Tuesday, July 05, 2016

What CMS Should Do to Accelerate Implementation of Alternative Payment Models (Part 1)

Thousands of comments were filed last week on the proposed regulations to implement the provisions of the Medicare Access and CHIP Reauthorization Act (MACRA) related to the Merit-Based Incentive Payment System (MIPS) and Alternative Payment Models (APMs).  One of the most important decisions CMS will need to make in finalizing the regulations is how to revise the proposed criteria for APMs.

How CMS Should Define Criteria for APMs that Match Congressional Intent

In MACRA, Congress clearly intended to encourage the development and implementation of Alternative Payment Models.  It created significant incentives for physicians who participate in APMs at a minimum level, including:

  • Exempting them from MIPS
  • Awarding them a 5% lump sum bonus for six years
  • Giving them a higher annual update (increase) in their FFS revenues

These incentives are in addition to the benefits of participating in the APM itself.

Congress also clearly intended to encourage the development and implementation of APMs by establishing a very small number of very basic requirements for the APMs that would qualify for these incentives:

  • the APMs should involve more than nominal financial risk;
  • the APMs should use quality measures comparable to MIPS; and
  • the APMs should use certified EHR technology.

Unfortunately, in the proposed regulations, CMS went far beyond what Congress proposed, labeling the APMs to which the incentives would apply as “advanced” APMs and defining the Congressional criteria in very burdensome and restrictive ways.  If the proposed regulations were implemented, they would serve as a serious barrier to progress in designing, implementing, and encouraging physician participation in Alternative Payment Models, which is completely counter to what Congress intended.

Congress did not use the term “advanced” to describe alternative payment models, nor did it in any fashion indicate that physicians should only be rewarded for participating in a narrowly defined subset of “advanced” Alternative Payment Models.  The final regulations need to be significantly revised so they do what was envisioned by Congress – accelerate the implementation of successful Alternative Payment Models.

“More Than Nominal Financial Risk” Does Not Mean “Significant Financial Risk”

MACRA requires that in order for a physician to be exempt from MIPS and to qualify for the bonus payments and higher updates authorized by Congress, the alternative payment entity (i.e., the organizational entity that is actually receiving payments under the alternative payment model) must bear “financial risk for monetary losses under … [an] … alternative payment model that are in excess of a nominal amount.”  The term “financial risk for monetary losses” in MACRA clearly refers to losses in the operations of the alternative payment entity, not to losses or increased spending in the Medicare program.  However, in the proposed regulations, CMS defined risk for all but small primary care practices in terms of Medicare spending.

It is inappropriate to measure the amount of risk accepted by a physician practice or other provider in terms of the percentage change in total Medicare spending on the practice’s patients because (a) even a small percentage of Medicare spending can exceed the total revenues of a physician practice, and (b) the ratio of Medicare spending to physician practice revenues varies dramatically from specialty to specialty.

Under the proposed regulations, for most types of physician practices and APMs, CMS would require that an alternative payment entity be at risk for at least 4% of total Medicare spending in order for the participating physicians to qualify for the Congressional incentives.  Since payments to physicians currently represent about 19% of total Medicare Part A and Part B spending, requiring them to pay CMS for up to 4% of Medicare spending would represent, on average, a payment of more than 20% of the physician practice’s revenue.  Causing a physician practice to lose 20% of its revenue is clearly far “more than nominal” risk – it is significant financial risk.

Although payments to physician represent 19% of Medicare spending on average, for many physician practices, their revenues represent a much smaller percentage of total Medicare spending on their patients.  In many cases, a physician practice’s revenues may represent less than 5% of total Medicare spending on their patients.  For these practices, a 4% change in Medicare spending could represent 100% or more of the practice’s revenues.  A physician practice could be forced out of business if it is held responsible for paying for even a very small percentage change in the total Medicare spending for the practice’s patients.  Moreover, the fact that 4% of Medicare spending represents a higher amount relative to physician practice revenues for different specialties would mean that physicians in different specialties would face different levels of risk to participate in APMs, and there is no indication that Congress intended that.

It seems quite clear that in using the term “more than nominal financial risk,” Congress did not mean “significant” financial risk or it would have used that term in the law.  In is inappropriate for CMS to issue regulations that are so clearly at odds with Congressional intent.

However, CMS has defined the solution to this problem in the proposed regulations.  The proposed regulations created a separate definition of risk for small primary care practices participating in medical home programs that is based on a percentage of their revenues, not a percentage of Medicare spending.  There is no reason to limit this approach just to small primary care practices or medical home programs.  All physician practices should have their risk defined in terms of the amount of their revenues they could lose, rather than the percentage of Medicare spending they would be required to pay. 

Risk is Created by Unreimbursed Costs as Well as Reductions in Payment

Basing risk on a practice’s revenues only solves part of the problem with the regulations, however.  The financial risk incurred by an alternative payment entity is a function of the costs that the alternative payment entity incurs to implement the alternative payment model as well as the revenues it receives under the model.  If the alternative payment entity hires or pays for new staff to deliver services to patients under the alternative payment model, if it acquires new or different equipment to deliver services, or if it incurs other kinds of expenses to implement the alternative payment model, and if those expenses are not automatically or directly reimbursed by Medicare, then the alternative payment entity is accepting financial risk for monetary losses.

