Affordable Health Insurance Requires Lower Cost Health Care. The goal of the Affordable Care Act was not just to make health insurance available, but to make it affordable. The ability to buy health insurance means little if the combination of premiums, deductibles, and cost-sharing makes the insurance unaffordable. But health insurance will not be affordable unless health care can be delivered at a much lower cost than it is today.
The Cost of Health Care Can be Significantly Reduced Without Rationing. The good news is that the cost of healthcare can be reduced significantly without denying patients the care they need. Many patients develop health problems that could have been prevented, receive tests and procedures that are not needed, are hospitalized because their health problems were not effectively managed, or experience complications and infections that could have been avoided. Other patients could receive different types of treatment than they do today that would be equally effective but cost less. The Institute of Medicine’s 2011 study The Healthcare Imperative: Lowering Costs and Improving Outcomes found that 30% of healthcare spending could be eliminated without harming patients. If these unnecessary and avoidable health problems, services, and costs were eliminated, hundreds of billions of dollars would be saved, health insurance premiums could be reduced, and the quality of life for the patients would improve.
Current Payment Systems Prevent Healthcare Providers From Delivering Lower Cost Care. Most of these unnecessary costs persist because of problems with the way health insurance plans pay physicians, hospitals, and other healthcare providers. The two most important barriers are:
Alternative Payment Models (APMs) Are Needed to Solve These Problems. Most of the so-called “value-based payment” programs used by CMS and commercial payers make small changes in current FFS payment rates based on measures of quality or total spending, but they do not remove the barriers in the payment system described above. The problem to be solved is not a lack of “incentives” for physicians or hospitals to deliver care in a different way, but the failure of the current payment system to provide the flexibility providers need to deliver care in a more efficient but financially sustainable way. A good Alternative Payment Model (APM) has two key elements:
In some cases, a small change in the current payment system, such as payment for a specific type of service in addition to existing FFS payments, may be all that is needed to support better outcomes and lower overall costs. In other cases, a more significant change may be needed, such as restructuring payments for many different services delivered by multiple providers.
(For more details on how to design alternative payment models and physician-focused payment models that actually remove the barriers to higher-value care, see A Guide to Physician-Focused Payment Models and The Building Blocks of Successful Payment Reform, which are available at www.CHQPR.org .)
Physicians That Have Participated in Well-Designed APMs Have Shown They Can Significantly Reduce Costs. For example:
Medicare and Most Health Plans Do Not Use Physician-Focused Alternative Payment Models to Pay Physicians. Although the Affordable Care Act created the Center for Medicare and Medicaid Innovation in 2010 in order to accelerate the development and implementation of innovative payment and delivery models, relatively little progress has been made in implementing the kinds of payment models that would enable every physician to do what Drs. Calvin, Haig, McAneny, Wiler, and Zabinski have done. As the American Medical Association has stated, “Years after CMS was authorized to implement ‘new patient care models’…Medicare still does not enable the majority of physicians to pursue …opportunities to improve care in ways that could also reduce costs. Today, despite all of the demonstration projects and other initiatives that Medicare has implemented, most physicians – in primary care and other specialties – still do not have access to Medicare payment models that provide the resources and flexibility they need to improve care for their Medicare patients. Consequently, most Medicare patients still are not benefiting from regular access to a full range of care coordination services, coordinated treatment planning by primary care and specialist physicians, support for patient self-management of their chronic conditions, proactive outreach to ensure that high-risk patients get preventive care, or patient decision-support tools. As a result, the Medicare program is paying for hospitalizations and duplicative services that could have been avoided had physicians been able to deliver these high-value services.”
The same is true of most Medicaid programs and commercial health plans. Premiums for health insurance policies will continue to increase if the insurance companies who offer them continue to pay for treating problems but not for preventing them.
Accountable Care Organizations Don’t Solve the Problems with Current Payment Systems. Despite three years of effort, the CMS ACO program has increased Medicare spending rather than reducing it, and the losses increased in 2015. The reason the program isn’t working is very simple – there is no change in the way the individual physicians or hospitals in an ACO are paid. They continue to receive the same payments in the same way they would if they were not in the ACO, but they get a bonus a year later if they have spent less than other physicians and hospitals do. This program, and similar programs used by commercial health plans, provides no upfront resources to enable physician practices to improve the way they deliver care, and it encourages providers to deny or delay care to patients in order to get short-term financial bonuses.
Bundled Payment Initiatives Focus on the Wrong Thing. Although CMS and some commercial health plans have implemented bundled payment programs in addition to ACOs, almost all of them require the patient to be hospitalized in order to “trigger” the bundled payment. But the biggest savings opportunities come from helping patients avoid hospitalizations, not from reducing costs after the patient is already in the hospital. Neither CMS nor commercial health plans have implemented “condition-based payments” that enable physicians to better manage patients’ health conditions so they can avoid unnecessary hospitalizations and surgeries.
Alternative Payment Models are Needed for Hospitals as Well as Physicians. The largest component of total healthcare spending is hospital care, and most of the opportunities to reduce spending without rationing are based on reducing avoidable hospitalizations, reducing unnecessary hospital procedures, and delivering procedures outside of hospitals. However, significant losses of revenues could jeopardize the ability of hospitals, particularly small hospitals in rural areas, to maintain essential services in their communities, such as the emergency room, the cardiac catheterization lab, trauma care, etc. Rather than simply paying hospitals higher prices for every service they offer, alternative payment models are needed that provide adequate funding to hospitals to cover the costs of these essential services without tying their payments and operating margins to the volume of services they deliver. Value-based healthcare payment and delivery initiatives will not succeed if they do not provide better ways of sustaining community hospitals.
Alternative Payment Models Are Needed for All Patients, Not Just “High-Cost” Patients. In any given year, a relatively small proportion of patients accounts for a large proportion of healthcare spending. This has led many payers to focus alternative payment models only on these “high cost” patients. However, the savings they claim to achieve is illusory, because regardless of what is done, the majority of those patients won’t have high costs the following year, and a new set of high-cost patients will take their place. In many cases, spending on the patients is higher than other patients in a given year simply because they had a temporary health problem or need that year, e.g., the patient needed a hip replacement, developed cancer, or was delivering a baby. In other cases, spending was high because the patient wasn’t treated effectively in the past, e.g., their cancer wasn’t identified early, or their diabetes wasn’t treated properly. Although high cost services like joint replacement and cancer care can be delivered at lower cost than today, the biggest opportunity to reduce spending occurs before the patient becomes sick enough to require expensive treatment. This requires paying physicians in ways that enable them to more effectively manage chronic conditions and deliver preventive care than current payment systems allow.
CMS and Private Health Plans Need to Move More Rapidly to Create True Alternative Payment Models for All Types of Physicians, Hospitals, and Patients. Although Congress created a mechanism for developing alternative payment models – the Center for Medicare and Medicaid Innovation (CMMI) – CMMI has used a far more complex and resource-intensive process to implement alternative payment models than is required or necessary. Under most of the payment demonstrations that it has implemented to date, 18 months or more have elapsed from the time an initiative is first announced to the time when providers actually begin to receive different payments. This process is expensive for CMMI to administer, it dramatically reduces the number of alternative payment models that can be implemented, and it is also extremely burdensome for providers who are interested in participating in the initiatives that CMMI does attempt to implement. Many physicians and hospitals have decided not to apply to participate in otherwise desirable payment reforms, and others have dropped out of the programs in the early phases, because of the cost and time burden of participating and/or the problematic requirements that are imposed.
As slow as this process has been, CMS has made far more progress in implementing alternative payment models than the private sector. The “value-based payments” most commercial health plans are using are small pay-for-performance programs and shared savings models that have not and will not result in any significant changes in the cost or quality of healthcare services. Only a few commercial health plans, such as Horizon Blue Cross Blue Shield, Priority Health, and the Health Care Services Corporation, have implemented truly innovative payment models in areas such as gastroenterology, maternity care, oncology, and orthopedics.
