Wednesday, September 09, 2015

Bundling Better – How Medicare Should Pay for Joint Replacement and Many Other Types of Care

The Center for Healthcare Quality and Payment Reform has issued a detailed alternative to the problematic payment changes for hip and knee replacement surgeries that were proposed in July by the Centers for Medicare and Medicaid Services (CMS).  CHQPR’s report Bundling Better: How Medicare Should Pay for Comprehensive Care (for Hip and Knee Surgery and Other Healthcare Needs) describes in detail how a properly designed payment system for hip and knee replacement could enable physicians, hospitals, and other providers to improve care for patients and reduce costs for the Medicare program without the need for those providers to accept excessive or inappropriate financial risk, and without requiring or encouraging greater consolidation of providers.  A copy of the report can be downloaded here.
Making sure CMS implements the right kinds of changes in Medicare payment for hip and knee surgery is not just important for orthopedic surgeons and the hospitals and post-acute care providers that care for hip and knee surgery patients.  The way CMS pays for this procedure will likely be the template for the alternative payment models Medicare uses to pay for many other procedures and conditions, so getting it right should be everyone’s concern.  The same payment approach described in Bundling Better could be used to support better care for a broad range of patients and health conditions, not just hip and knee problems.  Moreover, the same payment model could also be used by private employers, state Medicaid agencies, Medicare Advantage plans, and commercial health insurance plans to enable providers to improve care and reduce costs for their employees and members.  The payment changes proposed in Bundling Better would also improve the ability of Accountable Care Organizations to successfully manage the overall costs and quality for a population of patients.
The problems with the way CMS has proposed to change payment for joint surgery were described in detail in CHQPR’s report Bundling Badly: The Problems With Medicare’s Proposal for Comprehensive Care for Joint Replacement.  For example:
  • The CMS proposal does not change any of the underlying fee for service payment structures that create the current problems.  Instead, it tries to impose an overall budget on the total cost of care after the care has already been delivered.
  • The CMS proposal would set the same budget for an episode of care regardless of differences in patient need, which could lead higher-need patients to be underserved or be denied access to surgery.
  • The CMS proposal would put hospitals at risk for all of the costs of post-acute care services, even though hospitals do not have direct control over those services today and would not be given any greater control under the proposal.  Hospitals would also be held accountable for the management of patients’ chronic conditions after discharge, regardless of whether the physicians who had been managing those conditions prior to the hospital admission were even affiliated with the hospital.
  • The CMS proposal would reduce the overall budget for services if fewer services eligible for current payments were delivered, with no consideration for the costs providers had incurred in delivering new or improved services that are not reimbursed under current payment systems.
  • Under the CMS proposal, providers who deliver better outcomes would not be rewarded for doing so unless they were able to reduce spending.  Conversely, providers who deliver poor outcomes would not be penalized as long as spending remained within target levels.
  • The CMS proposal would mandate participation by providers in randomly-selected regions while precluding participation by providers in other regions, which would limit the choices of Medicare beneficiaries in every community.
  • The CMS proposal would preclude the ability to implement better approaches to payment for joint replacements in any region for a five year period.
The revised approach to Comprehensive Care for Joint Replacement (CCJR) developed by CHQPR and described in Bundling Better would have the following significant advantages over both the current payment system and the proposal that CMS issued in July:
  • All of the care associated with hip or knee replacements would be delivered by a physician-led team of providers chosen in advance by the patient receiving surgery.
  • This CCJR Team would have the ability to deliver the most appropriate services to meet patients’ needs, and the providers on the Team would not be restricted to delivering only those services for which payments are made under current Medicare payment systems.
  • The CCJR Team would receive an episode payment designed to cover the costs of all of the services their patients need related to the hip or knee surgery, including all post-acute care services and any complications experienced for a 90-day period.  This payment would be established based on what providers agreed that evidence and experience indicated was necessary to support good care for patients.  The amount of the payment would be known long before care was delivered and it would be stable over time, so that providers could establish and sustain high-quality patient care services.
  • CCJR Teams who treat patients with greater needs would receive larger episode payments to adequately support the larger amount of care those patients need.
  • CCJR Teams who deliver better outcomes for their patients would receive higher episode payments.
  • Payments to CCJR Teams would flow through provider-owned CCJR Management Organizations, and limits on financial risk would be established to enable physician practices and provider organizations of all sizes to participate in the program.
  • Participation in the CCJR program would be voluntary and open to interested providers in all parts of the country, so that all Medicare beneficiaries would have the opportunity to benefit from better care under the program, and also so that no beneficiary would be forced to receive care paid through the program if their physicians did not believe it would enable them to deliver improved care.
  • The CCJR program would not preclude providers or CMS from implementing other payment models if better options became available.
Although there is an urgent need to reform payment systems and to control health care costs, it is simply not feasible to implement a well-designed CCJR payment model by January 1, 2016 as CMS has proposed.  Moreover, rushing to implement a problematic payment model and then requiring that it be used for five years in some communities while precluding any other changes in order to “test” that model will create a major barrier to true innovations in care and payment for joint replacement and it will likely have a chilling effect on innovations in other areas.
Instead, CHQPR has proposed that CCJR should be redesigned and implemented through a collaborative effort of CMS and the physicians, hospitals, and post-acute care providers who want to create a truly well-designed payment model.  Bundling Better includes a detailed timetable for implementation that could enable improved care for Medicare beneficiaries and savings for the Medicare program beginning in 2017.
 