One of the reasons for creating APMs is that Medicare does not currently pay physicians for many services that would benefit patients and help reduce avoidable spending.  For example, there is generally no payment or inadequate payment for:

  • responding to a patient’s phone call about a symptom or problem, even though that could help the patient avoid the need for far more expensive services, such as an emergency department visit;
  • communications between primary care physicians and specialists to coordinate care, even though that type of communication and coordination can avoid ordering of duplicate tests and prescribing conflicting medications;
  • communications between community physicians and emergency physicians, even though that could enable patients to be safely discharged without admission;
  • time spent by a physician serving as the leader of a multi-physician care team for patients with complex conditions;
  • providing proactive telephone outreach to high-risk patients to ensure they get preventive care, even though that could prevent serious health problems or identify them at earlier stages when they can be treated more successfully;
  • spending time in a shared decision-making process with patients and family members when there are multiple treatment options, even though that has been shown to reduce the frequency of invasive procedures and the use of low-value treatments;
  • hiring nurses and other staff to provide education and self-management support to patients and family members, even though that could help them manage their health problems more effectively and avoid hospitalizations for exacerbations;
  • providing palliative care for patients in conjunction with treatment, even though that can improve quality of life for patients and reduce the use of expensive treatments; and
  • providing non-health care services (such as transportation to help patients visit the physician’s office), even if those services would avoid the need for more expensive medical services (such as the patient being taken by ambulance to an emergency department).

If an alternative payment entity implemented these kinds of services under an alternative payment model in order to help improve outcomes for its patients and reduce Medicare spending, it could easily incur monetary losses even Medicare has achieved savings.  For example, even under an “upside only” shared savings model, a physician practice or other provider incurs financial risk if it incurs costs to deliver services to beneficiaries that are designed to reduce Medicare spending, since the provider could fail to qualify for the shared savings payment it needs to pay for those costs even when Medicare spending has been reduced.

Consequently, financial risk cannot be defined simply in terms of the potential reduction in revenues the alternative payment entity could receive from Medicare.  An alternative payment entity’s “financial risk for monetary losses” under an alternative payment model should be defined as the potential difference between the amount of costs the entity incurs or is obligated to pay as part of the alternative payment model and the amount of revenues that it could receive under the APM.  The greater the costs it incurs or the lower the revenue it could potentially receive, the greater the financial risk it will face under the APM.

Setting a Reasonable Threshold for “More Than Nominal”

Although many people seem to think that “financial risk” is only associated with alternative payment models, there is financial risk involved in any payment system other than one which reimburses physicians or other providers for their actual costs.  Today, physician practices incur financial risk for monetary losses under the fee-for-service payment system because the costs they incur for office space, equipment, and staff are not directly reimbursed by Medicare, and if the practice does not deliver enough services to generate fee-for-service payment revenues in excess of those costs, it could be forced to declare bankruptcy.  The measure of a good alternative payment model should not be how much it increases financial risk for physician practices and other providers, but rather how effectively it realigns their financial risk so that financial losses result from delivering lower quality care rather than from delivering fewer services.

In MACRA, Congress has placed all physicians’ payments “at risk” under the Merit-Based Incentive Payment System (MIPS).  In the initial year of the program (2019), physician payments could be reduced by 4%, and the maximum reduction increases to 9% in 2022.  These amounts are presumably “more than nominal” if Congress expected them to influence physician performance on the measures defined in MIPS, which includes resource measures.

Consequently, “more than nominal” risk for APMs could be defined using the maximum reduction amounts that are used in MIPS.  In 2019, since a physician’s payments could be reduced by 4% under MIPS even with no change in the physician’s costs, an alternative payment entity should be viewed as being at “more than nominal financial risk” if the amount of costs that it incurs under an alternative payment model could exceed the amount of revenue it receives under the model by at least 4%.

Use of Quality Measures

In addition to requiring minimum levels of financial risk, MACRA requires that an APM “provide for payment for covered professional services based on quality measures.”  It does not require that the amounts of payment be a “factor” in determining the amount of payment, as CMS has proposed in the regulations.  This excessively narrow interpretation of the MACRA requirements in the proposed regulations led CMS to declare that one of its most widely used and potentially successful programs – the Bundled Payments for Care Improvement (BPCI) program – would not qualify as an APM under MACRA.

If a payment model is designed to achieve savings, the Affordable Care Act requires only that the payment model do so “without reducing the quality of care.”  Consequently, an APM should be considered a qualified alternative payment model if it (1) measures quality and (2) requires a minimum standard of quality to be met in order for physicians to continue to participate in the APM.  This would allow a much broader range of current and future APMs to qualify.