This is clearly not what Congress intended either in the Affordable Care Act or in MACRA. A more aggressive timetable and a complete re-engineering of the processes CMS and commercial health plans use to implement alternative payment models is needed. This re-engineering process should start with the goal that is implicit in MACRA: every physician should have the opportunity to receive at least 25% of their Medicare revenues from physician-focused alternative payment models (not ACOs) in 2019, 50% of their total revenues from APMs in 2021, and 75% in 2023. CMS and commercial health plans should work collaboratively with physician groups and hospitals to design and rapidly implement the full range of true alternative payment models needed to reach those goals. Only then will the country achieve the kinds of savings needed to make health insurance not just available, but truly affordable.
(A pdf version of this post can be downloaded here.)
Significant changes in the MACRA regulations proposed by CMS are necessary for encouraging the development and implementation of Alternative Payment Models, but regulatory changes alone are not sufficient. The processes that CMS currently uses to implement APMs are far too slow and burdensome to achieve Congress’s goal of enabling as many physicians as possible to participate in APMs. CMS must create better, faster ways to implement Alternative Payment Models that meet the requirements of the law and regulations.
Although the Affordable Care Act created the Center for Medicare and Medicaid Innovation in 2010 in order to accelerate the development and implementation of innovative payment and delivery models, relatively little progress has been made in improving the ways most physicians and other providers are paid for their services. As the American Medical Association has stated, “Five years after CMS was authorized to implement ‘new patient care models’…Medicare still does not enable the majority of physicians to pursue …opportunities to improve care in ways that could also reduce costs. Today, despite all of the demonstration projects and other initiatives that Medicare has implemented, most physicians – in primary care and other specialties – still do not have access to Medicare payment models that provide the resources and flexibility they need to improve care for their Medicare patients. Consequently, most Medicare patients still are not benefiting from regular access to a full range of care coordination services, coordinated treatment planning by primary care and specialist physicians, support for patient self-management of their chronic conditions, proactive outreach to ensure that high-risk patients get preventive care, or patient decision-support tools. As a result, the Medicare program is paying for hospitalizations and duplicative services that could have been avoided had physicians been able to deliver these high-value services.”
One key reason for this slow progress is that the Center for Medicare and Medicaid Innovation (CMMI) has created a far more complex and resource-intensive process than is required or necessary to implement alternative payment models. Under most of the payment demonstrations that it has implemented to date, 18 months or more have elapsed from the time an initiative is first announced to the time when providers actually begin to receive different payments. Moreover, many proposals for alternative payment models have been submitted to CMMI that have not been implemented. This is not because the staff at CMMI are slow or incompetent, but because of the complex, expensive, and time-intensive process they have created for designing the initiative, selecting participants, managing the payments, and evaluating the results as part of any payment model they test.
This process is extremely burdensome and expensive for CMMI to administer, it dramatically reduces the number of alternative payment models that can be tested, and it is also extremely burdensome for providers who are interested in participating in the initiatives that CMMI does attempt to implement. Many providers have decided not to even apply to participate in otherwise desirable CMMI programs and others have dropped out of the programs in the early phases solely or partly because of the cost and time burden of participating.
This burdensome process is not required by either the Affordable Care Act or MACRA. If HHS were to attempt to implement every new alternative payment model using the approaches that are currently being used by CMMI, it would take many years before even a fraction of the physicians in the country would have the ability to meet the APM requirements under MACRA. This would mean relatively few Medicare beneficiaries could benefit from the higher quality care that would be possible under APMs and the Medicare program would not achieve the savings that APMs could generate. This is clearly not what Congress intended either in the Affordable Care Act or in MACRA.
A complete re-engineering of the processes HHS uses to implement alternative payment models is needed. This re-engineering process should start with the goal that is implicit in MACRA – every physician should have the opportunity to receive at least 25% of their Medicare revenues from alternative payment models in 2019, 50% of their revenues in 2021, and 75% in 2023. HHS should then work backward from those dates and design processes and timetables for implementing APMs in every medical specialty that will achieve that goal.
Just as many physicians, hospitals, and other healthcare providers are now re-engineering their care delivery processes to eliminate steps that do not add significant value, HHS should use Lean design techniques and other approaches to identify and eliminate all steps and requirements in its implementation processes that do not add value or that impede achieving the goals that Congress has set. Moreover, since MACRA allows alternative payment models to be implemented using statutory authorizations other than Section 1115A (the enabling legislation for CMMI), HHS should use all of the options available under MACRA in order to implement desirable alternative payment models in the most efficient way possible.
In order for a physician to be participating in an APM during 2019, the processes for approving and implementing the APM and for approving the physician’s participation in the APM will have to be completed no later than the end of 2018. However, in order for physicians to succeed under APMs, they will need to have sufficient lead time to form or join an alternative payment entity and to redesign the processes by which they deliver care with the flexibility provided by the APM, and so both the structure of the APM and the approval for a physician’s participation will need to be completed long before the end of 2018. Some physician groups and medical specialty societies have already developed physician-focused alternative payment models that should be able to meet the criteria under MACRA; these could and should be implemented by CMS as soon as 2017.
To ensure that the MACRA goals are achieved, HHS should establish specific milestones that are designed to implement as many alternative payment models as possible and as quickly as possible. For example, the following timetable would allow payments under an alternative payment model to begin flowing to a physician within one year after the model is recommended by the PTAC:
A second key reason why only a small number of physicians are participating in alternative payment models under Medicare is the problematic structure of the current models that CMS and CMMI have been using. Most of the payment models that are currently being implemented or tested by CMS use a very similar approach – no changes in the current fee for service structure, holding individual physicians accountable for the costs of all services their patients receive from all providers, adjusting payment amounts based on shared savings calculations for attributed patients, etc. – and these approaches not only fail to solve the problems in the current payment systems, they can actually make them worse.
The components used in most CMS payment models are very problematic for physicians and therefore they are likely problematic for their patients as well. Although CMS may view some of these payment models as “physician-focused” because they are targeted at individual physicians or physician practices, the goal should be to create physician-focused payment models that are successful in improving care and improving costs in ways that are feasible for physician practices, particularly small practices, to implement. To date, the alternative payment models implemented by CMS have not been successful in reducing costs because they do not provide the kinds of support that physicians need to redesign care. New physician-focused payment models should not be required to use the same flawed approaches that are being used in current CMS payment demonstrations.
At a minimum, HHS should create the administrative capabilities to implement seven different types of physician-focused APMs that can be used to address the most common types of opportunities and barriers that exist across all physician specialties. These are:
More detail on each of these physician-focused Alternative Payment Models and examples of how they could be used to improve care for a wide range of patient conditions is available in a report developed by CHQPR and the American Medical Association entitled A Guide to Physician-Focused Alternative Payment Models (available at www.CHQPR.org).
HHS should begin immediately to implement the administrative systems needed to support all of these types of payment models. This would not only ensure that the APMs can be implemented by 2019, but it would encourage physician groups and medical specialty societies to design payment models in a common framework, which will reduce implementation costs for HHS.
Re-engineering the processes for implementing alternative payment models as discussed above should dramatically increase the capacity of HHS to implement more payment models more quickly than it can today. However, if there are insufficient staff or resources at HHS/CMS/CMMI to support implementation of a sufficient number of new alternative payment models to enable all physicians to participate, additional resources should be provided to achieve the necessary “bandwidth.” Failing to allocate sufficient resources to implement alternative payment models that will save money for the Medicare program would be “penny wise and pound foolish.”
It would obviously be a tremendous waste of time and energy for physician groups, medical specialty societies, and others to develop alternative payment models that meet the requirements of the regulations if they will not be implemented by CMS. Consequently, it will be essential that CMS create the necessary systems and processes so that it can implement alternative payment models that meet the statutory and regulatory requirements. MACRA and the implementing regulations significantly increase the accountability that physicians will need to accept in return for payment. CMS needs to make comparable commitments to greater accountability for improving its own efficiency and effectiveness in designing and implementing new payment models.
(The points above as well as additional comments on the proposed MACRA regulations are included in the Center for Healthcare Quality and Payment Reform’s formal comment letter to CMS on the proposed MACRA regulations, which can be downloaded here.)
Thousands of comments were filed last week on the proposed regulations to implement the provisions of the Medicare Access and CHIP Reauthorization Act (MACRA) related to the Merit-Based Incentive Payment System (MIPS) and Alternative Payment Models (APMs). One of the most important decisions CMS will need to make in finalizing the regulations is how to revise the proposed criteria for APMs.
