How to Create More Successful
Alternative Payment Models
in Medicare

In 2010, Congress created the Center for Medicare and Medicaid Innovation (CMMI) to help Medicare move away from fee-for-service payment and it provided CMMI with significant funding and regulatory flexibility to develop and test Alternative Payment Models (APMs). However, a decade later, CMS has not created APMs for most Medicare beneficiaries or physicians, and the APMs that have been created have failed to produce significant savings or improvements in quality. The slow progress in implementing 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.

How to Create More Successful Alternative Payment Models in Medicare describes the reasons why progress has been so slow and what should be done about it. As explained in detail in the report, there are four key problems with the approach CMS has used to date for developing and testing Alternative Payment Models (APMs):

CMMI has used only a small portion of its funding for development and testing of APMs.
CMMI uses a slow, expensive process to design and implement APMs.
The APMs CMS has developed fail to solve the problems with fee-for-service payments.
CMS has refused to implement additional or different APMs.

How to Create More Successful Alternative Payment Models in Medicare recommends 3 actions CMS should take to address these problems and dramatically accelerate the implementation of APMs:

Design and implement patient-centered APMs;
Use a "bottom-up" approach to creating APMs; and
Use a more efficient and effective approach for testing APMs.

Why the CMS CHART Model
Will Hurt Rural Hospitals

Rural hospitals are closing all over the country because Medicare, Medicaid, and private insurance plans pay them less than what it costs to deliver essential services in small rural communities. Moreover, the methods used to pay rural hospitals penalize them for efforts to improve the health of their communities.

In August 2020, the CMS Center for Medicare and Medicaid Innovation (CMMI) announced plans to implement the "Community Health Access and Rural Transformation (CHART) Model" in 15 communities. The CHART Model is supposed to "increase financial stability for rural providers" and "enhance beneficiaries' access to health care services by ensuring rural providers remain financially sustainable for years to come." However, CHQPR's analysis - Why the CMS CHART Model Will Hurt Rural Hospitals - shows that rural hospitals and the communities they serve would be harmed, not helped, by participating in the CHART Model:

Rural hospitals would be paid less for services under the CHART Model than under current payment systems, and the payment reductions would increase over time.
Payments would be cut by higher amounts in smaller rural communities, and hospital payments would be reduced if the population of the community decreases.
Since Medicare, Medicaid, and private insurance plans currently pay most small rural hospitals less than it costs to deliver services to patients, the cuts in payments under the CHART Model would likely accelerate closures of rural hospitals.
Payments to rural hospitals under the CHART Model would still be primarily based on the volume of services delivered. In the CHART Model, rural hospitals would still lose money if they reduce avoidable services such as unplanned hospital readmissions or Emergency Department visits.
The CHART Model does nothing to sustain or strengthen primary care services in rural communities or improve rural communities' access to other high-value services.

Saving Rural Hospitals and
Strengthening Rural Healthcare

More than 800 rural hospitals - 40% of all rural hospitals in the country - are at risk of closing in the near future. Most of these are small rural hospitals that provide not only emergency care, inpatient care, and outpatient services, but also primary care, rehabilitation, and long-term care services for their communities. Moreover, most of the hospitals are located in isolated communities where loss of the hospital could severely limit access to health care services. More than 30 million people could be directly harmed if these hospitals close, and people in all parts of the country could be affected through the impacts on workers in agriculture and other industries.

Saving Rural Hospitals and Strengthening Rural Healthcare identifies the reasons why small rural hospitals face such severe financial problems. It shows that the largest causes of losses are low payments by private health insurance plans, and that many hospitals remain open only because they receive signficant supplemental funding from local taxes or state grants.

The report examines the potential effectiveness of several commonly proposed policies for rural hospitals, including:

requiring rural hospitals to eliminate inpatient services in return for higher payments for outpatient services;
providing shared savings bonuses if the hospital can reduce total payer spending on its patients; and
global hospital budgets.

The report describes a Patient-Centered Payment System for rural hospitals that would sustain essential healthcare services in small rural communities. This innovative approach to payment would include:

Standby Capacity Payments to support the fixed cost of essential services;
Service-Based Fees that would be much lower than the high fees charged today;
Patient-Based Payments for primary care management through Rural Health Clinics;
Accountability for quality and spending; and
Value-based cost-sharing for patients.