Use of EHR Technology

In addition to the provisions regarding financial risk and quality, MACRA requires that participants in an alternative payment model “use” certified EHR technology.  After several years of HHS trying to define “meaningful use” of EHRs, there is widespread agreement that detailed requirements regarding how clinicians should use EHRs have increased costs and harmed quality rather than improving it.  Since MACRA simply requires “use” of the EHR, regulations regarding use of EHRs in APMs should only require that clinical data about the patients receiving care as part of the alternative payment model be stored in a certified electronic health record system.  It is impossible to prescribe how a physician or other provider should “use” the technology beyond this without potentially interfering with the provider’s flexibility to deliver services in the most effective way or imposing unnecessary costs and administrative burdens on the provider.  A physician practice participating in the APM will have a strong incentive to use the EHR if the EHR has capabilities that will improve the practice’s success, regardless of any specific requirements imposed by HHS.  Any specific requirements for “use” of EHRs that are imposed in regulations should be treated as a cost that increases the financial risk for a physician practice to participate in the APM if the cost is not explicitly supported by the APM itself.

What the Final Regulations Should Say

The final regulations should not label APMs that meet the Congressional criteria as “advanced” APMs, they should define “more than nominal risk” based on a reasonable percentage of a practice’s costs and revenues, and they should establish more reasonable and flexible requirements for quality measures and EHR use.  To do this, the final regulations could be revised to read as follows:

414.1415 Qualified APM criteria

(a) Use of certified electronic health record technology. The following constitutes use of CEHRT:


(2) Required use of certified EHR technology. To be a Qualified APM, an APM Entity must store clinical data in CEHRT regarding the care delivered to patients with financial support from the APM.


(b) Payment based on quality measures.

(1) To be a Qualified APM, an APM must ensure that the quality of care for patients receiving services under the APM is maintained or improved.


(c) Financial risk.  To be a Qualified APM, an APM must either meet both the financial risk standard and nominal risk standard described in this section or be an expanded Medical Home Model as described in paragraph (c)(5) of this section. 

(1) Financial risk standard.  To be a Qualified APM, an APM must, based on whether an APM Entity’s actual expenditures for which the APM Entity is responsible under the APM exceed expected expenditures during a specified performance period, do one or more of the following:

(i) Withhold payment for services to the APM Entity or the APM Entity’s eligible clinicians;

(ii) Reduce payment rates to the APM Entity or the APM Entity’s eligible clinicians;

(iii) Require the APM Entity to owe payment(s) to CMS; or

(iv) Cause the APM Entity to lose the right to all or part of an otherwise guaranteed payment or payments.

(2) Nominal amount standard.  To be a Qualified APM, either:

(i)  the minimum total annual amount that an APM Entity must potentially owe or forego under the APM must be at least 4 percent of the APM Entity’s total Medicare Parts A and B revenue, or

(ii) the APM entity must document that (a) it is using its own resources to deliver new or expanded services to beneficiaries that are not directly paid for by Medicare and (b) the amount of those resources are equal to or greater than 4% of the APM Entity’s total Medicare Parts A and B revenues.

(3) Expected expenditures. For the purposes of this section, expected expenditures is defined as either:

(i)  the payment to the APM entity, if the APM entity will be responsible for paying for all of the services to be delivered under the APM, or

(ii) the spending target established under the APM for the total spending on all of the services to which the APM applies.

(4) Capitation. A full capitation arrangement meets this Qualified APM criterion. For purposes of this subpart, a capitation arrangement means a payment arrangement in which a per capita or otherwise predetermined payment is made to an APM Entity for all items and services furnished to a population of beneficiaries, and no settlement is performed to reconcile or share losses incurred or savings earned by the APM Entity. Arrangements made between CMS and Medicare Advantage Organizations under the Medicare Advantage program (42 U.S.C. section 422) are not considered capitation arrangements for purposes of this paragraph (c)(4).

(5) Medical Home Model Expanded under section 1115A(c) of the Act.  A Medical Home Model that has been expanded under section 1115A(c) of the Act meets the financial risk criterion under this section.


Additional recommendations for changes in the proposed MACRA regulations are included in the Center for Healthcare Quality and Payment Reform’s formal comment letter to CMS on the proposed MACRA regulations, which can be downloaded here.

These changes to the regulations are necessary but not sufficient to accelerate the development and implementation of APMs.  CMS also needs to significantly change the current process it uses to implement APMs, which is far too slow and burdensome.  Recommendations for this are included in CHQPR’s comment letter to CMS and will be described in a future message.


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Wednesday, May 11, 2016

Why the CMS Part B Drug Payment Demo Could Hurt Cancer Patients and What Should Replace It

Cancer treatment is becoming less and less affordable every year.  The primary reason for the rapid increase in cancer treatment costs is the increasingly high prices manufacturers charge for the drugs cancer patients need.  However, instead of finding ways to reduce the high prices of drugs, the Centers for Medicare and Medicaid Services (CMS) has proposed to cut the Medicare payments that enable oncology practices to buy and use the drugs cancer patients need.

