Monday, March 02, 2020

How CMS Can Create More Successful APMs More Quickly

In 2010, Congress created the Center for Medicare and Medicaid Innovation (CMMI) and provided it with significant funding and regulatory flexibility to develop and test Alternative Payment Models (APMs). In MACRA, Congress created incentives for physicians to participate in Medicare APMs and specifically encouraged the creation of more physician-focused APMs. 

Unfortunately, a decade after creation of CMMI and five years after passage of MACRA:

  • CMS has not created APMs for most Medicare beneficiaries or physicians. The majority of Medicare beneficiaries and the majority of physicians are unable to participate in any Medicare APMs. There is no Primary Care-Focused APM available for most Medicare beneficiaries and their primary care providers, there are no Condition-Based APMs designed to support better ambulatory care by specialists for patients with chronic conditions, and there are no APMs designed for most patients receiving outpatient procedures.  (A summary of current CMS APMs is available here.)
  • CMS APMs have failed to produce significant savings or improvements in quality. To date, most CMMI APMs have actually increased Medicare spending and have not resulted in significant improvements in the quality of care. ACOs in both the Medicare Shared Savings Program and the Next Generation ACO program have failed to achieve significant savings.  (A summary of the impacts of CMS APMs is available here.)

The failure to implement successful APMs means that each year, millions of Medicare beneficiaries are being denied the opportunity to receive higher-quality care and the Medicare program is spending billions of dollars more than is necessary.

The Problems With the CMS Approach to Creating APMs

There are four basic reasons why there are so few successful Alternative Payment Models in Medicare: 

  • CMMI has used only a small portion of its funding from Congress for development and implementation of Alternative Payment Models. Over the past decade, less than half of CMMI’s total spending, and less than 15% of the funds Congress appropriated for CMMI projects, was used to develop and implement APMs in which physicians could participate under MACRA. Moreover, nearly one-third of the funds spent to develop APMs were used to create variations on ACOs and the Medicare Shared Savings Program, rather than to create completely different types of APMs in which specialists and small and rural physician practices could participate.  (A summary of how CMMI has spent its funds is available here.)
  • CMMI uses a slow, expensive process to design and implement APMs.  The steps that CMMI follows in choosing, designing, implementing, and evaluating APMs require 7-9 years or more to complete, and CMMI has spent $75 million or more solely on model design and evaluation contracts for each one of the APMs it has developed. The cost and time involved in this process makes CMS less likely to test multiple APMs, causes unsuccessful APMs to continue operating for too long, and prevents successful APMs from being created and expanded more quickly.
  • The APMs that CMS has developed fail to solve the problems with current payment systems. Most of the APMs created by CMS are merely pay-for-performance programs: no changes are made in current fee-for-service payments, and providers receive bonuses or penalties based on whether spending is less than CMS projections. These types of APMs have not given providers the resources or flexibility they need to deliver high-value services to patients that could reduce spending and improve quality. Moreover, these types of APMs can penalize providers for things they cannot control and reward providers for failing to deliver services patients need. There is no evidence that simply increasing the amount of downside risk in APMs will produce greater savings.
  • CMS has refused to implement additional or different APMs. More than 30 proposals for Alternative Payment Models have been developed by physicians, medical specialty societies, health systems, and other individuals and organizations and submitted to the Physician-Focused Payment Model Technical Advisory Committee (PTAC) created by Congress. PTAC has recommended that 16 of these proposals be implemented or tested, but CMS has not implemented or tested any of them and has no plans to do so.  (A list of the APMs recommended by PTAC is available here, and an analysis of the reasons CMS has given for not implementing them is available here.)

How to Create More Successful APMs in Medicare

Clearly, a different approach to creating APMs in Medicare is urgently needed. There are three things that CMS can and should do to accelerate the implementation of more APMs that will achieve much greater savings for the Medicare program and improve the quality of care for many more Medicare beneficiaries:

#1 Design and Implement Patient-Centered Alternative Payment Models. Rather than continuing to add more “incentives” and “risk” on top of current fee-for-service payment systems, CMS needs to take a patient-centered approach to designing APMs.  A four-step process should be used for designing a Patient-Centered Alternative Payment Model:

Step 1: Identify one or more specific opportunities for reducing spending and/or improving the quality of care for Medicare beneficiaries;

Step 2: Identify the changes in care delivery that will reduce spending or improve quality in those opportunity areas;

Step 3: Identify the barriers in the current payment system that prevent or impede implementing the improved approach to care delivery;

Step 4: Design the Alternative Payment Model so that it removes the barriers in the current payment system and assures the delivery of higher-value care.

A Patient-Centered Alternative Payment Model developed through this process should have four key components:

Component #1 removes the barriers in the current payment system that prevent providers from delivering higher-value care. 

Component #2 requires accountability from participating providers for reducing aspects of spending that they have the ability to control. 

Component #3 requires accountability from participating providers for maintaining or improving aspects of care quality and outcomes they can control. 

Component #4 defines the patients who are appropriate for the services supported by the APM and ensures they are willing to participate before services begin. 

There is no single Alternative Payment Model that will work for all types of patients and all types of healthcare providers, so multiple APMs will be needed to successfully reduce spending.  

#2  Use a “bottom-up” instead of a “top-down” approach to creating APMs.  Physicians and other healthcare providers are in the best position to identify specific opportunities to reduce spending and improve quality for patients and to know what changes are needed in current payment systems to support higher-value care. CMS should encourage a greater role for healthcare providers in the development of APMs through the following actions:

  • Send a clear signal that well-designed APMs developed by physicians and other stakeholders will be tested by CMS. One obvious way to do this would be to implement at least a subset of the 16 APMs that have been recommended by PTAC. 
  • Provide data and technical assistance to help physicians and other stakeholders develop good APMs. HHS should either permit PTAC to provide data and technical assistance to APM developers or create a separate mechanism for doing do. 
  • Work collaboratively with providers to refine the details of APMs and encourage participation. 