In MACRA, Congress clearly intended to encourage the development and implementation of Alternative Payment Models. It created significant incentives for physicians who participate in APMs at a minimum level, including:
These incentives are in addition to the benefits of participating in the APM itself.
Congress also clearly intended to encourage the development and implementation of APMs by establishing a very small number of very basic requirements for the APMs that would qualify for these incentives:
Unfortunately, in the proposed regulations, CMS went far beyond what Congress proposed, labeling the APMs to which the incentives would apply as “advanced” APMs and defining the Congressional criteria in very burdensome and restrictive ways. If the proposed regulations were implemented, they would serve as a serious barrier to progress in designing, implementing, and encouraging physician participation in Alternative Payment Models, which is completely counter to what Congress intended.
Congress did not use the term “advanced” to describe alternative payment models, nor did it in any fashion indicate that physicians should only be rewarded for participating in a narrowly defined subset of “advanced” Alternative Payment Models. The final regulations need to be significantly revised so they do what was envisioned by Congress – accelerate the implementation of successful Alternative Payment Models.
MACRA requires that in order for a physician to be exempt from MIPS and to qualify for the bonus payments and higher updates authorized by Congress, the alternative payment entity (i.e., the organizational entity that is actually receiving payments under the alternative payment model) must bear “financial risk for monetary losses under … [an] … alternative payment model that are in excess of a nominal amount.” The term “financial risk for monetary losses” in MACRA clearly refers to losses in the operations of the alternative payment entity, not to losses or increased spending in the Medicare program. However, in the proposed regulations, CMS defined risk for all but small primary care practices in terms of Medicare spending.
It is inappropriate to measure the amount of risk accepted by a physician practice or other provider in terms of the percentage change in total Medicare spending on the practice’s patients because (a) even a small percentage of Medicare spending can exceed the total revenues of a physician practice, and (b) the ratio of Medicare spending to physician practice revenues varies dramatically from specialty to specialty.
Under the proposed regulations, for most types of physician practices and APMs, CMS would require that an alternative payment entity be at risk for at least 4% of total Medicare spending in order for the participating physicians to qualify for the Congressional incentives. Since payments to physicians currently represent about 19% of total Medicare Part A and Part B spending, requiring them to pay CMS for up to 4% of Medicare spending would represent, on average, a payment of more than 20% of the physician practice’s revenue. Causing a physician practice to lose 20% of its revenue is clearly far “more than nominal” risk – it is significant financial risk.
Although payments to physician represent 19% of Medicare spending on average, for many physician practices, their revenues represent a much smaller percentage of total Medicare spending on their patients. In many cases, a physician practice’s revenues may represent less than 5% of total Medicare spending on their patients. For these practices, a 4% change in Medicare spending could represent 100% or more of the practice’s revenues. A physician practice could be forced out of business if it is held responsible for paying for even a very small percentage change in the total Medicare spending for the practice’s patients. Moreover, the fact that 4% of Medicare spending represents a higher amount relative to physician practice revenues for different specialties would mean that physicians in different specialties would face different levels of risk to participate in APMs, and there is no indication that Congress intended that.
It seems quite clear that in using the term “more than nominal financial risk,” Congress did not mean “significant” financial risk or it would have used that term in the law. In is inappropriate for CMS to issue regulations that are so clearly at odds with Congressional intent.
However, CMS has defined the solution to this problem in the proposed regulations. The proposed regulations created a separate definition of risk for small primary care practices participating in medical home programs that is based on a percentage of their revenues, not a percentage of Medicare spending. There is no reason to limit this approach just to small primary care practices or medical home programs. All physician practices should have their risk defined in terms of the amount of their revenues they could lose, rather than the percentage of Medicare spending they would be required to pay.
Basing risk on a practice’s revenues only solves part of the problem with the regulations, however. The financial risk incurred by an alternative payment entity is a function of the costs that the alternative payment entity incurs to implement the alternative payment model as well as the revenues it receives under the model. If the alternative payment entity hires or pays for new staff to deliver services to patients under the alternative payment model, if it acquires new or different equipment to deliver services, or if it incurs other kinds of expenses to implement the alternative payment model, and if those expenses are not automatically or directly reimbursed by Medicare, then the alternative payment entity is accepting financial risk for monetary losses.
One of the reasons for creating APMs is that Medicare does not currently pay physicians for many services that would benefit patients and help reduce avoidable spending. For example, there is generally no payment or inadequate payment for:
If an alternative payment entity implemented these kinds of services under an alternative payment model in order to help improve outcomes for its patients and reduce Medicare spending, it could easily incur monetary losses even Medicare has achieved savings. For example, even under an “upside only” shared savings model, a physician practice or other provider incurs financial risk if it incurs costs to deliver services to beneficiaries that are designed to reduce Medicare spending, since the provider could fail to qualify for the shared savings payment it needs to pay for those costs even when Medicare spending has been reduced.
Consequently, financial risk cannot be defined simply in terms of the potential reduction in revenues the alternative payment entity could receive from Medicare. An alternative payment entity’s “financial risk for monetary losses” under an alternative payment model should be defined as the potential difference between the amount of costs the entity incurs or is obligated to pay as part of the alternative payment model and the amount of revenues that it could receive under the APM. The greater the costs it incurs or the lower the revenue it could potentially receive, the greater the financial risk it will face under the APM.
Although many people seem to think that “financial risk” is only associated with alternative payment models, there is financial risk involved in any payment system other than one which reimburses physicians or other providers for their actual costs. Today, physician practices incur financial risk for monetary losses under the fee-for-service payment system because the costs they incur for office space, equipment, and staff are not directly reimbursed by Medicare, and if the practice does not deliver enough services to generate fee-for-service payment revenues in excess of those costs, it could be forced to declare bankruptcy. The measure of a good alternative payment model should not be how much it increases financial risk for physician practices and other providers, but rather how effectively it realigns their financial risk so that financial losses result from delivering lower quality care rather than from delivering fewer services.
In MACRA, Congress has placed all physicians’ payments “at risk” under the Merit-Based Incentive Payment System (MIPS). In the initial year of the program (2019), physician payments could be reduced by 4%, and the maximum reduction increases to 9% in 2022. These amounts are presumably “more than nominal” if Congress expected them to influence physician performance on the measures defined in MIPS, which includes resource measures.
Consequently, “more than nominal” risk for APMs could be defined using the maximum reduction amounts that are used in MIPS. In 2019, since a physician’s payments could be reduced by 4% under MIPS even with no change in the physician’s costs, an alternative payment entity should be viewed as being at “more than nominal financial risk” if the amount of costs that it incurs under an alternative payment model could exceed the amount of revenue it receives under the model by at least 4%.
In addition to requiring minimum levels of financial risk, MACRA requires that an APM “provide for payment for covered professional services based on quality measures.” It does not require that the amounts of payment be a “factor” in determining the amount of payment, as CMS has proposed in the regulations. This excessively narrow interpretation of the MACRA requirements in the proposed regulations led CMS to declare that one of its most widely used and potentially successful programs – the Bundled Payments for Care Improvement (BPCI) program – would not qualify as an APM under MACRA.
If a payment model is designed to achieve savings, the Affordable Care Act requires only that the payment model do so “without reducing the quality of care.” Consequently, an APM should be considered a qualified alternative payment model if it (1) measures quality and (2) requires a minimum standard of quality to be met in order for physicians to continue to participate in the APM. This would allow a much broader range of current and future APMs to qualify.
In addition to the provisions regarding financial risk and quality, MACRA requires that participants in an alternative payment model “use” certified EHR technology. After several years of HHS trying to define “meaningful use” of EHRs, there is widespread agreement that detailed requirements regarding how clinicians should use EHRs have increased costs and harmed quality rather than improving it. Since MACRA simply requires “use” of the EHR, regulations regarding use of EHRs in APMs should only require that clinical data about the patients receiving care as part of the alternative payment model be stored in a certified electronic health record system. It is impossible to prescribe how a physician or other provider should “use” the technology beyond this without potentially interfering with the provider’s flexibility to deliver services in the most effective way or imposing unnecessary costs and administrative burdens on the provider. A physician practice participating in the APM will have a strong incentive to use the EHR if the EHR has capabilities that will improve the practice’s success, regardless of any specific requirements imposed by HHS. Any specific requirements for “use” of EHRs that are imposed in regulations should be treated as a cost that increases the financial risk for a physician practice to participate in the APM if the cost is not explicitly supported by the APM itself.
