Powerful incentives and inertia remain intact, limiting stakeholders’ willingness to experiment with the range of innovative reimbursement models that promise to make the effort and cost of reform worthwhile. The result: growing agreement that transition to a system that fosters experimentation with mixed reimbursement schemes is required to ease away from the existing FFS model and the entrenched processes and technologies that are already in place.
It’s said that imminent execution concentrates the mind. It could also be said that the looming specter of draconian cuts to healthcare, and their financial impact on stakeholders, are driving innovation in payment and delivery models. Indeed, the variety of reform models being considered or implemented is evidence of the complexity of the challenges that health systems, providers, and payers are working to overcome.
Payment reform, however, will be one of the critical drivers of care delivery reform. Accordingly, we need a definitive transition from the current FFS system to one that will drive value through mixed reimbursement schemes, which themselves support multiple forms of payment bundling in conjunction with limited FFS.
In the end, there are five critical elements of successful care delivery reform:
• Risk assumption for all stakeholders
• A robust primary care foundation
• The alignment of payment models and incentives
• Information technology that supports such alignment
• A strong regional focus
I’ll explore all of these in this paper. Let’s start, however, by examining how we got here. Inefficiency, a lack of coordination, and incentive misalignment in our healthcare system have contributed to the potential difficulties we face. Despite clear pockets of excellence, the quality of healthcare in the United States is highly variable. America’s overall healthcare performance generally falls short of other developed countries’ performance.1
In our current system, 30% or more of the care that’s provided might be unnecessary.2 New technologies, medicines, and services, coupled with an increasing reliance on often uncoordinated or avoidable specialty treatments add to the cost conundrum. Moreover, administrative burdens continue to grow.
Previous efforts to contain costs by reducing or restricting access, such as the managed care models of the 1990s, have been rejected. Under the false and potentially dangerous assumption that more care leads to better outcomes, Americans expect healthcare to be available when they need it through whatever methods or medicines are available.
Where, then, do we turn for answers? In recent years, numerous research studies have provided compelling evidence that the Institute for Healthcare Improvement’s Triple Aim Initiative for improved healthcare quality, outcomes, and lower costs is achievable.3 I believe those objectives are the guideposts for the answers we seek.
Delivery and payment models that improve care coordination, enhance access to appropriate care, establish primary care as the foundation of patient care, reduce our reliance on specialty services, and use health information technologies will produce higher quality care at lower costs.4 The key to achieving this balance is to align stakeholder incentives and include all parties in the assumption of risk.
Volume Vs. Value
If payment-model reform is one significant driver of care delivery reform, consider how entrenched behaviors that have resulted from our traditional FFS payment system exacerbate the problems we face. By its very nature, FFS promotes volume of care over value of care.
Primary care practitioners must see as many patients as possible, reducing the attention they can devote to each patient’s needs. Specialists, likewise, are incented to provide as many services as possible at the highest possible cost. Financially, FFS does exactly what it’s designed to do. And we’re all paying the price, quite literally.
To date, most reform models have taken an incremental approach to evolving away from the FFS system. The appeal of a gradual transition is understandable. Decades of tradition in medical education, training, professional culture, and practice create a formidable barrier to the adoption of any new system.
Normative behaviors, work processes, and organizational cultures are highly resistant to change. Altering the system by which revenue is generated and services are reimbursed is daunting, to say the least. It requires not only the effective use of new technology, but also education and ongoing support for behavior change.
To avoid political backlash and give providers time to prepare, contemporary models offer a glide-path to reform by maintaining the FFS system for several years and postponing the potential “punishment” of revenue losses.
This gradual approach, however, might be unlikely to produce the results we’re after if it limits experimentation with the full range of reimbursement options available.
Ensuring A Commitment To Change
The Medicare Shared Savings Program provision of the Affordable Care Act provides a compelling example of how the relationship between incentives, disincentives (risk), and a transition to a new payment model plays out. When details of the provision were initially released, the provision itself was widely condemned as unworkable with little chance of return on investment. But when the Centers for Medicare and Medicaid Services (CMS) released its final rule, the reception was overwhelmingly positive.
What was one key difference between the versions of the rule? Primarily, the distribution of risk. The final rule reduced or eliminated downside risk for providers and increased their share in the upside opportunity. Presumably, the drafters of the provision thought that a carrot would encourage more progress than a stick.