#3 Use a more efficient and effective approach for testing APMs. Similar to the approaches used to encourage innovations in other industries, CMS should select multiple APMs for “beta testing” in order to refine the APMs and determine if they are likely to work before inviting large numbers of providers to participate and committing large amounts of money to extensive evaluations. This would enable design and testing of an APM to be completed within a 4-5 year period rather than the 7-9 years required under the current approach, and it would provide a much higher return on the investment of the funding Congress has made available.

Two modifications are needed to this approach in order to support successful primary care payment reform:

  • Testing of additional primary care APMs should be designed so that every Medicare beneficiary in the country has an opportunity to participate in a patient-centered primary care APM that provides adequate, flexible payments to support high-quality services. 
  • Because the biggest benefits of improved primary care will occur beyond the time periods typically used for evaluation, and because the short-term savings for Medicare may not offset the higher payments needed to support good primary care, Congress will need to change the law so CMMI can continue primary care APMs that improve the quality of care even if they do not reduce short-term spending.

More details on the problems with current CMS Alternative Payment Models and the steps needed to create more successful APMs in Medicare more quickly are available in the CHQPR report How to Create More Successful Alternative Payment Models in Medicare.


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Thursday, December 19, 2019

How Should We Pay for Cancer Care?

In November, the Center for Medicare and Medicaid Innovation (CMMI) released the initial details of “Oncology Care First,” its proposal for a new Alternative Payment Model (APM) for cancer care that would replace the current Oncology Care Model. Cancer patients and those who care about them should be worried, because if Oncology Care First is actually implemented, it could prevent cancer patients from receiving the treatments they need and cause community oncology practices to close.

Over the past three years, the CMMI Oncology Care Model (OCM) has helped many Medicare beneficiaries with cancer to receive better care by filling in a key gap in the Medicare fee-for-service system — the lack of payment for care management services. The Monthly Enhanced Oncology Services (MEOS) payments provided in OCM represent more than $1,000 per patient in additional revenue for the nearly 200 oncology practices across the country participating in OCM, and the physicians have used that revenue to provide greater support for their patients and to respond more quickly and effectively when patients experience side effects from their treatment so they don’t need to go to an emergency department or be hospitalized.

But there is a second part to the Oncology Care Model — the “Performance-Based Payment” — and it has a very problematic structure:

  • OCM Creates a Financial Incentive to Withhold Needed Treatment.  An oncology practice can receive a bonus through the Performance-Based Payment (PBP) for withholding the delivery of an expensive treatment that a patient needs.  The quality component of OCM does nothing to prevent an oncology practice from stinting on care.
  • OCM Penalizes Practices for Using Evidence-Based Care and Encourages Practices to Avoid Patients Who Need More Expensive Treatments.  The methodology CMS uses to set Target Prices fails to adjust for important clinical differences between patients, changes in evidence about effective treatments, and large increases in the prices of drugs, and CMS reduces all Target Prices by an arbitrary “discount.”  This means that if a practice treats patients based on the most current evidence, spending will likely exceed the Target Prices, which would penalize the oncology practice financially.
  • OCM Rewards Practices for Delays in Completing Treatments.  In OCM, CMS pays for services in six-month “episodes,” which means they will receive significantly higher payments if they stretch out patient treatments to last longer than six months.
  • OCM Encourages Oncology Practices to Avoid Patients Who Have Health Problems Unrelated to Cancer Treatment.  The Performance-Based Payment in OCM is determined based on total spending on all services that an oncology practice’s patient receives for all of their health issues, not just services related to their cancer.  An oncology practice will be less likely to receive a Performance-Based Payment, and more likely to have to pay a penalty, if it has a higher-than-average number of patients with other health problems.

Even though the OCM Performance-Based Payment creates these undesirable incentives, oncologists were able to safely ignore them in the initial years of the demonstration project because none of the oncology practices signed up for the “downside risk” tracks in OCM.

However, that is now changing. Oncology practices are being forced to either (a) join one of the downside risk tracks where they would have to pay penalties to CMS based on this flawed methodology, or (b) exit the OCM program altogether and lose the additional MEOS payments they have been receiving.  Either way, the loss of revenues will likely result in reduced services and poorer outcomes for patients. 

Rather than building on the success of OCM by filling in additional gaps in fee-for-service payments and fixing the problematic Performance-Based Payment methodology, “Oncology Care First” would go in the exact opposite direction. It keeps the same Performance-Based Payment Methodology, forces every practice to pay penalties to CMS if spending on their patients exceeds the unrealistic Target Prices set by CMS, eliminates the MEOS payments and replaces them with unspecified new “Enhanced Services Payments,” and eliminates the payments all practices receive for office visits and chemotherapy administration, replacing them with a complex new “Monthly Population Payment.”

As a result, Oncology Care First has the potential to make cancer care worse by penalizing physicians for using new cancer treatments and paying them bonuses if they withhold the treatments that cancer patients need. The magnitude of the potential penalties is so large that they could force oncology practices out of the program or out of business entirely.

Cancer patients and their physicians shouldn’t be forced to choose between the flawed fee-for service system and an even more flawed alternative payment model like Oncology Care First. Fortunately, there’s a better way. Instead of Oncology Care First, CMS should implement Patient-Centered Cancer Care Payment with the two key components of a good APM: .

  1. New payments specifically designed to support the kinds of high-value services cancer patients need; and
  2. Accountability for reducing avoidable spending, so that savings can be generated without harming patients.

The details of how to create Patient-Centered Cancer Care Payment are explained in A Better Way to Pay for Cancer Care: The Problems with CMS Oncology Payment Models and How to Create Patient-Centered Cancer Care Payment. This report also describes the problems with current fee-for-service payments that need to be fixed and provides more detail on the serious problems with the Oncology Care Model, Oncology Care First, and the CMS Radiation Oncology (RO) Model.