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Monday, July 13, 2015

BUNDLING BADLY – The Many Problems with Medicare’s “Comprehensive Care for Joint Replacement” Proposal

(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:

  • Encouraging further consolidation in the healthcare industry, fewer choices for consumers, and higher prices for private purchasers; and
  • Discouraging truly innovative approaches to managing hip and knee problems and encouraging unnecessary surgeries

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:

  • In a true episode payment system, the providers determine how much it will cost them to deliver the complete bundle of services in the episode and the payer decides whether to pay that. In Medicare’s proposed CCJR system, Medicare decides what to pay for the episode (the “spending target”) based on its average spending on knee and hip surgery patients in the prior year for all hospitals, and each individual hospital is then forced to accept that amount.
  • In a true episode payment system, the providers decide in advance which other providers to partner with in order to deliver a complete set of coordinated services. In Medicare’s proposed CCJR system, the beneficiary decides which providers will deliver which services in the episode, regardless of whether those providers work together or even know each other.
  • In a true episode payment system, the providers have the flexibility to deliver services that they could not bill for under the fee-for-service structure, knowing that they will ultimately be paid for those services when the reconciliation occurs. In Medicare’s proposed CCJR system, this would only happen in the short run; over time, providers would ultimately lose money if they delivered services that are not billable under Medicare’s fee-for-service payment systems.

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 CCJR only applies to patients receiving surgery during an inpatient hospital stay, even if surgery could be delivered in an outpatient setting. (The regulations say “There is little opportunity for shifting the procedures under this model to the outpatient setting,” even though many providers are now beginning to use outpatient joint surgery for appropriate patients.)  If some patients can be treated on an outpatient basis, the average costs for those who do continue to need inpatient surgery may be higher, and that could result in a financial penalty under CCJR.
  • There is no reward under CCJR for helping a patient address their knee or hip problem without surgery, and there may be a financial penalty for doing so. The reason is that if lower-acuity patients are treated non-surgically, the patients who do get surgery will likely be those who need more extensive post-acute care services; that would make the hospital’s average costs for surgery cases increase, causing them to be penalized under the CCJR structure.

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.

 

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Sunday, January 18, 2015

How Should Congress Pay for the Cost of Repealing the Sustainable Growth Rate?

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.

 

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Friday, July 18, 2014

Payment Reform Needed to Control Healthcare Spending Without Harming Patients

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.)

 

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Tuesday, May 27, 2014

The Best Antidote to Provider Market Power is to Change the Healthcare Payment System

There is growing national concern that consolidations of healthcare providers are leading to higher prices for healthcare services. The June 2014 issue of the policy magazine Health Affairs includes four separate papers that propose a range of policy options to try and address this issue. Unfortunately, those hoping for answers will not find the Health Affairs papers very satisfying. Not only is there little agreement among the authors about what to do, most of them do not express much enthusiasm about either the feasibility or benefits of the options they do identify.

False Premises Lead to Wrong Conclusions

Most policy prescriptions about prices and market power are based on three fundamentally false premises:

  • False Premise #1: Consolidation of Providers is Necessary and Desirable (In Fact, It’s Not). Contrary to popular belief, there is little evidence that consolidation is either necessary or sufficient for either better care coordination or greater efficiency of care delivery, whereas there is evidence that appropriate competition can lead to lower prices and higher quality. Moreover, there are many examples around the country of small physician practices and small hospitals providing high quality, efficient care while remaining independent. Since consolidation isn’t necessary to achieve the better healthcare everyone is seeking, instead of promoting consolidation and trying to figure out how to control the resulting market power, it would make more sense to find ways to make improvements in care delivery without consolidation.
  • False Premise #2: The Payment System Isn’t the Problem (In Fact, It Is). A major cause of both consolidations and demands for higher prices is the way we pay for healthcare today, and many so-called “payment reforms” are actually making the problem worse, not better. We need radically different payment systems for both physicians and hospitals in order to get better quality care at lower cost. If a payment system can only be implemented by a large provider organization, the solution is to redesign the payment system, not to try and control the prices charged by the consolidated organization.
  • False Premise #3: Price and Utilization Are Independent (In Fact, They’re Not). What should matter to purchasers is how much they spend on healthcare in total not how much they pay for individual services. In some cases, the prices of individual services may need to increase in order to support lower utilization and lower overall spending. Conversely, demanding lower prices may simply result in higher utilization and higher overall spending, or it may force providers to consolidate in order to resist what they see as unreasonable pricing demands. “Narrow networks” that promise to send a provider more patients in return for discounts simply reinforce the idea that volume is more important than value. Moreover, narrow networks are short-term strategies – if a payer gets a discount by shifting business to a subset of providers this year, what will it do next year? Will it force patients to switch doctors and hospitals every year in order to get a discount from the members of the new narrow network? And if there is only one hospital in town, how can one “narrow” the network or send the hospital more volume?

We Don’t Pay Hospitals and Doctors For What We Really Want Them To Do

When we’re injured, we want a hospital close by that is ready to treat the injury quickly and effectively. When we have the symptoms of a heart attack, we want a hospital close by that is ready to quickly and accurately determine if we’re having a heart attack and if so, to treat it quickly. If a disaster strikes our community, we want a hospital close by that can respond rapidly and treat all of those who are injured.