CMS believes that the current method it uses to pay physicians to administer drugs in their offices creates a “financial incentive to prescribe high cost drugs over lower cost ones when comparable low cost drugs are available.”  To address this, it proposed the “Part B Drug Payment Model” in March 2016.  If it were implemented, this mandatory demonstration would cut Medicare payments to physicians for all of the drugs they administer (regardless of whether there are lower-cost drugs available) in order to “test” whether this would lead to a reduction in Medicare spending on drugs.  Although the change is represented as being budget neutral for physician practices overall, data presented by CMS indicate that the change would actually cut payments to oncology practices by over $32 million.

Many individuals and organizations have expressed strong opposition to the proposal, while others have supported it.  However, it is difficult to determine whether to support or oppose the proposal without understanding the complex way that Medicare pays for physician-administered drugs.  As explained in detail below, once you understand how payment works today, it becomes clear that the most likely effect of the change proposed by CMS will be to make it more difficult for cancer patients to obtain the drugs they need.  Moreover, it also becomes clear that more comprehensive reforms are needed to the way oncology practices are paid that would support improved care for patients and reduce truly avoidable spending.

Do Medicare Payments for Cancer Drugs Create Incentives to Use More Expensive Drugs?

Today, when a Medicare patient with cancer comes to an oncology practice for a chemotherapy infusion treatment, the drug the patient receives had to first be purchased by the practice from a drug wholesaler and then stored in the practice’s pharmacy until it was used to treat the patient.  After the patient receives the drug, Medicare pays the practice a predetermined amount for the drug, and by law, that amount is calculated by taking the “Average Sales Price” for the drug (ASP) six months earlier and adding 6%.  Currently, the actual payment is only ASP + 4.3% because of the across-the-board 2% cut in Medicare payments due to sequestration.

Many people have been led to believe that the 6% add-on is “profit” for the oncologist or the oncology practice.  In reality, the 6% is used by the oncology practice to cover at least five types of costs that are not otherwise reimbursed by Medicare:

  • the cost of operating the pharmacy in the oncology practice that enables drugs to be safely stored, mixed, and administered to patients;
  • the cost of wastage and breakage for drugs (although the practice must pay a drug company for the full price of a vial of chemotherapy, it can only bill Medicare for the portion of the vial that is used);
  • the difference between the “Average Sales Price” (ASP) and the actual acquisition cost of drugs (a more detailed explanation of this point is provided below);
  • the time the practice spends in trying to get financial assistance to help patients who don’t have supplemental insurance to pay the high cost-sharing on expensive drugs; and
  • the losses practices incur by not being able to collect the full cost-sharing amount from patients who cannot afford it.

Many of the above costs are higher for more expensive cancer drugs, which is why it makes sense to base the payment at least in part on a percentage of the drug price.  For example, if an oncology practice cannot use 10% of what is in a drug vial, the practice will not be reimbursed for 10% of what it paid for that drug, and a drug that was five times as expensive as another will cause the practice to lose five times as much.  Practices need to spend more time trying to help patients obtain financial assistance in paying their cost-sharing on expensive drugs than on lower-cost drugs, and practices incur more bad debt for patients receiving expensive drugs than low-cost drugs.

Contrary to what CMS and others believe, covering all of these costs and covering the higher costs associated with more expensive drugs does not create an “incentive” for a practice to use an expensive drug.  If anything, the percentage payment avoids creating a disincentive for the practice to use the expensive drug, so the oncologist can choose the drug that is best for the patient without worrying (as much) about whether the practice will lose money by using the drug.

No one knows what the “right” payment amount is to cover all of these costs.  The current 6% statutory amount is not based on an analysis showing that amount would cover the costs physician practices in general or oncology practices in particular incur, and CMS has not presented any new analysis indicating that 6% is too much.  In the Part B Drug Payment Model, CMS has proposed replacing the ASP+ 6% formula with a three part formula: ASP + 2.5% + a $16.80 flat payment per drug.  (With the sequestration adjustment, the actual payment would only be ASP + 0.86% + $16.53.)  However, CMS presented no analysis justifying that 2.5% would better match costs than 6%.  It used that amount because it was used by the Medicare Payment Advisory Commission (MedPAC) in an analysis MedPAC did.  MedPAC used the 2.5% amount in its analysis because it felt that this “should be sufficient to cover markups from wholesalers.”  CMS indicates that this was based on “anecdotal evidence” that such markups are between 1% and 2%, but that MedPAC “was not aware of data that could verify this estimate.” CMS states in its regulation that it is “not aware of data that could verify this assessment.”

Rather than seeking to obtain better data to determine what the right percentage should be, CMS is proposing to just cut the amount from 6% to 2.5% and see what happens.  The $16.80 flat payment was selected by CMS in order to offset the loss in revenue caused by the cut from 6% to 2.5%.  However, the analysis presented by CMS only shows that adding a $16.80 flat payment would offset the cut from 6% to 2.5% on average in 2014; the analysis shows that some types of physician practices – particularly oncologists, rheumatologists, and ophthalmologists – would experience large cuts in revenue, while other physician practices, such as primary care physicians, orthopedic surgeons, and cardiologists, would experience large increases in revenue.  No analysis is presented to suggest that these increases and cuts in revenue for different specialties would better match the costs the physicians in those specialties are incurring to deliver medications to their patients.

