How Will Alternative Payment Models Fare in the Biden Administration?

Alternative payment models (APMs) have been the mechanisms whereby Medicare officials have tested ways to reduce unnecessary spending without compromising quality and safety for patients. They’re deemed ‘alternative’ by CMS because they change the incentives for hospitals and physicians from volume to value. And, in most models, they involve financial risk for providers.

As the Biden administration assumes responsibility for Medicare, Medicaid, Children’s Health and other programs, the future for APMs is in suspense. Here’s an update:

THE NEW PLAYERS

The Centers for Medicare & Medicaid Services Innovation Center (CMMI) established by Congress in 2010 (Affordable Care Act Section 3021) ‘to identify ways to improve healthcare quality and reduce costs in the Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) programs will play the lead role in APM changes. Its guidance will come from the U.S. Department of Health and Human Services (HHS) where California Attorney General Xavier Becerra has been nominated to lead as Secretary

Becerra is not a novice to healthcare. As a member of Congress, he was fiercely combative about unnecessarily high hospital health costs resulting from market consolidation. Sutter settled its challenge from Becerra for $575 million. As a litigator, Becerra brings skepticism about hospital costs and lack of transparency: he’ll likely delegate changes to APMs to others but pushback from alterations that appear to favor hospitals and physicians over communities and patients.

CONTEXT: UNSUSTAINABLE LEVELS OF HEALTH SPENDING, MID-TERM ELECTIONS

In 2019, total health spending reached a staggering $3.8 trillion. The Congressional Budget Office projects it will increase 5.4% annually through 2028 to $6.0 trillion, or 19.7% of total gross domestic product due to medical inflation for goods (drugs, supplies +2.4%/yr.) and Medicare spending increases (+7.6%/yr.—increased demand plus hospital cost inflation). In this same period, the insured share of the population is expected to fall from 90.6% in 2018 to 89.4%.

Affordability is key: 4 in 10 U.S. households can’t pay their household bills. 7 in 10 think health costs are unreasonably and inexplicably high and hospital price transparency a remedy. Voters in the 2022 mid-term election will be focused on their household finances. Healthcare affordability will replace the pandemic as a lightning rod for public debate. The new players bring a certain amount of skepticism about hospital consolidation, administrative costs, executive and physician specialist’ income and more. How a new CMMI team might assess and structure changes to APMs is likely to be influenced by its assumptions about root causes for unnecessary spending and the business practices in key sectors.

STARTING POINT: THE REALITIES OF APMs

Participation has been High but Savings to Medicare Resulting from APMs low

In 2019, 41% of Medicare payments, 30% of commercial payments, 53% of Medicare Advantage payments, and 23% of Medicaid payments were tied to APMs according to the Health Care Payment Learning & Action Network. But savings have been nominal for all but a few of 50-Plus APM models. The most encouraging were the Medicare Shared Savings Program (ACOs) that saved Medicare $7.6 billion since 2013 (less than 1%) and the Continuing Care for Joint Replacement (CCJR) bundle payment program. At its October 2, 2020 meeting, the Medicare Payment Advisory Commission characterized APMs as a “limited success,” urging CMS to simplify the programs and financial risk sharing to reward low-cost, high-value care.

Adoption of APMs by other Payers has been Negligible

According to the Health Care Payment Learning and Action Network, only 5.1% of 2018 payments to providers involve upside and downside risk. That means 95% of cash flow to most hospitals and medical practices is still primarily fee-for-service. Other than for contracts with Medicare Advantage and a select number of Medicaid Managed Care Organizations (MCOs), hospitals and physicians avoid financial risks and alternative payment programs are not the centerpieces of their financial strategies.

APMs are Pilots, Therefore, Subject to Changes, Discontinuance or Expanded Use

Most APMs are 5-year pilots. Participation in APMs is voluntary: that means hospitals, physicians and others participate if they deem a specific APM of strategic value to their organization’s finances, relationships with payers or competitive positioning. And many APMs given attention by providers and policymakers are untested like the Community Health Access and Rural Transformation (CHART) model or two about to start: the Primary Care First Model, which will launch in January 2021 in 26 geographic regions and the Direct Contracting Model which will roll out in 4-10 markets starting in April.

