The Antidote to Provider Market Power
is Healthcare Payment Reform

There is growing national concern that consolidations of healthcare providers are leading to higher prices for healthcare services. However, most policy prescriptions for how to address this fail to recognize three key points:

  • Consolidation of healthcare providers isn't necessary for better healthcare delivery
  • The healthcare payment system is the biggest barrier to better healthcare delivery
  • The price and utilization of healthcare are closely linked

The Best Antidote to Provider Market Power is to Change the Healthcare Payment System describes how current payment systems don't pay hospitals and doctors for what we really want them to do, how most current payment reforms make the problem worse, not better, and how true payment reform can enable healthcare providers to deliver higher quality care at lower costs and allow consumer choice to drive prices lower without the need for narrow networks or price regulation.

Making the Business Case
for Payment and Delivery Reform

In order to support improvements in both healthcare delivery and payment systems, individuals and organizations that purchase healthcare services need a clear business case showing that the proposed change in care will achieve sufficient benefits to justify whatever change in payment healthcare providers need to support the change in care. Healthcare providers also need a clear business case showing that they will be able to successfully deliver high-quality care in a financially sustainable way.

Making the Business Case for Payment and Delivery Reform describes a ten-step process to develop such a business case, and provides a detailed example for how to apply the process to an initiative to improve management of chronic disease patients. The report also describes the types of data that are needed to carry out all of the steps in a good business case analysis.

Overcoming the Barriers to
Payment Reform

There is widespread agreement that significant changes are needed in the way healthcare providers are paid if the nation is going to successfully control the rapid growth in healthcare costs and improve the quality of care for patients. However, progress has been slow in implementing payment reforms because there are many significant barriers to changing payment systems that have been in place for decades.

Fortunately, although the barriers to payment reform can seem daunting, they can be overcome.
Ten Barriers to Healthcare Payment Reform and How to Overcome Them describes many of the biggest barriers that physicians, hospitals, health plans, employers, and policy-makers are facing in implementing payment reforms, along with strategies for solving them. For example, the report describes:

  • How "shared savings" payment models can actually be a barrier to significant changes in care delivery because they make no real changes to the fee-for service system, and how only true payment reforms, such as episode-of-care payments, condition-specific comprehensive care payments, and global payments can allow win-win-win approaches for providers, payers, and patients.
  • The ways that payment systems can be structured to give providers accountability for the types of services and costs they can control, but protect them from risks associated with costs they cannot control.
  • How payment reforms and Accountable Care Organizations are unlikely to be successful unless physician compensation systems are also changed to reward value instead of volume.
  • Why lack of access to data on utilization and costs can prevent healthcare providers from offering to deliver care in ways that will save money for employers, Medicaid, Medicare, and health plans, and ways that better data and analysis can be made available to support successful payment reform.
  • The ways that health plan benefit designs as well as payment systems need to be changed so that patients have the ability and incentive to work with physicians and other healthcare providers to improve quality and reduce costs.
  • The need for more comprehensive, outcome-based measures of quality to accompany payment systems that are designed to control costs.
  • The importance of having all payers using common approaches to payment reform, and the specific strategies that can be used to encourage and facilitate alignment of payment systems in a community.
  • The unique challenges hospitals will face as part of efforts to reduce costs, and the kinds of actions both hospitals and payers can take to address those challenges.
  • How regulatory, accreditation, and payment policies favor large provider organizations in ways that can lead to higher costs, and the policy changes that are needed to foster more effective competition among providers.
  • The need for community mechanisms to ensure there is coordinated action in all of these areas, and the important role that Regional Health Improvement Collaboratives can play in supporting implementation of needed payment and delivery reforms.

Transitioning to Accountable Care

Although a variety of payment reforms have been proposed to address the problems with the current fee for service system, many of these reforms are seen as either doing too little to address the problems caused by current payment systems or as changing payment too radically for most healthcare providers to easily implement.

There is clearly a need for "middle-ground" options - payment reforms that provide greater flexibility and accountability for the costs and quality of care than typical pay-for-performance, shared savings, and medical home programs, but which avoid forcing providers, particularly small physician practices, to take on more financial risk than they can manage or to take accountability for services they cannot effectively control (as traditional capitation systems or full episode-of-care payment systems can require).

