Medicare Payments Could Get Tougher for Docs

Elizabeth Woodcock, MBA, CPC


December 01, 2020

More than 40 value-based payment models — from direct contracting to bundled payments — have been introduced into the Medicare program in the past 10 years, with the goal of improving care while lowering costs. Hopes were high that they would be successful.

But despite the new alternative payment models, costs have not declined. If this continues, Medicare won't have sufficient funds to cover benefit costs after 2024. Physicians could suffer a huge blow to their income.  

Many of the value-based care models simply did not work as expected, said Seema Verma, head of the Centers for Medicare & Medicaid Services (CMS), at a recent HLTH Conference. "They are not producing the types of savings the taxpayers deserve," Verma said.

The Medicare Payment Advisory Commission (MedPac) concluded that while dozens of payment models were tested, most failed to generate net savings for Medicare. Even the most successful of the models produced only modest savings. MedPac elaborated: "The track record raises the question of whether changes to particular models or CMMI's [Center for Medicare & Medicaid Innovation's] broader strategies might be warranted."

What will happen now, as government officials admit that their value-based programs haven't worked? The value-based programs could become more stringent. Here's what physicians will have to contend with.

More risk. Experts agree that risk — financial risk — will be a component of future programs. Two-sided risk is likely to be the norm. This means that both parties — the provider and the insurer — are at financial risk for the patients covered by the program.

For example, a plan with 50,000 beneficiary patients would estimate the cost of caring for those patients on the basis of multiple variables. If the actual cost is lower than anticipated, both parties share in the savings. However, both share in the loss if the cost of caring for their patient population exceeds expectations.

This may compel physicians to enhance efficiency and, potentially, limit the services provided to patients. Typically, however, the strategy is to make efforts to prevent services like ED visits and admissions by focusing on health maintenance.

In contrast to most current value-based models, which feature little to no downside risk for physicians, double-sided risk means physicians could lose money. The loss may incorporate a cap — 5%, for example — but programs may differ. Experts concur that double-sided risk will be a hallmark of future programs.

Better data. The majority of healthcare services are rendered via fee-for-service: Patients receive services and physicians are paid, yet little or no information about outcomes is exchanged between insurers and physicians.

Penny Noyes, president of Health Business Navigators and contract negotiator for physicians, is not a fan of the current crop of value-based programs and feels that data transparency is positive. Sound metrics can lead to improvement, she says, adding, "It's not money that drives physicians to make decisions; it's what's in the best interest of their patients and their patients' long-term care."

Value-based programs can work but only if applicable data are developed and given to physicians so that they can better understand their current performance and how to improve.

Mandated participation. Participation in value-based programs has been voluntary, but that may have skewed the results, which were better than what typical practice would have shown. Acknowledging this may lead CMS to call for  mandated participation as a component of future programs. Physicians may be brought into programs, if only to determine whether the models really work. To date, participation in the programs has been voluntary, but that may change in the future.  

Innovation. The private insurance market may end up as a key player. Over the past 6 months, health insurers have either consolidated partnerships with telemedicine companies to provide no-cost care to beneficiaries  or have launched their own initiatives.

Others are focused on bringing together patients and providers operating outside of the traditional healthcare system, such as Aetna's merger with CVS which now offers retail-based acute care (MinuteClinic) and chronic care (HealthHUB). Still other payers are gambling with physician practice ownership, as in the case of United Healthcare's OptumHealth, which now boasts around 50,000 physicians throughout the country.

New practice models are emerging in private practices as well. Physicians are embracing remote care, proactively managing care transitions, and seeking out more methods to keep patients healthy and at home.

Not Much Was Expected From Value-Based Plans 

Many are not surprised that the value-based models did not produce impressive results. Penny Noyes doubts that positive outcomes will be achieved for physicians in comparison to what could have been attained under fee-for-service arrangements with lower administrative costs.