LOOKING AHEAD: LIKELY CHANGES TO APMs IN THE BIDEN ADMINISTRATION

Wider Use of APMs in Medicare and Medicaid: A Biden administration will seek to integrate APMs into Medicaid (serves 76.2 million) in addition to their focus on 54 million non-disabled seniors in Medicare.

Medical Management Flexibility APMs will likely relax medical management thus granting to qualified provider organizations to encourage whole-person care and technology-enabled self-care. The new Direct Contracting Model is an example.

Higher Financial Risks: Upside and downside risks in APMs will increase to drive savings to Medicare and Medicaid.

Accountability for Social Impact in APM Scores: the Biden administration is committed to diversity and equitable access in every program including APMs. It is likely to require that APM participants demonstrate how their performance has increased equitable access and enhanced patient experiences for diverse and under-served populations.

MY TAKE

The election of Joe Biden, the reality of partisan brinksmanship in lawmaking and the lingering impact of pandemic war are seen by many as assurance that nothing of consequence will change in healthcare for the next 2-4 years. That’s reassuring for insiders, but disconcerting to outsiders—consumers, employers and others who find the status quo unaffordable and inaccessible.

In my view, the Biden administration will not make major changes to alternative payment models right away. Instead, it will assess each model independently while forging ahead with new ones like Direct Contracting Models (see summary by Lumeris) that features capitated payments to providers.

Will APMs in the future play a bigger role in how care is delivered and financed? Yes. That’s because financial incentives for providers influence their behaviors. What’s clear is the incentives of legacy APMs have not effectively delivered lower-cost, higher-value care as promised. But they’re here to stay.

Paul

P.S. Modern Healthcare released its 19th annual ranking of the “100 Most Influential People in Healthcare” last week giving frontline health care workers its top spot and top public health officials duly earned recognition (Fauci #9, Hahn #11, Birx #31, and Collins #58). It’s impossible to identify a “top 100” objectively– many sectors are under-represented and many influentials don’t seek recognition. But kudo’s to Modern Healthcare: they got this one right!

RESOURCES

“See Coronavirus Restrictions and Mask Mandates for All 50 States” December 11, 2020; New York Times

Medicare Payment Advisory Commission. Report to the Congress: Medicare and the health care delivery system; June 15, 2020; Medicare Payment Advisory Commission

“COVID-19, Market Consolidation, And Price Growth”; August 3, 2020; Health Affairs

Daniel B. Frier “CMS doubles down on value-based care” December 9, 2020; Medical Economics

CMS Quality Payment Program

CMS Innovation Models

Health Care Payment Learning & Action Network

Michael E. Chernew “The Role of Market Forces in U.S. Health Care” October 8, 2020; New England Journal of Medicine

Clifton Gaus, David Pittman “Evaluation Of Medicare Alternative Payment Models: What The Data Show”; November 12, 2020; Health Affairs

CORONAVIRUS NEWS

Gallup: 73% Think Pandemic Getting Worse

Findings from Gallup’s Nov. 16-29 COVID-19 tracking survey:

• 73% in U.S. say coronavirus situation is getting worse, up from 56% in April

• 50%, up from 33%, worry about availability of hospital supplies, treatment

• 72% say their lives have been disrupted by pandemic; 87% say it will last well into 2021

“Views of U.S. Pandemic Worsen Amid Rising COVID-19 Cases”; December 10, 2020; Gallup

Gallup: Two-Thirds Willing to be Vaccinated

According to the most recent Gallup polling thru December 6:

• 63% of Americans say they are willing to be immunized against the disease rebounding from a 50% low point in September.

• Democrats’ willingness increased from 53% in September to 75% now. Political independents’ up 12% to 61% and readiness was also shaken in September and is now restored to its Republicans up 3% to 50%.

• While more than two-thirds of Americans in the 18-44 and 65 and older age groups say they would get the vaccine, a slim majority of those aged 45-64 say the same.

Megan Brenan “Willingness to Get COVID-19 Vaccine Ticks Up to 63% in U.S.”; December 6, 2020; Gallup

Axios: 18% are Responsible for Majority of Non-Social Distancing Behavior

According to the most recent Axios-Ipsos Coronavirus Index based on a survey of XX adults between XX and YY:

• 18% of Americans spent at least an hour in three or more of the following in the last week: restaurants & bars, entertainment centers, other people’s homes, gyms, or places of worship; or spent over 10 hours total indoors out of home in the last week.