The final regulations should not label APMs that meet the Congressional criteria as “advanced” APMs, they should define “more than nominal risk” based on a reasonable percentage of a practice’s costs and revenues, and they should establish more reasonable and flexible requirements for quality measures and EHR use. To do this, the final regulations could be revised to read as follows:
414.1415 Qualified APM criteria
(a) Use of certified electronic health record technology. The following constitutes use of CEHRT:
(2) Required use of certified EHR technology. To be a Qualified APM, an APM Entity must store clinical data in CEHRT regarding the care delivered to patients with financial support from the APM.
(b) Payment based on quality measures.
(1) To be a Qualified APM, an APM must ensure that the quality of care for patients receiving services under the APM is maintained or improved.
(c) Financial risk. To be a Qualified APM, an APM must either meet both the financial risk standard and nominal risk standard described in this section or be an expanded Medical Home Model as described in paragraph (c)(5) of this section.
(1) Financial risk standard. To be a Qualified APM, an APM must, based on whether an APM Entity’s actual expenditures for which the APM Entity is responsible under the APM exceed expected expenditures during a specified performance period, do one or more of the following:
(i) Withhold payment for services to the APM Entity or the APM Entity’s eligible clinicians;
(ii) Reduce payment rates to the APM Entity or the APM Entity’s eligible clinicians;
(iii) Require the APM Entity to owe payment(s) to CMS; or
(iv) Cause the APM Entity to lose the right to all or part of an otherwise guaranteed payment or payments.
(2) Nominal amount standard. To be a Qualified APM, either:
(i) the minimum total annual amount that an APM Entity must potentially owe or forego under the APM must be at least 4 percent of the APM Entity’s total Medicare Parts A and B revenue, or
(ii) the APM entity must document that (a) it is using its own resources to deliver new or expanded services to beneficiaries that are not directly paid for by Medicare and (b) the amount of those resources are equal to or greater than 4% of the APM Entity’s total Medicare Parts A and B revenues.
(3) Expected expenditures. For the purposes of this section, expected expenditures is defined as either:
(i) the payment to the APM entity, if the APM entity will be responsible for paying for all of the services to be delivered under the APM, or
(ii) the spending target established under the APM for the total spending on all of the services to which the APM applies.
(4) Capitation. A full capitation arrangement meets this Qualified APM criterion. For purposes of this subpart, a capitation arrangement means a payment arrangement in which a per capita or otherwise predetermined payment is made to an APM Entity for all items and services furnished to a population of beneficiaries, and no settlement is performed to reconcile or share losses incurred or savings earned by the APM Entity. Arrangements made between CMS and Medicare Advantage Organizations under the Medicare Advantage program (42 U.S.C. section 422) are not considered capitation arrangements for purposes of this paragraph (c)(4).
(5) Medical Home Model Expanded under section 1115A(c) of the Act. A Medical Home Model that has been expanded under section 1115A(c) of the Act meets the financial risk criterion under this section.
Additional recommendations for changes in the proposed MACRA regulations are included in the Center for Healthcare Quality and Payment Reform’s formal comment letter to CMS on the proposed MACRA regulations, which can be downloaded here.
These changes to the regulations are necessary but not sufficient to accelerate the development and implementation of APMs. CMS also needs to significantly change the current process it uses to implement APMs, which is far too slow and burdensome. Recommendations for this are included in CHQPR’s comment letter to CMS and will be described in a future message.
Cancer treatment is becoming less and less affordable every year. The primary reason for the rapid increase in cancer treatment costs is the increasingly high prices manufacturers charge for the drugs cancer patients need. However, instead of finding ways to reduce the high prices of drugs, the Centers for Medicare and Medicaid Services (CMS) has proposed to cut the Medicare payments that enable oncology practices to buy and use the drugs cancer patients need.
CMS believes that the current method it uses to pay physicians to administer drugs in their offices creates a “financial incentive to prescribe high cost drugs over lower cost ones when comparable low cost drugs are available.” To address this, it proposed the “Part B Drug Payment Model” in March 2016. If it were implemented, this mandatory demonstration would cut Medicare payments to physicians for all of the drugs they administer (regardless of whether there are lower-cost drugs available) in order to “test” whether this would lead to a reduction in Medicare spending on drugs. Although the change is represented as being budget neutral for physician practices overall, data presented by CMS indicate that the change would actually cut payments to oncology practices by over $32 million.
Many individuals and organizations have expressed strong opposition to the proposal, while others have supported it. However, it is difficult to determine whether to support or oppose the proposal without understanding the complex way that Medicare pays for physician-administered drugs. As explained in detail below, once you understand how payment works today, it becomes clear that the most likely effect of the change proposed by CMS will be to make it more difficult for cancer patients to obtain the drugs they need. Moreover, it also becomes clear that more comprehensive reforms are needed to the way oncology practices are paid that would support improved care for patients and reduce truly avoidable spending.
Do Medicare Payments for Cancer Drugs Create Incentives to Use More Expensive Drugs?
Today, when a Medicare patient with cancer comes to an oncology practice for a chemotherapy infusion treatment, the drug the patient receives had to first be purchased by the practice from a drug wholesaler and then stored in the practice’s pharmacy until it was used to treat the patient. After the patient receives the drug, Medicare pays the practice a predetermined amount for the drug, and by law, that amount is calculated by taking the “Average Sales Price” for the drug (ASP) six months earlier and adding 6%. Currently, the actual payment is only ASP + 4.3% because of the across-the-board 2% cut in Medicare payments due to sequestration.
Many people have been led to believe that the 6% add-on is “profit” for the oncologist or the oncology practice. In reality, the 6% is used by the oncology practice to cover at least five types of costs that are not otherwise reimbursed by Medicare:
Many of the above costs are higher for more expensive cancer drugs, which is why it makes sense to base the payment at least in part on a percentage of the drug price. For example, if an oncology practice cannot use 10% of what is in a drug vial, the practice will not be reimbursed for 10% of what it paid for that drug, and a drug that was five times as expensive as another will cause the practice to lose five times as much. Practices need to spend more time trying to help patients obtain financial assistance in paying their cost-sharing on expensive drugs than on lower-cost drugs, and practices incur more bad debt for patients receiving expensive drugs than low-cost drugs.
Contrary to what CMS and others believe, covering all of these costs and covering the higher costs associated with more expensive drugs does not create an “incentive” for a practice to use an expensive drug. If anything, the percentage payment avoids creating a disincentive for the practice to use the expensive drug, so the oncologist can choose the drug that is best for the patient without worrying (as much) about whether the practice will lose money by using the drug.
No one knows what the “right” payment amount is to cover all of these costs. The current 6% statutory amount is not based on an analysis showing that amount would cover the costs physician practices in general or oncology practices in particular incur, and CMS has not presented any new analysis indicating that 6% is too much. In the Part B Drug Payment Model, CMS has proposed replacing the ASP+ 6% formula with a three part formula: ASP + 2.5% + a $16.80 flat payment per drug. (With the sequestration adjustment, the actual payment would only be ASP + 0.86% + $16.53.) However, CMS presented no analysis justifying that 2.5% would better match costs than 6%. It used that amount because it was used by the Medicare Payment Advisory Commission (MedPAC) in an analysis MedPAC did. MedPAC used the 2.5% amount in its analysis because it felt that this “should be sufficient to cover markups from wholesalers.” CMS indicates that this was based on “anecdotal evidence” that such markups are between 1% and 2%, but that MedPAC “was not aware of data that could verify this estimate.” CMS states in its regulation that it is “not aware of data that could verify this assessment.”