Some combination of a flat fee and a percentage markup would probably be a better match for a practice’s costs than a pure percentage-based markup, because a pure percentage markup under-reimburses pharmacy operations costs when lower-priced drugs are used (since there are fixed costs to operate the pharmacy that have to be covered regardless of the price of the drugs used), but a flat fee alone wouldn’t cover the higher costs the practice incurs when it uses more expensive drugs (because, as explained earlier, the practice’s costs are higher for higher-priced drugs).  However, the specific combination of a flat fee and percentage that CMS is proposing would clearly not be a better match for an oncology practice’s costs than the current percentage payment, because CMS’s own calculations show the proposed formula would result in a more than $30 million cut in the payments that oncology practices currently use to cover the costs of operating their pharmacies and purchasing the drugs their patients need.  Moreover, measuring whether the total payments are higher or lower than they are currently begs the question of whether the payment amounts were correct to begin with.

Available data indicate that commercial health plans pay a higher percentage markup on drugs than Medicare does, not a lower markup as CMS is proposing.  Some of these higher percentage markups likely do exceed the costs cited earlier that are associated with purchasing, storing, and administering drugs to patients.  However, data show that these higher payments do not represent “profits” to oncologists or to their practices; rather, these higher payments cover the costs of services that oncology practices deliver to their patients that are not paid for, or are inadequately paid for, by Medicare and the commercial health plans, such as the costs of patient education and counseling services, the time spent in coordinating care, etc.  Data from the National Practice Benchmark for Oncology indicate that current fee-for-service payments from Medicare and other payers only cover 2/3 of the costs of the services that oncology practices provide to their patients.  Many oncology practices are forced to rely on higher commercial payments for drugs to subsidize the other services they offer.

However, focusing only on the small percentage markup ignores the serious problems with the ASP portion of the formula, which represents 96% of Medicare’s spending on drugs and 96% of what the practice receives to cover the costs of acquiring drugs.  Most people do not realize that Medicare does not reimburse a practice for its actual acquisition cost associated with an expensive chemotherapy drug.  Rather, Medicare pays the practice based on the “average sales price” (ASP) of that drug two calendar quarters earlier.  As everyone knows, the prices of most cancer drugs are increasing rapidly.  This means that in most cases, the ASP payment from Medicare will be less than what the oncology practice will have to pay to purchase the drug, because the ASP amount was based on the price of the drug six months earlier, not the price when the practice actually bought the drug.  There are also concerns that the formula calculating ASP incorporates discounts received by wholesalers that are not actually passed on to physician practices, which means that the ASP amount is less than the average amount that physician practices actually paid for a drug.  Moreover, because larger practices often can obtain discounts that smaller practices cannot, smaller practices will generally have to pay more for a drug than larger practices, and that means they will pay more for a drug than what is calculated as the “average sales price.”  Consequently, when Medicare bases payments on ASP, it is often paying less than a practice’s actual acquisition cost for drugs, particularly for small practices.

The result of this very complex system is that many oncology practices, particularly small practices, lose money on many of the chemotherapy drugs they purchase.  Medicare’s 6% add-on payment (which has been only 4.3% under sequestration) on top of ASP helps to offset this loss in some cases, but not all.  The CMS proposal to significantly cut that add-on payment will mean that practices will lose money on even more drugs than they do today.  CMS is not proposing any improvements to the ASP system – which represents 96% of the payment for drugs – to make it more accurate or to remove any undesirable incentives it might create, it is only proposing to change the remaining 4% and to do so without any solid analysis indicating that the new amount better matches costs than does the current amount.

If CMS does not pay adequately to cover the losses and costs oncology practices incur in buying and administering chemotherapy, oncology practices will not be able to afford to administer the drugs patients need.  This will affect their ability to administer the lower-priced drugs CMS wants to encourage practices to use as well as their ability to use expensive drugs.

As noted earlier, paying adequately for the costs of administering chemotherapy does not give an oncologist an “incentive” to use one drug over another.  Rather, it ensures the oncology practice is not penalized financially for choosing the most appropriate drugs for their patients.  Moreover, for many patients, there may be only one drug that is appropriate to treat their disease at a particular point in time, in which case there is no choice that could possibly be “incentivized” by how much CMS pays for drugs.  In these cases, the proposal by CMS to cut drug payments would simply create a financial penalty for oncology practices when their patients need a high-cost drug or a drug whose price has been increasing rapidly.

The bottom line is there are two primary types of impacts that would be likely to occur if CMS implements the Part B Drug Payment Model.  One is that cancer patients will be unable to receive chemotherapy treatments that they need because their oncologists can no longer afford to purchase and administer them.  The second is that community oncology practices that try to purchase the drugs their patients need with inadequate reimbursement from Medicare will lose money and potentially be forced to close, and that in turn will mean that patients will have to travel farther and pay more to obtain cancer treatments.  It would be inappropriate for CMS to use the authority provided under the Affordable Care Act to “test” which of these impacts will occur or how big the impacts would be.

