Financial Results from the Physician
Group Practice (PGP) Demonstration
Gregory Pope, John Kautter, Michael
Trisolini, Musetta Leung, Diana Trebino
RTI International
AcademyHealth Annual Conference
Chicago, IL
June 2009
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RTI International is a trade name of Research Triangle Institute
Shared Savings Model
• Providers can share in cost savings they generate
• Establishes incentives to slow cost growth
• Flexible, allows provider groups to determine the best
way to control costs
• Acceptable to providers because of no downside risk
• Limits revenue losses to providers from reducing
utilization
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PGP Demonstration Shared Savings
Methodology
• Set expenditure target for PGP patient population
• Compare actual expenditures of PGP patient
population to target
• PGP can share in savings if actual expenditures are
less than target
• No upfront fee
• Provider intervention, no patient enrollment
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Expenditure Target
• Start with base year per capita expenditures of each
PGP’s patient population
• Trend forward to performance year by local FFS
market expenditure growth rate
• Adjust for changes in
– health status expenditure risk of PGP and market area
patient populations
– the size of the PGP and market area patient
populations
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Example of Savings Calculation
• PGP patient base year per capita expenditures:
$10,000
• Local market expenditure growth rate: 10%
• Target = 110%*$10,000 = $11,000
• PGP patient actual expenditures: $10,500
• Target minus actual: $500 (4.5% of target)
• 2% of target threshold to account for normal variation
in expenditures = $220
• Maximum savings shared with PGP:
80%*($500 - $220) = $224 (2.0% of target)
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Financial Incentives of PGP Demonstration
• Opportunity to share in savings generated for
patients
• No downside risk for exceeding expenditure target
• At risk for care management, quality improvement
investments
• At risk for foregone FFS revenues due to lower
utilization. But
– lower utilization also reduces costs
– savings includes reductions from non-participating
providers
• Cost-reducing quality improvements preferred
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PY1 Target Minus Actual Expenditures
as a Percentage of Target Expenditures
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PY2 Target Minus Actual Expenditures
as a Percentage of Target Expenditures
6%
4%
Minimum
Savings
Threshold
2%
0%
Minimum
Loss
Threshold
-2%
-4%
-6%
4
1
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Source: RTI International
2
6
3
7
9
Physician Group Practice
5
8
10
Net Demonstration Savings ($000s)
$20,000
$18,000
$16,000
$14,000
$12,000
PGP Bonus
$10,000
$8,000
PGP "Loss"
$6,000
Medicare
Savings
$4,000
$2,000
$0
PY 1
SOURCE: RTI International.
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PY 2
Per Capita Target Minus Actual
Expenditures by Patient Subgroup (PY2)
Subgroup
Heart Failure
Diabetes
Coronary Artery Dis
Cancer
COPD
Target – Actual $
103
224*
555*
-40
423*
*statistically different from zero, 5% level of significance
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Per Capita Target Minus Actual by
Expenditure Component (PY2)
Component
Target – Actual
Hospital inpatient
25
Outpatient, total
83*
Physician/supplier
30*
Hospital outpatient
39*
Home health
21*
Durable medical eqp
-1
*statistically different from zero, 5% level of significance
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Caveats to Savings Measurement
• Savings sensitive to alternative measurements
– Risk adjustment
– Medicare payment policy changes
– Dollar versus percentage increases
• Normal (random) expenditure fluctuations
• Comparison group limitations
– not randomized
– incompletely matched
– referral patterns
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Summary
• PGP demo uses shared savings model
• In PY1 and PY2 small measured savings on average
• Savings performance varied substantially across
PGPs, beneficiary subgroups, and types of service
• Measured savings not robust to alternative
methodologies
• Difficult to link savings to specific PGP interventions
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Challenges in Generating Savings
• Difficult/expensive to manage patient care,
uncertainty about “what works”
• Formal programs reach only a small % of patients
• Substantial patient care not provided by the PGP
• Turnover in patient population
• FFS incentives overwhelm shared savings incentives
(foregone FFS revenues)
• No patient incentives
• No provider price discounting
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