Medicare Payment, a System in Need of Fixing

[Ed. Note: We are pleased to welcome Andy Braver, Esq. back to Health Reform Watch. Andy is a health care attorney who recently completed an LL.M in Health Law at Seton Hall Law. Prior to entering the LL.M. program, Andy spent five years as a healthcare provider, running a state of the art medical diagnostic imaging center.  During that time, he dealt with many important health law issues faces by providers today, including Fraud and Abuse, Medicare and Medicaid licensing and reimbursement, state and private accreditation organizations, private payers, electronic health records, and HIPAA and other privacy issues, to name just a few.]

Medicare’s fee for service payment system has many problems that need fixing.  While recent studies have predicted that Accountable Care Organizations (ACOs) may very well achieve better care and lower costs, any savings generated as a result of these new groups of providers will be just a drop in the bucket solution to a vast problem.

Medicare was projected to spend over $500 billion on patient care in 2010.  Notwithstanding the fact that the White House Office of Management and Budget believes $36 billion of the Medicare and Medicare Advantage payments made in 2009 were improper.

The problem is, there is no distinction made for the provision of quality medical care.  Conversely, there is no check in the system to make sure that the care provided is inadequate.  If you provide the service, you get paid.

I realize that in many areas of medicine, it is difficult or even impossible to create a system to accurately and impartially judge the adequacy of care provided.  How in fact do you measure the ‘quality’ of healthcare?  Do you look at the structure of an entity, its organization and ability to provide what is generally regarded as good care?  Or do you look at the actual process or provision care, measuring relative malpractice claims among other objective factors?  Many believe that better outcomes suggest better care.  While I do not believe that outcome or evidence based medicine is the answer to every problem, it certainly can be a solution to some of these challenges.

There are differences in the Medicare program based on geography, and local coverage determinations and reimbursement rates, whether using the PPS or RVU systems (Part A & B), vary greatly across the country.  That part of the system makes sense by taking into account cost of living, cost of employment, property costs, and local tax rates.

In my mind, however, these processes fail because they do not further take into account advances in technology, or reward investment in the future.  For example, Medicare pays the same amount of money for an MRI exam regardless of the type of machine that was used to take the picture, and without a thought given to the type of storage system employed by the medical provider.  Imagine a facility with a two decade old system, state licensed and able to take pictures, with a machine equivalent to the first generation digital camera I owned 15 years ago, and printed pictures that are stored in a file room.  Then imagine a state of the art facility with an HD camera taking high resolution digital pictures, stored in an electronic file system, in a format that is able to be sent electronically to specialists all around the country (or world), and accessed by the patient quickly and securely on the internet.  Are those two pictures worth the same to Medicare?  There certainly is increased value to the patient in the ‘new’ system.  Better picture quality undoubtedly leads to better diagnostic capability (better medicine), and fewer picture redos over time; long-term storage and record portability is certainly going to lower future treatment costs if the issue is a chronic one.  HITECH and the new EHR incentive programs recognize the importance of electronic medical records, but it remains to be seen how those requirements will affect licensing and reimbursement rates.  Will there be a license ranking and a tiered payment system based on perceived quality or outcome?

I certainly hope that payments are tiered when advanced technology is used, but not according to self-assessment rankings and quality benchmarks.  I would argue that medicine is the one area where any kind of ranking and result (or outcome) based assessment is virtually impossible.   People are not cars, and JD Power cannot provide meaningful answers when it comes to medicine; there is no way to objectively determine a specific course of treatment for a particular patient is better at one hospital versus another.  No two patients are the same, though it is entirely possible they might both drive the same car.  Determining quality in healthcare is exceedingly difficult.  Patient bases are different, whether because of socio-economic reasons, or geography.  So do you then look to the education of the physician to determine quality?  We don’t do the same for lawyers?  Or do we?  Do you look at healthcare structure (how an entity is organized, its equipment, etc…) to determine quality?  Or process (the # of lawsuits against it, for example)?  Better outcomes alone do not mean better healthcare, and none of these items taken alone should affect licensing of healthcare providers.  In the end, this highlights the fact that designing a system that is fair and without major flaws may never be possible with so much money in the system and with so many parties having opposed interests. But that doesn’t mean we shouldn’t try to fix the expensive and broken (the status quo is unsustainable), it just means that attainable reform could very well mean significantly less unfairness and less major flaws. Because ultimately, in this context, the perfect may be the enemy of the good.

A Guide to Accountable Care Organizations, and Their Role in the Senate’s Health Reform Bill

Photo by takomabibelot via Flickr

[Ed. Note, April 24, 2011: This article by Jordan Cohen was written in March, 2010. It has been cited and linked by everyone from the New York Times to the Texas Tribune and all points in between-- for good reason, it is both thorough and informative. But since the Accountable Care Organization (ACO) model  has continued to gain coverage and currency, we believe it worthwhile to point out recent HRW pieces that will help you get caught up on ACO implementation and impact after you finish the overview of ACOs discussed below. These include:

• It’s Not the ‘Shared Savings’, Stupid: Why ACOs Under the Proposed Rule Will Change Medicine As We Know It - 4/17/2011
• The Normative Meets the Practical: Who Should Can Lead ACOs - 4/12/2011
• ACOs: OIG Guidance, CMS regulations, and Interpretive Tasks - 4/5/2011
• Summary of CMS Proposed Rule on Accountable Care Organizations - 4/4/2011
• Accountable Care Organizations and Antitrust: A New PSA Test - 4/1/2011]

The accountable care organization has been a model for health care reform, yet its modest success has been limited to a handful of health care systems across the country. However, the accountable care organization model has recently taken on far greater significance since being introduced as one of Medicare’s pilot programs in the Senate’s health reform bill.

