Preliminary, do not cite or distribute
Financial Results from the Physician
Group Practice (PGP) Demonstration
Gregory Pope, John Kautter, Diana Trebino
RTI International
AcademyHealth Annual Conference
Boston, MA
June 2010
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RTI International is a trade name of Research Triangle Institute
Research Sponsor and Disclaimer
• Research funded by CMS
• Any views expressed are the authors’, and are not
necessarily those of CMS
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Medicare Physician Group Practice
(PGP) Demonstration
• Mandated by BIPA (2000)
• 10 large physician organizations participated
• Over 200,000 assigned beneficiaries and several
thousand physicians
• Base year 2004
• 5 performance years
• Demonstration ended March 2010
– Extension currently under consideration
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Demonstration PGPs
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Medicare Physician Group Practice
(PGP) Demonstration, continued
• Non-enrolled model in Medicare FFS
– FFS beneficiaries assigned to PGPs retrospectively by a
plurality of performance year evaluation and management
visits
– Beneficiaries maintain complete freedom of provider choice
and FFS benefit package
• PGPs continue to be paid Medicare FFS, but can
earn a bonus for cost and quality performance
– Cost performance evaluated on annual per capita Medicare
Part A/B expenditures versus a local FFS comparison group
– Quality performance evaluated on 32 ambulatory care
process measures
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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
financial risk
– Providers are at risk for foregone FFS revenues, care
management investments
• Limits revenue losses to providers from reducing
utilization
• Medicare ACOs beginning in 2012
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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
• Percentage of savings shared depends on quality
performance
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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: $10,600
• Target minus actual: $400 (3.6% of target)
• 2% of target threshold to account for normal variation
in expenditures = $220
• Maximum savings shared with PGP:
80%*($400 - $220) = $144 (1.3% of target)
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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
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PY3 Target Minus Actual Expenditures as a
Percentage of Target Expenditures
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Net Demonstration Savings ($000s)
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Per Capita Target Minus Actual
Expenditures by Patient Subgroup (PY3)
Subgroup
Heart Failure
Diabetes
Coronary Artery Disease
Cancer
COPD
* = significant at 10% level
** = significant at 5% level
*** = significant at 1% level
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Target – Actual $
206
269**
367
111
640***
Per Capita Target Minus Actual by
Expenditure Component (PY3)
Component
Target – Actual
Hospital inpatient
73**
Outpatient, total
58**
Physician/supplier
27*
Hospital outpatient
28
Home health
17**
Durable medical eqp
-4
* = significant at 10% level
** = significant at 5% level
*** = significant at 1% level
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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-PY3 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
• Shared savings model provides a framework to
encourage and reward savings
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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
• Patient care not provided by the PGP
• Turnover in patient population
• FFS incentives overwhelm shared savings incentives
(foregone FFS revenues)
• Individual PGP physicians still paid FFS/productivity
• No patient incentives
• No provider price discounting
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Medicare ACOs in PPACA
• Eligible organizations
– Group practices, networks, hospital-MD joint ventures, etc.
– Formal legal structure
– At least 5,000 assigned beneficiaries
• Agreement period
– not less than 3 years
– Expenditure benchmark reset at beginning of each period
• Patient assignment
– “Based on…utilization of primary care services provided…by
an ACO professional”
• Shared savings, partial capitation, other payment
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Shared Savings ACO Payment in
PPACA
• Expenditure benchmark
– 3 most recent years of assigned beneficiary expenditures
– “updated by the projected absolute … growth in national per
capita … expenditures under … Medicare fee-for-service…”
• Shared savings
– % of difference between ACO expenditures and benchmark
– “subject to performance with respect to quality standards”
• Minimum savings requirement
– No savings shared unless ACO spending is at least a
specified % below benchmark
– Varies based on number of patients assigned to an ACO
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