But we don’t pay hospitals to be there when we need them. We only pay them when they actually do something for us. If you’re not injured, the hospital doesn’t get paid for having the emergency room staffed and ready for you. If you don’t have a heart attack, the hospital doesn’t get paid for having a cardiac catheterization lab organized to ensure you have a low door-to-balloon time. If your community doesn’t have a disaster, a terrorist attack, a flu epidemic, or any similar unfortunate event, the hospital doesn’t get paid for the capacity it has created and the preparations it has made to deal with such events.

The hospital maintains a certain amount of standby capacity as a form of insurance for the community so it can respond to needs when they arise, and then it adds additional capacity in response to both actual patient needs and discretionary choices that physicians and patients make. However, Medicare, Medicaid, and commercial health plans pay only for the services provided, not the “insurance” of the standby services. As a result, the hospital has to treat enough patients in order to generate the revenues needed to cover its standby capacity, and that can lead to overutilization.

Not only do we expect hospitals to be there when we need them, we expect hospitals to care for people whether they can pay or not and to care for patients on Medicaid even if the Medicaid payment is less than what it costs to deliver care. As a result, hospitals have to charge the paying patients more in order to cover the losses they incur on the under-paying and non-paying patients.

Physicians face many of the same kinds of problems with current payment systems that hospitals face. What we really want a primary care physician to do is to keep people healthy, but a PCP isn’t paid at all if a patient doesn’t need office visits or if a problem can be handled over the phone. We’d like specialists to take the time to help patients decide whether they need a risky, invasive procedure, but if fewer patients choose to have the procedure, the specialists may not have enough revenues to cover their practice expenses, even though the patients may be better off. And if you think it’s only the hospital that needs to be available 24/7, imagine how the hospital will treat anyone during the night or on a weekend if there isn’t a physician available during those same times. However, physicians aren’t paid by Medicare or health plans to be available in case patients need them in the hospital, only hospitals pay them for that.

If doctors and hospitals do a better job of keeping patients well, they may need to be paid more for the patients who do get sick in order to continue covering the fixed costs of maintaining hospital standby capacity and the operating costs of physician practices. However, even with higher payment for individual services, overall spending can still be lower if fewer patients need expensive treatment.

Current Payment Reform Proposals Make the Problem Worse, Not Better

Although there is growing recognition that changes in payment systems are needed, most of the payment reforms being discussed or implemented by Medicare and commercial payers don’t really solve the problems with the current payment system and they may actually make some aspects of the problem worse.

  • Episode Payments Based on Procedures Reward Volume. Most of the episode payments and bundled payments being implemented by Medicare and commercial payers are triggered by a particular procedure in the hospital. The episode payment disappears completely if the patient doesn’t need to be hospitalized or if the hospital uses a different procedure to treat the patient, so the physicians and hospital are still penalized for reducing avoidable admissions and procedures.
  • “Shared Savings” Penalizes Providers For Lower Volume. If a hospital and physicians can avoid the need to admit a patient to the hospital, both the hospital and the physicians will lose 100% of the revenue they would have been paid for that patient, but their costs won’t decrease proportionately. Giving the hospital and/or physicians a shared savings bonus payment a year later will likely result in too little, too late to cover the costs the hospital and physician already needed to incur.
  • Shared Savings Programs Force Hospitals to Acquire Primary Care Practices. If a hospital successfully reduces readmissions, avoidable procedures, or infections and complications, none of the resulting savings will be returned to the hospital under most shared savings programs unless the primary care physicians for those patients are employed by the hospital. So under shared savings programs, hospitals are forced to hire primary care physicians, not to promote “clinical integration,” but merely to protect their own revenues.

The Right Approach: True Payment Reform

What’s needed are true payment reforms – accountable payment systems that give physicians and hospitals the flexibility to redesign care, reward them for keeping patients healthy, pay them adequately for treating the patients who do need care, and give them accountability for ensuring that costs are lower and quality is higher. Several different approaches to accountable payment systems could be used:

  • Condition-Based Payment. Under condition-based payment, doctors and hospitals would be paid based on the types of health problems the patient has, not based on the specific procedures used to treat them.
  • Partial Capitation. Under partial capitation, a hospital or physician practice would be paid based on the number of patients whose care they are managing, with additional payments made for expensive services based on the marginal cost of those services.
  • Risk-Adjusted Global Payment. Under a risk-adjusted global payment, a physician group, physician IPA, physician-hospital organization, or health system would have an overall budget for delivering healthcare services to a population of patients. The budget would be increased if the health needs of the patients increased.

All of these payment systems would support the ability of physicians and hospitals to deliver better care at lower cost. Although in most cases, solo/small physician practices and independent hospitals would not be able to manage these types of payments on their own, there is no need for them to merge or consolidate to do so. Physicians can work together through an Independent Practice Association and physicians and hospitals can work together through a Physician-Hospital Organization to manage accountable payment systems.

What About Prices?

While better payment systems are a necessary element of a solution to controlling healthcare costs, payment reform isn’t sufficient. In addition to payment systems that reward providers for keeping patients healthy rather than giving them more expensive treatments, we also need ways to ensure they keep patients healthy at the lowest possible cost.

