Health insurance will never be affordable unless the cost of health care is reduced. Although there is broad agreement that fee-for-service payment is a major reason why healthcare spending continues to grow faster than inflation, most of the "value-based payment" and "value-based purchasing" reforms implemented to date have shown little benefit. Why Value-Based Payment Isn't Working, and How to Fix It explains why pay-for-performance, shared savings, two-sided risk, population-based payments, and narrow networks have failed to either control healthcare costs or improve the quality of care, while creating heavy administrative burdens for providers and financial incentives to deny the care patients need. The report shows why simply increasing the financial risk for healthcare providers under current value-based payment models will likely make things worse, not better.
Why Value-Based Payment Isn't Working, and How to Fix It details four separate problems with fee-for-service that need to be addressed, but it also describes four strengths of fee-for-service payment that need to be preserved. Current "value-based payment" programs are failing not only because they don't solve the problems with fee-for-service payment but because they don't preserve its strengths. The fact that a payment system is different does not mean that it is better. Resistance by physicians, hospitals, and other providers to implementing current payment "reforms" has been inappropriately interpreted as unwillingness to change, rather than refusal to support a cure that may be worse than the disease.
Fortunately, there is a better way. Why Value-Based Payment Isn't Working, and How to Fix It describes how to create a patient-centered payment system that can solve the problems with the current fee-for-service payment system while preserving its strengths. The Patient-Centered Payment system described in the report would:
Patient-Centered Payment supports patient-centered care, which is what patients want to receive and what physicians and other healthcare providers want to deliver. But unlike current "value-based payment" models, Patient-Centered Payment also requires the kind of accountability for cost and quality that both patients and purchasers need and that is feasible for providers to accept. Moreover, unlike current "value-based payment" systems that rely on regulatory structures to set prices and define quality standards, Patient-Centered Payment supports a market-based approach to improving quality and controlling costs.
Both the full report and the Executive Summary describe the four strengths and four weaknesses of fee-for-service, show why current payment reforms are failing, and describe the key elements of a Patient-Centered Payment system. The full report provides detailed examples of the problems with current "value-based payment" systems and also detailed examples of how a Patient-Centered Payment system would improve preventive care, improve diagnosis, improve care for acute conditions, and improve care for patients with chronic disease. It also explains and provides detailed examples of how healthcare spending can be reduced without harming patients, physicians, or hospitals.
A Guide to Physician-Focused Payment Models describes seven different Alternative Payment Models (APMs) that can enable physicians in every specialty to redesign the way they deliver care in order to control spending and improve quality for their patients:.
The seven APMs described in the report would be able to meet the eligibility criteria for Alternative Payment Models specified in the Medicare Access and CHIP Reauthorization Act (MACRA). Under each of the APMs described in the report, physicians would take accountability for specific aspects of spending and quality they can control or influence. However, the APMs would not place physicians at financial risk for costs they cannot control, unlike a number of shared savings payment models that have been developed by payers. Moreover, each of the APMs in this report would give the participating physicians the resources and flexibility they need to redesign care so they can successfully control spending and improve quality for the types of patients and services for which they would be accountable.
Each of the APMs described in A Guide to Physician-Focused Alternative Payment Models addresses a different set of opportunities for savings and different barriers in the current payment system. The report explains how the specific components of each APM would be structured to work successfully for both physicians and payers. The report also describes nineteen different examples of how the APMs could be applied to different types of patients, conditions, and procedures, including cancer care, cardiovascular care, chronic disease management, emergency medicine, gastroenterology, maternity care, and surgery.
For years, the limitations of healthcare claims data have been a major barrier to identifying opportunities to control healthcare spending and to developing alternative payment models. Current resource use measurement and payment systems use complex episode groupers, statistical attribution methodologies, and risk adjustment systems in order to try and extract information from claims data that it was not designed to provide. As a result, these methodologies have many serious weaknesses that have the potential to harm patients and healthcare providers, particularly small physician practices and hospitals.
Improving Resource Use Measurement Under MACRA explains how the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) will help to solve these problems by creating three new types of information to be included on claims forms:
Improving Resource Use Measurement Under MACRA explains the requirements of MACRA and describes how the Centers for Medicare and Medicaid Services (CMS) should implement them in order to enable more effective resource measurement and to facilitate the successful development and implementation of Alternative Payment Models.