In addition to the full report, an Executive Summary is available, as well as a table showing state-by-state counts of the hospitals at risk of closing.

A Better Way to Pay for Cancer Care

A high-value cancer care system should ensure that cancer patients have the ability to obtain both the treatment that offers the best opportunity for a cure and other services that minimize their suffering, all at the most affordable cost possible. Unfortunately, for many patients, our current healthcare system fails to achieve these goals because the current payment system doesn't pay for it.

A Better Way to Pay for Cancer Care describes the problems with the current fee-for-service payment system, and it shows how the Alternative Payment Models for oncology that have been created by Center for Medicare and Medicaid Innovation not only fail to address most of these problems, but create new problems that could be even worse, including encouraging ncology practices to withhold and delay needed treatments, penalizing oncology practices for using evidence-based care, and discouraging oncologists from treating patients who need more expensive treatments and who have health problems in addition to cancer.

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. A Better Way to Pay for Cancer Care describes how to create Patient-Centered Cancer Care Payment that supports the kind of high-value services that patients need and reduces avoidable spending so that savings can be generated without harming patients.

An Executive Summary of A Better Way to Pay for Cancer Care is also available.

The Problems with the
CMS "Primary Care First"
Payment Model and
How to Fix Them

The most important element of a truly "value-based" healthcare system is strong primary care. Unfortunately, the U.S. primary care system is at risk of collapse. 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.

In April 2019, the Centers for Medicare and Medicaid Services (CMS) announced a new payment demonstration called "Primary Care First" in order to "transform primary care to deliver better value for patients throughout the healthcare system." However, this initiative is likely to 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" and How to Fix Them describes 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. It also describes the changes in Primary Care First that would enable CMS to create the kind of payment model that smaller primary care practices have been seeking.

The Problems with Medicare's
Alternative Payment Models
and How to Fix Them

There is broad consensus that Alternative Payment Models (APMs) are needed to reduce healthcare spending and improve the quality of care for patients. However, the ability of an APM to generate savings and improve quality depends on whether it corrects the problems in current fee-for-service payment systems while also preserving the strengths of those systems.

Unfortunately, the APMs implemented by the Centers for Medicare and Medicaid Services (CMS) fail to achieve either of these goals. The Problems with Medicare's Alternative Payment Models and How to Fix Them provides detailed descriptions of the six major Advanced APMs in Medicare (Bundled Payments for Care Improvement Advanced, Comprehensive Care for Joint Replacement, Comprehensive ESRD Care, Comprehensive Primary Care Plus, the Medicare Shared Savings Program, and the Oncology Care Model) and shows that each of these APMs fails to meet the majority of the eight criteria for a successful APM.

Fortunately, there are much better ways to design APMs. The Problems with Medicare's Alternative Payment Models and How to Fix Them also describes two different types of APMs for patients with chronic conditions, each of which meet all eight of the criteria for a successful APM.

A Framework for
Alternative Payment Models

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:

Does the APM pay for the high-value services needed to improve patient care?
Does the APM align the payment amount with the cost of delivering high-quality care?
Does the APM assure each patient they will receive appropriate, high-quality care?
Does the APM make the cost of diagnosing or treating a health condition more predictable and comparable?
Will a provider only be paid under the APM if a patient receives services?
Are payments under the APM higher for patients who need more services?
Is a provider's payment under the APM based on things the provider can control?
Will a provider know how much they will be paid under the APM before delivering services?

The shared savings/shared risk and "population-based payment" designs used by most current APMs fail to meet the majority of these criteria.

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
Option 1B: Accountable Bundled Payment
Option 2: Outcome-Based Payment
Option 3: Bundled/Warrantied Payment

The components of these four APMs are summarized in the Framework for Alternative Payment Models, and the details on how to design each of these Alternative Payment Models are available in How to Create an Alternative Payment Model

How to Create an
Alternative Payment Model

Most of the APMs that have been implemented to date have failed to achieve significant savings or improvements in quality, while imposing significant administrative burdens and financial risks on the participants. Current APMs aren't successful because they don't actually fix the problems with current fee-for-service payment systems. Simply increasing financial risk for physicians, hospitals, and other healthcare providers in badly-designed payment models has the potential to harm patients, force good providers out of the healthcare system, and cause prices and spending to increase.