This premise, however, represents a fundamental misunderstanding of the role incentives play in promoting and sustaining change. The behavioral and management literature is clear; while incentives do need to outweigh disincentives (risk), a coupling of both incentives and disincentives is essential to achieving effective behavioral change.
Without a disincentive for a failure to meet quality and cost goals (downside risk), lasting changes may not take hold. If FFS incentives remain in place for a significant period and downside risk is either minimized or removed, then the transition to a new model will be prolonged. Providers will likely be less motivated to adopt the new behaviors, work processes, and collaborative practices needed to change the way care is delivered or to invest in necessary infrastructure improvements and contractual relationships if there is no downside risk associated with maintaining the entrenched status quo.
Risks And Rewards
Some form of episodic or more global capitation is often seen as a viable means of transitioning from an exclusive FFS foundation. In fact, numerous studies and reports5 have linked the concept of payment bundling to the potential for substantial healthcare savings. Broadening the definition of payment bundling to include a range of possible approaches reveals how the concept of payment bundling supports care delivery transformation.
Recently, payment bundling has become most strongly associated with a particular procedure or an episode of care (EOC). This approach to payment bundling is commonly used for expensive acute procedures such as knee and hip replacements, heart surgeries and coronary bypass grafts. However, experience with payment bundling actually goes back several decades.
For instance, Diagnostic-Related Groups (DRGs) for acute inpatient stays have long employed bundled payments to cover associated inpatient facility charges. Unlike EOC, this form of payment bundling does not include related physician services during, before or after the hospital stay. As a result, key decision makers and care providers are removed from the care continuum.
Another form of payment bundling is for services related to a defined subset of patients. Typically, this approach is applied to patients with chronic conditions, such as diabetes, heart disease or even cancer. Payments are bundled for a specific period, such as six months or a year.
Finally, the concept of bundling has also come to be applied to “global payments,” in which capitated payments for a specific population are risk adjusted and contingent on specific quality and performance expectations. This approach and nomenclature are a deliberate attempt to avert the concerns associated with earlier, more problematic experiences with capitation.6
No Option Off the Table
In developing innovative approaches to payment reform, all options should be on the table. However, the approach used in the case of DRGs illustrates the limitations of removing key stakeholders and services from the assumption of risk; excluding physician services from the bundled payment effectively uncouples the decision makers and severs the care continuum.
When physician reimbursement is tied to the total cost of care, physicians are incented to coordinate their efforts with other physicians to meet cost, quality and economic goals. This aligns physician incentives with the goals of purchasers and promotes collaboration, teamwork, continuity, and efficiency.7
Moving from FFS to a system of mixed reimbursement models is an immense paradigm shift for healthcare organizations and workers, requiring changes in behavior, workflow, work processes, organizational culture and infrastructure. An organization or system of care that is truly committed to this change must drive it forward with an assortment of tools and levers.
The leadership commitment must be in place. Resources must be dedicated. Change and transformation agents must be employed. Investments must be made. And at every level of the organization and every point of care, key individuals need to come to a consensus about how work procedures will be done differently and how new attitudes and approaches will be adopted. Once again, without the right balance of upside and downside risk, a new system of care delivery is difficult to implement and even more challenging to sustain.
Reinvigorating Primary Care
Among all the decision makers in the care continuum, primary care physicians are unique. They are the only decision makers who aren’t incented to increase the use of specialist and facility-based services, major sources of costly and frequently unnecessary care. Accordingly, another condition for the successful implementation of payment and care delivery reform is the establishment of a robust primary care foundation.8
In a coordinated system, primary care serves an indispensable foundational role. Patients have a need for a trusted source of guidance who views them as a whole person with a range of health needs that change over time. An ongoing healing relationship with a primary care physician who can promote healthy decisions and help patients avoid costly, more debilitating conditions can make a real difference.
With comprehensive knowledge of the patient, primary care physicians also bolster the care delivery system by serving as an integrator with specialists and other providers while providing a critical brake on unnecessary or unwarranted specialist or facility-based care.
Numerous private payers, public payers, and healthcare purchasers have recognized the importance of primary care and put programs in place. Access and availability to primary care can be enhanced (and continuity of care extended) by expanding the definition of primary care beyond the individual physician to a team-based practice. This concept has been successfully demonstrated in the Patient Centered Medical Home (PCMH), which provides a range of high-value services not supported in the traditional FFS payment model.