How to Control Cancer Spending Without Harming Patients

Instead of this problematic proposal, CMS should pursue implementation of comprehensive oncology payment reforms that will actually improve care for patients while making that care more affordable.  Last year, after many months of work, the American Society of Clinical Oncology (ASCO) announced a proposal for comprehensive payment reform called Patient-Centered Oncology Payment (PCOP).  PCOP is designed to provide adequate payment to oncology practices for many essential services that Medicare and health plans don’t pay for today, such as patient education, counseling, care coordination, etc.  Under PCOP, instead of oncology practices being forced to try and pay for essential patient services using revenues generated from drugs, the practices would be paid directly for those services.  PCOP is also specifically designed to reduce the overall cost of cancer care by (a) identifying the kinds of drugs, tests, and treatments that patients do not need and reduce the use of those services and (b) reducing the rates of complications and hospitalizations that patients experience while undergoing cancer treatment.  Under PCOP, oncology practices would take responsibility for implementing evidence-based guidelines developed by ASCO for prescribing tests and drugs, and the practices would receive payments enabling them to determine an accurate diagnosis and to select the most appropriate treatment based on the guidelines.  This would improve care for patients and make care more affordable, rather than achieving savings at the expense of quality.

Although PCOP has many advantages over the current payment system for oncology, it has specific advantages compared to the CMS Part B Drug Payment Model.  Instead of a policy that tries to discourage oncology practices from using expensive drugs that patients need, as the CMS Part B Drug Payment Model would do, Patient-Centered Oncology Payment would discourage practices from using drugs when patients don’t really need them.  Since many of those drugs are very expensive, this would save money without harming patients.

For example, the data that CMS released in conjunction with its Part B Drug Payment Model proposal showed that Medicare spent over $1 billion in 2014 on a very expensive drug called pegfilgrastim, the fourth highest amount Medicare spent on any drug in the Part B program.  Pegfilgrastim is not used to treat cancer, but rather to help patients who are receiving chemotherapy to avoid developing infections.  ASCO has developed guidelines for when the drug should and should not be used, but studies have shown that pegfilgrastim is being used for many patients who do not really need it.  The drug isn’t being overused because oncology practices have a financial incentive to do so, it’s being overused because oncologists want to help as many patients as possible avoid complications that can lead to hospitalizations.  However, not all types of chemotherapy are equally likely to cause the kinds of complications that pegfilgrastim can prevent, and the drug causes serious side effects that can outweigh its benefits for many patients.  Rather than simply cutting all payments for pegfilgrastim whether patients would benefit from it or not (as the proposed Part B Drug Payment Model would do), PCOP would enable an oncology practice to have adequate time to determine which patients really need the drug and also pay for the staff resources needed to create more cost-effective approaches for preventing hospitalizations for the others.

Reducing unnecessary spending on a few frequently used, expensive drugs could result in far greater savings for Medicare than anything the proposed Part B Drug Payment Model could achieve.  The PCOP payment model would provide oncology practices the time and resources they need in order to implement and follow complex, evidence-based guidelines that can control spending while protecting patients.

Reducing avoidable spending on drugs and tests is just one way that PCOP would achieve savings on cancer care in ways that benefit patients.  Another major focus of PCOP would be to enable cancer physicians to turn their practices into “oncology medical homes,” including providing rapid response to complications of chemotherapy in order to avoid patients being taken to the emergency room or being hospitalized.  A national demonstration project called COME HOME (www.comehomeprogram.com) that was funded by CMS showed that dramatic reductions in the frequency of ED visits and hospitalizations and overall savings for Medicare could be achieved by giving oncology practices the time and resources they need to deliver more services to patients.  Unfortunately, these services are not paid for under the current Medicare fee schedule, and the practices that have implemented these services will have to discontinue them if a better payment system like PCOP isn’t implemented soon.

CMS has developed another oncology payment reform demonstration called the Oncology Care Model that could provide some of the resources oncology practices need to help their patients avoid ED visits and hospitalizations.  Unfortunately, the Oncology Care Model would also create significant financial incentives for oncology practices to give patients low-cost drugs regardless of whether those drugs would be effective for their patients, and it would penalize practices by dropping them from the program if they don’t find ways to reduce spending on drugs and other services.  A report prepared by the Center for Healthcare Quality and Payment Reform titled A Better Way to Pay for Cancer Care explains why the PCOP payment model is superior to the Oncology Care Model and to other alternative payment models that have been proposed or used by CMS.  It is available at http://www.chqpr.org/cancer-care.html.

The current payment system for oncology care in America is badly broken.  Cancer patients deserve much better.  There are significant opportunities to reduce the cost of cancer care in ways that help patients rather than hurt them, but these can only be implemented with an appropriately designed payment system that provides adequate funding for good cancer care grounded in evidence-based guidelines for treatment.  Rather than testing problematic and piecemeal payment “incentives” that could seriously harm both patients and oncology practices, CMS should implement a truly comprehensive payment reform that strengthens oncology practices and enables them to deliver the best possible care to patients at the most affordable cost.