Although changes are clearly needed in current payment systems to achieve higher-value healthcare, the cure shouldn’t be worse than the disease. Forcing physicians to take financial risk for the total cost of care for cancer patients will harm the patients and accelerate the loss of high-quality physician practices. It’s time to embrace a different approach to value-based payment for cancer care– a patient-centered approach instead of an payer-centered approach focused solely on reducing spending. 


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Monday, May 13, 2019

The Disappointing Details About the CMS “Primary Care First” Payment Model

The most important element of a truly “value-based” healthcare system is strong primary care.  The reason is simple – the lowest spending and the best outcomes occur when patients stay healthy, and primary care is the only component of the healthcare system that is specifically designed to help patients prevent health problems from occurring and to identify and treat new problems as early as possible.

Unfortunately, the nation’s primary care system is at risk of collapse.  There is a large and growing shortage of primary care physicians in the country; many primary care physicians are burning out, and most medical students don’t want to go into primary care.  Although there are multiple causes for this, a major reason is the failure of the current payment system to provide adequate resources to support high-quality primary care services.  The problems are particularly severe for small primary care practices, which deliver most of the care in rural areas of the country.

In April 2019, the U.S. Department of Health and Human Services announced the “CMS Primary Cares Initiative,” consisting of five new payment model options intended to “transform primary care to deliver better value for patients throughout the healthcare system.”  The full specifications of the new Primary Cares Initiative options have not yet been released, but based on the details revealed so far, it appears they may fall far short of what is needed to fully address the problems facing primary care and to successfully sustain a high-value primary care system. 

The Problems with Primary Care First

Among the five options in the Primary Cares Initiative, “Primary Care First” is the only option that a small primary care practice will be able to participate in.  The “Direct Contracting” options are only available to practices that have at least 5,000 Medicare patients, which is far more patients than solo and small primary care practices will have.  In fact, most of the counties in the United States don’t even have 5,000 Medicare beneficiaries living in them.

Unfortunately, there are nine major problems with Primary Care First that prevent it from creating the kind of payment system that small primary care practices need in order to deliver high-quality care to their patients and stay afloat financially:

1. Practices Would Still Receive a Significant Portion of Revenues Based on the Number of Face-to-Face Office Visits.  Primary care practices have called for elimination of a payment system that pays for office visits and little else, but instead of doing this, Primary Care First actually creates a brand-new $50 fee for each face-to-face office visit.  Although it also would provide a flexible $24 per-patient per-month payment, more than 40% of a typical practice’s payments would still be tied to face-to-face visits.  Under Primary Care First, a practice that is able to care for patients effectively with fewer office visits will lose revenue and could be unable to cover its costs.

2. Payments for Many Patients Would Not be More Flexible at All.  A practice would only receive the new, flexible monthly payment for patients who are “attributed” to the practice based on where they received care in the past, and new patients would not be attributed for up to two years.  Patients could “voluntarily align” with the practice, but this requires the patient to create an account on the CMS website and go through a multi-step process to designate the PCP as their primary clinician.  Even if the patient successfully completes this process, the practice will have to wait 3-6 months to begin receiving the new payments. 

3. Practices Would No Longer Receive a Higher Payment for a Patient Who Has Greater Needs.  In the current fee-for-service payment system, a primary care practice receives more payment when it provides care to a patient with greater needs.  But under Primary Care First, a primary care practice would receive the exact same monthly payment and the same office visit payment for a patient regardless of how sick or healthy the patient is. 

4. Most Practices Would Receive No More Revenue Than They Do Today, and Less Revenue Than Under Other CMS Primary Care Models.  While opinions differ about the best methodology for paying for primary care, there is widespread agreement that primary care practices need to be paid more than they are paid today.  But CMS has indicated that the combination of the PBPM payments and office visit fees in Primary Care First are intentionally designed to provide no more revenue than current fee-for-service payments.  Despite receiving no additional revenue, however, a Primary Care First practice would be expected to deliver expanded services, including 24/7 access to a care team member, care management services, and integrated behavioral healthcare services.

5. Most Practices Would Receive Little or No Reward Based on Their Performance.  The “Performance-Based Adjustment” in Primary Care First could increase the amount a practice is paid by as much as 50%.  However, it appears that the majority of practices would only be able to receive a 3.5% increase in their total payments.  At most 10% of participating practices would be able to receive a 50% increase in payment, while every practice could have its payments cut by 10% if it fails to achieve high scores on quality measures or if its patients are hospitalized frequently. 

6. Accountability Measures Are Not Patient-Centered.  Under Primary Care First, delivering high-quality care would merely enable the practice to avoid a reduction in payment; the practice would only qualify for an increase in payment if its patients were hospitalized less frequently than the patients in other practices.  Moreover, a hospital admission for injuries in a traffic accident, for planned surgery to treat cancer, or for complications of chemotherapy administered by an oncologist would be treated the same as an avoidable admission for a chronic disease exacerbation, putting the practice at risk for things it can’t control.  The heavy weight placed on hospitalization rates is presumably designed as an incentive to focus attention on patients who have a high risk of hospitalization, but it could also cause practices to avoid accepting sicker patients or to reduce services to other patients.

7. Practice Revenues Would Be Unpredictable and Uncontrollable.  Because most of the costs in a primary care practice are fixed, a primary care practice needs to be able to predict how much it will receive each month in order to be sure it will have enough revenues to cover the costs of hiring additional personnel to deliver expanded services to its patients.  The current design for Primary Care First will make it impossible for primary care practices to predict how much they will be paid.  For example, in a small practice, one or two unexpected hospital admissions could result in a 7% reduction in payments.

8. Payment Complexity Would Increase and Administrative Burdens Would Remain High.  Although CMS says that Primary Care First will “allow clinicians to focus on caring for patients rather than their revenue cycle,” the practice’s “revenue cycle” will actually become more complex than it is today.

