(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.)
Most of the literature on payment reform has focused on how to change the method of payment, but there has been relatively little attention to how to set an appropriate payment amount (i.e., the price). Regardless of how good the payment method is, if the payment amount is too low, providers will be unable to deliver quality care, and if the payment amount is too high, there will be no savings for purchasers/payers and little incentive for providers to reduce costs.
A major barrier to setting good prices in new payment systems is the difficulty providers have in getting good data on the utilization and costs of services that they do not deliver themselves. For example, in order for a physician to accept an episode of care payment for the type of treatment he or she delivers, the physician needs to know about all of the services that those types of patients have been receiving from the hospital, other physicians, and post-acute care providers, how much all of those providers are being paid, the frequency with which adverse events occur, and the extent to which any of those elements can be changed. Different prices will be needed for patients with different types of health conditions, and the impacts of risk adjustment and risk limits will need to be determined. The payer will need to have matching data so it can be sure the total episode price is lower than the average amount being paid today. (Similar data are needed under shared savings programs so that the provider can determine whether bonuses will cover its costs and whether it will be at risk for paying a share of cost increases.)
Electronic Health Records (EHRs), even if they are linked to Health Information Exchanges (HIEs), do not have enough information to fill this need. The only truly comprehensive information about all of the healthcare costs associated with an episode of care or with a group of patients, particularly the prices being paid for the services delivered, comes from claims data maintained by payers. Consequently, providers would be more willing and better able to participate in new payment models if they could get access to claims data from health plans, Medicare, and other payers.
Even if providers have access to claims data, however, most would not have the analytic capacity to assemble and analyze large claims databases, particularly if the data come from multiple payers. Also, there would be privacy concerns about giving providers patient-identifiable data in order to combine multiple claims records for the same patients.
The best solution is for all payers to contribute their data to a multi-payer database managed by a multi-stakeholder Regional Health Improvement Collaborative that can help providers analyze the data while protecting patient privacy. For example, the Maine Health Management Coalition and the Oregon Health Care Quality Corporation are combining and analyzing claims data from multiple employers and health plans to help healthcare providers in their states successfully participate in new payment models.
Some health plans are providing Regional Health Improvement Collaboratives with data on the services that patients received, but not the amount that was paid for those services. Although these limited data sets are helpful for analyzing opportunities for reducing unnecessary utilization of services, they are inadequate for designing new payment systems and for helping providers redesign care under those new payment systems. In order to determine whether a different way of delivering care is affordable under a new payment model, both the provider and the payer need to know whether the cost of the new care delivery approach will be lower than the existing approach, and this can only be determined accurately if information is available on the payment levels for all of the involved services. Health plans need to release claims data files to Regional Health Improvement Collaboratives that include “allowed amounts” (i.e., the prices paid for services) in order to accelerate the implementation of new payment systems. Employers and other purchasers need to demand the release of this data from their health plans, and if necessary, switch to health plans that will agree to release the data.
To date, one of the biggest gaps in the ability to create all-payer databases and help providers use them to redesign care and payment has been the inability to obtain Medicare claims data. Fortunately, this is finally changing: in November, 2012, the Centers for Medicare and Medicaid Services began giving access to Medicare claims data to organizations that meet legislative and regulatory standards as “Qualified Entities;” the first four such Qualified Entities are all multi-stakeholder Regional Health Improvement Collaboratives – the Oregon Health Care Quality Corporation, the Maine Health Management Coalition, the Kansas City Quality Improvement Consortium, and The Health Collaborative in Cincinnati. However, changes in the authorizing legislation for this program are needed so that the Medicare claims data can be used for analyzing opportunities to reduce costs, not just to produce publicly-reported quality measures.
(For additional details on this and other barriers to payment reform, download CHQPR’s report Ten Barriers to Payment Reform and How to Overcome Them.)
Many people believe that healthcare costs can’t be reduced without rationing of services, but in fact, there are ways to significantly reduce healthcare spending without taking away anything that consumers want. A perfect example is hospital readmissions. Research shows that 15-25% of people who are discharged from the hospital will be readmitted to the hospital within 30 days or less, adding billions of dollars to healthcare spending. Many of these readmissions are preventable through simple, low-cost interventions, both inside the hospital and after discharge. But hospitals and doctors lose revenue if they reduce readmissions, and in many cases, Medicare and other health insurers won’t pay for the services that would keep patients out of the hospital, even though they will pay every time they go into the hospital.
Most hospitals and doctors have no idea how many of their patients are readmitted, so the first step in reducing readmissions is producing reports on readmission rates, similar to what Florida and Pennsylvania now do. The second step is to change Medicare and other payment systems so they support programs that will reduce readmissions and stop rewarding hospitals and physicians that have high readmission rates.
A major reason for high rates of emergency room use, hospitalization, and readmission is the inadequacies in the current primary care system. A number of efforts are underway to improve the quality of primary care delivery through programs to create “patient-centered medical homes.” Most of the medical home programs that have been proposed or implemented to date make higher payments to primary care practices that meet certain standards, most commonly the medical home standards developed by the National Committee for Quality Assurance (NCQA). But there is no guarantee that merely meeting such standards will result in either better outcomes or lower costs, leading payers and providers to try and keep the payments for medical homes as low as possible.