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Saturday, January 23, 2016

Will Federal Policies Accelerate or Impede Progress in Payment Reform?

Despite widespread agreement on the need for major improvements in healthcare payment systems, progress in implementing truly meaningful payment reforms has been frustratingly slow.  Last spring, as part of the Medicare and CHIP Reauthorization Act (MACRA), Congress created significant new incentives and processes designed to dramatically accelerate progress in payment reform, with a focus on creating better ways to pay physicians.

The success of MACRA will depend heavily on how the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) implement the provisions of the law relating to Alternative Payment Models (APMs) and Physician-Focused Payment Models.  The decisions they make and the processes they establish could either encourage rapid development and implementation of innovative and successful payment models, or deter innovation and impede the progress in payment reform that Congress wanted to support.

A new report from the Center for Healthcare Quality and Payment Reform, Implementing Alternative Payment Models Under MACRA: How the Federal Government Can Accelerate Successful Health Care Payment Reform, explains the provisions of MACRA relating to APMs and describes the actions HHS and CMS should take in three key areas:

  • The regulations defining Alternative Payment Models and alternative payment entities;
  • The processes for soliciting, reviewing, and approving Physician-Focused Payment Models; and
  • The systems and resources to implement Physician-Focused Alternative Payment Models

A copy of the report can be downloaded at:

The important issues discussed in the report include:

  • The level of financial risk that physicians should be required to accept under Alternative Payment Models;
  • The steps the new Congressionally-created Physician-Focused Payment Model Technical Advisory Committee and HHS should take to encourage the development of innovative APMs for physicians;
  • The dramatic changes that CMS will need to make in its approach to implementing payment reforms in order for every physician to have the ability to participate in one or more desirable APMs by the Congressionally-mandated deadline of 2019.

Implementing Alternative Payment Models Under MACRA explains why the Alternative Payment Models that are being designed and implemented by CMS and the Center for Medicare and Medicaid Innovation (CMMI) not only fail to solve the problems with current payment systems but can actually make it harder for physicians who want to improve care and reduce spending.  The report details the serious problems with the approaches CMS and CMMI are using in most of their payment models, and it explains the types of payment changes that should be used instead, including seven different types of Physician-Focused Alternative Payment Models that could improve patient care and reduce spending for Medicare while preserving the financial viability of high-quality physician practices and other healthcare providers.  The report also describes how the development of new patient condition groups, care episode groups, and patient relationship groups required by MACRA can facilitate the development of better Alternative Payment Models.

Additional information on how to develop successful Alternative Payment Models can be obtained in these earlier reports from the Center for Healthcare Quality and Payment Reform, all of which can be downloaded free of charge at www.CHQPR.org:

  • A Guide to Physician-Focused Alternative Payment Models (produced in collaboration with the American Medical Association), which describes seven different types of Alternative Payment Models in detail, with examples of their application in a wide range of medical specialties;
  • The Building Blocks of Successful Payment Reform, which describes the four essential components of any successful APM and explains the different ways in which they can be designed to match the structure and capabilities of different physician practices and other providers;
  • Making the Business Case for Payment and Delivery Reform, which provides a step-by-step process for designing a payment model and setting the payment amounts and accountability targets in ways that can improve care for patients and reduce spending for payers in ways that are financially feasible for providers; and
  • Measuring and Assigning Accountability for Healthcare Spending, which describes the problems with most current “value-based purchasing” and shared savings programs and explains how to design payment models that only hold physicians and other providers accountable for the aspects of costs that they can control or influence.

