Explore the types of risk that providers face through emerging accountable payment models.
Admittedly, I assumed I would spend much of this week pouring over the proposed rule for Medicare's 2012 Shared Savings Program and dedicate this week's post to initial reactions. Like many others, I have been anxiously awaiting the imminent release of the proposed rule, which will outline Medicare's take on Accountable Care Organizations and set the ground rules for the upcoming program. Despite the rumors of impending release, the rule remains in the Office of Management and Budget (OMB) review process.
While we all continue to wait for Medicare's next move on the Shared Savings front, I want to use this post to introduce and frame the accountable payment models we will primarily cover in this project and highlight the various types of risk that providers assume under different payment models.
Defining accountable payment models
The Medicare Payment Innovation Project will principally focus on the following three accountable payment models:
Enhanced pay-for-performance: Range of programs designed to create greater connection between payment levels and clinical performance. Examples include Medicare's Value-based Purchasing Program, the Physician Quality Reporting Initiative (PQRI), and the Hospital Readmissions Reduction Program. Under any of these P4P programs, a percentage of providers' payment is withheld or otherwise tied to performance against defined process or outcome measures.
Bundled payments: Reimbursement model in which the payer replaces individual payments to the providers involved in an episode of care with a single lump sum paid to a collective of providers, creating a platform of shared accountability. In many respects an expansion of the current DRG system, bundling increases the range of services included within a prospective payment for an admission. While the scope of services may vary (consider the vast difference between bundling for inpatient care exclusively versus including post-acute care and readmissions in the bundle), the basic message providers receive is the same: collaborate to improve quality and reduce costs. Medicare is currently testing bundling in the Acute Care Episode (ACE) Demonstration, and the more expansive 2013 National Pilot Program on Payment Bundling is on the horizon.
Shared savings model: Total cost of care payment model in which the total expense for a given patient population is compared to a benchmark, budget, or control group. Providers are eligible to receive a substantial portion of savings they generate as a bonus, typically after meeting a minimum savings threshold to qualify for the bonus. Medicare is currently testing the shared savings model in the Physician Group Practice (PGP) Demonstration, where 10 participating multispecialty groups can earn bonuses up to 80% of savings after crossing a 2% savings threshold and meeting quality targets. Medicare will expand use of and refine the model for the 2012 Shared Savings Program. Shared savings creates the demand destructive incentives of capitation without imposing per member per month (PMPM) payments, conveying full downside risk to providers, or necessarily limiting patient choice.
Assessing the accountable care risk outlook
While each of the payment models outlined above increases providers' accountability for the cost and quality of care they deliver, the models confer two distinct types of risk on providers: performance risk and utilization risk.
First, bundled payments create performance risk. In bundling arrangements, hospitals and physicians continue to receive reimbursement based on the volume of care delivered, but face a stronger connection between payment and clinical outcomes. Further, providers are unlikely to be paid for avoidable cost overruns, especially preventable readmissions. Ultimately, performance risk continues the production incentive of the current fee-for-service system, but requires that providers meet elevated performance standards to maintain profitability.
Second, the shared savings model introduces utilization risk. In shared savings models, providers face a newfound incentive to reduce the volume of care delivered, curbing production incentives and rewarding providers for keeping patients healthy--rather than just treating them when sick. To manage utilization risk, providers will take steps to limit unnecessary care, such as investing in information exchange, chronic disease management, and readmission prevention strategies. Compared to performance risk, the introduction of utilization risk is much more profound for providers, potentially flipping the current business model on its proverbial head.
So where does pay-for-performance fit into this risk framework? Ultimately, pay-for-performance has key roles under both performance and utilization risk. Programs like Medicare's Value-Based Purchasing and Hospitals Readmissions Prevention Programs are clear drivers of performance risk. But we also see pay-for-performance included in shared savings and capitated models, serving as a quality safeguard to ensure that quality does not suffer as providers work to reduce the total cost of care for their patients.
Hopefully this graphic from our current National Meeting helps illustrate the relationship between the three accountable payment models and the types of risk conveyed to providers:
To learn more about the key differences between performance risk and utilization risk, listen to our recent teleconference, "Where is Health Care Going?: The Economics of Accountable Care." As always, please feel free to call or email me with any questions or comments.