9. Most Primary Care Practices in the Country Will Be Unable to Participate.  Even if a primary care practice wants to participate in Primary Care First, it will not be able to do so if it is located in Alabama, Arizona, Connecticut, the District of Columbia, Georgia, Iowa, Idaho, Illinois, Indiana, Kansas (other than the Kansas City metro area), Kentucky (other than the Cincinnati metro area), Maryland, Minnesota, Mississippi, Missouri (other than the Kansas City area), Nevada, New Mexico, New York (other than the Buffalo and North Hudson regions), North Carolina, Pennsylvania (other than the Philadelphia Region), South Carolina, South Dakota, Texas, Utah, Vermont, Washington, West Virginia, Wisconsin, or Wyoming.  More than 40% of the Medicare beneficiaries in the country will not have an opportunity to receive care from a primary care practice participating in either Primary Care First or the Comprehensive Primary Care Plus initiatives.

The Direct Contracting Options Are Not Options for Most Primary Care Practices

Only large primary care practices with at least 5,000 beneficiaries would be eligible to participate in the new “Direct Contracting” options in the CMS Primary Cares Initiative.  Although they could receive a large, flexible “population-based payment” to deliver primary care services, they would also be required to pay CMS for 50%-100% of any increases in total Medicare spending for their patients beyond whatever benchmark spending level CMS establishes.  Even a small increase in total Medicare spending would represent a large proportion of a primary care practice’s revenue, putting the practice at risk of bankruptcy if it does not have large financial reserves available. 

Changing Primary Care First So It Provides the Support Small Primary Care Practices Need

Fortunately, it would be relatively easy for CMS to modify the details of the Primary Care First initiative to solve the problems described above.  Nine specific changes would enable CMS to create the kind of payment model that smaller primary care practices have been seeking.  These changes are based on the two primary care payment models recommended by the Physician-Focused Payment Model Technical Advisory Committee (PTAC) that were developed by the American Academy of Family Physicians (AAFP) and Jean Antonucci, MD (a solo primary care physician practicing in rural Maine).

1.  Pay practices with a monthly per-patient payment in place of all fees for office visits. 

2.  Pay a higher monthly amount for a patient who has greater needs. 

3.  Set monthly payment amounts at levels adequate to support high-quality primary care.  The monthly payment under Primary Care First should be no less than $65 per patient in 2020, and ideally even higher.  The monthly payment amounts for patients with more complex needs should be higher than this average amount.

4.  Begin paying monthly payments immediately when a patient enrolls for care in the primary care practice.  CMS already does this for Chronic Care Management (CCM) payments under the Medicare Physician Fee Schedule – as soon as a patient consents to receive CCM services, the physician practice can begin delivering the services and receiving payment for them.  A similar approach should be used in Primary Care First.

5.  Create billing codes so that primary care practices can classify patients appropriately and receive timely monthly payments for each patient.

6.  Evaluate performance using patient-centered outcome measures with achievable performance targets. 

7.  Establish performance-based rewards and penalties that create manageable levels of financial risk for small primary care practices.  The total adjustment to the monthly payment based on all aspects of performance should be no more than 15% of the monthly payment amounts, which in turn would be much higher than the payments primary care practices receive today.  Moreover, if every primary care practice performs well, every primary care practice should be rewarded for doing so, rather than limiting rewards to a small subgroup of practices. 

8.  Create a complementary payment model to support home-based palliative care for seriously ill patients.  Patients with serious illness need home-based palliative care, not just primary care.  Small primary care practices don’t have enough patients with serious illness to enable them to deliver palliative care services cost-effectively, and the payment amounts in the Primary Care First option for Seriously Ill Patients are far below what is needed to support palliative care services alone much less primary care, too.  In addition to an improved Primary Care First program for primary care practices, CMS should implement the payment models for palliative care that were developed by the American Academy of Hospice and Palliative Medicine (AAHPM) and the Coalition to Transform Advanced Care (CTAC), both of which were recommended for implementation by PTAC over a year ago. 

9.  Allow primary care practices in all parts of the country to participate in the revised Primary Care First program.  Every Medicare beneficiary deserves to receive high quality primary care services, and every beneficiary with a serious illness deserves to receive palliative care services.  Primary Care First should be expanded so that every primary care practice in every state has the opportunity to participate, and so that palliative care services can be delivered in every community.

More details on all of these changes are in The Problems With Primary Care First and How to Fix Them.

The Goal of Primary Care is to Improve Patients’ Health, Not Just to Save Money for Medicare

Higher and more flexible payments for primary care will enable primary care services to not only stay afloat but to deliver better services to their patients.  This will result in fewer avoidable hospitalizations, fewer unnecessary tests, and fewer inappropriate referrals to specialists, which in turn will produce significant savings for Medicare on these types of services.  However, it may be unrealistic to expect that these savings will be sufficient to fully offset the cost of the higher payments needed to adequately support primary care, much less to achieve net savings overall, during the 5-year time period typically used in CMS evaluations.  Placing more financial risk on primary care practices is more likely to accelerate the loss of primary care providers than to achieve greater savings for Medicare. 

Because of the need to take a longer-term view of the value of primary care, the Center for Medicare and Medicaid Innovation (CMMI) may not be the appropriate mechanism for successfully addressing the problems facing primary care.  It seems increasingly likely that Congressional action will be needed to create a truly effective primary care payment system.  The biggest benefits of primary care will be seen beyond the five-year time horizon used in CMMI demonstration projects, through slowing the progression of chronic disease and even preventing some diseases from occurring at all, not just trying to avoid hospitalizations for those who already have such conditions.  Only Congress can authorize making investments designed to achieve these longer-run benefits.  Consequently, in addition to revising Primary Care First to make it as successful as possible within current statutory constraints, CMS should ask Congress for the authority to create the kind of primary care payment system that the country truly needs.