As part of the Medicare and CHIP Reauthorization Act of 2015 (MACRA), Congress created significant new incentives and processes designed to dramatically accelerate progress in payment reform, with a focus on creating better ways to pay physicians. The success of MACRA will depend heavily on how the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) implement the provisions of the law relating to Alternative Payment Models (APMs) and Physician-Focused Payment Models. The decisions they make and the processes they establish could either encourage rapid development and implementation of innovative and successful payment models, or deter innovation and impede the progress in payment reform that Congress wanted to support.Implementing Alternative Payment Models Under MACRA explains the provisions of MACRA relating to APMs and describes the actions HHS and CMS should take in three key areas:
The important issues discussed in the report include:
Implementing Alternative Payment Models Under MACRA explains why the Alternative Payment Models that are being designed and implemented by CMS and the Center for Medicare and Medicaid Innovation (CMMI) not only fail to solve the problems with current payment systems but can actually make it harder for physicians who want to improve care and reduce spending. The report details the serious problems with the approaches CMS and CMMI are using in most of their payment models, and it explains the types of payment changes that should be used instead, including seven different types of Physician-Focused Alternative Payment Models that could improve patient care and reduce spending for Medicare while preserving the financial viability of high-quality physician practices and other healthcare providers. The report also describes how the development of new patient condition groups, care episode groups, and patient relationship groups required by MACRA can facilitate the development of better Alternative Payment Models.
One of the barriers to reaching consensus on significant payment reforms has been the complex and confusing array of terminology that has been used to describe different payment systems. It is difficult for stakeholders to determine whether to support a proposal if they do not understand the words and abbreviations used to describe it, and it is difficult to reach agreement when the same words are used by different people to mean different things or when words are perceived by some stakeholder to mean something different than what was actually intended.
The Payment Reform Glossary is designed to facilitate a better understanding of payment reform concepts and to create a foundation for a common language for developing and discussing payment reform concepts so they can be supported and implemented by all stakeholders -- patients, providers, employers, health plans, and government agencies.
Features of The Payment Reform Glossary include:
Bundling Better: How Medicare Should Pay for Comprehensive Care (for Hip and Knee Surgery and Other Healthcare Needs) describes in detail how a properly designed payment system for hip and knee replacement could enable physicians, hospitals, and other providers to improve care for patients and reduce costs for the Medicare program and private payers without the need for those providers to accept excessive or inappropriate financial risk, and without requiring or encouraging greater consolidation of providers.
The way Medicare pays for hip and knee surgery will likely be the template for the alternative payment models Medicare uses to pay for many other procedures and conditions, so it will be important to all physicians and hospitals to get it right, not just those who provide joint surgery. The payment approach described in Bundling Better could be used to support better care for a broad range of patients and health conditions, not just hip and knee problems. The payment changes described in Bundling Better would also improve the ability of Accountable Care Organizations to successfully manage the overall costs and quality for a population of patients.
The payment system for Comprehensive Care for Joint Replacement (CCJR) described in Bundling Better would have the following significant advantages over both the current payment system and the proposal for paying for joint replacement that was issued by the Centers for Medicare and Medicaid Services (CMS) issued in July 2015:
On July 9, 2015, the Centers for Medicare and Medicaid Services (CMS) proposed regulations to create what it described as an "episode payment" for hip and knee surgery. However, what sounds like a desirable patient-centered payment reform - "Comprehensive Care for Joint Replacement" or CCJR - turns out to be primarily a plan to penalize hospitals when patients receive higher-than-average amounts of post-acute care services after knee or hip surgery.
Bundling Badly describes in detail the many problems with the proposal, including:
The federal government has set a goal of moving 50% of Medicare payments into "Alternative Payment Models" by the end of 2018, and Congress passed legislation in April authorizing higher payments for physicians who receive at least 25% of their revenues from Alternative Payment Models by 2019.
Although a number of Alternative Payment Models have been developed for primary care physicians and physicians who peform hospital-based procedures, there has been little progress in creating Alternative Payment Models for the majority of specialists. Moreover, most Alternative Payment Models to date have consisted of shared savings programs or pay-for-performance systems that fail to solve the fundamental problems with fee for service payment.
Cancer care is an area where significant payment reforms are badly needed. National spending on cancer care has doubled in the past decade and is projected to exceed $150 billion by 2020. There are many opportunities to reduce the cost of cancer treatment without harming patients, but the current payment system doesn't adequately support the highest-quality, most appropriate care for patients.
A Better Way to Pay for Cancer Care describes a new Alternative Payment Model for cancer care that is designed to fix many of the problems with the current payment system. Patient-Centered Oncology Payment (PCOP) would be a win-win-win for patients, payers, and oncology practices by providing significantly higher payments to oncology practices to support improved services for patients, while producing net savings in total cancer spending for payers by eliminating unnecessary or undesirable services for patients.