Fortunately, there are better ways to create APMs so they can be a win-win-win for patients, providers, and patients. How to Create an Alternative Payment Model provides a step-by-step guide to designing and implementing APMs that can result in lower healthcare spending without harming patients or bankrupting healthcare providers.

The report provides the most comprehensive description available anywhere regarding:

the major opportunities that exist for reducing spending and improving quality and the corresponding changes in care delivery that APMs should be designed to support;
how to estimate the costs of delivering care in better, more efficient ways and how to determine whether there is a business case for an APM;
the specific ways that current payment systems and benefit structures can be modified to support and sustain the delivery of high-value services;
methods for holding physicians, hospitals, and other healthcare providers accountable for utilization and spending in ways that are feasible for them both clinically and financially;
how to ensure that patients are not harmed by the changes in care delivery and the financial incentives in the APM;
the ways that both payers and providers can easily operationalize APMs using their existing billing and claims payment systems;
how to encourage payers, providers, and patients to participate in well-designed APMs; and
how APMs can be used to support a competitive marketplace for healthcare services that will stimulate innovation in both quality and efficiency.

In addition to the full report, an Executive Summary is available, as well as three detailed designs for Alternative Payment Models focused on specific conditions:

A Maternity Care APM that can reduce spending and improve outcomes by enabling more women to deliver babies in birth centers rather than hospitals, reducing the frequency of Cesarean sections in low-risk births, supporting more extensive prenatal and postpartum care services for higher-risk women, and tying payments directly to outcomes.
A Chronic Condition APM that would reduce spending and improve outcomes by reducing the rates of avoidable emergency departament visits and hospital admissions for patients with chronic conditions and by reducing the utilization of unnecessary medications, tests, and other services in the delivery of their care.
A Care Management APM that would reduce spending and improve outcomes by reducing the rate of avoidable hospital admissions for patients with chronic conditons.

How to Fix the Medicare
Shared Savings Program

Rather than generating savings as hoped, the Medicare Shared Savings Program (MSSP) has created losses for the Medicare program for four years in a row. Would requiring Accountable Care Organizations (ACOs) in the program to take "downside risk" solve the problems?

How to Fix the Medicare Shared Savings Program shows that Medicare actually spends more per beneficiary in the downside-risk ACOs, with no difference in the quality of care. Moreover, ACOs that have moved to the downside risk tracks have saved less after doing so.

The report describes how the risk adjustment system used in the program can penalize ACOs with higher-need patients. Concerns about these and other problems in the benchmarking and attribution methodologies used in the program have made most ACOs unwilling to enter the downside risk tracks and have discouraged many healthcare providers from participating even in the upside-only tracks. Requiring all ACOs to accept downside risk could cause many current ACOs to leave the program.

How to Fix the Medicare Shared Savings Program describes four other options for modifying the program that would increase Medicare savings without requiring ACOs to take on risk for total Medicare spending. However, the report also explains how the program fails to address the real problems with current fee-for-service payment systems and why it is unlikely to ever result in significant savings or improvements in quality.

Why Value-Based Payment
Isn't Working, and How to Fix It

Health insurance will never be affordable unless the cost of health care is reduced. Although there is broad agreement that fee-for-service payment is a major reason why healthcare spending continues to grow faster than inflation, most of the "value-based payment" and "value-based purchasing" reforms implemented to date have shown little benefit. Why Value-Based Payment Isn't Working, and How to Fix It explains why pay-for-performance, shared savings, two-sided risk, population-based payments, and narrow networks have failed to either control healthcare costs or improve the quality of care, while creating heavy administrative burdens for providers and financial incentives to deny the care patients need. The report shows why simply increasing the financial risk for healthcare providers under current value-based payment models will likely make things worse, not better.

Why Value-Based Payment Isn't Working, and How to Fix It details four separate problems with fee-for-service that need to be addressed, but it also describes four strengths of fee-for-service payment that need to be preserved. Current "value-based payment" programs are failing not only because they don't solve the problems with fee-for-service payment but because they don't preserve its strengths. The fact that a payment system is different does not mean that it is better. Resistance by physicians, hospitals, and other providers to implementing current payment "reforms" has been inappropriately interpreted as unwillingness to change, rather than refusal to support a cure that may be worse than the disease.

