Medicare Payment and Delivery
Innovations (with an Emphasis on
Accountable Care Organizations)
Robert A. Berenson, M.D.
Institute Fellow, The Urban Institute
Long Term Care Discussion Group
Washington, DC 19 February 2013
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The Basic Problem with Current FFS
Payment to Clinicians
• The Resource Based Relative Value Scale
(RBRVS)-based fee schedule has limitations
• The relative values of 7000+ codes
approximate resource costs, and not based
on services beneficiaries need
• What attempts to be an objective process is,
despite good intentions, inherently subjective
• MedPAC is calling for actual data to inform
the CMS-RUC process, e.g., to determine
actual time, not estimates, for work values
and obtaining real data on practice expenses
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FFS for Primary Care Has Been
Rooted in Face-to-Face Encounters
There are various reasons -– high transaction costs, associated with
non-face-to-face, frequent, low dollar
transactions;
– program integrity concerns
– “moral hazard” driving expenditures
Yet, increasingly, face-to-face visits do not
encompass the work of primary/principal care
for patients with chronic conditions and
functional limitations (many Medicare
beneficiaries and many dual eligibles)
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FFS Attributes
Advantages
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Rewards activity, industriousness
Theoretically can target to encourage desired behavior
Implicitly does case-mix adjustment
Commonly used by payers and physicians
Disadvantages
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Can produce too much activity, physician-induced demand
Maintains fragmented care provided in silos
High administrative and transaction costs
What is not defined as reimbursable is marginalized
Complexity makes it susceptible to gaming and to fraud
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PPPM – Per Person Per Month –
For All Services (Global Payment)
Advantages
– Internalizes allocation of activity and costs to meet
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needs
Direct incentive to restrain spending
Predictable and capped spending
Administratively simple (until address some of the problems)
Low transaction costs
Disadvantages
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May lead to stinting on care
Susceptible to cream-skimming
Incentive to cost shift to services outside the PPPM
Can’t specifically promote desired activity
May resist innovation/ new services
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Shared Savings
Organization or practice receives a bonus if
actual spending comes in less than target
Advantages
-- Provider’s own experience determines target – achievable
-- Payer doesn’t spend more if no savings
-- No change in base payment methods -- good transition model
Disadvantages
-- No change in base payment methods – too marginal to work
-- No risk (although can be converted into 2-sided risk)
-- Lack of normative standards penalizes best performers
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Episode/Condition/Bundle/Case
Advantages
− internalizes incentives for efficiency within the episode
− potentially aligns incentives across siloed providers
− arguably, is an intermediate step on the way to real
integration
Disadvantages
− does not fundamentally alter incentive to generate units of
service
− be careful about what you wish for, e.g. physicianhospital alignment without determination of
appropriateness in a FFS environment
− currently, political challenges in bundling among providers
− technically challenging (esp. for ambulatory care) – vagaries
of diagnosis (more episodes in Miami than Minnesota), bias
to performance of a procedure in a case rate, sorting out
where particular claims are assigned to
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Public Reporting and Pay-forPerformance (P4P)
Advantages
– provides a hybrid payment to mitigate disadvantages of pure
models; some natural blends – PPPM and under-service
measures
– can start to actually reward desired performance,
instead of rewarding volume of services produced
– can include measures of patient experience, which have
been overlooked as central to patient centeredness
Disadvantages
– underdeveloped measure set – especially for physicians
– what gets measured gets done?
– marginal incentives may be insufficient to counter
incentives in the base model it is superimposed over
– contributes more administrative complexity
– evidence that process measures don’t predict outcomes
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Examples of Blended or Hybrid
Payment Models
• PPPM with FFS carve outs or “bill aboves” and public
reporting on underuse measures
• For Patient-centered medical home, FFS for visits,
PPPM for medical home activities and P4P for patient
experience
• Partial capitation – FFS/PPPM and/or risk corridors
and/or particular sector (professional services, but
not institutional)
• Any of the above with public reporting and/or pay-forperformance
− quality measures where they exist, expenditure
or utilization targets, patient experience
measures
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Medicare Accountable Care
Organizations: Core Characteristics
Ability to provide and manage with patients the
continuum of care across different institutional
settings, at the very least, ambulatory and inpatient
Capacity to prospectively set budgets and allocate
resources to constituents of the ACO
Sufficient size to support comprehensive, valid, and
reliable quality measurement
In Medicare, no restrictions or incentives to limit full
freedom of choice
Beneficiary assignment to an ACO based on statistical
analysis of where beneficiaries get care – not election
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Is ACO Just a New Term for PSO
(Provider Sponsored Organization)?
In BBA 1997, PSOs were created to permit
Medicare to engage in financial risk
contracting directly with providers
They built it and no one came – actually 3 in 10
years
Core differences with the ACA’s Shared
Savings approach (Sec 3022) are absence of
financial risk-taking and no restrictions on
beneficiary choice (no gatekeepers).
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What Else May Be Different?
• Perhaps greater flexibility in organizational models
• New payment models, no longer full capitation – e.g.,
FFS w. shared savings, “partial capitation”
• Improved risk adjustment (although concern about
providers direct incentive for code creep)
• Availability of many more performance measures
• Prospect of continued pressure on FFS rates,
whatever is done with the SGR in Medicare
• Prospect for continued reduction of Medicare
Advantage overpayments
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ACA Shared Savings Program
Design Features
Real organizations – IPAs, multispecialty group
practices, PHOs, joint ventures between hospitals
and physician entities
Shared savings payment model – FFS with bonus if
come in under a spending target – with a threshold
for percentage saved before sharing and savings split
to be decided in regulations
Builds on 3-year historic costs associated with patients
assigned to ACO on the basis of claims patterns
ACOs need to hit threshold performance on 32 quality
measures to be eligible for shared savings
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Shared Savings Program (cont.)
Also testing two-sided risk (by year 4) and other
forms of risk taking
This is a program, not a pilot or demo
Separately, the Center for Medicare and
Medicaid Innovation at CMS supports
Pioneer ACOs which are more mature
organizations that have assumed risk
Altogether now about 150 ACOs serving about
2.5 million in Medicare – both hospital and
medical group-based
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How Would an ACO Work for
Purchasers and Commercial Plans?
Well-founded concern about Medicare “sanctioned”
ACOs developing and using market power in
negotiations with health plans to drive prices higher
Providers want assurance of protection from FTC/DOJ
Some view ACOs as community-wide – a way for
competitors to come together to collaborate to reduce
spending and increase quality
Policy concern is ACOS might reduce costs but not
provide the savings to private sector purchasers in
reduced premiums
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Potential ACO Market Power
Some prototypical ACOs obtain 200-250% of
Medicare in their commercial insurance
contracts
That is a lot to make up in lower utilization.
Dartmouth-type utilization variations do not
approach these price differentials
BUT the market power issue is not confined to
ACOs – exists with non-integrated providers
as well – single specialty physician mergers
and multi-hospital systems exert market
power
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