Rather than forcing patients into payer-defined narrow networks, patients should have the responsibility for choosing providers based on both cost and quality. However, it’s impossible for patients to compare prices on the over 7,000 CPT codes and over 700 DRGs used in today’s payment system, particularly when they don’t even know for sure which of those services they’re going to receive. The accountable payment models described above would define prices based on a patient’s health problems rather than the procedures they receive, so patients can choose the physicians and hospitals that offer the best combination of price and outcomes for the specific health problems those patients are facing.

Right-Sizing Healthcare Delivery for Choice and Competition

Of course, consumer choice can only control prices if there are choices of providers available. If we design payment systems that do not require physicians and hospitals to consolidate into large systems, and if we remove unnecessary regulatory requirements that increase costs for smaller providers or prevent them from participating in better payment models, then it will be more likely that patients will have multiple providers to choose from.

Purchaser-Provider Collaboration to Find Win-Win-Win Solutions

Physicians and hospitals will need to collaborate to determine what the right amount of care is for a patient population and how much it will cost to deliver that care. Purchasers will need to implement new payment systems and patient benefit designs that support the better care that providers want to deliver. Consequently, payment reforms have to be designed in collaboration with providers, not imposed on them by payers. In many cases, all of the stakeholders can “win” – i.e., patients can get better quality care, purchasers can spend less, and providers can be more financially viable – if they work together in a collaborative way to design “win-win-win” payment reforms. Instead of purchasers and providers treating each other as the enemy, and focusing on ways to beat the other in a war over prices, they need to recognize that each can help the other win.

Fortunately, a growing number of communities have neutral conveners ready to help find win-win-win solutions. Regional Health Improvement Collaboratives – non-profit multi-stakeholder organizations focused on improving healthcare quality and reducing costs – can facilitate discussions between purchasers and providers and provide the objective data analysis both sides can trust in designing truly higher-value healthcare delivery and the payment systems needed to support it. Purchasers and providers need to recognize the value of this kind of service and use it to move to better payment and delivery systems as quickly as possible.

A more detailed discussion of the above points can be downloaded at: www.chqpr.org/downloads/Payment_Reform-The_Antidote_to_Market_Power.pdf .

 

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Tuesday, February 18, 2014

How Should Congress Pay for Repealing the Sustainable Growth Rate?

A bipartisan, bicameral bill was announced earlier this month as the result of a joint effort by the U.S. House Energy and Commerce Committee, House Ways and Means Committee, and Senate Finance Committee to repeal and replace the Sustainable Growth Rate formula in Medicare. There is no other industry in America that tells its key professionals that their compensation will be cut by 25% at the end of each year regardless of whether they are doing a good job or not, but that’s what the Sustainable Growth Rate formula requires in the Medicare program. Repeal is long overdue and the members and staff of the Committees should be commended for advancing a solution in a collaborative way.

The key challenge now is how to pay for the bill. Unless Congress can find over a hundred billion dollars to cover the projected cost of the legislation at a time when the federal deficit is one of the biggest challenges facing the country, the superb work of the three committees will go to waste.

Although Congress is looking at ways to cut fees to other healthcare providers, cut services to Medicare beneficiaries, or make cuts in non-healthcare programs in order to generate enough savings to pay for the bill, a better solution is actually contained within the bill itself in a little-discussed section that encourages the development and use of “Alternative Payment Models.”

Alternative payment models for physicians can save a lot of money for Medicare while actually paying physicians better because the vast majority of healthcare spending doesn’t go to physicians. In Medicare, physician fee schedule payments represent only 16% of total spending in Medicare Parts A, B, and D. Over the next decade, the Congressional Budget Office projects that physician fee schedule payments will represent only 12% of total Medicare spending. However, physicians prescribe, control, or influence most of the lab tests, images, drugs, hospital stays, and other services that make up the other 88%.

Study after study has shown that if healthcare services are redesigned to improve quality and efficiency, tens of billions of dollars in healthcare spending could be saved every year by avoiding unnecessary tests, procedures, emergency room visits, and hospitalizations; by reducing infections, complications, and errors in the tests and procedures which are performed; and by preventing serious conditions and providing treatment at earlier and lower-cost stages of disease. If physicians are given the ability to redesign care for patients in a way that reduces unnecessary spending on all of the other services, the physicians could be paid more and still reduce total Medicare spending.

How much would physicians have to save Medicare in order to pay for the SGR repeal?

The Congressional Budget Office projects that Medicare Part A, B, and D spending over the next decade will total more than $6 trillion.[1]  The cost of repealing the SGR is currently estimated to be about $115 billion.[2]  However, that figure is unrealistically low, because it assumes that physicians would receive no payment increases over the next decade, even though they haven’t received any payment increases over the past decade. The very modest 0.5% increase in physician fees contained in the compromise bill would add another $20-$30 billion to Medicare spending, bringing the total cost of the repeal and updates to about $140 billion.[3]

$140 billion represents only 2.3% of total Medicare spending, and only 2.6% of the non-physician fee schedule spending. If physicians can reduce enough of the unnecessary and problematic spending in Medicare so that non-physician spending decreases by a mere 3%, they will have more than paid for the SGR repeal.

