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The Keckley Report

Are Alternative Payment Models here to Stay?

By November 20, 2017March 1st, 2023No Comments

Friday at the annual meeting of the Council of Medical Specialty Societies meeting in Washington, I was asked if alternative payment models are likely to be around in coming years. It’s a legitimate question many organizations are asking.


The use of alternative payment models to rein in health spending by improving care coordination is not new. Two decades ago, they were called “pay for performance” (aka P4P) programs, prompted by annual health cost increases of 7% and mixed results from managed care efforts in the 90’s. Most P4P programs targeted hospitals; a few targeted physicians and all resulted in a flurry of activity to create physician-hospital organizations (PHO), independent practitioner associations (IPA) and other weird arrangements (OWA) so providers could collaborate in risk sharing arrangements legally. The results were mixed: savings were modest for the payers but important lessons were learned:

·       First, it’s possible to improve quality and reduce costs simultaneously—the two are complimentary, not contradictory, aims. Data from venerable organizations like RAND, Dartmouth and others showed more care is not better care.

·       Second, there’s widespread variability in the performance of providers around outcomes, costs, charges and profitability (regardless of their status as not for profit, investor owned or public entities). And an organization’s reputation for quality may not be based on actual clinical results. That’s why even today more than 800 hospitals advertise themselves as a Top 100 hospitals and consumers associate quality more with affability and bedside manner than accuracy of diagnosis and appropriateness of treatment. Thus, there was ample opportunity for payers to drive direct patient care to higher-performing organizations with attractive incentives that rewarded efficiency and effectiveness.

·       Third, provider organizations pushed back from P4P programs if their costs for participating were too high. Most underestimated their costs for credentialing, operational changes, data collection and results reporting, information systems and professional services provided by their lawyers, accountants and consultants. And participation by providers was especially problematic in markets where competing payers sponsored P4P programs with different specifications.

·       Fourth, access to valid and reliable data about costs, quality, outcomes, referrals, and savings was a major sticking point. Physicians were skeptical about data they believed invalid or unreliable and suspected payers distorted what they reported. Even measuring costs and savings was contentious: claims data was not thought to be a complete picture of all costs—a debate that continues today.

·       Fifth, physician performance was key to savings. P4P efforts that resulted in cost reduction centered around physician referrals and their clinical judgement.

That was yesterday. Today, we’re calling them “alternative payment programs” aka APMs but the aim is the same: reduce costs by improving how care is managed. And the lessons from P4Ps are very much part of current APM pedagogy. But there are two key differences this time:

First, participation in APMs today is being driven by Medicare, not private insurers, to bend the federal government’s cost curve. Medicare is arguably the most important payer in the U.S. health system, covering 50 million seniors and disabled adults and accounting for 20% of total healthcare spending. It is not by chance that APMs were included in the Patient Protection and Affordable Care Act to shift accountability for costs to hospitals and physicians. And it is consequential that participation in APMs is included in Medicare’s new physician pay formula, the Medicare Access and CHIP Reauthorization Act of 2015 aka MACRA which penalizes physicians who choose to disregard them.

The three major APMs in the ACA—the comprehensive primary care initiative, accountable care organizations, and bundled payment programs—were not new in 2010 when included in the ACA: all had been tried in previous years as Medicare funded pilots and all had shown modest success in reducing costs while improving outcomes. They are the primary APM programs in which hospitals, physicians and post-acute providers are now participating:

The Three Most Significant Alternative Payment Models in the ACA

Medicare Shared Savings Program (Section 3022)

Current participation: CMS announced that 99 new Accountable Care Organizations (ACOs) and 79 renewing ACOs have been accepted to participate in the seventh cycle of the Shared Savings Program. As of January 1, 2017, there are 480 ACOs participating in the Shared Savings Program

Outlook: Favorable, especially for ACOs anchored by specialists for high cost Medicare populations

Results: The 100 “Freshman” ACOs that started in 2016 in aggregate had spending only $5 million below their benchmark and only 18% earned savings; the 85 Sophomores saved $50 million; the 100 Juniors saved $93 million; the 74 Seniors that started in 2013 saved Medicare $204 million. The 73 most experienced ACOs’ savings are now up to nearly $300 million a year. Among the Seniors and Graduates (which include many in 2-sided risk models), Medicare costs were $503 million lower than the benchmark and the ACOs received $357 million in shared savings payments, meaning CMS comes out $145 million ahead (not including an additional $6 million in payments to CMS for losses from 2-sided ACOs).