• Fewer than half (44%) of this group report wearing a mask at all times and only a third (36%) are concerned about the coronavirus pandemic.

“As pandemic rages, minority of Americans driving most risky behavior”; December 9, 2020; Axios-Ipsos

KFF Analysis: Loss of Employer Coverage Offset by Increase in Medicaid

Kaiser Family Foundation researchers analyzed administrative data through September 2020 filed by insurers with state regulators compiled by Mark Farrah Associates. Findings:

• Although overall employment rates fell 6.2% from March to September, enrollment in the fully insured group market decreased by just 1.5% over the same period.

• Medicaid enrollment increased by 4.3 million people (6.1%) from February through July 2020. More recent data for 30 states show that enrollment in managed care plans increased by about 5 million, or 11.3%, from March to September 2020. Nationally, MCOs cover over two-thirds of Medicaid beneficiaries.

• Enrollment in the individual market was fairly steady from March to September 2020.

Daniel McDermott et al “How Has the Pandemic Affected Health Coverage in the U.S.?”; December 9, 2020; Kaiser Family Foundation

KFF: 16.7 Million Predicted in Wave one COVID-19 Vaccination

KFF researchers applied the 2019 American Community Survey (ACS) and Certification and Survey Provider Enhanced Reports (CASPER) data to project the targeted numbers for each group in each state:
Nationwide, there are 19.7 million adults working in health care settings, of which roughly 15.5 million are estimated to have direct patient contact. In addition, there are 1.2 million nursing facility residents and about 800,000 assisted living facility residents. Together, health care workers with direct patient contact and residents in either nursing facility or assisted living facilities account for approximately 16.7 million people or 6.7% of the adult population in the U.S.

“Estimates of the Initial Priority Population for COVID-19 Vaccination by State”; December 10, 2020; Kaiser Family Foundation

BLS: Healthcare Supply Chain, Workforce Shortages Severe

According to the Bureau of Labor Statistics’ survey of nearly 600,000 U.S. businesses gathered from mid-July through September:

• 64% of healthcare companies reported a shortage of supplies or inputs. Retail trade and accommodation and food services were the next hardest hit sectors at 59% and 50%, respectively. The national average across all industries was 36%.

• A little more than half of the companies surveyed told employees not to work—with or without pay—at some point during the pandemic. Of those organizations, 42% paid a portion of health insurance premiums for some or all of their employees while they were not working.

• Among businesses that told employees not to work and received a loan or grant, 70% paid a portion of health insurance premiums for some or all employees while they were not working. Only 56% of U.S. businesses that did not receive funding paid a portion of health insurance premiums while employees were not working.

Alex Kacik “Healthcare was the hardest hit by supply shortages across all U.S. industries”; December 9, 2020; Modern Healthcare

INDUSTRY NEWS

Commonwealth Analysis: Low-Income U.S. Adults have Less Access to Primary Care than Others

Using data from the 2020 Commonwealth Fund International Health Policy Survey: Key finding: among adults with lower incomes, those in the US fare relatively worse on affordability and access to primary care than those in other countries, and income-related disparities across domains are relatively greater throughout.

Doty et al “Income-Related Inequality in Affordability and Access to Primary Care in Eleven High-Income
Countries”; December 09, 2020; Health Affairs

Study: Sleep Impairment of Physicians Compromises Patient Care

In this cross-sectional study of 11,395 physicians from 11 academic medical centers surveyed between November 2016 and October 2018, sleep-related impairment had statistically significant correlations with burnout and professional fulfillment:

• Correlations of sleep-related impairment with interpersonal disengagement, work exhaustion and overall burnout were large. Sleep-related impairment correlation with professional fulfillment was moderate.

• In a multivariate model adjusted for gender, training status, medical specialty, and burnout level, compared with low sleep-related impairment levels, moderate, high, and very high levels were associated with increased odds of self-reported clinically significant medical error, by 53%, 96% and 97% respectively.

Trockel et al “Assessment of Physician Sleep and Wellness, Burnout, and Clinically Significant Medical Errors”; December 7, 2020; JAMA Network

Medscape Physician Survey: Practice Ethics Challenged During Pandemic

According to Medscape’s 2020 Physician Ethics Report from a survey of 5130 physicians about their medical ethics policies conducted during the summer:

• 68% of physicians said they would not see a patient who refused to wear a mask or social distance in their practice.