Rather than seeking to obtain better data to determine what the right percentage should be, CMS is proposing to just cut the amount from 6% to 2.5% and see what happens. The $16.80 flat payment was selected by CMS in order to offset the loss in revenue caused by the cut from 6% to 2.5%. However, the analysis presented by CMS only shows that adding a $16.80 flat payment would offset the cut from 6% to 2.5% on average in 2014; the analysis shows that some types of physician practices – particularly oncologists, rheumatologists, and ophthalmologists – would experience large cuts in revenue, while other physician practices, such as primary care physicians, orthopedic surgeons, and cardiologists, would experience large increases in revenue. No analysis is presented to suggest that these increases and cuts in revenue for different specialties would better match the costs the physicians in those specialties are incurring to deliver medications to their patients.
Some combination of a flat fee and a percentage markup would probably be a better match for a practice’s costs than a pure percentage-based markup, because a pure percentage markup under-reimburses pharmacy operations costs when lower-priced drugs are used (since there are fixed costs to operate the pharmacy that have to be covered regardless of the price of the drugs used), but a flat fee alone wouldn’t cover the higher costs the practice incurs when it uses more expensive drugs (because, as explained earlier, the practice’s costs are higher for higher-priced drugs). However, the specific combination of a flat fee and percentage that CMS is proposing would clearly not be a better match for an oncology practice’s costs than the current percentage payment, because CMS’s own calculations show the proposed formula would result in a more than $30 million cut in the payments that oncology practices currently use to cover the costs of operating their pharmacies and purchasing the drugs their patients need. Moreover, measuring whether the total payments are higher or lower than they are currently begs the question of whether the payment amounts were correct to begin with.
Available data indicate that commercial health plans pay a higher percentage markup on drugs than Medicare does, not a lower markup as CMS is proposing. Some of these higher percentage markups likely do exceed the costs cited earlier that are associated with purchasing, storing, and administering drugs to patients. However, data show that these higher payments do not represent “profits” to oncologists or to their practices; rather, these higher payments cover the costs of services that oncology practices deliver to their patients that are not paid for, or are inadequately paid for, by Medicare and the commercial health plans, such as the costs of patient education and counseling services, the time spent in coordinating care, etc. Data from the National Practice Benchmark for Oncology indicate that current fee-for-service payments from Medicare and other payers only cover 2/3 of the costs of the services that oncology practices provide to their patients. Many oncology practices are forced to rely on higher commercial payments for drugs to subsidize the other services they offer.
However, focusing only on the small percentage markup ignores the serious problems with the ASP portion of the formula, which represents 96% of Medicare’s spending on drugs and 96% of what the practice receives to cover the costs of acquiring drugs. Most people do not realize that Medicare does not reimburse a practice for its actual acquisition cost associated with an expensive chemotherapy drug. Rather, Medicare pays the practice based on the “average sales price” (ASP) of that drug two calendar quarters earlier. As everyone knows, the prices of most cancer drugs are increasing rapidly. This means that in most cases, the ASP payment from Medicare will be less than what the oncology practice will have to pay to purchase the drug, because the ASP amount was based on the price of the drug six months earlier, not the price when the practice actually bought the drug. There are also concerns that the formula calculating ASP incorporates discounts received by wholesalers that are not actually passed on to physician practices, which means that the ASP amount is less than the average amount that physician practices actually paid for a drug. Moreover, because larger practices often can obtain discounts that smaller practices cannot, smaller practices will generally have to pay more for a drug than larger practices, and that means they will pay more for a drug than what is calculated as the “average sales price.” Consequently, when Medicare bases payments on ASP, it is often paying less than a practice’s actual acquisition cost for drugs, particularly for small practices.
The result of this very complex system is that many oncology practices, particularly small practices, lose money on many of the chemotherapy drugs they purchase. Medicare’s 6% add-on payment (which has been only 4.3% under sequestration) on top of ASP helps to offset this loss in some cases, but not all. The CMS proposal to significantly cut that add-on payment will mean that practices will lose money on even more drugs than they do today. CMS is not proposing any improvements to the ASP system – which represents 96% of the payment for drugs – to make it more accurate or to remove any undesirable incentives it might create, it is only proposing to change the remaining 4% and to do so without any solid analysis indicating that the new amount better matches costs than does the current amount.
If CMS does not pay adequately to cover the losses and costs oncology practices incur in buying and administering chemotherapy, oncology practices will not be able to afford to administer the drugs patients need. This will affect their ability to administer the lower-priced drugs CMS wants to encourage practices to use as well as their ability to use expensive drugs.
As noted earlier, paying adequately for the costs of administering chemotherapy does not give an oncologist an “incentive” to use one drug over another. Rather, it ensures the oncology practice is not penalized financially for choosing the most appropriate drugs for their patients. Moreover, for many patients, there may be only one drug that is appropriate to treat their disease at a particular point in time, in which case there is no choice that could possibly be “incentivized” by how much CMS pays for drugs. In these cases, the proposal by CMS to cut drug payments would simply create a financial penalty for oncology practices when their patients need a high-cost drug or a drug whose price has been increasing rapidly.
The bottom line is there are two primary types of impacts that would be likely to occur if CMS implements the Part B Drug Payment Model. One is that cancer patients will be unable to receive chemotherapy treatments that they need because their oncologists can no longer afford to purchase and administer them. The second is that community oncology practices that try to purchase the drugs their patients need with inadequate reimbursement from Medicare will lose money and potentially be forced to close, and that in turn will mean that patients will have to travel farther and pay more to obtain cancer treatments. It would be inappropriate for CMS to use the authority provided under the Affordable Care Act to “test” which of these impacts will occur or how big the impacts would be.
How to Control Cancer Spending Without Harming Patients
Instead of this problematic proposal, CMS should pursue implementation of comprehensive oncology payment reforms that will actually improve care for patients while making that care more affordable. Last year, after many months of work, the American Society of Clinical Oncology (ASCO) announced a proposal for comprehensive payment reform called Patient-Centered Oncology Payment (PCOP). PCOP is designed to provide adequate payment to oncology practices for many essential services that Medicare and health plans don’t pay for today, such as patient education, counseling, care coordination, etc. Under PCOP, instead of oncology practices being forced to try and pay for essential patient services using revenues generated from drugs, the practices would be paid directly for those services. PCOP is also specifically designed to reduce the overall cost of cancer care by (a) identifying the kinds of drugs, tests, and treatments that patients do not need and reduce the use of those services and (b) reducing the rates of complications and hospitalizations that patients experience while undergoing cancer treatment. Under PCOP, oncology practices would take responsibility for implementing evidence-based guidelines developed by ASCO for prescribing tests and drugs, and the practices would receive payments enabling them to determine an accurate diagnosis and to select the most appropriate treatment based on the guidelines. This would improve care for patients and make care more affordable, rather than achieving savings at the expense of quality.
Although PCOP has many advantages over the current payment system for oncology, it has specific advantages compared to the CMS Part B Drug Payment Model. Instead of a policy that tries to discourage oncology practices from using expensive drugs that patients need, as the CMS Part B Drug Payment Model would do, Patient-Centered Oncology Payment would discourage practices from using drugs when patients don’t really need them. Since many of those drugs are very expensive, this would save money without harming patients.
For example, the data that CMS released in conjunction with its Part B Drug Payment Model proposal showed that Medicare spent over $1 billion in 2014 on a very expensive drug called pegfilgrastim, the fourth highest amount Medicare spent on any drug in the Part B program. Pegfilgrastim is not used to treat cancer, but rather to help patients who are receiving chemotherapy to avoid developing infections. ASCO has developed guidelines for when the drug should and should not be used, but studies have shown that pegfilgrastim is being used for many patients who do not really need it. The drug isn’t being overused because oncology practices have a financial incentive to do so, it’s being overused because oncologists want to help as many patients as possible avoid complications that can lead to hospitalizations. However, not all types of chemotherapy are equally likely to cause the kinds of complications that pegfilgrastim can prevent, and the drug causes serious side effects that can outweigh its benefits for many patients. Rather than simply cutting all payments for pegfilgrastim whether patients would benefit from it or not (as the proposed Part B Drug Payment Model would do), PCOP would enable an oncology practice to have adequate time to determine which patients really need the drug and also pay for the staff resources needed to create more cost-effective approaches for preventing hospitalizations for the others.