Bundled Payments (Section 3023)

Current participation: As of October 1, 2017, the BPCI initiative has 1191 participants in Phase 2 comprised of 252 Awardees and 939 Episode Initiators. The breakdown of participants by provider type is as follows: acute care hospitals (306), skilled nursing facilities (550), physician group practices (218), home health agencies (60), inpatient rehabilitation facilities (9) and Long-term Care Hospitals (0). Some awardees are not initiating episodes in BPCI and therefore are not included in the breakdown of participants by provider type.

Results: Medicare payments during the 90 days post discharge declined by $1,273 (p<0.01) from the baseline to the intervention period for BPCI episodes relative to the comparison group under Model 2. This is 4.5% less than what payments would have been without BPCI. Under Model 3, payments for the qualifying hospitalization plus bundled services furnished during the 90 days post-discharge declined for SNF by $2,568 (p<0.01) relative to comparison providers, resulting in episode payments that were 7.1% lower than what they would have been absent BPCI. The lower payments were due primarily to reduced SNF days. SNF payments declined $2,255 (p<0.01) for BPCI episodes than comparison episodes. 

Outlook: Favorable, especially for surgically intense episodes involving hospitalization & post-acute recovery

Comprehensive Primary Care Initiative (Section 3021)

Current participation: As of October 2016, there are 442 CPC practice sites, distributed across 7 regions based on data from the 16th quarter of CPC. In total, 2,188 participating providers are serving approximately 2,700,000 patients, of which approximately 410,177 are Medicare & Medicaid beneficiaries. There are 38 public and private payers participating in the Comprehensive Primary Care initiative.

Results: For 2016, in the 7-region pilot, Medicare saved 1.7% of its anticipated expenditures; 427 CPC participants were eligible for shared savings.

Outlook: Likely changes to improve savings potential by expanding model of care (physical + behavioral) and methodology change to modify per enrollee payments for patient management for certain populations

Second, the measures used by Medicare to score the effectiveness of these programs are more sophisticated, more granular, more clinically relevant, more verifiable, more transparent and constantly improving. In the days of P4P, access to and control of data was the source of conflict: providers were at a disadvantage because they lacked access to claims data and distrusted private insurers. Data today is more widely accessible, more sensitive to variations in the acuity of clinical populations and the balanced in weighting improved quality and reduced costs. And CMS has demonstrated its willingness to modify its specifications and measures to make it easier for providers to participate successfully. That’s why every year, new measures and methodologies are announced in each program.

So, will APMs will be around in coming years? Yes, but with these caveats:

1-Incentives for participation in APMs must be increased by Medicare. Many organizations spent more to participate then they saved. For example, after three years, the costs of participation in the Medicare Shared Savings program (ACO) exceeded savings for three of four. Nonetheless, most considered their investments worthwhile as their care coordination processes improved. And last month in its report, CMS observed that savings in APMs seem to stagnate after three years—logical since early results focus on low hanging fruit. So, as Congress debates its tax reform and its budget, continued funding for the Center for Medicare and Medicaid Innovation (CMMI), the primary overseer of APMs on behalf of CMS, and increased upside for providers in the savings they produce for Medicare are keys to the viability of APMs long-term.

2-Consumers must be engaged. Improved quality and reduced costs are largely dependent on patient engagement but most APMs do not include them as active participants. APMs must clearly and definitely communicate the results of their cost savings and quality improvements to patients. Sharing financial risks and savings with consumers might be game-changing for Medicare.