Putting The Patient Front And Center
In the PCMH, a primary care physician can serve as the leader of a team of health providers including nurses, nurse practitioners, health coaches, social workers, nutritionists and other allied health professionals.9 Many recent industry and academic reports reveal the potential of medical homes to improve access, reduce the need for unnecessary services, reduce costs and improve quality.10
It should be noted that providing an additional per-member-per-month (PMPM) fee for care coordination, expanded access and healthcare information technology support has been critical to enabling PCMH results. The traditional FFS system alone discourages or prohibits such an approach because FFS is largely based on face-time services directly with the physician and limited to the FFS schedule.
With the addition of a medical home approach, innovation in service delivery becomes possible since additional PMPM fees function as reimbursement for care coordination activities that providers would not be reimbursed for under an FFS model.
Optimism about the benefits of independent primary care practices, however, should be tempered by their recent decline. More and more primary care physicians have been selling their practices to hospitals and healthcare systems. Six years ago, 23% of primary care practices reported ownership by a health system.
Today, that percentage has nearly doubled.11 Hospitals and health systems are acquiring primary care practices as part of a strategy to form accountable care organizations (ACOs). However, there is concern that primary care may not fulfill many of their key functions when administered within a larger organization.
Questions, Challenges For The ACO
For example, one of the virtues of independent primary care practices is that they have no financial incentive to refer to specialists or facility-based care. However, with FFS still in place, health systems may potentially leverage their primary care practices as referral channels to more lucrative specialty care and facility-based services.
Indeed, other benefits of robust primary care, such as its capacity to coordinate care and provide continuous healing relationships, may also be weakened when incentives are mixed with those of a hospital-based health system. The argument can be made that independent practices are too small or financially vulnerable to participate in risk arrangement/care management models on their own. Recently, however, efforts have been made to forge networks or alliances of independent primary care practitioners that share administrative, medical or technological resources.12 13
This may allow independent practices to retain the independence and decision-making power necessary to contain costs and promote continuous care. The early results from a number of approaches to engaging independent primary care and PCMH organizations in this manner are quite compelling in generating significant value and addressing such risk and cost concerns.
Solving The ‘Slice Of The Pie’ Problem
The biggest problem we face as payment reform shifts from FFS toward mixed reimbursement models is the complexity of managing those payment models. For an integrated, fully insured delivery system such as Kaiser Permanente, shifting to a new payment model for its providers is more straightforward. However, most physician practices, hospitals and health systems receive reimbursement from as many as 15 or more different payer organizations.
In the transition to new payment models, this spells chaos. Imagine a provider organization having to maintain an FFS payment system with the majority of payers, adopt a capitation system with others and navigate some form of blended FFS, PMPM partial capitation and pay-for-performance (P4P) schemas with the rest. Where would incentives be focused? This “slice of the pie” problem can be resolved with payment model and incentive alignment.
Aligning payment models across payers is made difficult because of historical barriers. In particular, antitrust concerns prohibit both payers and providers alike from communicating about or coordinating the price of services. However, the need to align payment models seems to be increasingly acknowledged and embraced, both by a number of policymakers as well as by public and private payers, purchasers and providers.14
While reforms in recent years have attempted to create safe harbors for stakeholder discussions about payment model alignment, actual alignment remains a challenge. Promising approaches exist, however, and will be discussed later in this paper.
Keeping The Patient Engaged
Just as we must align payment models and physician incentives with the overall goals of reform, so must we align patient incentives. While the physician may determine which medical services are ordered or prescribed, the patient determines which services are ultimately received. Without the patient’s active engagement, delivery reform will fail.
We have seen evidence of the role of the patient in the success or failure of prior payment and delivery reform efforts. In the push for managed care in the early 1990s, for example, patients rejected perceived efforts to “force” them to follow health plan policies and gatekeepers or have their choices restricted.
Following managed care’s early failure, purchasers tried to promote more efficient use of healthcare services by pushing costs to the consumer through increased premium contributions, co-pays, deductibles and other cost sharing mechanisms. As cost sharing increases, however, and patients are required to pay out of pocket for more services, they are just as likely to avoid care that is necessary as they are to stay away from unnecessary care.15
To address this challenge, value-based benefit designs have been introduced. These designs attempt to increase the likelihood that patients will comply with recommended treatments and engage in healthy behaviors by explicitly linking cost sharing and value. In value-based insurance, reduced co-pays are used to steer patients to high-quality, low-cost providers and services.