Reducing unnecessary spending on a few frequently used, expensive drugs could result in far greater savings for Medicare than anything the proposed Part B Drug Payment Model could achieve. The PCOP payment model would provide oncology practices the time and resources they need in order to implement and follow complex, evidence-based guidelines that can control spending while protecting patients.
Reducing avoidable spending on drugs and tests is just one way that PCOP would achieve savings on cancer care in ways that benefit patients. Another major focus of PCOP would be to enable cancer physicians to turn their practices into “oncology medical homes,” including providing rapid response to complications of chemotherapy in order to avoid patients being taken to the emergency room or being hospitalized. A national demonstration project called COME HOME (www.comehomeprogram.com) that was funded by CMS showed that dramatic reductions in the frequency of ED visits and hospitalizations and overall savings for Medicare could be achieved by giving oncology practices the time and resources they need to deliver more services to patients. Unfortunately, these services are not paid for under the current Medicare fee schedule, and the practices that have implemented these services will have to discontinue them if a better payment system like PCOP isn’t implemented soon.
CMS has developed another oncology payment reform demonstration called the Oncology Care Model that could provide some of the resources oncology practices need to help their patients avoid ED visits and hospitalizations. Unfortunately, the Oncology Care Model would also create significant financial incentives for oncology practices to give patients low-cost drugs regardless of whether those drugs would be effective for their patients, and it would penalize practices by dropping them from the program if they don’t find ways to reduce spending on drugs and other services. A report prepared by the Center for Healthcare Quality and Payment Reform titled A Better Way to Pay for Cancer Care explains why the PCOP payment model is superior to the Oncology Care Model and to other alternative payment models that have been proposed or used by CMS. It is available at http://www.chqpr.org/cancer-care.html.
The current payment system for oncology care in America is badly broken. Cancer patients deserve much better. There are significant opportunities to reduce the cost of cancer care in ways that help patients rather than hurt them, but these can only be implemented with an appropriately designed payment system that provides adequate funding for good cancer care grounded in evidence-based guidelines for treatment. Rather than testing problematic and piecemeal payment “incentives” that could seriously harm both patients and oncology practices, CMS should implement a truly comprehensive payment reform that strengthens oncology practices and enables them to deliver the best possible care to patients at the most affordable cost.
Despite widespread agreement on the need for major improvements in healthcare payment systems, progress in implementing truly meaningful payment reforms has been frustratingly slow. Last spring, as part of the Medicare and CHIP Reauthorization Act (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.
A new report from the Center for Healthcare Quality and Payment Reform, Implementing Alternative Payment Models Under MACRA: How the Federal Government Can Accelerate Successful Health Care Payment Reform, explains the provisions of MACRA relating to APMs and describes the actions HHS and CMS should take in three key areas:
A copy of the report can be downloaded at:
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.
Additional information on how to develop successful Alternative Payment Models can be obtained in these earlier reports from the Center for Healthcare Quality and Payment Reform, all of which can be downloaded free of charge at www.CHQPR.org:
(A printed copy of this post can be downloaded here.)
On July 9, 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. Moreover, the plan is implemented in a way that could lead to many very problematic results, including:
Most people won’t have the stamina to read through 394 pages of preamble and 45 pages of regulations to figure out the complex structure CMS developed, so here’s an explanation of why what sounds like a good idea turns out to be exactly the opposite.
True Episode Payment Would Be Desirable, But This Is Just P4P
Creating an episode payment for joint replacement is a good idea – a patient shouldn’t have to worry about whether their surgeon, the hospital, other doctors, physical therapists, the rehabilitation facility, home health nurses, etc. are coordinating their services, and Medicare shouldn’t have to pay more if patients receive services they don’t really need to achieve a good outcome. In a true episode payment structure, all of those providers would work together to deliver care in a way that achieves the best outcomes at the lowest cost, and because they are working together, they can take a single, bundled payment and divide it among themselves. Moreover, under a true episode payment, the providers would have the flexibility to completely redesign the way they deliver care, including providing services that aren’t paid for at all today, but they would also have accountability for ensuring that the different approach to services achieves similar outcomes at a lower cost or better outcomes at the same cost.
However, the Medicare CCJR proposal isn’t a true episode payment and there isn’t any requirement that all providers whose services are included in the episode work together to redesign the way they deliver care. CMS is telling every individual provider – the doctors, the home health agency, the skilled nursing facility, the hospital, and any others – that they will continue to be paid exactly the same way they are paid today for doing the same things they do today. The only difference is that at the end of the year, the hospital – and only the hospital – would get a penalty or bonus based on the grand total of the payments for all of the services billed by all of those providers. The hospital wouldn’t be given any control over which services the Medicare beneficiary received (the patient could use whichever physicians, skilled nursing facilities, home health agencies, etc. they wished) and those providers would have no obligation to control how many services they provide. But if the beneficiary received “too many” of those services, the hospital would be expected to pay for the excess.
So even though the proposed regulation calls CCJR an “episode payment,” it’s actually just a new pay-for-performance system for hospitals based on Medicare’s retrospective analysis of spending that occurred during an episode.
It May Look Like a Bundled Payment But It Isn’t Really
What most people will likely find confusing is that many true episode and bundled payment systems are being implemented using a retrospective reconciliation process that looks similar to what Medicare is proposing to do. Under those systems, during the course of the time period covered by the episode payment, the providers who are involved continue to bill a payer using traditional fee-for-service billing codes. The payer then adds up all of those bills, compares them to the episode payment amount, and either sends the providers an additional payment for the difference, or tells them they need to pay back any overage. That retrospective reconciliation process is really just a convenience for the providers; it enables them to get interim payments during the episode and avoids forcing one of the providers to take on the responsibility of paying all the other providers for their individual services. As a practical matter, though, the system functions as though the providers were getting a single bundled payment of a predefined amount and then distributing it among themselves based in part on the services they delivered.
What Medicare is proposing in CCJR sounds similar, but the details differ in several key ways:
It’s a Payment Design That Penalizes Innovation Instead of Encouraging It
The last point is particularly important, but it may be very difficult to understand because there is a lot of confusion today about the difference between healthcare spending and healthcare costs. Sustainable innovation in any industry occurs when products and services can be redesigned in ways that lower their costs so they can be sold at lower prices. In contrast, simply cutting payment amounts may lead to shortages of services and other undesirable effects.
Here’s an example: Suppose orthopedic surgery practices and hospitals felt that instead of discharging some knee surgery patients to a skilled nursing facility (SNF) for the kinds of rehabilitation services Medicare will pay for under the SNF payment system, the patients would recover faster and at lower cost with a new home-based rehabilitation program. This hypothetical new program is not covered by Medicare, so if a surgery practice or hospital began offering this new service to patients, they would not be able to bill or be paid for it directly. But for patients who received the service instead of going to a SNF, the total cost of services would decrease. In this scenario, however, Medicare’s spending would decrease more than the actual cost of services would go down, because Medicare would be paying nothing for the new home-based service even though it clearly would cost the surgery practice or hospital something to deliver it.
Under a true episode payment structure implemented using retrospective reconciliation, the entity that’s managing the payment, whether it was the hospital or the surgery practice, would ultimately receive enough revenue to cover the cost of the new service. That’s because the lack of billing for SNF services would create a surplus in the “budget” defined by the episode payment; that surplus would be paid to the entity at the end of the year and it could use the surplus payment to cover the cost of the unbillable new service.
In the CCJR program Medicare has proposed, there would be a similar surplus payment in the first year in which the program was in effect. In this hypothetical example, total billings with the new home-based service would be lower than the episode spending target established by Medicare because the target was based on average billings in the prior year when SNF services were still being used more frequently. However, over time, if many providers begin offering the new service that’s not directly billable instead of using SNF services that are billable, Medicare will reduce the amount of the CCJR “episode price” it pays below the cost of actually delivering the services. That’s because under the proposed CCJR regulations, CMS will base the episode spending target each year on the amount it spent on services it was billed for in the prior year, not on the costs the providers incurred for the services they actually delivered. In a true episode payment system, the providers wouldn’t agree to an episode payment that low because they couldn’t afford to deliver the full package of services at that price. But Medicare isn’t planning to assess whether the lower spending target is adequate or not; under the proposed CCJR system, Medicare will simply reduce the target and penalize the providers if their spending is higher.