Fortunately, there is a better way. Why Value-Based Payment Isn't Working, and How to Fix It describes how to create a patient-centered payment system that can solve the problems with the current fee-for-service payment system while preserving its strengths. The Patient-Centered Payment system described in the report would:

Enable patients to have their specific healthcare needs addressed by teams of providers that have agreed to work together to achieve specific, feasible outcomes for that need;
Enable patients to select which provider team to use based on the quality standards and outcomes that each provider team commits to achieve for that patient and based on the total amount that the patient and their insurer will pay for all of the services the patient will receive with respect to the need that is being addressed;
Give the team of providers adequate resources and sufficient flexibility to deliver the most appropriate combination of high-quality services to achieve the best outcomes based on the nature and severity of the patient's need; and
Hold the team of providers accountable for meeting quality standards and achieving the expected results for each patient in return for the adequate, flexible payment.

Patient-Centered Payment supports patient-centered care, which is what patients want to receive and what physicians and other healthcare providers want to deliver. But unlike current "value-based payment" models, Patient-Centered Payment also requires the kind of accountability for cost and quality that both patients and purchasers need and that is feasible for providers to accept. Moreover, unlike current "value-based payment" systems that rely on regulatory structures to set prices and define quality standards, Patient-Centered Payment supports a market-based approach to improving quality and controlling costs.

Both the full report and the Executive Summary describe the four strengths and four weaknesses of fee-for-service, show why current payment reforms are failing, and describe the key elements of a Patient-Centered Payment system. The full report provides detailed examples of the problems with current "value-based payment" systems and also detailed examples of how a Patient-Centered Payment system would improve preventive care, improve diagnosis, improve care for acute conditions, and improve care for patients with chronic disease. It also explains and provides detailed examples of how healthcare spending can be reduced without harming patients, physicians, or hospitals.

Physician-Focused
Alternative Payment Models

A Guide to Physician-Focused Payment Models describes seven different Alternative Payment Models (APMs) that can enable physicians in every specialty to redesign the way they deliver care in order to control spending and improve quality for their patients:.

APM #1. Payment for a High-Value Service
APM #2. Condition-Based Payment for Physician Services
APM #3. Multi-Physician Bundled Payment
APM #4. Physician-Facility Procedure Bundle
APM #5. Warrantied Payment for Physician Services
APM #6. Episode Payment for a Procedure
APM #7. Condition-Based Payment

The seven APMs described in the report would be able to meet the eligibility criteria for Alternative Payment Models specified in the Medicare Access and CHIP Reauthorization Act (MACRA). Under each of the APMs described in the report, physicians would take accountability for specific aspects of spending and quality they can control or influence. However, the APMs would not place physicians at financial risk for costs they cannot control, unlike a number of shared savings payment models that have been developed by payers. Moreover, each of the APMs in this report would give the participating physicians the resources and flexibility they need to redesign care so they can successfully control spending and improve quality for the types of patients and services for which they would be accountable.

Each of the APMs described in A Guide to Physician-Focused Alternative Payment Models addresses a different set of opportunities for savings and different barriers in the current payment system. The report explains how the specific components of each APM would be structured to work successfully for both physicians and payers. The report also describes nineteen different examples of how the APMs could be applied to different types of patients, conditions, and procedures, including cancer care, cardiovascular care, chronic disease management, emergency medicine, gastroenterology, maternity care, and surgery.

Fixing the Problems With Attribution,
Risk Adjustment, and Episode Groupers

For years, the limitations of healthcare claims data have been a major barrier to identifying opportunities to control healthcare spending and to developing alternative payment models. Current resource use measurement and payment systems use complex episode groupers, statistical attribution methodologies, and risk adjustment systems in order to try and extract information from claims data that it was not designed to provide. As a result, these methodologies have many serious weaknesses that have the potential to harm patients and healthcare providers, particularly small physician practices and hospitals.

