Physicians say any new payment must be aligned with services provided

Many unanswered questions

A lot has changed in the delivery of healthcare since the 1960s when Medicare was born. Now in 2008, the questions about the market value and the cost of providing healthcare for those older than 65 with multiple chronic comorbid conditions are much more complex.

The questions abound: How much is chronic care management worth? Is there a clear ROI? What should government payers such as Medicare and Medicaid pay doctors to manage the care of older, sicker patients with multiple conditions? Should CMS scrap the fee-for-service (FFS) Medicare system altogether? Should risk adjustment methods be incorporated into a revised payment system? What is the cost of managing chronic care elderly patients? Will all doctors be able and willing to take on more centralized care as promoted by the patient-centered medical home? Where do DM companies fit into a new payment structure? Will their voices be heard in the ongoing discussions about a new payment model?

“Fundamentally, [physicians] are a cottage industry right now,” says David Weber, MD, CEO of Wenatchee (WA) Valley Medical Center. “We are paid for piecemeal work, and there are little or no incentives to curtail services or keep patients out of the hospital,” he says.

Weber is a member of the American Medical Group Association, an Alexandria, VA–based group that primarily represents multispecialty physician practices across the country. Weber says he supports the concept of a patient-centered medical home but wonders whether there will be enough incentive—and enough physicians—to make it a reality.

The American College of Physicians (ACP) in Washington, DC, has been a driving force behind the implementation of a medical home.

“Nobody knows the answer to the question of how much this new model would cost until we get real data,” says Michael Barr, MD, MBA, FACP, vice president of ACP’s Department of Practice Advocacy and Improvement. “We expect that a new payment model will include some form of risk adjustment payments,” he says.

Barr is organizing a 10-month study of the cost of the patient-centered medical home that began in November 2007 and is being funded by the Commonwealth Fund’s Patient-Centered Primary Care Initiative. He says the main goal of the study is to identify incremental costs of building a medical home in a variety of practice settings, including Medicare populations.

“We don’t expect specific numbers, but we do hope to pull together information on the incremental costs of delivery and some payment options,” says Barr.

The Commonwealth Fund, based in New York City, supports independent research of healthcare issues. In December 2007, the group published a report that analyzed 15 potential savings options that could reduce Medicare spending. The report places a strong emphasis on the need to improve Medicare reimbursements to PCPs who support enhanced services, such as care coordination and care management, says Cathy Schoen, MS, the group’s senior vice president for research and evaluation.

If all Medicare FFS beneficiaries were enrolled in a medical home, this approach could result in net health system savings of $194 billion, according to the report.1 Schoen says the Commonwealth Fund and its research partner, The Lewin Group, are continuing to study how the medical home and other policy options can affect Medicare and Medicaid cost savings and will “review in greater detail specific ways to spur savings.”

IT is a key factor in cost savings, says Anthony Shih, MD, MPH, assistant vice president of the Commonwealth Fund. Shih oversees the Program on Quality Improvement and Efficiency. “There is likewise substantial evidence that the greater role of doctors [in chronic care management] results in better health outcomes and lower costs,” he says.

Shih and Schoen say that a primary problem with the current FFS system is that payment incentives are not aligned to promote better care and lower costs.

Payment options

A variety of payment options have been studied for the past several years in demonstration projects funded by CMS and other government agencies. Payment has varied widely, as have chronic care services. The Community Care of North Carolina Medicaid demonstration paid $2.50 per member per month.

Pay-for-performance demonstrations, including the Physician Group Practice (PGP) Demonstration, based incentive payments on a percentage of cost savings rather than paying physicians for specific services. These demos began in April 2005. During the first year, two practice sites met eligibility criteria for cost-saving paybacks. Each of the 10 participating sites developed its own quality improvement efforts. CMS has stated that it is pleased with the overall results of the PGP demonstration and has extended it for one year beyond its scheduled April 2008 end date. All 10 participating group practices have been asked to continue in the demonstration.

The After Discharge Care Management of Low Income Frail Elderly (AD-LIFE) trial began in January 2003 and was scheduled to end in 2006, but has been extended to 2009. It is funded by the Agency for Healthcare Research and Quality. The most anticipated outcome of this study was the cost of individualized comprehensive care management of Medicare beneficiaries enrolled in the demonstration.