The key thing to remember is that what Medicare and health insurance plans spend on services isn’t the same as what it costs providers to deliver those services, and in some cases, the services payers do pay for may not deliver as much value as the services they don’t pay for. A well-designed bundled payment system sets a price and then lets providers decide which services provide the best combination of cost and quality. The providers could accept a lower price for care than what is being spent by payers today, because they’d have the flexibility to substitute a higher-value service that’s not paid for today and to define an episode payment amount that’s adequate to cover the new, lower costs of the new set of services. But the price has to be set based on the services the providers plan to deliver, not determined through a retrospective analysis of the payer’s spending on the services it pays for. (See The Payment Reform Glossary (www.paymentreformglossary.org) for more detailed explanations and comparisons of the terms “bundled payment,” “episode payment,” “spending,” “cost,” etc.)
Instead of encouraging providers to innovate, the proposed CCJR regulations attempt to specify exactly how care should be delivered. For example, the regulations state that “a home visit of once a week to a non-homebound beneficiary who has concluded PAC and who could also receive services in the physician’s office or hospital outpatient department as needed, along with telehealth visits in the home from a physician or NPP, should be sufficient to allow comprehensive assessment and management of the beneficiary throughout the LEJR episode.” That’s CMS defining how care should be delivered, rather than the physicians, hospitals, and other providers who know what the patients actually need.
Moreover, the most innovative approaches of all would be completely precluded by the design of the CCJR payment model:
The bottom line is that Medicare’s model would discourage innovation and it could bankrupt innovative providers, whereas a true episode payment structure could encourage innovation and allow patients, providers, and Medicare to all benefit – a genuine win-win-win.
CCJR Will Likely Accelerate Provider Consolidation and Increase Prices for Private Payers
In addition to discouraging innovation, Medicare’s proposal would likely encourage fewer choices for patients, more consolidation of providers, and higher prices for private payers. If you’re a hospital and Medicare is going to penalize you when total episode spending is high because post-acute care providers and physicians order or deliver too many services after patients leave the hospital, what are you going to do? One logical strategy would be for the hospital to buy the post-acute providers (i.e., the nursing homes, the home health agencies, etc.) and buy the physician practices so the hospital could directly control how much those providers spend following hip and knee surgery. Smaller hospitals who don’t own their own post-acute care providers may be even more nervous about the financial risks they’d face under CCJR if the post-acute care providers are owned by a competitor hospital, and so another potential result would be for smaller hospitals to get out of the business of delivering hip and knee surgeries altogether or to consolidate with the larger hospitals. The net result either way would be fewer choices of hospital and post-acute care providers who deliver care for knee and hip surgery, and that in turn could result in higher prices for private purchasers and patients who rely on competition to hold down prices.
The CMS regulations seem to assume that all of the post-acute care providers will willingly sign contracts with hospitals to share their financial responsibility, since there is a lot of detail in the regulations designed to control what those contracts would look like. But if you’re a post-acute care provider, why would you want to voluntarily agree to lose revenues by delivering fewer services in order to help a hospital avoid a penalty? And if you’re a hospital, why would you want to try and define a contract that CMS would approve if you could just acquire the post-acute care provider and avoid the need for the contracts altogether?
Similarly, there would be a strong incentive for hospitals to acquire orthopedic surgery practices and preclude independent practices from performing surgeries at the hospital since any extra services ordered or delivered by the physicians after discharge could turn into financial penalties for the hospital.
The problem goes beyond just the providers directly involved with hip and knee surgeries, however. The way the CCJR proposal is defined, hospitals would be accountable for essentially all of the healthcare services that beneficiaries receive after discharge from the hospital, whether they are directly related to the surgery or not. So if a Medicare beneficiary with COPD, diabetes, hypertension, etc. receives hip or knee surgery at the hospital, the hospital would then be at financial risk for how the beneficiary’s primary care physician, pulmonologist, endocrinologist, cardiologist, etc. manage their care for those diseases after discharge. That means CCJR is much more than an “episode payment” for hip and knee surgery; it forces a hospital that delivers hip and knee surgeries to become a mini-Accountable Care Organization during the 90 days after patients are discharged.
Poorly Designed Risk Adjustment Could Both Reduce Access and Result in More Unnecessary Surgeries
Under the proposed regulations, CMS wouldn’t adjust the episode spending targets based on differences in the kinds of care Medicare beneficiaries needed after they left the hospital. Although CMS will have different spending targets for the two different hospital DRGs used to pay for hip and knee surgeries, the current DRGs were designed to risk-adjust spending for care in the hospital, not to risk-adjust spending for both hospital and post-acute care. So the patients in the same DRG at two different hospitals could have very different needs for care after they leave the hospital. If one hospital had a higher-than-average number of patients who live alone or have other problems that require them to go to a skilled nursing facility for rehabilitation rather than return home, the average episode spending would be higher for the patients treated at that hospital (even if the cost of the care during the hospital stay was the same), and the hospital could be forced to pay for part of those additional nursing home stays. In the regulations, CMS implicitly acknowledges that differences in patient characteristics could affect episode spending more than what is accounted for by the two DRGs, but the regulations say that since there is no consensus on what the right risk adjustment system should be, no risk adjustment system at all will be used.
Two types of serious problems result from using no risk adjustment or the wrong risk adjustment system. First, it may become more difficult for patients to find a hospital to do surgery if the patient would need higher levels of post-acute care after surgery, because the hospital could be penalized if those higher-need patients caused the average episode spending to increase. Since the hospital would be accountable not just for services and complications related to the surgery, but for chronic disease care for patients with chronic disease, it might also be more difficult for patients with chronic disease to get surgery from a hospital if the patient’s other physicians weren’t affiliated with that hospital.
Second, CCJR would create a financial incentive for hospitals to encourage younger, healthier patients with joint osteoarthritis to undergo surgery, even if the patients could have managed with non-invasive treatments such as physical therapy, medications, and exercise. The reason is that since those patients would likely need less post-acute care, they would reduce the hospital’s overall average spending per episode, helping it avoid a penalty and potentially receive a bonus. There is nothing in the CMS regulations that would penalize a hospital for doing surgeries that could have been avoided by using other services, but there is plenty to penalize them for spending more than average on the surgeries that are done. The net result could be more surgeries and higher total spending, even though the average spending per surgery episode would be lower.
There’s No Reward for Higher Quality, Just Smaller Bonuses If Quality is Low
The provision of the Affordable Care Act that gave CMS the authority to issue the CCJR regulations (Section 1115A of the Social Security Act) states that Congress’s goal was to “reduce spending without reducing the quality of care or improve the quality of patient care without increasing spending.” However, under the proposed CCJR program, there’s no reward for a hospital that achieves better outcomes for its patients at the same cost, e.g., if its patients had less pain during the recovery period or less pain or discomfort with their new knee or hip after they completed rehabilitation. The CCJR includes quality measures, but they’re only applicable if spending is lower, and they’re only used to give a hospital a smaller bonus than it would have otherwise received if quality is lower than the standards CMS establishes. If spending is the same but quality is higher, there’s no bonus. If spending is higher, the hospital is penalized the same regardless of whether quality is better, worse, or the same. So clearly savings is the primary focus, not improving quality.
A Mandatory “Test” Would Preclude Other, Better Approaches
Under the proposed regulation, in 75 regions of the country, every hospital that is paid under the DRG system would be subject to these new penalties during a five year “test” period. The regions are selected through a randomization process, and as a result, the hospitals in one of two neighboring regions might be subject to the penalties while those in the other region would be excluded.
There would be no opportunity for either the hospitals or the physicians in CCJR communities to develop and implement true episode payment models while the test was underway unless they were already doing so under the CMMI Bundled Payment for Care Improvement (BPCI) program. This is both unfortunate and surprising, since CMS is currently testing several other bundled and episode payment models as part of BPCI, and the lessons and impacts from those projects are not yet available. Moreover, in the proposed Medicare hospital payment regulations issued earlier in the year, CMS explicitly invited comments on whether and how to expand the BPCI program, but the CCJR program would appear to preclude that in the communities it requires to participate.