Additional information about Patient-Centered Oncology Payment and ways to improve cancer payment is available at www.CancerPayment.org.
There is growing national recognition that most pay-for-performance and "value-based purchasing" systems fail to adequately solve the serious problems with the fee-for-service payment system and that fundamentally different ways of paying for health care are needed in order to improve quality and control costs. The U.S. Department of Health and Human Services has announced a goal of moving 50% of Medicare payments into "alternative payment models" by 2018, and legislation repealing the flawed Sustainable Growth Rate formula includes provisions encouraging physicians to participate in "alternative payment models."
However, the devil is in the details: How do you actually design an "alternative payment model" that supports better care for patients and lower spending for payers without putting physician practices and hospitals out of business or exposing them to inappropriate financial risk?
The Building Blocks of Successful Payment Reform: Designing Payment Systems That Support Higher-Value Health Care, shows how alternative payment models can be designed in ways that benefit patients, payers, and providers. The report, prepared with support from the Robert Wood Johnson Foundation as part of the Network for Regional Healthcare Improvement's Payment Reform Series, describes how to design payment reforms that simultaneously achieve four important goals:
The report explains the four essential building blocks that must be included in an alternative payment model to successfully achieve these goals. It also describes multiple options for creating each of those building blocks so that payment models can be customized to the needs and capabilities of different payers and providers, and it shows how to enable providers and payers to transition to more accountable payment models over time.
The Building Blocks of Successful Payment Reform complements another report from CHQPR, Making the Business Case for Payment and Delivery Reform, that provides a step-by-step guide to help businesses, physicians, hospitals, and other purchasers and providers carry out the financial analyses needed to design the kinds of payment systems described in the Building Blocks report.
An Executive Summary of the Building Blocks report is also available.
In order to support improvements in both healthcare delivery and payment systems, individuals and organizations that purchase healthcare services need a clear business case showing that the proposed change in care will achieve sufficient benefits to justify whatever change in payment healthcare providers need to support the change in care. Healthcare providers also need a clear business case showing that they will be able to successfully deliver high-quality care in a financially sustainable way.
Making the Business Case for Payment and Delivery Reform describes a ten-step process to develop such a business case, and provides a detailed example for how to apply the process to an initiative to improve management of chronic disease patients. The report also describes the types of data that are needed to carry out all of the steps in a good business case analysis.
The federal government, commercial health plans, and other organizations are increasingly using measures of healthcare spending for the purposes of rewarding or penalizing physicians, hospitals, and other healthcare providers, defining provider networks, and encouraging patients to use particular providers. Measuring and Assigning Accountability for Healthcare Spending describes six fundamental problems with the current attribution and risk adjustment systems that are being used in these measures and explains how these problems could seriously harm both patients and healthcare providers.
For example, the report shows how the spending measures currently being used in "value-based purchasing" programs can:
Measuring and Assigning Accountability for Healthcare Spending also describes how these problems can be solved. The report presents a detailed methodology for assigning accountability to healthcare providers for the services they actually can control or influence and for identifying which aspects of those services might be changed in order to achieve the same or better outcomes for patients at lower cost. In addition, methods are described for comparing services and spending for patients with similar needs. The report shows how these improved methodologies can use existing data to produce more valid, reliable, comprehensive, and actionable measures than those commonly used today. The report also describes how more actionable measures of spending can help payers and providers move more quickly to true payment reforms such as bundled payments, warranties, condition-based payments, and global payments.
A 7-page Executive Summary of the report is also available. It summarizes the six fundamental problems with current approaches and the improved method of measuring spending, and gives a detailed example of how the improved methodology would provide more actionable infomation for a hypothetical patient.
There is growing national concern that consolidations of healthcare providers are leading to higher prices for healthcare services. However, most policy prescriptions for how to address this fail to recognize three key points:
The Best Antidote to Provider Market Power is to Change the Healthcare Payment System describes how current payment systems don't pay hospitals and doctors for what we really want them to do, how most current payment reforms make the problem worse, not better, and how true payment reform can enable healthcare providers to deliver higher quality care at lower costs and allow consumer choice to drive prices lower without the need for narrow networks or price regulation.
There is widespread agreement that significant changes are needed in the way healthcare providers are paid if the nation is going to successfully control the rapid growth in healthcare costs and improve the quality of care for patients. However, progress has been slow in implementing payment reforms because there are many significant barriers to changing payment systems that have been in place for decades.
