was enacted, before most federal and private-sector initiatives were well
under way. The Arkansas experience may provide some guideposts for
these efforts, particularly in less populated rural states with a fragmented
As noted above,94 in 2010 the state Medicaid program was facing
serious deficits. It was almost entirely a fee-for-service system, perpetuating
misaligned incentives.95 Governor Mike Beebe, Surgeon General Joe
Thompson, Medicaid director Eugene Gessow, his successor Andy Allison,
and their allies designed a reform initiative with three components: ( 1)
bundled payments for acute episodes of care, rather than separate payments
for each service provided; (2) Patient-Centered Medical Homes covering
primary care; and (3) Health Homes for the chronically ill and other
individuals with complex health needs.96
The state convened stakeholders to develop a common vision and
framework for health system transformation, covering both inpatients and
outpatients.97 Provider and insurer groups were receptive to the idea, at least
once it was converted from a prospective-payment to the more familiar
initial retrospective-payment model.98 The Arkansas Hospital Association,
the Arkansas Medical Society, and the major health insurance companies all
participated in the process of selecting episodes of care to be targeted and
developing benchmarks for payment for those episodes.99 That buy-in from
providers and payers was key to the initiative’s launching and continued
operation.100 What emerged from the deliberative process was an agreement
to rely chiefly on changed incentive structures so that providers have
greater accountability for costs and quality, as well as the opportunity to
share with insurers and the state’s Medicaid program in generated
93. See Chernew et al., supra note 7, at 34 (highlighting aspects of the Arkansas
initiative that might be useful in states with similar characteristics).
94. See supra note 39 and accompanying text.
95. BACHRACH ET AL., supra note 11, at 3.
96. See STATE INNOVATION PLAN, supra note 19, at 33.
98. During initial negotiations about the structure of the payment reform initiative
among state officials, provider groups, and insurers, the concept of a prospective payment
system similar to one in operation in Massachusetts was mooted. Provider groups bridled at
the idea. Retrospective payment with subsequent performance-period review turned out to be
a satisfactory compromise. Interview with Craig Wilson, Rhonda Hill, Angela Littrell &
Kevin Ryan, Ark. Ctr. for Health Improvement, in Little Rock, Ark. (Jan. 16, 2015)
[hereinafter Wilson et al. Jan. 2015 Interview].
99. See STATE INNOVATION PLAN, supra note 19, at 37-38.
100. See Arkansas Payment Improvement Initiative, supra note 21 (voluntary
participation “vital” to program’s success); Chernew et al., supra note 7, at 34 (noting
cooperation among providers, insurers, employers, and state government officials).