Going Back to the Drawing Board
The inescapable conclusion is that CMS should go back to the drawing board on this proposal. Rather than truly reforming payment systems, the proposed Comprehensive Care for Joint Replacement program would add a problematic layer of new incentives on top of the undesirable incentives in the current fee-for-service payment systems, and the undesirable consequences of those new incentives could easily outweigh any of the benefits that are intended.
A printed version of this post can be downloaded here.
This spring, unless Congress takes action to prevent it, the federal “Sustainable Growth Rate” law will require a 21.2% cut in the payments Medicare makes to every physician for every service they deliver, ranging from an office visit to major surgery. No business in America could survive if it told its key professionals every year that their compensation would be cut by over 20% regardless of whether they’re doing a good job or not, but that’s what federal law tells physicians in the Medicare program under the Sustainable Growth Rate (SGR) policy.
The leaders and members of Congress know that this kind of draconian, across-the-board cut in payments would make it difficult for many physician practices to survive and would make it more difficult for many Medicare beneficiaries to obtain the care they need. They also know that when Medicare pays physicians less than it costs them to deliver care, physicians are forced to charge other patients more, causing healthcare premiums for workers and businesses to increase. However, for over a decade, Congress’s solution has been to stop each year’s cut from going into effect without repealing the law itself, and this has made the problem in subsequent years even harder to address.
In 2014, three key Congressional Committees reached bipartisan, bicameral agreement on legislation to repeal the SGR. Unfortunately, the legislation failed to pass because leaders in Congress couldn’t agree on how to pay for the cost of repeal.
The way to pay for repealing the SGR isn’t to cut physician payments in another way, cut payments to other providers, refuse to pay for services Medicare beneficiaries need, or make cuts in other programs. The solution is to change the way Medicare pays for healthcare so that physicians can change the way they deliver care, thereby enabling patients to get better care with less total spending. Sufficient savings could be achieved in Medicare to more than cover the costs of SGR repeal by giving physicians the tools they need to keep patients healthy, avoid unnecessary tests and procedures, reduce avoidable hospitalizations, and prevent infections and complications. Achieving these savings only requires slowing the growth in Medicare spending by one-half percentage point per year.
The major barrier to redesigning care delivery to achieve these savings is the current fee-for-service payment system, which penalizes physicians for reducing spending and fails to pay for many services that would be better for patients and reduce spending for Medicare. Most of the “payment reforms” currently being implemented by the Centers for Medicare and Medicaid Services (CMS) don’t remove these barriers, and in some cases they make the problems with the current payment system worse.
Accountable Payment Models — bundled payments, warrantied payments, and condition-based payments — are needed in every specialty to give physicians the flexibility to redesign care along with accountability for the costs and quality of those aspects of care they can control or influence. CMS has not implemented these kinds of payment models quickly enough, particularly for ambulatory care, even though it has the statutory authority to do so.
Instead of waiting to “test” Accountable Payment Models in demonstration projects, CMS should make them immediately available on a voluntary basis to all physicians who wish to participate, and then the Accountable Payment Models can be evolved and improved over time. None of the current Medicare payment systems for physicians or hospitals were tested or evaluated before they were implemented; instead, they are refined every year to address problems that arise, and the same approach can be used for new payment models.
Many physicians, medical societies, and local multi-stakeholder collaboratives are developing Accountable Payment Models that could improve care and reduce spending for conditions ranging from cancer to heart disease, but there is currently no way for them to get participation by their largest payer – Medicare. Congress should require that CMS have at least one Accountable Payment Model available in each of the largest medical specialties within one year, and that it have at least one Accountable Payment Model available in every medical specialty within two years. To achieve these goals, Congress should create a faster pathway for reviewing and implementing the Accountable Payment Models that are already being developed by physician organizations and multi-stakeholder collaboratives across the country.
A new CHQPR report titled How Should Congress Pay for the Cost of Repealing the Sustainable Growth Rate? describes all of these points in greater detail. It defines what kinds of payment approaches will enable savings to be successfully achieved and explains why most of the current CMS payment systems will not do that, and it gives examples of the innovative Accountable Payment Models that are being developed by physician organizations, medical societies, and local multi-stakeholder collaboratives across the country that could improve care for millions of Medicare beneficiaries and save billions of dollars for the Medicare program if the necessary changes in Medicare payment systems are made.
Economists and policy-makers have been trying to determine whether the growth in healthcare spending has slowed and, more importantly, whether it will be slower in the future than the past. Although the precise trajectory of future healthcare spending will depend on a range of factors that are difficult to predict, it seems a safe bet that spending will continue to grow as fast as or faster than the economy as a whole. The reason is simple: the economics of the healthcare industry are still fundamentally the same as in every other industry – greater economic rewards accrue to those who sell more products and services – and unless that changes, we will continue to see the same kinds of profit-maximizing, entrepreneurial behavior that the nation celebrates in every other industry.
Hospital services have been the biggest and fastest growing share of healthcare spending in recent years. In most ways, the economics of running a hospital are similar to the economics of running a manufacturing firm – significant capital investment is needed in facilities and equipment, and as long as products/services can be sold for a price above the marginal cost of production, profits increase when more products/services are sold and vice versa.
However, unlike manufacturing firms, we expect hospitals to over-invest in facilities and equipment. We want the emergency room to be ready to go at all times in case we have an accident. We want the cardiac catheterization lab to be open 24/7 with the latest equipment and highly skilled staff ready to treat us quickly if we have a heart attack. But we don’t pay hospitals for this standby capacity, we only pay them when they actually treat someone. So the hospital has to find ways to deliver enough services to paying customers to cover the costs of the idle capacity we expect the hospital to maintain. That’s easier for hospitals to do than businesses in other industries because third party payers are covering most of the cost for consumers, and so it leads to faster growth in healthcare spending than in other industries.
What about physicians? What we most want doctors to do is keep us healthy, but Medicare and most commercial insurance plans don’t pay doctors at all when their patients stay healthy, they only pay when the physicians deliver services and procedures. Moreover, payers pay more for procedures than office visits even if the amount of time involved for the physician is the same. So if a physician is struggling to pay the rising fixed costs of running a practice – the office space, equipment, and staff – in the face of flat Medicare payments, the solution is to do more procedures on sick patients, not spend time helping patients stay well. Government cuts to payments and demands for greater price competition further increase the pressure to deliver more services. This is one area where hospitals and physicians have very “aligned incentives.”
The “shared savings” programs that are currently so popular with Medicare and commercial health plans don’t change these fundamental economic principles because they don’t change the underlying fee-for-service payment system. Since both hospitals and doctors have high fixed costs, the marginal revenue they receive for most procedures is much higher than the marginal cost of delivering the procedures. As a result, the losses they would experience by doing fewer procedures are far greater than what they would receive back through most shared savings programs. Moreover, the complexity and uncertainty of the shared savings formulas, combined with the delay in calculating and distributing shared savings payments, makes it even less likely that providers will willingly make major cuts in their own operating margins.
The conclusion is inescapable – if we don’t fundamentally change the way we pay for healthcare, we won’t change the economic principles that continue to drive the rapid growth in healthcare spending. Procedure-based episode payments for hospitals aren’t the answer; they don’t do anything to discourage unnecessary procedures and they may make procedures even more profitable than before. The solution is to pay physicians and hospitals based on the health problems their patients have, not based on the number and types of procedures they perform. These condition-based payments will give physicians and hospitals the flexibility they need to redesign care without unnecessary tests and procedures, but also the accountability to ensure that outcomes are better and total spending is lower.
As the Choosing Wisely® campaign has demonstrated, there are opportunities to reduce healthcare spending without rationing in every medical specialty. The American Medical Association, specialty societies such as the American College of Cardiology and the American Society of Clinical Oncology, and some provider organizations have been actively working to develop the kinds of true payment reforms that will support lower-cost, higher-quality care. The biggest barrier has been getting Medicare and commercial health plans to make fundamental changes in the way they pay for patient care.
The faster we can design and implement better ways of paying for healthcare, the sooner we will be able to reap the many benefits of higher quality, more affordable health care.
(This post first appeared on the Altarum Institute blog.)Newer Posts »
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