NOTE: This post was authored by Harold Miller. Although Miller is a member of the Physician-Focused Payment Model Technical Advisory Committee (PTAC), the comments in this post are his personal opinions, and are not intended to represent the position of the PTAC as a whole or of other individual members. PTAC’s statutory charge is limited to reviewing proposals for payment models that are submitted to it by stakeholders, and it has no role in advising HHS or CMS other than submitting comments and recommendations on the proposals it receives.


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Tuesday, January 22, 2019

Why CMS Alternative Payment Models Are Failing

The reason CMS Alternative Payment Models (APMs) are failing to significantly reduce spending in Medicare is that none of the major APMs meets the majority of the eight criteria for a successful APM.  The Problems with Medicare’s Alternative Payment Models and How to Fix Them details the serious weaknesses in the six major Advanced APMs that have been implemented by CMS and the CMS Innovation Center:

  • Bundled Payments for Care Improvement Advanced (BPCI-A);
  • Comprehensive Care for Joint Replacement (CJR);
  • Comprehensive End Stage Renal Disease Care (CEC);
  • Comprehensive Primary Care Plus (CPC+);
  • The newly adopted Basic Track Level E and Enhanced Track in the Medicare Shared Savings Program (MSSP); and
  • The Oncology Care Model (OCM).

As shown in the chart, not only do these APMs fail to meet the majority of criteria for a successful APM, most of the APMs fail to correct any of the problems with fee-for-service payment.  The reason is simple – most CMS APMs don’t actually change the way physicians, hospitals, and other healthcare providers are paid.  Most of the APMs don’t pay for high-value services needed to improve care nor do they ensure the amounts paid for key services match the costs of delivering those services.  Only CPC+ and OCM provide new payments to physicians so they can provide different services than they do today. 

What is even more problematic is that the spending accountability mechanisms included in most CMS APMs penalize healthcare providers for treating sicker patients and patients who need more expensive treatments, while providing no assurance to individual patients that necessary services won’t be withheld in order to meet spending targets.  Although all of the APMs include quality measures, the bonuses and penalties under the APMs are based on the average quality of care for all patients, not the quality of care for individual patients.  Moreover, the risk adjustment systems used in the APMs fail to recognize some of the most important reasons why patients may need more services or more expensive services to successfully treat their health problems.  As a result, under most of the APMs, physicians and hospitals could actually receive financial bonuses if they give some patients less treatment than they need, and providers could be penalized when they provide the most effective care for complex patients. 

CMS can do better – much better.  The Problems with Medicare’s Alternative Payment Models and How to Fix Them describes two different APMs designed to improve care for patients with chronic conditions.  Unlike the existing CMS APMs, each of these APMs would meet all eight of the criteria for a successful APM.

Moreover, these APMs would address a major opportunity for saving money and improving care for Medicare beneficiaries that CMS has completely ignored – providing the resources that teams of specialists and primary care physicians need to provide high-quality care to patients with chronic conditions.  Patients with asthma, chronic kidney disease, COPD, diabetes, heart failure, inflammatory bowel disease, and other chronic conditions are often hospitalized for exacerbations of their condition that could have been avoided through better care management services, in-home services, and other services, but these services aren’t paid for adequately or at all under current Medicare payment systems.  Yet despite the fact that a large percentage of Medicare beneficiaries have one or more of these chronic conditions and there are opportunities for significant savings by improving their care, CMS has not implemented any APMs specifically focused on helping patients with these conditions avoid hospitalizations.  None of the existing CMS APMs change payments for the specialists who typically manage or co-manage care for the subset of patients who are most at risk of complications, even though these physicians are often in the best position to help such patients avoid hospitalizations. 

Alternative Payment Models hold the potential for accelerating progress toward more affordable and higher-quality care, but only if they are designed in the right way and only if they are focused on opportunities to reduce spending without harming patients.  Faster progress in developing and implementing these types of APMs needs to be a national priority.

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Friday, January 04, 2019

Does Medicare Need Mandatory Payment Models?

The Failure of Current Alternative Payment Models

Despite high hopes that Alternative Payment Models (APMs) would achieve significant savings for payers and better quality care for patients, most of the APMs implemented to date have had disappointing results. 

The largest APM in the nation is the Medicare Shared Savings Program (MSSP).  Debates among statisticians about how much savings have been achieved by Accountable Care Organizations in the MSSP have obscured the fact that even the most optimistic analyses show net savings of only $29 per beneficiary per year (one-quarter of one percent) during the first four years of the program (2013-16), and savings in 2017 were only slightly higher. 

The poor performance of current APMs is not surprising because they do not actually change the fee-for-service payment system; they merely pay bonuses if providers can reduce spending and/or impose penalties if spending increases.  However, because there are no changes in the way physicians, hospitals, and other providers are paid, they cannot deliver many kinds of high-value services that could reduce spending without harming patients.  Moreover, most APMs require that individual providers reduce total spending on their patients, even though no individual provider can control all of the services a patient receives or all of the factors affecting the costs of those services.

The Move to Higher-Risk APMs

Unfortunately, rather than creating better APMs, the Centers for Medicare and Medicaid Services (CMS) and other payers claim that the solutions are to continue using the same approaches, but with higher levels of financial risk for providers, or to create “population-based payments” in which healthcare providers would be expected to deliver all of the services a patient needs for a fixed monthly or annual payment.  CMS has already announced plans to phase out the “upside only” Medicare Shared Savings Program, and the Center for Medicare and Medicaid Innovation (CMMI) has indicated that most new APMs it tests will require high levels of financial risk.

Because of the problematic way that most APMs have been structured, many providers have been unwilling to participate.  Increasing the level of risk in APMs could result in even fewer providers participating, which in turn would reduce the total savings that can be achieved.  In addition, because participation in APMs has been voluntary, evaluations of the APMs will be biased if the initial participants are not representative of all providers who would ultimately participate.  