Transitioning to Accountable Care: Incremental Payment Reforms to Support Higher Quality, More Affordable Health Care describes a range of transitional payment reforms that can enable primary care practices, specialists, and hospitals to deliver significant improvements in cost and quality for payers and patients as they build the capacity to transition to more comprehensive payment reforms. The report also discusses a series of important issues in the design of any new payment system, including pricing, establishing appropriate limits on risk, and ensuring quality. It also discusses the importance of alignment among multiple payers and ways to achieve that, including ways that the Medicare program can best support payment reform efforts.

(You may need to have Adobe Acrobat Reader 8.0 or higher to download the full report. If you have difficulty downloading the report, please email us at: info@chqpr.org.)

CHQPR Testimony to the House Energy and Commerce Committee

House Energy and Commerce Committee

On February 14, 2013, Harold Miller, President and CEO of CHQPR, gave invited testimony at a hearing of the Subcommittee on Health of the House Energy and Commerce Committee of the U.S. Congress. Key points in the testimony include:

  • The Sustainable Growth Rate formula should be repealed.
  • Fundamental changes in the fee-for-service system are necessary in order to control the growth of Medicare spending and to improve the way care is delivered to Medicare beneficiaries. Congress will have limited success in controlling Medicare spending and providing truly high-quality care to Medicare beneficiaries if it merely uses quality-based pay-for-performance or shared savings programs built on top of the dysfunctional fee-for-service system. Fortunately, there are better ways of paying physicians that can enable them to make more significant improvements in patient care and achieve greater savings for Medicare.
  • Accountable payment models need to be designed and implemented as quickly as possible in ways that will work for every specialty and every part of the country. To do this, Congress should establish a new, bottom-up approach to payment reform, whereby physicians, provider organizations, medical specialty societies, and regional multi-stakeholder collaboratives are invited to develop payment models that will work well for individual physician specialties in the realities of their own communities.
  • New payment models should be able to be proposed to CMS at any time, with no limit on how many different proposals can be approved as long as they will improve care and reduce costs. Proposals must be reviewed quickly and CMS should have the obligation to approve a proposal if it is specifically designed to improve patient care and save Medicare money.
  • There should be frequent opportunities for physicians to apply to participate in already-approved payment models. Every physician should be permitted to participate in an accountable payment model whenever they are ready to do so. If a physician is participating in such a model, they shouldn't be subject to threats of SGR-type payment reductions.
  • Physicians need to be given access to Medicare claims data so they can determine where the opportunities for saving are, how care will need to be redesigned to achieve those savings, and how payment will need to change to support better care at a lower cost.
  • Once a physician is participating in an accountable payment model, they should have the ability to continue participating as long as they wish to do so if the data show that the quality of care is high and Medicare spending is being controlled.
  • Funding should be made available to medical specialty societies and multi-stakeholder Regional Health Improvement Collaboratives to provide technical assistance to physicians.
  • To help new payment models be as successful as possible, Congress should ask Medicare beneficiaries to designate which physician(s) they want to be in charge of care for each of their conditions, so that there is no need to use complicated, inaccurate statistical attribution methodologies to determine which physicians are accountable for which patients.

The Cost of Having a Baby

Private businesses and federal and state governments could save billions of dollars if the quality of maternity care were improved, based on data in The Cost of Having a Baby, a new report developed jointly by Childbirth Connection, the Center for Healthcare Quality and Payment Reform, and Catalyst for Payment Reform. The report shows that the high proportion of babies delivered by Cesarean section costs commercial insurance plans and state/federal Medicaid programs thousands of dollars more per birth than vaginal births and the differences in costs is growing over time. The report also shows there is significant variation in costs within and aross states for each type of birth, indicating that there are additional opportunities for savings.

Maternal and newborn care together represent the largest single category of hospital expenditures for most commercial health plans and state Medicaid programs, so reducing maternity care costs provides a major opportunity to reduce insurance premiums for employers and to make Medicaid coverage more affordable for taxpayers. There are many examples of physicians, midwives, hospitals, and birth centers around the country that are reducing maternity care costs in ways that improve quality and outcomes for both mothers and babies, a win-win for both payers and patients.