Improving Resource Use Measurement Under MACRA explains how the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) will help to solve these problems by creating three new types of information to be included on claims forms:

Care Episode Groups. MACRA requires the creation of "care episode groups" that define the types of procedures or services furnished for particular clinical conditions or diagnoses. If properly designed, Care Episode Groups will enable far better measures of the kinds of services and costs physicians can control or influence than the total cost of care and episode spending measures used in payment programs today.
Patient Relationship Categories. MACRA requires the creation of "patient relationship categories" that define and distinguish the relationship and responsibility of a physician or applicable practitioner with a patient at the time of furnishing an item or service. If properly designed, Patient Relationship Categories will enable payments and accountability for spending and quality to be far more accurate than the retrospective statistical attribution methodologies used in payment programs today.
Patient Condition Groups. MACRA requires the creation of "patient condition groups" based on a patient's chronic conditions, current health status, and recent significant history, such as hospitalization or surgery. If properly designed, Patient Condition Groups will enable far better risk adjustment and acuity stratification than the methods used in payment programs today.

Improving Resource Use Measurement Under MACRA explains the requirements of MACRA and describes how the Centers for Medicare and Medicaid Services (CMS) should implement them in order to enable more effective resource measurement and to facilitate the successful development and implementation of Alternative Payment Models.

Implementing APMs Under MACRA

As part of the Medicare and CHIP Reauthorization Act of 2015 (MACRA), Congress created significant new incentives and processes designed to dramatically accelerate progress in payment reform, with a focus on creating better ways to pay physicians. The success of MACRA will depend heavily on how the Department of Health and Human Services (HHS) and the Centers for Medicare and Medicaid Services (CMS) implement the provisions of the law relating to Alternative Payment Models (APMs) and Physician-Focused Payment Models. The decisions they make and the processes they establish could either encourage rapid development and implementation of innovative and successful payment models, or deter innovation and impede the progress in payment reform that Congress wanted to support.

Implementing Alternative Payment Models Under MACRA explains the provisions of MACRA relating to APMs and describes the actions HHS and CMS should take in three key areas:

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

The important issues discussed in the report include:

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

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

The Payment Reform Glossary

One of the barriers to reaching consensus on significant payment reforms has been the complex and confusing array of terminology that has been used to describe different payment systems. It is difficult for stakeholders to determine whether to support a proposal if they do not understand the words and abbreviations used to describe it, and it is difficult to reach agreement when the same words are used by different people to mean different things or when words are perceived by some stakeholder to mean something different than what was actually intended.

The Payment Reform Glossary is designed to facilitate a better understanding of payment reform concepts and to create a foundation for a common language for developing and discussing payment reform concepts so they can be supported and implemented by all stakeholders -- patients, providers, employers, health plans, and government agencies.

Features of The Payment Reform Glossary include:

In addition to providing definitions, the Glossary attempts to explain many of the most important words and phrases in enough detail that patients, providers, purchasers, and policy-makers can understand the advantages and disadvantages of different payment models and the rationale for including various components of payment models that might otherwise seem to make them unnecessarily complex.
Because there is not just one "fee-for-service payment system" but more than a dozen different systems for different types of providers, each with their own unique structures and their own unique strengths and weaknesses, The Payment Reform Glossary provides a basic description of the major payment systems used today to pay physicians, hospitals, and other providers.
The Payment Reform Glossary also provides descriptions of many of the most significant payment reform models that have been proposed or implemented by public and private payers.
A unique feature of The Payment Reform Glossary is that explicit comparisons and contrasts among key concepts are provided in highlighted sections of the Glossary.

Bundling Better

Bundling Better: How Medicare Should Pay for Comprehensive Care (for Hip and Knee Surgery and Other Healthcare Needs) describes in detail how a properly designed payment system for hip and knee replacement could enable physicians, hospitals, and other providers to improve care for patients and reduce costs for the Medicare program and private payers without the need for those providers to accept excessive or inappropriate financial risk, and without requiring or encouraging greater consolidation of providers.

The way Medicare pays for hip and knee surgery will likely be the template for the alternative payment models Medicare uses to pay for many other procedures and conditions, so it will be important to all physicians and hospitals to get it right, not just those who provide joint surgery. The payment approach described in Bundling Better could be used to support better care for a broad range of patients and health conditions, not just hip and knee problems. The payment changes described in Bundling Better would also improve the ability of Accountable Care Organizations to successfully manage the overall costs and quality for a population of patients.