Concerns about these issues have led to calls for CMS to create “mandatory” payment models. 

What is a “Mandatory” Payment Model?

The term “mandatory payment model” is misleading because the intention is typically not to require every provider in the country to participate in a particular alternative payment model.  Instead, the goal is to make participation in an APM mandatory for some providers in order to “test” the APM, i.e. to evaluate its effectiveness in reducing spending and/or improving quality.  

In an effort to mimic a randomized controlled trial, a randomly-chosen subset of providers would be paid under the APM (whether they want to participate or not), while other providers (or a random subset of other providers) would be prohibited from participating in the APM (even if they would like to be paid under the APM).  CMS is using one version of this approach in the Comprehensive Care for Joint Replacement (CJR) APM.  CMS selected 196 of the 380 metropolitan statistical areas (MSAs) in the country, randomly chose 75 of those MSAs, and required all hospitals in 67 of the MSAs to participate in the CJR APM for two years.  Hospitals in the rest of the country were not permitted to participate in the CJR APM.  After the first two years of the program, the mandate was removed entirely in 34 of the MSAs and for small and rural hospitals in all 67, but about one-fourth of those hospitals elected to continue participating voluntarily.  

The Problems with Mandatory APMs

There are a number of serious problems with the “mandatory model” approach to APM testing:

  • There is no guarantee that the APM will achieve the desired results or that it will have no undesirable impacts, otherwise there would be no need to test it.  APMs designed to reduce spending, particularly those involving significant financial risk, have the potential to harm patients as well as providers. It is inappropriate to require providers and their patients to participate in an APM that could be harmful before any testing or evaluation has been completed. 
  • Conversely, if the potential benefits of the APM are sufficiently great to justify requiring some providers to participate, it is inappropriate to prevent other providers from voluntarily participating, particularly if their patients could benefit from the type of care that could be delivered with support from the APM.
  • It is well-known that there are significant differences in the health status of patients across the country and significant differences in practice patterns of providers both across and within geographic regions.  Randomization only by region without randomization of providers or patients within regions would only have a limited ability to separate the effects of the APM from the influence of inter-regional and intra-regional differences in spending and quality.
  • Requiring every provider in a geographic region to participate in a payment model does not preclude patients from traveling to a different region for services, either to avoid the effects of the APM in their home region or to obtain whatever benefits are expected under the APM from a provider in a participating region.  For example, there is anecdotal evidence that in regions where CJR is mandatory, higher-risk patients are being forced to travel to non-participating regions in order to receive hip or knee surgery.  This “cherry-picking” and “lemon-dropping” could reduce the reliability of any evaluation results.
  • Because the mandate may only last until the evaluation is completed, providers who would be unwilling to participate voluntarily may also be unwilling to make the changes in care delivery necessary to achieve success while the test is underway.  Consequently, the evaluation of a temporary mandatory test would not necessarily show what the impacts of a permanent mandatory program would be.  Indeed, if a subset of providers did not want the APM to be universally mandated, they would have an incentive not to produce successful results during the demonstration.

A Better Approach:
Well-Designed APMs That Attract Patients and Providers

Support for mandatory models rests heavily on three false premises.  False Premise #1 is that a voluntary approach will not provide an accurate indication of the true impact of an APM.  However, there is no evidence for this; in fact, the evaluations of the mandatory CJR APM and the voluntary Bundled Payments for Care Improvement (BPCI) APM found similar impacts on savings and quality for hip and knee replacement surgeries. 

False Premise #2 is that when providers are unwilling to participate in an APM, the only way to overcome that is to require them to participate.  However, there is a better alternative — redesigning the APM so that providers and patients will want to participate.  

Randomized controlled trials (RCTs) for drugs, medical devices, and procedures do not mandate that either patients or providers participate. RCTs recruit volunteers based on the potential benefits of a new therapy or the opportunity to achieve similar outcomes at lower cost. 

The reason providers have refused to participate in CMS APMs is the poor design of those APMs, not unwillingness to move away from fee-for-service payment.  The best evidence of this is the dozens of APM proposals that physicians have submitted to the Physician-Focused Payment Model Technical Advisory Committee (PTAC).  Over the past two years, PTAC has recommended 14 APMs that physicians want to participate in.  But CMS has refused to implement any of them. 

Instead, CMS continues to design APMs that place providers at financial risk for aspects of spending and quality they cannot control, while failing to give providers the resources they need to improve patient outcomes and reduce Medicare spending.  There is no evidence that simply increasing the financial risk in CMS APMs would result in greater savings.  Moreover, transferring significant financial risk to providers can have undesirable results, including loss of access to services for higher-need patients, higher prices due to consolidation of providers, and lower quality of care.   

A Better Approach:
Limited Scale Testing Followed by Phased Expansion

False Premise #3 is that a new APM must be immediately tested with a large number of providers in order to determine whether it works.  Yet this is the exact opposite of the approach used for clinical trials.  Large, randomized trials are Phase III, not Phase I.  The drug, device, or procedure is first tested with a small number of volunteers to ensure it is safe, then it is tested with a larger group of volunteers to make a preliminary assessment of its efficacy, and only then is a large scale trial contemplated.  Positive results from the initial phases encourage patients and healthcare providers to voluntarily participate in the larger-scale tests.

The mandatory APM approach is also the exact opposite of how every other industry develops new products and services.  New products do not immediately jump from the design table to large-scale production.  Businesses create one or more prototypes and then test them on a limited scale to identify problems and opportunities for improvement.  The design is then revised before broader production begins.  In addition, product designs continue to be refined and new versions of products are created whenever the benefits for consumers are expected to outweigh the costs of making the changes.