Alternative payment models are the key to this approach for a very simple reason. The current fee-for-service payment system poses major barriers to physicians who want to redesign care in ways that benefit patients and save money for Medicare:

• Today, physicians are financially penalized for reducing unnecessary services and improving quality. Under the current Medicare payment system, physicians lose revenue if they perform fewer procedures or lower cost procedures, even if their patients are better off. Most fundamentally, under Medicare, physicians don’t get paid at all when their patients stay well.

• Some high-value services aren’t paid for adequately or at all. Medicare doesn’t pay physicians to respond to a patient phone call about a symptom or problem, even though those phone calls can avoid far more expensive visits to the emergency room. Medicare won’t pay primary care physicians and specialists to coordinate care by telephone or email, yet it will pay for duplicate tests and the problems caused by conflicting medications.

Unfortunately, most of the “payment reforms” being pursued today don’t fix these problems. Pay for performance programs and shared savings programs have had very little impact on costs for a simple reason: the barriers described earlier aren’t solved by adding a small bonus or penalty on top of the existing fee-for-service system. Even tying payment to quality measures will have little impact on quality if physicians are forced to lose money in order to implement better care.[4]

Truly different payment models create “win-win-win” approaches to paying physicians that can help improve quality and reduce total healthcare spending without forcing physicians to take financial losses themselves. These accountable payment models have three key characteristics:

• They give physicians the flexibility to deliver the care patients need without worrying about whether the payment for one type of service is lower than another or whether they will lose revenue by performing fewer procedures.

• They give physicians accountability for ensuring that changes in care result in spending that is lower than it would otherwise have been, but this accountability is limited to the kinds of spending the participating physicians can actually control or influence.

• They separate insurance risk and performance risk, so physicians are not penalized financially for taking care of sicker patients or patients with unusually complex conditions.[5]

In order to use accountable payment models to pay for the SGR repeal bill, two things have to happen:

1. Accountable payment models need to be available in the Medicare program for every physician in every specialty; and

2.Those accountable payment models need to be designed by physicians in ways that will benefit patients and save money for Medicare, but also be feasible for physicians to implement.

Although CMS has done a lot of good work in advancing different payment models over the past several years, there are few alternative payment options available to most physicians today, particularly specialists. The only “payment reform” that exists as a formal Medicare program (rather than a demonstration project) is the Medicare Shared Savings Program, but as noted earlier, this is not really a payment reform, because it leaves the current fee for service payment system completely unchanged.[6]

The barrier to getting more alternative payment models in place faster is the belief that these models have to be “tested” in a demonstration program before they can be made available for physicians to voluntarily choose to participate in. However, demonstration projects take years to put in place and evaluate, and they are unlikely to show the true impacts of a significantly different payment model because physician practices are unlikely to fundamentally redesign the way they deliver care in response to a payment change that may only last a few years.

Over the past 30 years, the payment systems that Medicare uses for its largest areas of expenditure have been implemented without conducting a demonstration or evaluation in advance. For example, the Inpatient Prospective Payment System (hospital DRGs) was designed and implemented for most hospitals across the country without a demonstration. The RBRVS Physician Fee Schedule was implemented for all physicians beginning in 1992 after it was mandated by Congress in 1989, with no demonstration or evaluation of the payment system before it was implemented. These payment systems were implemented in a phased approach and then monitored and regularly adjusted to correct any unanticipated problems and to adapt the payment systems to changes in science, technology, and other factors that occur over time.

Similarly, accountable payment models can be implemented and then monitored and regularly adjusted to correct any unanticipated problems. Each accountable payment model would have to be explicitly structured to assure CMS that Medicare spending would be lower than it would otherwise be. There would be no need to evaluate such an accountable payment model in order to determine whether it will save money; the physicians would be guaranteeing that it would reduce the types of Medicare spending covered by the model if the physicians were paid under the accountable payment model. If at any point, CMS identifies a situation where quality is being harmed for a particular provider’s patients, or where spending is not truly being reduced, that provider’s participation in the payment model could be terminated, similar to what CMS can do today in its standard payment systems. If physicians find they can’t successfully manage under the new payment model, they could work with CMS to improve it or return to fee for service payment.

Not all physicians will have the ability to successfully participate in alternative payment models that guarantee savings to CMS, particularly during the early years of implementation. Consequently, current payment systems should not be completely replaced by any alternative payment model, but rather, physicians and other providers who wish to participate in such models should be given the ability to do so voluntarily, the same way that the Medicare Shared Savings Program is structured today for ACOs.

Many physicians, medical societies, and multi-stakeholder Regional Health Improvement Collaboratives have been working to develop payment models that are specifically designed to improve patient care and save payers money. There needs to be a mechanism for them to bring those models to CMS on an ongoing basis, have them rapidly reviewed and refined, and then put into place quickly. This will not only ensure there are enough savings to pay for the SGR repeal bill, but it will also enable the largest number of Medicare beneficiaries to benefit from higher quality care.

1. Congressional Budget Office. May 2013 Medicare Baseline. May 14, 2013.

2. Congressional Budget Office. The Budget and Economic Outlook 2014 to 2024. February 2014.

3. Projected costs or savings from other provisions have led to cost estimates above or below that amount for the individual bills reported by the Committees.

4. Miller HD. Ten barriers to payment reform and how to overcome them. [Internet] Pittsburgh, PA: Center for Healthcare Quality and Payment Reform; 2013. Available from: http://www.chqpr.org/reports.html.