Kyle Allen, DO, medical director of Summa Health System Post Acute and Senior Health Services in Akron, OH, and head of the AD-LIFE project, says the anticipated costs of a comprehensive care plan for posthospital discharge at the beginning of the trial were between $2,100–$2,500 per member per month. The goal of comprehensive care management is to lower overall Medicare costs by decreasing hospital readmissions and emergency department visits.

Most recently, a group of physicians presented the outline of a Medicare payment system that is based on Ambulatory Patient Groups (APG) rather than current procedural terminology (CPT) codes. APGs were first implemented in 1995 in an Iowa Medicaid contract with CMS and have been revised several times (most recently in 2007). APGs are based on the patient’s diagnoses, not on procedures that the physician completes during an office visit as in CPT codes.

Where does DM fit in?

Barr says that one of the reasons why there are so many payment methods being studied is because the model that CMS ultimately chooses for its Medicare and Medicaid beneficiaries will likely be one that is copied by commercial payers.

“There is no doubt that the current payment system is broken, but we don’t want to replace it with something that doesn’t work in the long run,” he says.

There is also some skepticism about the practicality of only one new payment model. “Surely, we will not have one monolithic model,” says Gordon Norman, MD, MBA, chair-elect of DMAA: The Care Continuum Alliance in Washington, DC, and executive vice president and chief science officer at Alere Medical, Inc., in Reno, NV. “Any change in the payment model needs to consider the extent to which physicians can be self-sufficient in their practices.”

Norman says the alliance sees the role of DM as strongly supportive of physicians as partners in providing care to chronically ill patients. He says that the promotion of the patient-centered medical home has given the false impression that DM is in competition with the proposed new model. In December 2007, DMAA announced its support of a model for an integrated, physician-guided delivery system for population-based chronic care. The model calls for payment for cognitive services, care coordination, referral activities, and adherence to evidence-based clinical practice guidelines.

“Any new payment model will fly or die over time depending on accountability for services provided,” says Norman. “We will continue to be a player with CMS in developing policy and new payment models. We want to leverage what DM has learned into any new payment model.”

He says the DM industry is still closely watching the major Medicare DM initiative, Medicare Health Support, to determine whether and how this FFS DM effort has improved care and cut costs. “There is a lot invested in not throwing out the baby with the bath water. We have yet to determine what is working in this demonstration, but we do now suspect that the initial ambitions were too grandiose,” he says. Of eight companies that began this demonstration in 2005, only three remain, and cost savings have been hard to quantify.

Pay for performance

One of the 10 potential options considered by the Commonwealth Fund in its report is pay for performance. Leslie Norwalk, CMS’ acting administrator, said in July 2006 that the PGP demonstration “provides new evidence that paying for quality of care instead of volume of services results in better outcomes and cost savings. It is the right thing to do.”

“If you look at pay-for-performance programs, there is a proliferation of different payers, different payment thresholds, and formulas,” says Douglas Carr, MD, medical director of the Billings (MT) Clinic, one of the 10 CMS PGP Demonstration sites. “It is hard to get individual doctors behind one particular plan, especially if they have a sense that you are just trying to game the system.”

Savings in these demonstrations is based on total Medicare Part A (inpatient) and Part B (outpatient) claims data. The government’s actuaries determined that the smallest difference that can be viewed as not having been caused by a normal variation is 2% and, therefore, set a 2% threshold for determining annual Medicare savings. Expenditures are risk-adjusted concurrently. This demonstration is a non–enrollment model based on actual utilization of physician services and includes a control group.

CMS announced the results of the first year of the demonstration in July 2006. Two physician groups demonstrated $9.5 million in savings to the Medicare program. All of the 10 sites improved quality based on CMS-defined quality measures.

Carr says that PCPs want to provide more comprehensive services to patients but are currently caught in the “trap of billable hours.” As for DM programs, Carr says, most physicians prefer to develop their own in-house efforts if possible. “Using outside vendors is a disconnect with the provision of care to the patient and a break-even financially at best,” he says.


1. The Commonwealth Fund. Bending the Curve: Options for Achieving Savings and Improving Value in U.S. Health Spending. December 2007.




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