3-Additional payers–private insurers, Medicaid, large employers—must piggyback Medicare’s APM efforts. Medicaid covers 74 million and the federal government funds 57% of these costs. CMS could incent states to standardize APM programs and share data and best practices consistent with its programs. Ditto efforts by private insurers and large employers where APM models for the under-65 population hold great potential. Simplifying ways provider performance is evaluated, standardizing payment methods agnostic to the sponsor, coordinating data sharing, and engaging consumers as active participants in shared savings are levers the federal government has at its disposal. More consistent and widespread use of APMs to organize and evaluate costs and quality will result in lower costs and better care for everyone.

So, I think APMs are here to stay, but they’ll continue to morph. With that, organizational competence in care coordination, informatics, consumer behavior modification, medical management, and cost controls will be put to the test.


P.S. It’s Thanksgiving week and we have much about which to be thankful. We work in an industry where compassion is the norm, where servant leadership is recognized and our collective efforts are purposeful and respected. Thank you for what you do!!

Fact file: The Big Items from last week in case you missed them:

House Republicans Pass Tax Plan, Senate Plan’s Future Unclear: Thursday, the U.S. House of Representatives passed major tax reform legislation by a 227-205 margin, with 13 GOP legislators joining all Democrats to oppose the bill. It would lower corporate tax rates, eliminate some popular deductions, and eliminate the ACA’s individual mandate impacting 13 million Americans.

High Deductible Health Plan use (HDHP): The share of privately insured individuals covered by high deductible health plans reached 42.9% in the first six months of 2017, up from 39.6% in 2016 and an all- time high. The CDC report, released Thursday, defines HDHPs as plans with annual deductibles of at least $1300 for individuals or $2600 for family coverage. The CDC’s finding counters previous studies by Kaiser, Mercer and others that report HDHP use has leveled off last year.

High blood pressure guideline updated: Last Monday, the American Heart Association, the American College of Cardiology and nine other groups redefined high blood pressure as a reading of 130 over 80, down from 140 over 90. The change, the first in 14 years, means that 46% of U.S. adults, many under the age of 45, will now be considered hypertensive vs. 32% of U.S. adults under the prior guideline.

Gates tackling Alzheimers: Billionaire Bill Gates is personally investing $50 million to create the Dimentia Recovery Fund to find a treatment for Alzheimers, the sixth leading cause of death in the United States that affects 5 million Americans. Although medication and other therapies ease the symptoms, they do not slow the progression and there is no cure currently.

FDA approves digital pill: Tuesday, the Food and Drug Administration approved Japan’s Otsuka Pharmaceutical Co. digital pill, Abilify, which has a bio-degradable chip containing minerals like silicon, magnesium and copper used to treat schizophrenia, bipolar disorder and other mental illnesses. Once ingested, the chip mixes with stomach acids and sends a heartbeat-like signal to an adhesive patch worn on a patient’s torso which records the dosage and time of ingestion and relays this to a smartphone app for patients to monitor and share with doctors and caretakers.

2016 Health spending: Data from Altarum released last week revealed that health spending grew by 4.6% in 2016 and are trending further downward in 2017. With the incorporation of Advance QSS data, Altarum estimates health spending for Q2 2017 will be 3.8%, bringing its estimate for the first half of 2017 to 4.4%

Commonwealth: Senior health: Per Commonwealth’s analysis, 43% of Medicare enrollees have “high needs,” compared to 24% of seniors in Norway, New Zealand and Sweden, 33% in Canada and 39 %in Australia. Nearly a third of the sickest U.S. seniors said they skipped care because of costs, compared to only 2% in Sweden. Healthier seniors also passed on medical care. “In the last year, 23% of U.S. seniors, citing costs, didn’t go to the doctor when they were sick, didn’t fill a prescription or skipped a dose, or didn’t get a recommended test or medical treatment.”