But this creates a Catch-22: if the payments are too low to allow the primary care practices to make the changes in care needed to improve patient outcomes, then all that will happen is that costs will go up, and the medical home projects will be labeled failures.
The solution is to have medical homes explicitly focus their efforts on improving outcomes and controlling costs, such as by reducing preventable hospital admissions and readmissions, emergency room visits, etc. For example, the largest number of hospital readmissions occurs among patients with chronic disease, and studies have shown that with better patient education, self-management support, and coordination of services -precisely the kinds of improvements medical homes are intended to make – hospital admission rates for these patients can be dramatically reduced, thereby creating a clear business case for the financial investment in medical home services. Medicare and other payers should provide increased funding for medical homes based on improving outcomes, rather than merely meeting process standards, which would help to reduce spending as well as improve the quality of life for patients.
Reducing hospital readmissions and creating outcome-driven medical homes would represent a major step in transforming today’s volume-driven healthcare system into a value-driven system. But to be successful, any such step requires coordinated changes in multiple areas – reforming payment systems and benefit designs to reward quality and value, redesigning care delivery systems to be more efficient and better coordinated, creating effective performance measurement and reporting systems, and educating and assisting consumers to take an active role in maintaining their health and choosing high-value healthcare services.
Moreover, these changes will need to be designed and implemented differently in different parts of the country, in light of the tremendous diversity in payer and provider structures across the country. No single national solution is likely to be successful.
Fortunately, a growing number of communities have formed Regional Health Improvement Collaboratives to build consensus among healthcare providers, health plans, employers, consumers, and others on the changes needed in their local healthcare systems and to help support and coordinate the implementation of those changes. Over 50 Regional Health Improvement Collaboratives across the country provide critical services supporting transformation, ranging from public reporting on healthcare quality and costs to training and technical assistance to providers to help them improve the quality and value of their services.
Federal support is needed to help Regional Health Improvement Collaboratives continue and expand these important roles. In addition to the technical assistance that is currently being provided through the Agency for Healthcare Research and Quality (AHRQ), the Federal government needs to (1) provide funding for Regional Health Improvement Collaboratives to help them maintain and expand their services, and (2) authorize Regional Health Improvement Collaboratives to analyze Medicare claims data and to publicly share standardized measures of the cost and quality performance of providers and practitioners based on those data.
A major cause of many other cost and quality problems in health care today is that payment systems reward providers for delivering more services and penalize them for providing better-quality services and improving health. As a result, many Regional Health Improvement Collaboratives are working to design a range of reforms to health care payment and delivery systems and to encourage the payers in their regions to implement those reforms. However, since Medicare is often one of the largest payers in a region, it is very difficult for health care providers in a particular community to improve the way they deliver care if private payers improve their payment systems but Medicare does not.
Although the current payment reform demonstrations developed by the Centers for Medicare and Medicaid Services (CMS) are laudable and should continue, CMS also needs to have the authorization and resources to participate in regionally-defined payment and delivery system reform projects that can present a
clear business case for controlling costs as well as improving quality.
Today, most people who are covered by a commercial health insurance plan get their care from some kind of a “network” established by the plan. If they select a healthcare provider that’s included in the network, they pay less for care than if they select a provider outside the network. But they generally pay the same price for care inside the network, no matter which provider they pick, even if that provider’s costs are higher than another’s.
As a result, it’s up to the health plan to keep costs down by negotiating with providers about the price they will accept to be included in the network. As in any negotiation, success depends heavily on the ability to walk away from a negotiation. Small providers rarely feel that they can walk away no matter what a plan demands. And that leads to pressures for small providers to consolidate or organize themselves to increase their negotiating power.
However, because most consumers like to have maximum choice of providers, health plans also seek to make their networks as broad as possible. As a result, the plans’ ability to walk away from the negotiation is diminished, and consequently their ability to hold costs down through this method is also diminished.
This has led to a desire to make networks narrower, in order to create stronger negotiating pressure. Indeed, there have been recommendations that Medicare should be authorized to estabish a network like a commercial plan and to extract even greater price concessions from providers for being included.
The phrase “we need to think outside the box” was invented for situations just like this. As long as people perceive that the only way to organize healthcare is for payers to create networks of providers that consumers will use, it will be impossible to ever find a solution to the “broad access” vs. “cost control” tradeoff.
A completely different paradigm is needed, and fortunately, it’s already been tried and it works. Let providers form networks, and let consumers choose between them based on cost and quality. The Patient Choice system in Minnesota has done this — providers organize themselves into care systems (they don’t have to be formal integrated systems under a single corporate ownership). The care systems define their prices for providing comprehensive care to consumers, and the consumers pay more if they use a higher-price system. Consumers have complete freedom as to which care system they use – they’re not constrained to choose from a subset selected by the plan. Consumers pay more if they use systems with lower value, but it’s not because the provider is in or out of a plan’s network, it’s because that provider is part of a system that has decided to charge more. Importantly, care systems function more like true coordinated systems of care with a focus on managing cost and quality, whereas current “networks” are little more than lists of uncoordinated providers. Providers organize themselves into systems to do a better job of managing costs and quality, rather than to increase their negotiating power with health plans.