However, a major barrier to changes in care delivery is the current healthcare payment system. Changes in payment systems are needed to support maternity care based on achieving good outcomes for mothers and babies, rather than the specific procedures and services delivered. For example, the condition-specific payments described in CHQPR's report Transitioning to Accountable Care, would provide the kind of flexibility and accountability maternity care providers need to redesign care. More information on payment reform and delivery redesign opportunities in maternity care are available from CHQPR's Maternity Care webpage.

Using Partial Capitation to Support Accountable Care Organizations in Medicare

The federal Patient Protection and Affordable Care Act created a new Medicare payment program to support Accountable Care Organizations (ACOs). Although the program is titled the "Shared Savings Program," and most discussions have focused on using "shared savings" to pay ACOs, the Act allows CMS to use payment models other than shared savings to support ACOs. One of these payment models is "partial capitation." The law states that under partial capitation payment, an ACO would be at financial risk for some, but not all, of the items and services Medicare covers.

Could "partial capitation" be better for patients, physicians, hospitals, and Medicare than the shared savings model? The answer is yes -- read CHQPR's concept paper Using Partial Capitation as an Alternative to Shared Savings to Support Accountable Care Organizations in Medicare to find out how.

How to Create Accountable Care Organizations

In light of the high and rapidly growing cost of healthcare in the U.S., there has been growing interest both in the federal government and in states and regions across the country in finding ways to encourage health care providers to take greater accountability for the overall cost as well as the quality of healthcare delivered to patients. A healthcare provider or group of providers that accepts accountability for the total cost of care received by a population of patients has been termed an "Accountable Care Organization."

Although there has been growing support for creating such Accountable Care Organizations (ACOs), there has been relatively little exploration of how an ACO would actually achieve the goals envisioned for it, what it would look like organizationally, or how it would come into existence. How to Create Accountable Care Organizations attempts to fill this gap.

The report addresses key issues such as:

  • what an Accountable Care Organization should be accountable for, and the likely strategies it would use in order to be successful;
  • the types of healthcare providers that can and should be included in an Accountable Care Organization, which organizational structures would support success in managing the desired accountability, and which organizational characteristics might present barriers to success;
  • the changes in healthcare payment systems which would need to be made in order to encourage and support the creation and operation of Accountable Care Organizations;
  • what governments and communities can and should do beyond payment reforms to create an environment that encourages the formation and successful operation of Accountable Care Organizations; and
  • transitional approaches that can help healthcare providers begin accepting greater accountability on a path toward becoming Accountable Care Organizations.

Download the Executive Summary.

Download the full report.

(You may need to have Adobe Acrobat Reader 8.0 or higher to download the full report. If you have difficulty downloading the report, please email us at: info@chqpr.org.)

Paths to Payment Reform

Across the country, there is growing recognition that dramatic changes in healthcare payment systems are needed in order to solve the persistent problems in quality that plague healthcare delivery and to reduce unaffordable costs. Paths to Payment Reform, a new series of policy briefs from the Center for Healthcare Quality and Payment Reform, is designed to explain some of the specific issues which need to be addressed in creating new payment systems and ways to transition to them from current payment structures. The first five briefs are described below.

Is Shared Savings the Way to Reform Payment?

There is growing interest in using "shared savings" as an approach to healthcare payment reform. Medicare has used it as the key element of its Physician Group Practice Demonstration, and it has been proposed as the key mechanism for encouraging the creation of "accountable care organizations."

Unfortunately, there are some fundamental weaknessess in the shared savings approach that make it far less desirable as a payment reform than it might first appear: it doesn't really fix the underlying problems in the payment system; it gives providers risk without resources; it rewards high spenders rather than high performers; it may or may not keep a provider from suffering financial losses; and it's not sustainable as a payment reform.

This policy brief explains the weaknesses in more detail, and describes the right way to share savings as part of an effort to reform healthcare payment systems. Download the Policy Brief.