Through reduced co-pays, patients are encouraged to utilize these services and treatments. Studies of focused and targeted value-based insurance designs, such as those at Pitney Bowes, demonstrate improved outcomes in chronic diseases, such as diabetes and cardiovascular disease, without any consequential increases in medical costs.16
Keeping Providers And Patients Aligned
A variety of value-based insurance design approaches can be leveraged. Some involve reduced cost sharing. Others employ incentives that target access to specific medications for patients with chronic conditions. Still others encourage engagement in specific health promotion activities or promote the use of preferred providers and suppliers for specialty interventions.17
The latter approach enables purchasers to assess the quality of care that network hospitals and specialists provide for specific treatments and procedures and steer patients to those physicians or facilities through reduced co-pays.18 Even if other conditions of a successful reform model are in place, the model still may fail to deliver improved outcomes and reduced costs without patient engagement.19 The incentive system for providers of care must be aligned with the incentive system for recipients of care if we are to achieve our healthcare goals.
The Difference: Technology
Past reform efforts have failed for many reasons. But one fundamental difference between past reform efforts and efforts today is the capacity of technology to integrate systems and codify information within those systems, allowing providers to access information at the point of care so they can fully understand the financial consequences of their care determinations.
As both the complexity and the range of payment and care delivery models increase, the demand on the technology that underpins those models increases as well. In an FFS system, where providers are paid a set fee for every service and procedure at a contracted rate, the data needs of providers and payers are fairly straightforward.
This was also true with traditional capitation, in which providers were paid a simple PMPM fee for a given population of patients. However, because contemporary bundled payment models depend on the management of a vastly increased range of dynamic variables, they require a more sophisticated base technology—one that can handle the increase in variables.
Clinical risk adjustment, for instance, is one such variable, requiring that risk adjustment methodologies and population assessment measures must be evaluated. And another set of evaluation metrics, methodologies and data sources must be included when the payment model involves a pay-for-performance (P4P) layer. Different performance metrics are likely to be leveraged by different payers that support a given community, health system or provider practice. The adoption of electronic health records and the increasing need to leverage clinical data along with financial data adds to the complexity, as does real-time monitoring of quality and financial performance.
To handle these increasingly complex data requirements and to serve the goals of payment and delivery reform, information systems should connect key stakeholders, from payers to providers to patients. Collaboration is improved when stakeholders can work from the same data and information is available in near or real time.
When Stakeholders Collaborate
Key programs are emerging that demonstrate the feasibility and potential of aligning incentives, new payment models, and technology within the context of care models with a strong primary care foundation. Such care delivery models may look very different than what we are accustomed to, and their results are heavily based on investments in approaches not financially supported by existing or traditional insurance schemas.20
In Atlantic City, a redesigned PCMH focusing on the management of the most expensive chronic conditions is delivering evidence-based care in an individualized way to patients and their families. Payments for the care of these patients are made on a PMPM basis, freeing the clinic to redesign its staffing, workflows and activities to focus on care coordination and meeting individual patient needs.
Patients are given unlimited access to the clinic without charges, meaning there are no co-pays or insurance bills. The clinic is staffed by locally recruited and trained medical assistants along with licensed practical nurses acting as health coaches, who meet with patients individually and coordinate their care with physicians. Mental health, pharmacy and other professionals are integrated into the care team.21
In the Northwest, the Boeing Corporation has implemented a redesigned primary care approach for its employees utilizing nurse and care management staff. These care providers work closely with primary care physicians to develop highly individualized care plans that promote patient self management. Data, technology and outreach services are used to focus on those patients in greatest need. The key to the program has been the freedom to spend the time, effort and investment in approaches not traditionally supported by an FFS approach.22
In New Jersey, primary care teams composed of family physicians, nurse practitioners, community health workers, and social workers collaborate to address the unmet medical and social needs of their most costly patients. These multidisciplinary teams integrate traditional medical, mental health, social work and community efforts into a comprehensive care planning approach that has produced substantial reductions in the need for hospitalization, acute care services and specialty interventions.23
In Southern California, CareMore offers a scalable model for serving seniors. Built on the foundation of Medicare Advantage, CareMore operates out of innovative, community-based clinics that in many ways appear more like community centers than healthcare facilities. The CareMore model focuses on case management services for frail and chronically ill members along with close monitoring of healthier members.