It’s hard to imagine how Medicare would ever be able to establish a network in the way commercial health plans currently do. But it’s not hard to imagine how Medicare could create a Patient Choice-style system. It would simply ask Medicare providers to form networks/care systems and “bid” to provide Medicare services, i.e., define the price that they will charge for caring for beneficiaries. Medicare wouldn’t select the winning bidder — the Medicare beneficiary would. Lower-price networks/care systems with equivalent quality would get more Medicare beneficiaries as patients, which would encourage the providers in the other networks to become more efficient so they could lower their costs. It’s worked in Minnesota with much smaller patient volume — imagine the impact if Medicare were to participate.
It may sound radical, but it’s not all that different from the Medicare Advantage program, where beneficiaries choose a health plan based on its cost and quality, and the health plan then contracts with providers to deliver the care. The Patient Choice model uses the existing fee-for-service structure for both billing and payment, which makes it easy for providers to participate.
Many people seem to believe that the only thing standing between us and a completely transformed healthcare system that has higher quality and lower cost is the lack of Electronic Health Record (EHR) systems in every physician’s office.
That’s a little like saying that the only reason the country is in a recession is that every American doesn’t have a Blackberry to improve their productivity.
There’s no question that many aspects of care coordination and quality improvement are very difficult for healthcare providers to deliver without appropriate health IT support. It’s inefficient and impractical to flip through paper patient charts to find out which patients are due for an immunization or a diabetic checkup, when a simple query of an electronic database could provide the answer quickly and easily. It’s inefficient and problematic for hospitals and primary care practices to be faxing each other admission and discharge information in order to coordinate care transitions when the information could be electronically transmitted and stored in a common electronic health record.
But merely having an EHR doesn’t guarantee that providers will, in fact, deliver better care to diabetics or more effectively coordinate hospital care and discharges. The physician practice and/or hospital must still redesign the actual processes of care to achieve those goals. The EHR can make that possible, or at least much easier, but only if the EHR is designed in a way that actually supports the improved care processes.
And therein lies the rub — it’s hard for today’s EHR systems to be designed to support improved care processes, when the improved care processes don’t exist. Indeed, it’s likely that, if anything, today’s EHRs will best match the way providers work today, rather than the way we want them to work in the future.
For example, most studies have found that the key computer support for improved management of chronic disease patients, preventive care, etc. is a patient registry. Yet most commercial EHR systems do not have, or do not come with, a registry component. Similarly, it’s not surprising that the only research showing an impact of EHRs on quality is from healthcare systems which developed EHRs in-house, since it’s more likely that an EHR will match care delivery processes if it’s developed in cooperation with the practitioners who will use it, rather than independently by an IT company.
Does that mean we should not be pushing aggressively for development and implementation of EHRs? No, but it means that we shouldn’t be pushing for EHRs in isolation – they should be developed and implemented as integral parts of quality improvement initiatives, ideally at a regional level, rather than provider by provider.
Demonstration projects are underway all across the country to improve the quality of primary care delivery by encouraging implementation of the “patient-centered medical home.” The most common approach is to convince health insurance plans and/or other healthcare payers to increase their payments to a primary care practice if it meets certain standards, most commonly the medical home standards developed by the National Committee for Quality Assurance (NCQA).
However, payers, and the purchasers they represent, are reluctant to pay more for medical home services without assurances that patient outcomes will be better and that costs will be saved elsewhere. And since there is no guarantee that meeting the NCQA standards will result in either better outcomes or lower costs, payers want to hedge their bets by making the payments as low as possible. But this creates a Catch-22: if the payments are too low to allow the primary care practices to make the changes in care needed to improve patient outcomes, then all that will happen is that costs will go up, the medical home projects will be labeled failures, and the healthcare system will return to its ineffective status quo ante.
Is there a way out of this dilemma? The answer could lie in the policy discussions being held around the country about ways to reduce preventable hospital readmissions. As noted in a previous post, many hospital readmissions aren’t directly the fault of the hospital. The largest number of readmissions occurs among patients with chronic disease, and their frequent admissions to the hospital reflect gaps in the primary care they’re receiving — which is precisely the problem the medical home projects are trying to fix. Studies have shown that with appropriate education and self-management support, hospital admission rates for chronic disease patients can be dramatically reduced, but today, payers don’t pay adequately or at all for those patient support services.
So on the one hand, we have a primary care improvement initiative without a clear outcome, and on the other hand, we have an outcome improvement goal without a clear strategy for achieving it. Could a marriage of the two can address the weaknesses of each? Absolutely: Payers should pay primary care practices adequately to provide evidence-based medical-home services to chronic disease patients at risk of hospitalization, and those practices should agree to an explicit focus on reducing the rates of hospital admissions and readmissions among those patients. The savings achieved by payers from reduced hospitalizations would more than offset the costs of the improved services, justifying funding those services at levels sufficient to achieve the desired results.
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