program (DSRIP), ends March 31, 2016, and the jury is still out on whether this program will work.

Medicaid delivery and payment across New York is being transformed by the infusion of $7.3 billion in reform incentives through a federal waiver. The bulk of the funding, about $5.2 billion, is designated for the 15 coalitions in the New York City market. The first round of funding was distributed in June 2015 to 25 regional coalitions across the state. These coalitions, known as Performing Provider Systems, are implementing initiatives meant to improve clinical outcomes, reduce avoidable emergency-room utilization and hospitalizations by 25 percent, and shift providers to value-based contracting in five years. Future payments will be tied to outcomes by individual coalitions as well as the overall success of the state’s 25 PPS organizations.

While new to New York, the DSRIP program is already operating in six other states, including Texas and California. Each program is different, but the overall goal is the same: reduce unnecessary hospital utilization by 25 percent in five years. Tall order for a challenging program. The initiative has been relatively successful in other states with at least one state, California, applying for an extension.

But DSRIP remains a great unknown. All signs point to it being a game changer and a model for similar endeavors in the future. However, the reality is no one knows whether DRSIP will work in New York, the other six states, or any others that join. It’s a leap of faith to target a difficult and expensive population to transform the way healthcare is delivered. The goal is to provide quality care, improve access, and reduce costs—the so-called Triple Aim—for the Medicaid population.

The stakes are high. In terms of funding, CMS took a different stance in New York than it did with other DSRIP programs. In New York, 25 percent of the $7.3 billion in reform incentives is guaranteed, and the rest is at risk based on the success of individual PPSs, and for a portion in year five, the overall performance of all 25 PPSs.

DSRIP requires collaboration and forces hospital systems, some of which had been long-time competitors, to work together—in some cases as part of the same PPS. It’s a hard pill to swallow for some systems that applied for funding and must now work with competitors. It could also be a foreshadowing of future affiliations and acquisitions needed to achieve healthcare transformation, or a recipe for disaster.

Leaders in the New York City healthcare industry agreed at a recent conference held there that DSRIP is a significant challenge and its goals will be difficult to achieve. Jeffrey Kraut, executive vice president of strategy and analytics of Northwell Health, predicted at the conference that networks created through DSRIP will fall apart once the money dries up because the competitors won’t be able to, or want to, co-exist beyond the initiative.

Paloma Izquierdo-Hernandez, president and chief executive officer of Urban Health Plan in Bronx, NY, was optimistic about the program’s long-term value, saying DSRIP shows potential, but it will take 10 to 15 years to see sustainable outcomes. Linda Brady, M.D., president and CEO of Kingsbrook Health System in Brooklyn, NY, agreed and predicted the state will apply for an extension to continue the initiative.

While the program in New York is just finishing its first year, the early results are positive. The second quarter reports from year one indicate the PPSs earned 98.5 percent of the funding for which they were eligible, or $166.0 million out of a possible $168.4 million, meaning goals and outcomes were reached by the majority of the coalitions.

The long-term success of DSRIP won’t be determined after its first year and may not even after its fifth year. But one thing is certain: the way Medicaid is delivered in New York state will change and very likely for the better. If the PPSs can truly work together to meet the goals and outcomes outlined and connect at all levels of healthcare, this program will be one to emulate nationwide.

Valerie Pillo is an analyst at DRG and a Quality Initiatives expert. Follow her on Twitter at @ValeriePilloDRG.

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