5. Miller HD. From volume to value: Better ways to pay for health care. Health Aff (Millwood). 2009 Sept-Oct; 28(5): 1418-28.

6. Section 1899(i) of the Social Security Act allows the Centers for Medicare and Medicaid Services to implement accountable payment models other than shared savings, but it has chosen not to do so.

YOU CAN DOWNLOAD A PDF VERSION OF THIS POST AT: www.paymentreform.org/downloads/Paying_for_SGR_Repeal.pdf

 

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Sunday, November 03, 2013

Which Health Plans Have the Best Provider Networks?

It’s the time of year when many people must choose a health insurance plan. Although the national news has focused on the problems people are having in signing up for coverage through the new federal health insurance exchange, thousands of senior citizens are also facing choices about whether to get their health coverage through the traditional Medicare program or one of many different Medicare Advantage insurance plans, and many workers with employer-sponsored insurance will have new choices to make during their open enrollment period.

Many people are being forced for the first time to evaluate different health plans based on which physicians and hospitals are “in-network,” because employers and health insurance companies are increasingly offering “narrow network” health plans in an effort to reduce premiums.

The dictionary defines a “network” as a “group or system of interconnected people or things.” Traditionally, most health plan networks haven’t really been coordinated systems, but merely lists of physicians and hospitals that have agreed to give a bigger discount to the health plan. However, research shows that patients can stay healthier and get better quality care at a lower cost if the patients use a true network of high quality physicians who work together in a coordinated way to deliver better outcomes.

What does such a “high-value” network look like?

The most important elements of a good network aren’t the hospitals, because the network’s first goal should be to help you stay well so you don’t need a hospital at all. Instead, the most important component of a network is an adequate number of high-quality primary care practices. A truly high quality primary care practice does four key things for you: (1) it helps you get the preventive care you need to stay as healthy as possible; (2) it accurately diagnoses new health problems you experience and then provides or arranges for the most appropriate treatment in a timely fashion; (3) if you have a chronic disease such as asthma, diabetes, emphysema, or heart disease, it helps you manage that chronic condition successfully so you don’t have problems and end up in the hospital; and (4) if you need specialists, the practice helps you find the right specialists and makes sure all of your care is coordinated.

Unfortunately, most people don’t get truly high-quality primary care in any network today. It’s not because the primary care physicians are bad, it’s because of the way the physicians are paid by the health plan. For example:

• If you’re frustrated by how little time your primary care physician (PCP) spends with you when you have a visit, blame your health insurance, not the doctor. Medicare and most health plans pay doctors on the assumption that a typical office visit will last only 15 minutes. Moreover, doctors get paid less if they address multiple issues in the same visit than if they bring you back multiple times, even though it would save you time and money to get everything done in one visit.

• If you’re angry because your doctor spends more time during your short visit typing on the computer than listening to you, blame your health insurance, not the doctor. Medicare and many health plans now reduce physicians’ pay if they don’t enter detailed data about you in an electronic health record.

• If you have trouble getting your PCP to answer the phone or respond to an email when you have a question or health problem, don’t blame the doctor, blame your health insurance. Medicare and most health plans won’t pay doctors for phone calls or emails with patients, they only pay for office visits. The more time a doctor spends on the phone, the less time he or she has to see patients in the office, but the only way anybody in the physician practice can get paid is if the doctor (or a nurse practitioner or physician assistant) sees enough patients in the office every day.

Some health plans are beginning to change the way they pay primary care physicians so the physicians can better customize care to what their patients really need. These “patient-centered medical home” programs are a step in the right direction, but most of them have been too small to make a significant difference. That’s starting to change, but not nearly fast enough. Fewer doctors are going into primary care because of their frustrations with the way they’re paid, so it’s going to be harder and harder for people to find good primary care physicians if health plans don’t start paying PCPs in better ways.

From time to time, you’ll have a health problem that requires help from a specialist. But which of the dozens of subspecialties is the right one? If you need multiple specialists, will they all coordinate what they do so you don’t receive conflicting medications or duplicative tests?

In a true “network,” your PCP would help you find the right specialists and work with them to ensure all of your care is coordinated. But once again, the way doctors are paid gets in the way. For example, in many cases, the specialist could advise you and your PCP over the phone about what to do, rather than making you wait for weeks or months until you can get an appointment to see the specialist in person. But Medicare and most health plans don’t pay specialists for giving advice over the telephone or by email, they only pay for office visits and procedures. As a result, many specialists can’t see new patients quickly because their calendars are filled with office visits from patients they don’t really need to see in person. Specialists also don’t get paid for time they spend talking with other specialists or with PCPs to coordinate care, so it’s no wonder that patients can find themselves falling between the cracks.

Some health plans are beginning to pay differently for the specialists in the “medical neighborhood” as well as for the primary care “medical home.” In one pilot project, paying for email consultations with specialists resulted in dramatic reductions in the delays seriously ill patients experienced in getting appointments with specialists, because the specialists were able to successfully address other patients’ problems quickly through an email exchange with their PCP.