Fortunately, although the barriers to payment reform can seem daunting, they can be overcome. Ten Barriers to Healthcare Payment Reform and How to Overcome Them describes many of the biggest barriers that physicians, hospitals, health plans, employers, and policy-makers are facing in implementing payment reforms, along with strategies for solving them. For example, the report describes:
Although a variety of payment reforms have been proposed to address the problems with the current fee for service system, many of these reforms are seen as either doing too little to address the problems caused by current payment systems or as changing payment too radically for most healthcare providers to easily implement.
There is clearly a need for "middle-ground" options - payment reforms that provide greater flexibility and accountability for the costs and quality of care than typical pay-for-performance, shared savings, and medical home programs, but which avoid forcing providers, particularly small physician practices, to take on more financial risk than they can manage or to take accountability for services they cannot effectively control (as traditional capitation systems or full episode-of-care payment systems can require).
Transitioning to Accountable Care: Incremental Payment Reforms to Support Higher Quality, More Affordable Health Care describes a range of transitional payment reforms that can enable primary care practices, specialists, and hospitals to deliver significant improvements in cost and quality for payers and patients as they build the capacity to transition to more comprehensive payment reforms. The report also discusses a series of important issues in the design of any new payment system, including pricing, establishing appropriate limits on risk, and ensuring quality. It also discusses the importance of alignment among multiple payers and ways to achieve that, including ways that the Medicare program can best support payment reform efforts.
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On February 14, 2013, Harold Miller, President and CEO of CHQPR, gave invited testimony at a hearing of the Subcommittee on Health of the House Energy and Commerce Committee of the U.S. Congress. Key points in the testimony include:
Private businesses and federal and state governments could save billions of dollars if the quality of maternity care were improved, based on data in The Cost of Having a Baby, a new report developed jointly by Childbirth Connection, the Center for Healthcare Quality and Payment Reform, and Catalyst for Payment Reform. The report shows that the high proportion of babies delivered by Cesarean section costs commercial insurance plans and state/federal Medicaid programs thousands of dollars more per birth than vaginal births and the differences in costs is growing over time. The report also shows there is significant variation in costs within and aross states for each type of birth, indicating that there are additional opportunities for savings.
Maternal and newborn care together represent the largest single category of hospital expenditures for most commercial health plans and state Medicaid programs, so reducing maternity care costs provides a major opportunity to reduce insurance premiums for employers and to make Medicaid coverage more affordable for taxpayers. There are many examples of physicians, midwives, hospitals, and birth centers around the country that are reducing maternity care costs in ways that improve quality and outcomes for both mothers and babies, a win-win for both payers and patients.
However, a major barrier to changes in care delivery is the current healthcare payment system. Changes in payment systems are needed to support maternity care based on achieving good outcomes for mothers and babies, rather than the specific procedures and services delivered. For example, the condition-specific payments described in CHQPR's report Transitioning to Accountable Care, would provide the kind of flexibility and accountability maternity care providers need to redesign care. More information on payment reform and delivery redesign opportunities in maternity care are available from CHQPR's Maternity Care webpage.
The federal Patient Protection and Affordable Care Act created a new Medicare payment program to support Accountable Care Organizations (ACOs). Although the program is titled the "Shared Savings Program," and most discussions have focused on using "shared savings" to pay ACOs, the Act allows CMS to use payment models other than shared savings to support ACOs. One of these payment models is "partial capitation." The law states that under partial capitation payment, an ACO would be at financial risk for some, but not all, of the items and services Medicare covers.
Could "partial capitation" be better for patients, physicians, hospitals, and Medicare than the shared savings model? The answer is yes -- read CHQPR's concept paper Using Partial Capitation as an Alternative to Shared Savings to Support Accountable Care Organizations in Medicare to find out how.
In light of the high and rapidly growing cost of healthcare in the U.S., there has been growing interest both in the federal government and in states and regions across the country in finding ways to encourage health care providers to take greater accountability for the overall cost as well as the quality of healthcare delivered to patients. A healthcare provider or group of providers that accepts accountability for the total cost of care received by a population of patients has been termed an "Accountable Care Organization."
Although there has been growing support for creating such Accountable Care Organizations (ACOs), there has been relatively little exploration of how an ACO would actually achieve the goals envisioned for it, what it would look like organizationally, or how it would come into existence. How to Create Accountable Care Organizations attempts to fill this gap.
The report addresses key issues such as:
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Across the country, there is growing recognition that dramatic changes in healthcare payment systems are needed in order to solve the persistent problems in quality that plague healthcare delivery and to reduce unaffordable costs. Paths to Payment Reform, a new series of policy briefs from the Center for Healthcare Quality and Payment Reform, is designed to explain some of the specific issues which need to be addressed in creating new payment systems and ways to transition to them from current payment structures. The first five briefs are described below.