Nurse practitioners are the focal point of the multidisciplinary care team, which relies on health information technology and remote monitoring to track patients’ status. CareMore centers provide or arrange for transportation and fitness programs, home and respite care and caregiver assistance. The outcomes are very positive, with early results demonstrating a 15% reduction in overall healthcare costs compared with regional averages, as well as superior diabetes control and lower re-hospitalization rates.24
Other groups showing similarly compelling data are reported with increasing frequency in the literature. In some cases, cost reductions of 15% or more have been observed from reductions in the use of unnecessary hospitalization, specialty and emergency care services. These results are often coupled with equally impressive improvements in outcomes.25
What many of these programs have in common is that a single payer or employer purchaser has used financial incentives to align the goals of providers and patients through innovative care delivery coupled with value-based member incentives. In the case of each of these programs, the care delivery model has evolved through the innovative collaboration of local stakeholders, including providers, community services, patients and plan sponsors.
Let’s Get Started
Healthcare is local, and the complexities involved in implementing effective payment reforms demand a local approach. If we are to achieve collaboration among key stakeholders, agreement on common goals, alignment around new payment models and meaningful provider engagement, then the implementation approach we adopt must be based on the resources, willingness and capabilities of the local healthcare infrastructure and culture.
Despite the barriers we face—historical competition between stakeholders, incentive misalignment and regulatory barriers to payment model collaboration—several approaches show promise as ways to move this process forward.
Recent initiatives by the Center for Medicare and Medicaid Innovation (CMMI) to facilitate the alignment of payment models are one area of promise.26 In a number of recent payment reform initiatives (e.g., Advanced Primary Care Initiative, Comprehensive Primary Care Initiative), the CMMI has utilized creative approaches to achieve alignment of commercial payers, state Medicaid agencies and Medicare at a regional level.
These approaches include a process to support clinical and financial data sharing, the alignment of quality and performance expectations, payment model coordination, and the alignment of incentives to reduce overall costs while improving quality, outcomes, and the consumer experience.
Additionally, stakeholders are using the new antitrust law’s “state actions” doctrine to facilitate regional collaboration between payers and providers interested in sharing clinical and financial data. The doctrine is also being used to support greater accountability and payment reform alignment.27 In addition, states can bring their Medicaid programs and state employee benefit programs to the table to facilitate such alignment.28
The private sector can play a role as well. For instance, a single large payer or a consortium of private payers can provide leadership in the regional implementation of new payment models expressly designed to both lower per capita spending and improve the quality of care.
It Takes A Village
This approach was originally highlighted in an interview with Chet Burrell, chief executive officer of CareFirst (BCBS Maryland and Northern Virginia). In the interview, Mr. Burrell pointed out the power of achieving truly transformational change when such initiatives are matched by regional payment reform initiatives at the federal and state level.29 Maryland has subsequently received federal approval to move toward an all-payer basis for critical aspects of healthcare reimbursement throughout the state with a goal of creating a national model for such an approach.30
In another form of collaboration, consortiums of local employers, union leaders, payers, healthcare providers and local public officials or consumer representatives can come together to agree on a common framework and influence stakeholders to move to a new model of payment and competition.31 These regional health collaboratives focus on aligning payers and providers around payment models that tackle healthcare costs and quality in a way that meets the needs of all participating stakeholders.
The needs and circumstances of each community, each population, and each hospital and physician practice are different. The pathways toward alignment are different as well. But the key to successful alignment is stakeholder collaboration. And local and regional ties can make collaboration more practical and more feasible.
Familiarity helps payers, providers and patients develop consensus around goals, desired behaviors and the details of contractual agreements. Familiarity also makes it more likely that collaboration will be sustained. A variety of circumstances are aligning to make payment and care delivery reform possible and practical. The fiscal burden of healthcare is providing all stakeholders with the will and motivation to break with tradition and experiment with new approaches. Political pathways are being cleared, enabling that experimentation to take place.
We have technology that can support better access, care coordination, and quality of care while managing complex payment systems. We also have the metrics to quantify what quality means and to use that information to reduce the cost of care. And even greater gains can be realized through increased efficiency. We know that collaboration can be enhanced by aligning payment models and incentives, and that implementation is best achieved on the community level.
Will we fully commit to such reforms? One alternative is a future of financial cuts more drastic than those we have ever experienced. A better alternative may be to finally realize the kind of rational, more integrated healthcare system we have been imagining for almost a century.
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