If you do need hospital care, you obviously want to make sure there are high-quality hospitals in your health plan’s network that can take care of you. Unfortunately, the hospitals in our region don’t publish information about the quality of the care they provide, so it’s impossible to know whether one network’s hospitals are better than another’s. Although you hear a lot of advertising about how certain hospitals are the “best” at one thing or another, most of those rankings aren’t based on actual outcomes for specific procedures. The limited data available suggest that for common hospital procedures, most of the hospitals in the Pittsburgh Region deliver care of similar quality, and many of the independent community hospitals do it at a much lower cost. For more complex conditions, the best hospital for you may not be in the Pittsburgh Region at all. Some national employers, such as Walmart and Lowes, are now paying not only medical costs but travel expenses so their employees can go to hospitals such as the Cleveland Clinic and Johns Hopkins that have committed to provide high quality care at an affordable cost.

So before you decide which health plan to use, first choose a primary care practice that is committed to high-quality, patient-centered care. Ask the PCP which health plans pay to support high-quality care, and ask which plans pay specialists so they can work as a team with your PCP. If you choose a health plan that supports truly coordinated, high-quality primary and specialty care, you’ll be healthier, you’ll spend less, and you may never need to worry about which hospitals are in the network.

(A version of this post appeared as the Regional Insights column in the Sunday, November 3, 2013 edition of the Pittsburgh Post-Gazette.)

 

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Sunday, March 03, 2013

Payment Reform Barrier #4: Lack of Data for Setting Payment Amounts

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.)

 

 

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Thursday, February 28, 2013

Payment Reform Barrier #3: Physician Compensation Based on Volume, Not Value

Changing the way Medicare and health plans pay provider organizations is necessary but not sufficient to support higher-value healthcare delivery.  The compensation system for the individual physicians and other healthcare professionals who work in those organizations also has to change.  Most physician compensation systems today, even for physicians who are “on salary,” are based on fee-for-service, i.e., the physician gets paid in part or in whole based on the number of visits they have or the number of procedures they perform.  If this compensation structure continues when the provider organization begins being paid under a new payment model, the physician will be penalized for reducing unnecessary visits and procedures even though the provider organization would be rewarded, and the physician will be rewarded for higher volume even if it hurts the provider organization’s bottom line.  It is difficult to imagine that Accountable Care Organizations can be successful if all of their member providers are still being based using fee-for-service.

Clearly, if payment systems are changed to reward value rather than volume, the compensation of individual physicians and other providers will also need to be changed to align with the structure of the new payment system, rather than with fee-for-service payment.  Rather than primarily basing compensation on “productivity,” physicians will need to be compensated based on factors such as quality, teamwork, and overall cost-effectiveness that will determine the provider organization’s success under the new payment system.

However, it is difficult for a provider organization to change its physician compensation system if only a subset of its payers have implemented payment reforms.  The factors that determine financial success under fee-for-service are, by definition, different from the factors that will determine success under new payment models, but if physicians are going to change the way they practice, they will do that for all of their patients, not just those covered by a particular payer.  If the majority of patients are not covered by reformed payment systems, the provider organization will be penalized for changing its compensation system, but if it doesn’t change its compensation system, its ability to succeed financially in caring for patients covered under the new payment system will be limited.  In short, trying to manage patient care under multiple payment systems can create a serious Catch-22 for physicians and their practices.

Aligning physician compensation with new payment systems can also be challenging because of federal and state laws designed to prevent fraudulent or abusive conduct under current payment systems.  For example, the federal Civil Monetary Penalty statute imposes financial penalties on hospitals that make payments to physicians as an inducement to reduce or limit services to Medicare or Medicaid beneficiaries.  The law has been interpreted by the Office of Inspector General at the U.S. Department of Health and Human Services as prohibiting such payments even if the services being reduced are not medically necessary or appropriate.  Consequently, gain-sharing programs designed to share savings with physicians when unnecessary services are eliminated could make a hospital liable for civil money penalties, as well as putting it in violation of the federal Anti-Kickback statute and the Stark law.

Congress has recognized that changes in fraud and abuse statutes will be needed in conjunction with new payment models. The federal Affordable Care Act authorizes the Secretary of Health and Human Services to waive these statutes in conjunction with the Medicare Shared Savings Program and projects undertaken by the Center for Medicare and Medicaid Innovation.  However, providers may be reluctant to revamp their compensation systems based on these kinds of temporary waivers.  Permanent changes to the fraud and abuse statutes are needed if payment reforms are to be successful.  In states that have enacted statutes similar to the federal laws, state legislatures will also need to make comparable changes.

(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.)

 

 

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Friday, February 15, 2013

Do We Need More Competition from Health Plans or Hospitals?

Two recent reports highlighted the growing consolidation of both health plans and hospitals across the country:

  • The 2012 edition of the AMA’s report Competition in Health Insurance: A Comprehensive Study of U.S. Markets found that 70 percent of the 385 metropolitan areas included in the study lacked health insurer competition. “It appears that consolidation has resulted in the possession and exercise of health insurer monopoly power,” the study notes, pointing to increased premiums, watered-down benefits and insurers’ growing profitability as evidence that highly concentrated markets harm patients and physicians.
  • Escalating hospital consolidation is leading to higher prices for services, and its impact is being felt by consumers and employers who are footing the bill, according to an amicus brief  filed by America’s Health Insurance Plans (AHIP) in the Court of Appeals for the Sixth Circuit in support of the Federal Trade Commission (FTC).  “Experience demonstrates that hospital consolidation results in higher prices for medical services and higher health care costs for consumers and employers,” said AHIP President and CEO Karen Ignagni.

Which is the bigger problem — too few health plans or too few hospitals?