A similar “beta testing” process is needed for APMs.  The more innovative the APM – i.e., the more that it differs from the current payment system – the more likely there will be a need for initial beta testing and potentially for additional rounds of refinement after the APM is implemented more widely.  Positive results from the beta testing phase will encourage more patients and providers to participate in larger tests, and if results continue to be positive, they will pave the way for broad implementation.  This is why PTAC has recommended beginning with limited-scale testing for most of the APMs it has favorably reviewed.

Should Successful APMs Be Mandated?

If testing of an APM is successful, it will likely be appropriate to make it permanent.  However, participation can still be voluntary.  Successful APMs will not achieve savings simply because they pay in a different way or because they create an “incentive” to spend less; they will achieve savings by removing specific payment-related barriers to changing care delivery that will impact specific opportunities for improvement.  Both the opportunities to achieve savings and the barriers to pursuing those opportunities will differ from community to community.  This means that “one size fits all” APMs will be less likely to achieve the full amount of savings that are possible nationally or to provide better care to patients in all parts of the country than a more customized approach.  Mandating a single approach may lower administrative costs for Medicare and other payers, but it will also likely reduce the amount of savings even more.  Multiple, voluntary APMs will allow the fastest progress toward higher quality, more affordable healthcare.

(Download Does Medicare Need Mandatory Payment Models here.)

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Monday, December 17, 2018

How Can You Tell a Good Alternative Payment Model From a Bad One?

Most current Alternative Payment Models have failed to achieve significant savings or improvements in quality because they are badly designed – they don’t correct the problems with current fee-for-service payment systems, and they have the potential to harm vulnerable patients and force small healthcare providers out of business. 

How can you tell a good APM from a bad APM?  Here are the eight criteria you should use to evaluate whether a proposed APM is likely to be successful:

  1. Does the APM pay for the high-value services needed to improve patient care?  To be successful, an APM can and must make any changes needed in the way physicians, hospitals, and other healthcare providers are paid so they are able to deliver high-value services that will improve outcomes and reduce spending.  Most current APMs do not make any changes in the basic ways that providers are paid, but merely provide “incentives” to reduce spending or improve quality.
  2. Does the APM align the payment amount with the cost of delivering high-quality care?  To be successful, an APM must align payments with the actual costs of delivering high-quality services, particularly when the volume of services is reduced.  Many current APMs actually widen the gap between payments and costs rather than narrowing it. 
  3. Does the APM assure each patient they will receive appropriate, high-quality care?  In order to protect patients, an APM should be designed with patient-level quality standards and targets that assure each patient they will receive high-quality care and achieve good outcomes.  Most current APMs only assess whether quality has changed on average for a group of patients, not whether it has improved or worsened for individual patients. 
  4. Does the APM make the cost of diagnosing or treating a health condition more predictable and comparable?  An APM can and should specify in advance the amount that will need to be paid for treatment of a particular condition or combination of conditions so that patients can compare the costs of care across providers.  Many current APMs do not set spending targets until after services are already delivered, and most do not even make final determinations as to which patients are eligible for the APM until after services are delivered, making it impossible for a patient or their payer to know in advance how much will be spent on the patient’s care.
  5. Will a provider only be paid under the APM if a patient receives services?  Although there are clearly serious problems with the quality and cost of the services delivered under fee-for-service payment, fee-for-service at least gives patients and payers the confidence that they will only pay something if they receive something in return.  Under many “population-based payment” APMs, providers are paid even if they do nothing for patients. 
  6. Are payments under the APM higher for patients who need more services?  Although fee-for-service payment is criticized for rewarding “volume over value,” any payment system that doesn’t adequately support a higher volume of services when patients need more services can result in worse outcomes for patients and higher long-run costs.  Many APMs fail to adjust payments for important differences in patients that require more services or different types of services.
  7. Is a provider’s payment under the APM based on things the provider can control?  Although fee-for-service payment fails to hold physician, hospitals, and other healthcare providers accountable for problems they caused or could have prevented, it also does not penalize them for things outside of their control.  Many current APMs go too far in the opposite direction – placing healthcare providers at financial risk for the total cost of care even though they can only control or influence a small part of it. 
  8. Will a provider know how much they will be paid under the APM before delivering services?  Under fee-for-service payment, physicians, hospitals, and other providers know exactly what they will be paid for delivering a service before they deliver that service, so they can determine whether they are likely to receive sufficient revenue to cover their costs before they incur those costs.  Under many APMs, it is impossible for the participating providers to predict how much they will be paid for the services they will deliver, and they may not know for sure how much they will receive until many months after the services are actually delivered. 

As the chart below shows, the shared savings/shared risk and “population-based payment” designs used by most current APMs fail to meet the majority of these criteria.  (You can download a copy of the Criteria chart here.) 

Fortunately, there are ways to design APMs so they meet all eight of the criteria.  Four general designs will likely meet the need for an APM in most circumstances:

Option 1A: Accountable Payment for Service.  Under this APM design, a provider receives a new or revised payment for delivering a specific service to patients, and the payment is reduced if targets for spending on specific services and for performance on quality measures are not achieved.

Option 1B: Accountable Bundled Payment.  Under this design, a provider or team of providers receives a bundled payment to enable delivery of a group of services to patients or to treat a particular condition, and the payment is reduced if targets for spending on specific services and performance on quality measures are not achieved.

Option 2: Outcome-Based Payment.  Under this design, a provider is paid for a service or group of services only if standards or targets for quality and spending are achieved.

Option 3: Bundled/Warrantied Payment.  Under this design, a provider or team of providers receives a bundled payment to deliver a group of services to patients, and the provider team is responsible for using the payment to cover the costs of necessary services and also to pay for avoidable services or services needed to address complications of treatment.

The components of these four APMs are summarized in the Framework for Alternative Payment Models that can be downloaded here

The details on how to design each of these Alternative Payment Models are available in CHQPR’s report How to Create an Alternative Payment Model.