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Friday, September 11, 2015

Doctors and Hospitals Agree: Medicare is Changing Payments the Wrong Way

Doctors and hospitals both agree that there are serious problems with the way the Centers for Medicare and Medicaid Services (CMS) is designing new healthcare payment models.  The American Medical Association (AMA) and the American Hospital Association both submitted detailed criticisms of the Comprehensive Care for Joint Replacement Payment Model that CMS proposed in July.  (The comments submitted by the AMA can be downloaded here and the comments submitted by the AHA can be downloaded here.)  Both groups provide a long list of problems with the CMS proposal, many of which are similar to those in CHQPR’s report Bundling Better.  The AMA and AHA criticisms include:
  • The lack of risk adjustment in episode budgets.  The AHA provides data showing the large differences in the types and cost of rehabilitation services needed by joint replacement patients depending on their age and health status, yet CMS is proposing to make the same payments for everyone.
  • The lack of flexibility to change the way individual providers are paid.  The AMA describes the problems with the severe restrictions CMS places on how payments can be divided among participating providers.  The AHA gives an example of how, because Inpatient Rehabilitation Facilities (IRF) could only be paid using the current fixed case rates defined by CMS, a hospital might be forced to send a patient to a skilled nursing facility instead of an IRF because of the different way the two facilities are paid, rather than what is best for the patient.
  • The excessive amount of risk shifted to hospitals.  The AHA estimates that the payments hospitals currently receive for joint surgery could be cut by over one-third through this program in order to pay for the costs of post-acute care if the CMS payment rates turn out to be too low.
What is really significant is that neither the AMA nor the AHA is asking CMS to preserve the status quo.  Indeed, rather than merely criticizing problems with the CMS proposal, the AHA provides a lengthy list of recommended improvements, and the AMA provides a detailed blueprint for a completely different approach to paying for comprehensive care for joint replacement.  Key elements of the approach recommended by the AMA, which could be a model for episode payments in other areas, are:
  • Patients who need surgery should have the opportunity to choose physician-led teams of providers (hospitals, post-acute care providers, etc.) who have organized themselves to coordinate services and take accountability for cost and outcomes for the entire episode of care, including preparation for surgery, the surgery itself, the rehabilitation after surgery, and any complications that arise.
  • The provider teams should receive a bundled payment that gives them both sufficient resources to achieve good outcomes for their patients and the flexibility to design services in a way that achieves the best outcome at the lowest cost.  The provider teams should also have the flexibility to create new organizational arrangements or use existing organizations to receive bundled payments and the flexibility to allocate those payments among the participating providers.
  • Payment amounts should be risk-adjusted so that patients with greater needs can receive adequate services, and outlier payments and risk corridors should be established that protect providers from excessive risk.  Payment amounts should be higher for providers with better outcomes, and payments should be stable and predictable over time.
In addition to its detailed recommendations for a better way to pay for joint replacement, the AMA recommended seven goals for how CMS should approach the development of alternative payment models.  These goals could serve as guiding principles for all payment reform efforts by both Medicare and private payers:
  1. Remove the barriers to better care that are created by current payment systems.  A major reason why payment reform is needed is that current payment systems create barriers to delivering the kind of care that will improve quality and reduce costs.  The AMA states that many physicians have identified ways of improving quality and cost, but they cannot implement those changes unless the barriers in the current payment system are removed.  CMS and other payers won’t fix these problems by merely adding small “incentives” on top of a broken payment system.
  2. Provide adequate, predictable resources to support delivery of high-value care.  The AMA emphasizes that if savings are achieved by setting payment rates below achievable costs, physicians, hospitals, and other providers could be forced out of business and Medicare patients would face reduced access to care.  Instead of requiring across-the-board “discounts” for all providers, CMS should give providers the ability to eliminate avoidable spending and then set bundled payment rates based on what they show can be achieved.
  3. Hold physicians and other providers accountable only for aspects of cost and quality they can influence or control.  The AMA clearly states that physicians are willing to accept accountability for the aspects of quality and cost they can control or influence.  However, all of the payment models CMS has been developing put physicians at risk for spending over which they have no control.  This prevents many physicians from participating in these payment models and slows national progress in controlling costs and improving quality.
  4. Allow voluntary participation by providers in all parts of the country.  Hundreds of physician groups, hospitals, and other providers are already participating in the various payment programs CMS has created, and hundreds more would have participated if various flaws in those programs had been corrected.  The way to get broader participation and make faster progress in payment reform is not to mandate problematic payment models, but to provide the support innovators say they need.
  5. Support physician leadership in redesigning care delivery.  As the AMA points out, payment models don’t create higher quality care at lower cost, physicians and other health professionals do.  The determination as to what types of care could effectively improve a patient’s needs must be made by physicians and patients, not by payers.  If physicians have indicated that they can and will improve care and reduce costs, then payment models should be designed to provide the flexibility they need and the accountability they are able and willing to accept.
  6. Allow flexibility for different organizational arrangements among providers.  There are enormous differences in the ways healthcare services are organized and delivered in different parts of the country.  No one-size-fits-all approach to payment reform will work well in all parts of the country, no matter how efficient it would be for a federal agency or other national payer to have a single approach.  CMS deserves considerable praise for the way it designed its Bundled Payments for Care Improvement initiative because it offered four different payment models, not just one, it gave providers the flexibility to choose which of 48 different types of patient conditions they wanted to focus on, and it provided multiple choices for organizational structures and risk arrangements.  That one federal program has provided more different payment reform models than any private payer in the country.  CMS needs to design future payment reform programs with similar or greater flexibility, not less.
  7. Design payment reforms through a collaborative approach.  The fact that doctors and hospitals have so many serious concerns about the CMS proposal clearly indicates that CMS needs a more effective process for engaging healthcare providers in the development of good payment models.  The enormous amount of time and effort that CMS obviously invested in developing the CCJR proposal would have produced a much better result if CMS had involved physicians, hospitals, and other healthcare providers in the process from the very early stages, rather than seeking input only through comments on a several hundred page regulation that many people will perceive as a fait accompli.  Instead of viewing providers as adversaries in a regulatory process, CMS needs to develop new payment models through a more collaborative approach.  In many parts of the country, providers and payers are working together through multi-stakeholder Regional Health Improvement Collaboratives to redesign payment and delivery systems in a “win-win-win” way, and CMS should support that same kind of multi-stakeholder collaboration in its work.



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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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