Which Healthcare Payment System is Best?

There is broad agreement that significant reforms are needed to the Fee-for-Service Payment systems that are commonly used today. The two major healthcare payment systems being discussed as alternatives are Episode Payments and Comprehensive Care Payment (also called condition-adjusted capitation or risk-adjusted global fees).

However, trying to weigh the pros & cons and pick the "best" payment method is a flawed approach - Episode Payments are better for certain kinds of conditions and patients, and Comprehensive Care Payments are better for others. The choice depends on the nature of the cost/quality problems to be solved.

This policy brief outlines two key dimensions of healthcare cost problems, and shows how they are addressed by the two different payment systems. Examples of the kinds of healthcare conditions appropriate for each type of payment system are also defined, including situations in which both can be used jointly. Download the Policy Brief.

Transitioning to Comprehensive Care Payment

One option for improving healthcare quality and controlling costs is to use some form of population-based payment instead of Fee-for-Service payments. There are a variety of different names for this - "Comprehensive Care Payment," "Condition-Adjusted Capitation," or "Risk-Adjusted Global Fee" - but the core element is paying a single price for all of the healthcare services needed by a group of people for a fixed period of time.

However, since Comprehensive Care Payment represents a dramatic change in the way most healthcare providers are paid, it is unclear how many providers could manage under such a payment system. Also, there are concerns about whether Comprehensive Care Payment can work successfully without causing financial difficulties for providers and resistance from patients.

This policy brief outlines six ways that Comprehensive Care Payments need to be structured in order to avoid the problems that traditional capitation payment systems caused. It also defines several potential levels of Partial Comprehensive Care Payments that could help smaller physician practices to transition into this type of payment system. Download the Policy Brief.

Using Medical Homes to Reduce Readmissions

Many people are convinced that the only way to significantly reduce healthcare costs is by some type of rationing, i.e., limiting the kinds of services that Medicare or health insurance will pay for. But there are ways to significantly reduce healthcare spending without taking away anything that consumers want.

A perfect example is hospital readmissions. Research studies and quality-reporting initiatives around the country show that 15-25% of people who are discharged from the hospital will be readmitted to the hospital within 30 days or less, and that many of these readmissions are preventable.

A number of proposals have surfaced for reducing preventable readmissions by reducing or eliminating payments to hospitals when these readmissions occur. The problem with this approach is that it assumes that if a readmission is preventable, it is preventable by the hospital, and that is not always the case.

As outlined in this policy brief, the Patient-Centered Medical Home can help to prevent many readmissions, if it is paid in the right way and focuses on reducing readmissions. Download the Policy Brief.

Transitioning to
Episode-Based Payment

There is growing interest in using episode payments instead of fee-for-service payments as way of improving healthcare quality and controlling costs. An "episode payment" is a single price for all of the services needed by a patient for an entire episode of care (e.g., all of the inpatient and outpatient care they need after having a heart attack). An episode payment system reduces the incentive to overuse unnecessary services within the episode, and gives healthcare providers the flexibility to decide what services should be delivered, rather than being constrained by fee codes and amounts.

The devil is in the details, however: What exactly would be included in an episode payment? And how can healthcare payers and providers transition from the current fee-for-service system to an episode payment structure?

This policy brief describes how to define an episode payment and how to transition to episode payment. Download the Policy Brief.

Setting Payment Levels

Most discussions about healthcare payment reform focus on different methods of paying providers - fee-for-service payments, episode payments, capitation payments, etc. Different payment methods have advantages and disadvantages, but choosing the payment method is only half of the challenge in reforming payment systems. The other half is choosing the right amount of payment. Even if the payment method provides the right incentives, if the payment level is too low (i.e., below the minimum cost of providing care), providers will be unable to provide quality care, and if the payment level is too high, there is no incentive for efficiency.

So how should payment levels (i.e., prices) be set? This policy brief describes the three different methods for setting prices, and some of the advantages and disadvantages of each. Download the Policy Brief.

More policy briefs will be issued in the near future. Comments on the briefs, and suggestions for additional topics, are welcome -- send comments and suggestions to info@chqpr.org.

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