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“Change represents opportunity … take advantage of the opportunities … because I assure you: Change is possible, change is necessary, and change is coming.” — Alex Azar

Innovation and disruption

Value-Based Payment Models Are Falling Short — Azar’s Priorities Offer a Remedy

  • Rob Schile
  • 4/19/2018

In early March, the new Secretary of Health and Human Services (HHS), Alex Azar, gave a speech to the Federation of American Hospitals. In his speech, he stated that the results of Accountable Care Organizations (ACOs) to date has been “underwhelming,” more needs to be done to transform the health care system, and outlined his four areas of emphasis for HHS.

Azar’s comments were thought provoking. If the leader of the largest single payer for health care in the country is questioning the results of the agency’s largest innovation model, it would be logical to ask if any of the new models are working as intended. And if the results of the remaining models are also “underwhelming,” what changes can we expect in the future?

The Centers for Medicare and Medicaid Services (CMS) began testing payment and delivery system reform models shortly after the passage of The Affordable Care Act (ACA). Several years later, we are beginning to get a glimpse of the success, or lack thereof, through reports performing look-back analyses.

Payment and delivery system reform results

New payment models being considered or tested by CMS are managed through the Centers for Medicare and Medicaid Innovation (CMMI). Since its inception with the passage of the ACA, CMMI has tested a significant number of different payment and care models. The vast majority of these fall into ACOs, Bundled Payments, and models aimed at primary care transformation. CMMI is now able to look back on these models to determine if they are having the intended impact of improving quality and driving down the cost of care.

Accountable Care Organizations

From a quality perspective, CMS indicates about 99 percent of ACOs are meeting or exceeding quality performance expectations. Achieving quality standards is a prerequisite to participating in the full allocation of shared savings under the various ACO models.

The graphic below depicts the financial performance of all Medicare ACOs and demonstrates that the combined financial savings to the Medicare program from all participating ACOs equates to about $47 million. There is a broad range across all ACOs, but in general the results of the look-back analysis indicates ACOs that shared both the gains from savings and also in downside risk generated the largest savings. ACOs that did not share in the downside risk, or those in Track 1 of Medicare Shared Savings Program (MSSP), actually increased costs to the Medicare program. For this reason there are emerging viewpoints that unless providers are willing to accept risk for overspending, real reductions in the cost of care will not be achieved.

Medicare ACO Financial Performance Relative to Benchmark

Bundled payments

CMS has been testing a number of different bundled payment models. The majority fall into the Bundled Payments for Care Improvement (BPCI) Initiative, which was comprised of four different voluntary models with differing payment methods:

  • Model 1: Acute care hospital inpatient stay, with retroactive payment (model discontinued)
  • Model 2: Acute inpatient, physician, and post-acute services, with retrospective payment
  • Model 3: Post-acute care only, with retrospective payment
  • Model 4: Acute care hospital inpatient services, prospective payment

In October of 2017, the Lewin Group prepared a study for CMS that did a two year look-back on the results of Models 2 – 4. The study pointed out that while Model 3 had the most participants, it was Model 2 that accounted for more than 242,000 episodes, or over 85 percent of all episodes in the three bundled payment models. Across all models, the results for quality varied by episode, as well as by model. For example, Model 3 had an increase in unplanned readmissions and emergency room visits, while other measures such as resident experience and functional improvement had positive quality results.

From a cost perspective, the study had sufficient data to analyze cost on about 39 episodes across Models 2 – 4. Of the 39 episodes, 60 percent fell under Model 2. Of those episodes, Major Joint Replacement had the largest number of episodes at almost 41,000, and reflected a reduction of about 4.5 percent, or $1,273 per episode, in Medicare allowed reimbursement. The graphic below depicts the clinical episodes under Model 2 that achieved cost reductions along with the number of episodes during the study period. For the episodes analyzed, the primary factor in driving reduced Medicare spending was due to decreased utilization of skilled nursing (SNF) or independent rehabilitation (IRF) facilities and increased utilization of home health services.

Impact on Medicare Allowed Payment BPCI Model 2

According to the study, the only other clinical episodes across Models 2 – 4 to achieve statistically significant reductions in Medicare costs were as follows:

  • Model 3 major joint replacement reflected a 7.1 percent reduction, which was also driven by reduced SNF utilization.
  • Model 3 home health agencies reduced congestive heart failure (CHF) costs per episode by 3.1 percent.

Primary care transformation models

When it comes to improving outcomes and reducing costs for patients with chronic conditions, it is widely believed that primary care plays a critical role in achieving these results. Because of this, CMS is testing a number of different initiatives aimed at improving the care and care coordination for these individuals. The following is an overview of the most significant primary care initiatives:

  • Federally Qualified Health Centers Advanced Primary Care Practice (FQHC APCP): A single payer fee-for-service Medicare model that paid a $6 per beneficiary per month (PBPM) fee to assist FQHCs in achieving patient centered medical home (PCMH) designation. Participants included about 500 FQHCs who each individually served 200+ Medicare beneficiaries.
  • Multi-Payer Advanced Primary Care Practice (MAPCP): Participants came from 850 practices across eight states with multiple payers, including Medicare, Medicaid, and commercial. Participants were required to be designated as a patient centered medical home (PCMH), or needed to receive the designation within 6 to 18 months of joining the demonstration.
  • Comprehensive Primary Care Initiative (CPC): A multi-payer initiative that included Medicare, Medicaid, Children’s Health Insurance Program (CHIP) and commercial insurances consisting of 500 primary care practices operating in seven different regions. Practices received PBPM payments initially from Medicare, and then from other payers to help with financial assistance of transforming practice patterns.
  • Comprehensive Primary Care Plus (CPC+): This is the successor program to CPC and began in January 2017 with just under 3,000 primary care practices in 18 different regions. This is a multi-payer program and includes a PBPM care management fee. It also includes financial incentives for achieving certain quality and utilization benchmarks and a new optional payment methodology of quarterly care management payments that transition down fee-for-service payments over time.
  • Independence at Home (IAH): Focused on providing primary care services in the home to beneficiaries with multiple chronic conditions. Participation is relatively small and consisted of 15 primary care practices across 15 different states. No care management fee was provided to participating practices.