The payment system for Comprehensive Care for Joint Replacement (CCJR) described in Bundling Better would have the following significant advantages over both the current payment system and the proposal for paying for joint replacement that was issued by the Centers for Medicare and Medicaid Services (CMS) issued in July 2015:

All of the care associated with hip or knee replacements would be delivered by a physician-led team of providers chosen in advance by the patient receiving surgery.
This CCJR Team would have the ability to deliver the most appropriate services to meet patients' needs, and the providers on the Team would not be restricted to delivering only those services for which payments are made under current Medicare payment systems.
The CCJR Team would receive an episode payment designed to cover the costs of all of the services their patients need related to the hip or knee surgery, including all post-acute care services and any complications experienced for a 90-day period. This payment would be established based on what providers agreed that evidence and experience indicated was necessary to support good care for patients. The amount of the payment would be known long before care was delivered and it would be stable over time, so that providers could establish and sustain high-quality patient care services.
CCJR Teams who treat patients with greater needs would receive larger episode payments to adequately support the larger amount of care those patients need.
CCJR Teams who deliver better outcomes for their patients would receive higher episode payments.
Payments to CCJR Teams would flow through provider-owned CCJR Management Organizations, and limits on financial risk would be established to enable physician practices and provider organizations of all sizes to participate in the program.
Participation in the CCJR program would be voluntary and open to interested providers in all parts of the country, so that all Medicare beneficiaries would have the opportunity to benefit from better care under the program, and also so that no beneficiary would be forced to receive care paid through the program if their physicians did not believe it would enable them to deliver improved care.
The CCJR program would not preclude providers or CMS from implementing other payment models if better options became available.

Bundling Badly

On July 9, 2015, 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.

Bundling Badly describes in detail the many problems with the proposal, including:

The CMS proposal does not change any of the underlying fee for service payment structures that create the current problems. Instead, it tries to impose an overall budget on the total cost of care after the care has already been delivered.
The CMS proposal would set the same budget for an episode of care regardless of differences in patient need, which could lead higher-need patients to be underserved or be denied access to surgery.
The CMS proposal would put hospitals at risk for all of the costs of post-acute care services, even though hospitals do not have direct control over those services today and would not be given any greater control under the proposal. Hospitals would also be held accountable for the management of patients' chronic conditions after discharge, regardless of whether the physicians who had been managing those conditions prior to the hospital admission were even affiliated with the hospital.
The CMS proposal would reduce the overall budget for services if fewer services eligible for current payments were delivered, with no consideration for the costs providers had incurred in delivering new or improved services that are not reimbursed under current payment systems.
Under the CMS proposal, providers who deliver better outcomes would not be rewarded for doing so unless they were able to reduce spending. Conversely, providers who deliver poor outcomes would not be penalized as long as spending remained within target levels.
The CMS proposal would mandate participation by providers in randomly-selected regions while precluding participation by providers in other regions, which would limit the choices of Medicare beneficiaries in every community.
The CMS proposal would preclude the ability to implement better approaches to payment for joint replacements in any region for a five year period.

A Better Way to Pay for Cancer Care
And the Right Way to Design Alternative Payment Models

The federal government has set a goal of moving 50% of Medicare payments into "Alternative Payment Models" by the end of 2018, and Congress passed legislation in April authorizing higher payments for physicians who receive at least 25% of their revenues from Alternative Payment Models by 2019.

Although a number of Alternative Payment Models have been developed for primary care physicians and physicians who peform hospital-based procedures, there has been little progress in creating Alternative Payment Models for the majority of specialists. Moreover, most Alternative Payment Models to date have consisted of shared savings programs or pay-for-performance systems that fail to solve the fundamental problems with fee for service payment.

Cancer care is an area where significant payment reforms are badly needed. National spending on cancer care has doubled in the past decade and is projected to exceed $150 billion by 2020. There are many opportunities to reduce the cost of cancer treatment without harming patients, but the current payment system doesn't adequately support the highest-quality, most appropriate care for patients.

A Better Way to Pay for Cancer Care describes a new Alternative Payment Model for cancer care that is designed to fix many of the problems with the current payment system. Patient-Centered Oncology Payment (PCOP) would be a win-win-win for patients, payers, and oncology practices by providing significantly higher payments to oncology practices to support improved services for patients, while producing net savings in total cancer spending for payers by eliminating unnecessary or undesirable services for patients.