There is growing interest in using "shared savings" as an approach to healthcare payment reform. Medicare has used it as the key element of its Physician Group Practice Demonstration, and it has been proposed as the key mechanism for encouraging the creation of "accountable care organizations."
Unfortunately, there are some fundamental weaknessess in the shared savings approach that make it far less desirable as a payment reform than it might first appear: it doesn't really fix the underlying problems in the payment system; it gives providers risk without resources; it rewards high spenders rather than high performers; it may or may not keep a provider from suffering financial losses; and it's not sustainable as a payment reform.
This policy brief explains the weaknesses in more detail, and describes the right way to share savings as part of an effort to reform healthcare payment systems. Download the Policy Brief.
There is broad agreement that significant reforms are needed to the Fee-for-Service Payment systems that are commonly used today. The two major healthcare payment systems being discussed as alternatives are Episode Payments and Comprehensive Care Payment (also called condition-adjusted capitation or risk-adjusted global fees).
However, trying to weigh the pros & cons and pick the "best" payment method is a flawed approach - Episode Payments are better for certain kinds of conditions and patients, and Comprehensive Care Payments are better for others. The choice depends on the nature of the cost/quality problems to be solved.
This policy brief outlines two key dimensions of healthcare cost problems, and shows how they are addressed by the two different payment systems. Examples of the kinds of healthcare conditions appropriate for each type of payment system are also defined, including situations in which both can be used jointly. Download the Policy Brief.
One option for improving healthcare quality and controlling costs is to use some form of population-based payment instead of Fee-for-Service payments. There are a variety of different names for this - "Comprehensive Care Payment," "Condition-Adjusted Capitation," or "Risk-Adjusted Global Fee" - but the core element is paying a single price for all of the healthcare services needed by a group of people for a fixed period of time.
However, since Comprehensive Care Payment represents a dramatic change in the way most healthcare providers are paid, it is unclear how many providers could manage under such a payment system. Also, there are concerns about whether Comprehensive Care Payment can work successfully without causing financial difficulties for providers and resistance from patients.
This policy brief outlines six ways that Comprehensive Care Payments need to be structured in order to avoid the problems that traditional capitation payment systems caused. It also defines several potential levels of Partial Comprehensive Care Payments that could help smaller physician practices to transition into this type of payment system. Download the Policy Brief.
Many people are convinced that the only way to significantly reduce healthcare costs is by some type of rationing, i.e., limiting the kinds of services that Medicare or health insurance will pay for. But there are ways to significantly reduce healthcare spending without taking away anything that consumers want.
A perfect example is hospital readmissions. Research studies and quality-reporting initiatives around the country show that 15-25% of people who are discharged from the hospital will be readmitted to the hospital within 30 days or less, and that many of these readmissions are preventable.
A number of proposals have surfaced for reducing preventable readmissions by reducing or eliminating payments to hospitals when these readmissions occur. The problem with this approach is that it assumes that if a readmission is preventable, it is preventable by the hospital, and that is not always the case.
As outlined in this policy brief, the Patient-Centered Medical Home can help to prevent many readmissions, if it is paid in the right way and focuses on reducing readmissions. Download the Policy Brief.
There is growing interest in using episode payments instead of fee-for-service payments as way of improving healthcare quality and controlling costs. An "episode payment" is a single price for all of the services needed by a patient for an entire episode of care (e.g., all of the inpatient and outpatient care they need after having a heart attack). An episode payment system reduces the incentive to overuse unnecessary services within the episode, and gives healthcare providers the flexibility to decide what services should be delivered, rather than being constrained by fee codes and amounts.
The devil is in the details, however: What exactly would be included in an episode payment? And how can healthcare payers and providers transition from the current fee-for-service system to an episode payment structure?
This policy brief describes how to define an episode payment and how to transition to episode payment. Download the Policy Brief.
Most discussions about healthcare payment reform focus on different methods of paying providers - fee-for-service payments, episode payments, capitation payments, etc. Different payment methods have advantages and disadvantages, but choosing the payment method is only half of the challenge in reforming payment systems. The other half is choosing the right amount of payment. Even if the payment method provides the right incentives, if the payment level is too low (i.e., below the minimum cost of providing care), providers will be unable to provide quality care, and if the payment level is too high, there is no incentive for efficiency.
So how should payment levels (i.e., prices) be set? This policy brief describes the three different methods for setting prices, and some of the advantages and disadvantages of each. Download the Policy Brief.
More policy briefs will be issued in the near future. Comments on the briefs, and suggestions for additional topics, are welcome -- send comments and suggestions to email@example.com.