• 54% said they’d break patient confidentiality if the individual’s health status could harm others.

• 26% said it’s OK to date a patient if it’s been six months since they’ve last treated him or her.

• 22% said they would not treat a family if parents refused standard vaccines for themselves or their children

“Money, Patients, Romance: Physician Ethics 2020”; December 11, 2020; Medscape

Study: Drug Prices Increases Negatively Impact Patient out-of-pocket Costs

In this cross-sectional analysis of 14.4 million pharmacy claims made by 1.8 million patients for the top 5 patent-protected specialty and 9 traditional brand-name medications with the highest total drug expenditures by commercial insurers in 2014, the median drug wholesale list price (as defined by Average Wholesale Price) increased by 129% from 2010-2016, while median patient out-of-pocket costs increased by 53% and median insurance payments after rebates and discounts increased by 64%.

Conclusion: “This study’s findings suggest that, after adjusting for inflation, increases in drug list prices are associated with increased patient out-of-pocket costs, which may have implications for cost-related nonadherence, and insurer payments.”

Yang et al “Changes in Drug List Prices and Amounts Paid by Patients and Insurers”; December 9, 2020; JAMA Newtwork

SCOTUS Decision: PBMs Can be Regulated by States

In an 8-0 decision in Rutledge v. Pharmaceutical Care Management Association last Thursday, the Supreme Court ruled that the U.S. Court of Appeals for the 8th Circuit erred in its ruling that Arkansas’ state law regulating the drug-reimbursement rates of pharmacy benefit managers is preempted, or displaced in authority, by the Employee Retirement Income Security Act of 1974 (ERISA), in violation of the Supreme Court’s precedent that ERISA does not preempt rate regulation.

Like three other cases decided Thursday, the pharmacy ruling did not include new Associate Justice Amy Coney Barrett, who was not yet confirmed in October.

Richard Wolf “Supreme Court rules that states can regulate pharmacy benefit managers”; December 10, 2020; USA Today

Study: Drug Price Increases Pass Through to Patients

In this analysis of 14.4 million pharmacy claims made by 1.8 million patients from 2010-2016:

• Median drug wholesale list price increased by 129% while median insurance payments increased by 64% and out-of-pocket costs increased by 53%.

• The mean percentage of wholesale list price accounted for by discounts increased from 17% in 2010 to 21% in 2016, and the mean percentage of wholesale list price accounted for by rebates increased from 22% in 2010 to 24% in 2016.

• For specialty medications, median patient out-of-pocket costs increased by 85% (IQR, 73%-88%) from 2010 to 2016 after adjustment for inflation and 42% for non-specialty medications. During that same period, insurer payments increased by 116% for specialty medications and 28% for non-specialty medications.

Yang et al “Changes in Drug List Prices and Amounts Paid by Patients and Insurers” December 9. 2020; JAMA Network

Pre-pandemic: Primary Care Televisits do not Appear

Researchers compared deidentified televisits from 20 states between October 1 and December 31, 2019 to characteristics of health utilization in the same areas using the National Ambulatory Medical Care Survey. Findings:

• Compared with the overall population in these 20 states, DTC telemedicine patients were more likely to live in urban areas (85.0% vs 75.4%) and areas with a higher income (32.8% vs 25.0%). Of all DTC telemedicine visits, 14.4% were for patients living in a primary care health professional shortage area.

• The 3 most common conditions accounting for 87% of televisits for which treatment was sought via DTC telemedicine (urinary tract infection [53.0%], erectile dysfunction [21.1%], and contraception [13.0%].

Jain et al “Comparison of Direct-to-Consumer Telemedicine Visits With Primary Care Visits”; December 8, 2020; JAMA Network

CMS Proposes Prior Authorization Rule Change

Last Thursday, CMS proposed changes that aim to improve access to medical records and reform prior authorization. The proposed rule would require payers—including Medicaid, the Children’s Health Insurance Program, and exchange plans—to build application program interfaces (APIs) to support data exchange and prior authorization thus allowing providers to know in advance what documentation each payer requires, streamline documentation, and facilitate electronic data sharing with patients.

Comments on the proposed rule close Jan. 4. The agency wants it to take effect on Jan. 1, 2023

“CMS pushes prior authorization reforms”; December 14, 2020; Modern Healthcare