Kennel and Associates released their study on the effectiveness of the above models (excluding CPC+) in February 2018. In general, the results of this study were consistent with that of ACOs and bundled payments, and focused on four core measures:

  1. Medicare expenditures before fees
  2. Outpatient emergency room visits
  3. Hospital admissions
  4. 30-day hospital readmissions

The overall results were as follows:

  • After accounting for the care management fees paid to participating organizations, most of the programs generally ended up increasing costs to the Medicare program.
  • The exception to the above was in the MAPCP wherein two states, Michigan and Vermont, achieved significant cost reductions.
  • For beneficiaries with more chronic and complex conditions and those who initially qualified for Medicare due to disability, the growth rate in Medicare expenditures was lower.
  • When it came to quality, the results varied across and within different practices. In general, there was no statistically significant difference to the benchmark comparisons.

Four priorities for transforming the care delivery system

While progress has been made in transitioning to a value-based system, it is clear from comments Azar has made that the expectations for results are greater. However, rather than giving up, Azar is determined to push for a new and transformed delivery system. Azar has outlined four priorities he hopes will accelerate the rate of transformation, and by all accounts they will not be easy or popular. But if successful, they will disrupt everything we’ve known about health care.

Interoperable and accessible health information technology

Azar believes that “value” is not determined by arbitrary authorities, but rather by the market place and consumers. In our current environment, consumers lack access to readily available medical information. As a result, they lack control over their decision making. Tremendous strides have been made in using electronic health records (EHR), but by and large we have really shifted what previously had been on paper into an electronic format. The information is stored in the health system and is not readily accessible by patients, nor is it able to be shared in an efficient manner. Azar is a true believer that the patient, not the provider, should have the ultimate control of this information.

“ … Change represents opportunity, and I exhort all of you to take advantage of the opportunities………because I assure you: Change is possible, change is necessary, and change is coming.” — Secretary of Health and Human Services Alex Azar

As an analogy, Azar uses Open Table, the app for making dinner reservations. In the past, we had to call from restaurant to restaurant to identify if they could accommodate a reservation. Now, determining where to dine is less time consuming and has put the consumer in control of the process rather than each restaurant. Azar’s vision for putting the patient in charge includes being able to pull up EHR information on a similar app when going to a new provider.

Transparency from providers and payers

Azar also believes patients need to be able to understand the cost of medical services before they receive them, and be able to determine their true out-of-pocket costs after insurance. In our current system, this is virtually impossible to determine, and the results range from shock and bewilderment when medical bills are received to avoiding treatment due to exorbitant prices.

Azar compares the current system to dining at a restaurant and having to order dinner without knowing the cost of each entrée, only to be shocked by the prices afterwards and frustrated to see an overhead charge from the pastry chef down the block. Azar envisions a future where the consumer understands the price and quality of the expected services before they receive them, so they can compare across providers to ensure they are getting the greatest value.

Medicare and Medicaid need to drive value-based transformation

With the federal government accounting for one-third of total health care spending in the country, Azar believes CMS has tremendous leverage to transform the system. He suggests that the “lackluster” performance of ACOs, in retrospect, should not be a surprise because the arrangements providers were asked to operate under did not provide the latitude to experiment and take on the risks for a patient’s outcomes. It is clear he sees potential to advance value-based transformation in models that push providers to take on greater risk.

Addressing governmental regulations

Our current system has many regulations that create barriers to change. According to Azar, among those barriers are Medicare and Medicaid reporting rules, Federal Drug Administration rules and regulations, and current interpretations of federal anti-fraud initiatives. He hopes that reducing these hurdles creates a health care system that is more integrated, collaborative, and drives better outcomes.

Priorities resonate with other health industry leaders

Azar has clearly outlined some aggressive and lofty goals, and he even says he’d like collaboration, but if necessary HHS will use every tool available to drive change. The best chance for success will be if payers, providers, and consumers are all aligned in accomplishing the priorities.

While it may not be an endorsement of the entire market, Bruce Broussard, president and CEO of Humana — one of the most significant payers in the country — outlined in a recent interview the following priorities he feels are necessary to transform to a value-based system:

  • Interoperability is a critical component to changing the system.
  • Encouraging full responsibility (taking risk) for an individual’s care.
  • Health policy needs to shift from a focus on coverage to a focus on paying for outcomes.
  • Key stakeholders in health care need to find their place in a broader continuum that is driving improved health outcomes versus maximizing their own individual silo.

We have been at this value-transformation for almost a decade now. Providers, payers, and others in the market have invested significantly, and you can feel the momentum building. Similar comments from Broussard and Azar suggest alignment among leaders at the highest levels, and may indicate that the pace of change is about to speed up.

How we can help

Significant ground work has been laid to transform our health care system, and by all signals the rate of change is going to accelerate. Don’t be left out. If you feel uncertain, ill-prepared, or uninformed, we can help. Our professionals are passionate about the transformation of health care, but more importantly, we are passionate about helping your organization succeed in a transformed world. We are committed to working side-by-side with you and your key stakeholders to develop strategies that will position your organization for success.