While the Affordable Care Act attempted to encourage alternative reimbursement, it limits the maximum medical loss ratio (MLR) a payer could achieve. For many plans, that maximum was 85%. Simply put, at least 85 cents of each premium collected had to be paid in claims; the remaining 15 cents went to margin, claims, and other administrative costs. A payer with an 82% MLR then would have to rebate the 3% difference to enrollees.

But that's not what occurred, according to Noyes. Because value-based payments to providers are considered a claims expense, an MLR ratio of 82% allowed the payer to distribute the 3% difference to providers as value-based payments. Noyes says, "That may sound good for the provider, but the result was essentially a freeze on the provider's fee-for-service reimbursement with the prospect of getting value-based payments like 'shared savings.'"

"When the providers tried to increase their base fee-for-service rates just to match inflation, payers often advised that any future raises had to be earned through value-based programs," Noyes added. The value-based formulas confuse providers because payments are often made for periods as far back as 18 months, and providers do not have data systems to reconcile their payer report cards retrospectively. The result, Noyes reveals, is that providers tended to accept whatever amount the payer distributed.  

Executives at Lumeris, a company that helps health systems participate successfully in value-based care, see potential in a newer approach to alternative payments, such as CMS' Direct Contracting initiative. This voluntary payment model offers options tailored to several types of organizations that aim to reduce costs while preserving or enhancing the quality of care for Medicare fee-for-service beneficiaries.

Jeff Smith, chief commercial officer for population health at Lumeris, explains that the Direct Contracting initiative can provide physicians with a more attractive option than prior value-based models because it adjusts for the complexity and fragility of patients with complex and chronic conditions. By allowing providers to participate in the savings generated, the initiative stands in stark contrast to what Smith describes as the "shared savings to nothingness" experienced by providers in earlier-stage alternative payment models.

Physicians engaged with value-based programs like Direct Contracting are investing in nurses to aid with initiatives regarding health promotion and transitions of care. When a patient is discharged, for example, the nurse contacts the patient to discuss medications, schedule follow-up appointments, and so forth — tasks typically left to the patient (or caregiver) to navigate in the traditional system.

The initiative recognizes the importance of managing high-risk patients, those whom physicians identify as having an extraordinary number of ED visits and admissions. These patients, as well as so-called "rising risk" patients, are targeted by nurses who proactively communicate with patients (and caregivers) to address patient's needs, including social determinants of health.

Physicians who have a large load of patients in value-based programs are hiring social workers, pharmacists, and behavioral health experts to help. Of course, these personnel are costly, but that's what the value-based programs aim to reimburse.

Still, the road ahead to value-based is rocky and may not gain momentum for some time. Johns Hopkins University's Doug Hough, PhD, an economist, recounts a government research study that sought to assess the University's health system participation in a value-based payment program. While there were positive impacts on the program's target population, Hough and his team discovered that the returns achieved by the optional model didn't justify the health system's financial support for it. The increasingly indebted health system ultimately decided to drop the optional program.

Hough indicates that the health system — Johns Hopkins Medicine — likely would have  continued its support for the program had the government at least allowed it to break even. Although the payment program under study was a 3-year project, the bigger challenge, declares Hough, is that "we can't turn an aircraft carrier that quickly."

"Three years won't show whether value-based care is really working," Hough says.

Robert Zipper, MD, a hospitalist and senior policy advisor for Sound Physicians, a company that works to improve outcomes in acute care, agrees with Hough that performance tends to improve with time. Yet, Zipper doesn't see much change in the near term, because "after all, there is nothing to replace them [the programs]."

The problem gets even stickier for private payers because patients may be on an insurance panel for as little as a year or two. Thanks to this rapid churn of beneficiaries, even the best-designed value-based program will have little time to prove its worth.

Zipper is among the many who don't expect significant changes in the near term, asserting that "President Biden will want to get a few policy wins first, and healthcare is not the easiest place to start."

But it's likely that payers and others will want to see more emphasis on value-based programs despite these programs' possible value to patients, physicians, and health systems alike.


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