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Sunday, October 28, 2018

Saving Primary Care Before It’s Too Late

Talk to almost any primary care physician these days and what you’ll hear should frighten you. Many PCPs are actively looking for ways to get out of primary care, and there’s no one to replace them because medical students don’t want to go into primary care. One well-known reason for this is that PCPs are being forced to spend more time dealing with the administrative burdens of dysfunctional EHRs, measurement programs, and health plan rules than taking care of patients.

But there’s another reason that nobody is talking about, and it may be an even bigger threat to the future of primary care.

The Hidden Flaw in “Value-Based Payment” Programs

Health plans and public programs simply aren’t paying enough to cover the costs of good primary care. Payments to PCPs from both Medicare and private payers have fallen far behind inflation, and so-called “value-based payments” do more harm than good when the payments aren’t enough to keep the lights on. Large health systems can afford to subsidize these losses, but independent primary care physicians can’t. They will simply be forced out of business, and that will be devastating for many small and rural communities.

You know it’s bad when primary care practices have to ask for donations in order to keep treating patients. The residents of Hilo, Hawaii created a fundraising site to try and prevent a young primary care physician and her practice from going bankrupt because of the low payments from the big health insurance company in Hawaii. You can see the plea for support here:

This young physician – Michelle Mitchell – has worked hard to create the kind of primary care practice we need everywhere in America. And she’s trying to do it in a small rural community with many poor people and a severe physician shortage. Hilo is not the wealthy “resort” part of Hawaii; on top of problems of poverty, homelessness, and unemployment, it’s been in the news over the past year because it has an active volcano destroying homes and polluting the air, and it was hit with a severe hurricane. It’s the kind of place where health plans should be doing everything in their power not only to keep primary care practices open but to provide extra support so they can deliver true primary care medical home services to their patients. But unfortunately, that’s not happening. You can read Dr. Mitchell’s story here:

There’s an important lesson here for many current “value-based payment” initiatives. Rather than working with the physicians in the community to figure out what kind of payment system would actually support good primary care in rural communities, the health insurance company in Hawaii hired a group of behavioral economics theorists at a large urban medical center to tell them how PCPs should be paid. They published a journal article touting how they designed incentives to achieve savings for the health plan and incentives to improve quality.

But it’s clear from the article that the consultants and health plan never even tried to answer a very fundamental question – what does it actually cost to deliver good primary care in Hawaii and would the payment system they designed cover those costs? You can’t “incentivize” a PCP to deliver higher-value care if the PCP is no longer practicing at all because they defaulted on their loans or mortgage or failed to make payroll.

How should the payment system have been designed to support small rural practices? Dr. Mitchell gave her recommendations at the National ACO, Bundled Payment, and MACRA Summit in Washington DC in June. She described her experience participating in both the CMS Comprehensive Primary Care Plus program and the payment system in Hawaii, and she showed how those programs increased her costs and failed to provide enough revenue to cover the costs, leaving her practice worse off financially than it was before. You can see her recommendations for what is needed to make high-quality primary care sustainable here.

Saving Primary Care Before It’s Gone

There’s been a lot of talk for many years about the need to improve payment for primary care practices, but there hasn’t been much action, particularly at the federal level. Medicare still doesn’t have a primary care medical home program available for PCPs in most of the country. The CMS Comprehensive Primary Care Plus initiative is only operating in 18 regions of the country, and even in those regions, only a subset of PCPs are able to participate. Primary care practices in Alabama, Alaska, Arizona, California, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Maine, Massachusetts, Minnesota, Mississippi, Nevada, New Hampshire, New Mexico, North Carolina, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming and in most of Kansas, Kentucky, Missouri, New York, and Pennsylvania are still stuck in the traditional Medicare fee for service payment system.

In December 2017, the Physician-Focused Payment Model Technical Advisory Committee (PTAC) recommended that the Secretary of Health and Human Services begin testing a new primary care payment model recommended by the American Academy of Family Physicians so that more primary care physicians would have the opportunity to be paid in better ways. PTAC specifically recommended that the AAFP model be tested in a way that would “facilitate rapid implementation on a broad scale,” and it emphasized the urgent need to preserve and strengthen primary care.

Ten months has now passed since PTAC recommended a new primary care payment model, and nothing has happened.

Rather than waiting years for CMS to design the “perfect” payment model and then waiting many more years while it’s tried in a small number of places, it’s time for a different approach. CMS and other payers should:

  • Try multiple payment models so we can learn which approaches work better in which places. It’s unlikely there will ever be a one-size-fits-all model that will work well in every community and every type of practice, so we should stop trying to develop one ideal model.
  • Let the physicians design the payment models in ways they believe will work. The current top-down, payer-driven approach to alternative payment models hasn’t succeeded in improving quality or reducing costs, so it’s time to try a bottom-up approach instead. Physicians have shown they will respond if they are given the opportunity. For example, Jean Antonucci, MD, a solo primary care physician in a rural part of Maine, developed an innovative primary care payment model that is simpler than other approaches and that uses patient-reported outcomes to measure quality and stratify payments. PTAC reviewed her proposal in September and recommended that CMS test it in addition to the proposal developed by the AAFP.
  • Move quickly to try new approaches. Every day that goes by waiting for the ideal model to be developed is a day that a patient may not get the care they need and a day that a primary care practice comes closer to closing.

Although we’re spending too much overall on health care, we’re spending too little on primary care – estimates indicate that primary care represents less than 8% of total healthcare spending. If we don’t invest in better primary care, we’re not likely to be successful in reducing the 92% of spending where the opportunities for savings exist. The net cost of a 25% increase in payments to PCPs is zero if the reductions in avoidable hospitalizations and unnecessary tests and procedures from better primary care reduces other spending by a mere 2%.

The question is not whether we can afford to improve primary care, but whether we can afford not to. Will there be any primary care practices left by the time we finally decide to pay them the right way?


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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 ( 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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