Additional information about Patient-Centered Oncology Payment and ways to improve cancer payment is available at www.CancerPayment.org.

The Building Blocks of
Successful Payment Reform
Designing Payment Systems That Support Higher-Value Health Care

There is growing national recognition that most pay-for-performance and "value-based purchasing" systems fail to adequately solve the serious problems with the fee-for-service payment system and that fundamentally different ways of paying for health care are needed in order to improve quality and control costs. The U.S. Department of Health and Human Services has announced a goal of moving 50% of Medicare payments into "alternative payment models" by 2018, and legislation repealing the flawed Sustainable Growth Rate formula includes provisions encouraging physicians to participate in "alternative payment models."

However, the devil is in the details: How do you actually design an "alternative payment model" that supports better care for patients and lower spending for payers without putting physician practices and hospitals out of business or exposing them to inappropriate financial risk?

The Building Blocks of Successful Payment Reform: Designing Payment Systems That Support Higher-Value Health Care, shows how alternative payment models can be designed in ways that benefit patients, payers, and providers. The report, prepared with support from the Robert Wood Johnson Foundation as part of the Network for Regional Healthcare Improvement's Payment Reform Series, describes how to design payment reforms that simultaneously achieve four important goals:

Sufficient flexibility in care delivery so that healthcare providers can deliver high quality, affordable services that are matched to the unique needs of individual patients;
Appropriate accountability for spending to assure purchasers that healthcare will be more affordable than under the current payment system;
Appropriate accountability for quality to assure both patients and purchasers that the quality of care will be maintained or improved; and
Adequacy of payment to cover the costs of delivering high-quality, efficient care to the types of patients that providers see.

The report explains the four essential building blocks that must be included in an alternative payment model to successfully achieve these goals. It also describes multiple options for creating each of those building blocks so that payment models can be customized to the needs and capabilities of different payers and providers, and it shows how to enable providers and payers to transition to more accountable payment models over time.

The Building Blocks of Successful Payment Reform complements another report from CHQPR, Making the Business Case for Payment and Delivery Reform, that provides a step-by-step guide to help businesses, physicians, hospitals, and other purchasers and providers carry out the financial analyses needed to design the kinds of payment systems described in the Building Blocks report.

An Executive Summary of the Building Blocks report is also available.

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.

Measuring and Assigning Accountability
for Healthcare Spending

The federal government, commercial health plans, and other organizations are increasingly using measures of healthcare spending for the purposes of rewarding or penalizing physicians, hospitals, and other healthcare providers, defining provider networks, and encouraging patients to use particular providers. Measuring and Assigning Accountability for Healthcare Spending describes six fundamental problems with the current attribution and risk adjustment systems that are being used in these measures and explains how these problems could seriously harm both patients and healthcare providers.

For example, the report shows how the spending measures currently being used in "value-based purchasing" programs can:

Inappropriately assign accountability to physicians and hospitals for services they did not deliver and cannot control, while at the same time failing to hold healthcare providers accountable for most of the services they do deliver;
Financially penalize physicians and hospitals who care for patients with complex problems and who deliver evidence-based services to their patients;
Fail to provide physicians, hospitals, and other providers the kind of actionable information they need to identify opportunities to control healthcare spending without harming patients; and
Provide patients with misleading information about which providers deliver lower-cost, higher quality care.

Measuring and Assigning Accountability for Healthcare Spending also describes how these problems can be solved. The report presents a detailed methodology for assigning accountability to healthcare providers for the services they actually can control or influence and for identifying which aspects of those services might be changed in order to achieve the same or better outcomes for patients at lower cost. In addition, methods are described for comparing services and spending for patients with similar needs. The report shows how these improved methodologies can use existing data to produce more valid, reliable, comprehensive, and actionable measures than those commonly used today. The report also describes how more actionable measures of spending can help payers and providers move more quickly to true payment reforms such as bundled payments, warranties, condition-based payments, and global payments.

A 7-page Executive Summary of the report is also available. It summarizes the six fundamental problems with current approaches and the improved method of measuring spending, and gives a detailed example of how the improved methodology would provide more actionable infomation for a hypothetical patient.

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.

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

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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