In a typical economic market, the more sellers of a particular product or service there are, the lower prices will be, because the sellers will compete on price in order to attract customers.  This has led many people to believe that the way to get lower health insurance premiums is to have more health insurance companies competing to sell insurance in a state or region.

However, it’s not quite as simple as that, because health insurance companies are not only sellers of insurance, they’re also the buyers of our healthcare services.  They negotiate with hospitals and physicians to set the prices paid for the services individuals and employers receive when they buy a health insurance policy.  The more that health plans have to pay for hospital care, the more a health insurance plan will cost.  And simple economic theory tells us that, all else being equal, bigger health insurance plans have more clout to negotiate lower prices for healthcare services than smaller plans do.

Most people experience this every day in retail.  Consumers don’t buy goods directly from manufacturers; they buy them from retail stores.  Does having more retail stores result in higher or lower prices for consumers?  Big retailers like Walmart or Target can usually buy products from manufacturers for a lower price than smaller retail stores can, and so they can sell the products to consumers for less.  If there were only one big retailer, consumers would probably see higher prices, because the monopoly retailer could keep the price discounts for itself in the form of higher profits.  But conversely, if there were only small retailers, prices for consumers would probably also be higher, because those retailers couldn’t negotiate large price discounts from manufacturers.

What consumers pay depends not just on the number and size of retailers, but on how much competition there is among manufacturers of the product.  For example, if there were only one company that manufactured televisions, it wouldn’t matter how many TV retailers there were or how big they were, because a monopoly television manufacturer could set the price as high as it wanted, and both the retailer and consumer would have to pay more to get a TV.

Just like retailers, health insurance companies sit in between the producers of healthcare services –hospitals and physicians – and the ultimate consumers of those services, i.e., patients.  The more health plans there are, the smaller each of them will be, and that means they’ll have to pay higher prices to health providers, particularly big hospital systems.  It also likely means the health plans will have higher administrative costs as a percentage of healthcare costs, since smaller health plans will have fewer economies of scale.  Both of those things will push insurance premiums up.  The only thing that competition among the health plans will reduce is their profits.

On balance, having more health plans will be more likely to increase premiums than to reduce them.  Under the federal Affordable Care Act, health plans can only retain 15-20% of their premium revenues for administrative costs and profits; the remaining 80-85% must be spent on health care services and quality improvement activities.  Even if greater competition among health plans resulted in, say, a 25% reduction in their administrative costs and profits, that would reduce premiums by at most 5% (i.e., 25% of the maximum 20% of premium that can be spent on non-medical expenses), whereas if bigger health plans could negotiate a 10% larger discount on the prices paid to healthcare providers, that could reduce premiums by 8% or more (10% of the minimum 80% of premium that’s devoted to medical expenses).

In fact, research indicates that having more health plans increases the prices paid for healthcare.  For example, a 2010 study by Carnegie Mellon Professor Martin Gaynor and colleagues found that having five health insurers in a region instead of four would increase hospital prices by 7%, and a 2011 study by University of Southern California Professor Glenn Melnick and his colleagues found that hospital prices in markets with more health plan competition were 13% higher than in markets with a small number of large health plans.

It’s important to note that what counts is not the total size of the health insurance company, but how many people it insures in the local region, i.e., its local market share.  When large national insurance companies enter a market, they may offer lower premiums than existing health plans, but it’s probably not because they’re getting lower prices from hospitals; it’s more likely that they’re just setting their prices below their costs in order to build their business, and paying for those discounts by charging higher premiums in other regions.

Unfortunately, although bigger health plans may be able to pay lower prices for healthcare services, fewer health plans also means less competition among health plans, and so consumers and employers may be less likely to receive the benefits of any lower prices the health plans pay providers.  In addition, bigger health plans can also unintentionally encourage the creation of large, monopoly health systems.  Since big health plans can demand bigger price discounts from smaller hospitals and physician practices than from large systems, small providers may be forced to either go out of business or merge with the large systems.  This is a problem because of the growing evidence nationally that high healthcare costs are being caused by the high prices demanded by large, consolidated health systems.  For example, research by University of California Professor James Robinson found that in markets where there were fewer hospital systems, prices were 13%-25% higher for a range of cardiac and orthopedic procedures.

The solution to high healthcare costs isn’t to change the number or size of health plans.  The solution is to completely change the way we pay for health care:

  • Hospital systems should be expected to compete on both cost and quality.  Instead of secretly negotiating prices with health plans, they should make both their prices and quality measures public, charge the same price to all patients regardless of the type of insurance they have, and offer warranties on their care.  For example, the Geisinger Health System in Central Pennsylvania now offers cardiac surgery, maternity care, and a number of other procedures for a single, total price, and they don’t charge extra when errors or complications occur.
  • Patients need to take responsibility for comparing hospitals on both their cost and quality, and to pay more if they choose expensive hospitals when other hospitals offer high quality care at a lower cost.  For example, Massachusetts Blue Cross Blue Shield is asking patients to pay higher copays when they choose higher-cost hospitals.

What we need from health plans is for them to implement new payment systems and benefit designs that support effective competition by providers and more value-based choice by patients.  Instead of trying to get more health plans in a state or region or asking them to compete on the size of discounts they can extract from providers, employers should be choosing the health plans that will support a rapid transition to higher-quality, lower cost healthcare.

 

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