The phrase is attributed to Dr. Elliot Fisher of Dartmouth Medical School.  Dr. Fisher has led the Dartmouth Atlas Project — a project that has, for the last 30 years, painstakingly documented the variation in care across the United States. (Click here for an interactive map of some of the Dartmouth Atlas results). The Dartmouth Atlas has focused on both the quality of health care as well as its cost. More importantly, they have reported on the relationship between the two, and their findings are nothing short of an indictment of our current paradigm.

Specifically, their findings illustrate that there exists wide variations in the cost of care across the country, and profoundly, that the regions that spend more per patient do not necessarily obtain better outcomes. So what to do? Dr. Fisher believes he has found at least part of the answer: the Accountable Care Organization, known as an “ACO”.

What is an ACO, and How Does it Differ from Other Payment Reforms?

In his paper “Creating Accountable Care Organizations: The Extended Hospital Medical Staff,” Dr. Fisher acknowledges that the term ACO “grew out of an exchange between he and Dr. Glenn Hackbarth at a MedPAC meeting in November of 2006″. (Fisher, 2006 n. 7). Dr. Fisher’s purpose in writing the aforementioned paper was to help identify the proper “locus for shared accountability” for a patient’s health care. HMO’s and other health insurers are obvious candidates, but as Dr. Fisher notes, HMOs only comprise a small percentage of the current market, and health plans in general have focused on negotiating favorable prices within relatively open networks of providers. (Fisher, 2006, p. 45).  The “medical home” (also referred to as a Patient Centered Medical Home or PCMH) is another candidate, but is taken out of the running by Dr. Fisher because of the untested nature of medical homes, and their requirement of new payment mechanisms. (Id.).

Dr. Fisher notes that a better option already exists: “virtual” organizations consisting of the various physicians that are associated with local acute care hospitals. As Dr. Fisher notes, these physicians are either directly affiliated with such hospitals through their inpatient work, or through the care patterns of the patients they serve.  Dr. Fisher refers to these multi-speciality group practices that are bunched around local hospitals as an “extended hospital medical staff.” He argues that improving quality and lowering cost should be realized by fostering greater accountability on the part of this “extended medical staff.”

In a recent Urban Institute paper on ACOs by Kelly Devers and Robert Berenson (pdf summary here, full pdf here), the authors point to three essential characteristics of ACOs:

1. The ability to provide, and manage with patients, the continuum of care across different institutional settings, including at least ambulatory and inpatient hospital care and possibly post acute care;
2. The capability of prospectively planning budgets and resource needs; and
3. Sufficient size to support comprehensive, valid, and reliable performance measurement. (Berenson, p. 2.).

In exchange for investing in this reformed health care provider structure, the ACO members will  share in the savings that results from their cooperation and coordination. Thus, ACOs can–theoretically–act as a reform tool by incentivizing more efficient and effective care. This would help to combat the current perverse incentives of overutilization and overbuilding of health care facilities and technology.

In 2007, Dartmouth’s Institute for Health Policy and Clinical Practice headed by Dr. Fisher and Dr. James Weinstein, teamed up with the Brookings Institution’s Mark McClellan to create The Brookings-Dartmouth ACO Learning Network. The ACO Learning Network will serve as a support tool for providers looking to transition to the ACO framework. In the “Overview” section of their site (available as a pdf here), the Brookings-Dartmouth team provide a useful chart comparing the ACO model to other payment reform models such as “bundled payments,” “medical homes” and capitation. Click the image below to enlarge.

ACO Compared to Other Payment Reforms - Fisher et al. 2009 - Click to Enlarge

Various Extant Structures Utilized

Since Dr. Fisher’s introduction of the ACO concept, the idea has continued to be refined. In their 2007 paper “Accountable Care Systems For Comprehensive Health,” Dr. Stephen Shortell and Dr. Lawrence Casalino envision a broad range of ACOs in addition to the “extended medical staff” originally described by Dr. Fisher. Drs. Shortell and Casalino identify extant organizational structures that could be leveraged to create ACOs, including the Multi-speciality Group Practice (MSGP), the Hospital Medical Staff Organization (HMSO), the Physician-Hospital Organization (PHO), the Interdependent Physician Organization (IPO), and the Health Plan Provider Organization or Network (HPPO/HPPN). (Shortell et al., 2007, p. 10). Below is a table from their paper that organizes the different ACO models while comparing their capabilities. Click the image below to Enlarge.

ACO Models - Shortell et al. 2009 - Click to Enlarge

ACOs In Practice

Building on the Physician Group Practice (PGP) demonstration project that rewarded the provision of quality care with a share of the savings, the Brookings-Dartmouth group propose a “voluntary and incremental” ACO program. (Fisher et al., 2009, p. 2).  The ACO would have to be a legal organization that can receive shared savings, and would have to incorporate primary care physicians who solely practice under the ACO. (Id.). Furthermore, the Brookings-Dartmouth group believes there would have to be at least 5,000 beneficiaries in the ACO for it to be viable. The ACO would provide CMS with a list of their providers willing to participate in the ACO. As discussed above, the beneficiaries would be determined by, among other things, the patterns of patient referrals in the region. However, beneficiaries would not be “locked in” to a given provider. (Fisher et al., 2009, p. 4). The ACO would receive savings if their risk-adjusted, per beneficiary spending levels were below their benchmark. Id.

An Ultra-Simplified Example

A hypothetical independent practice association (IPA) teams up with a community hospital to create an ACO. Medicare determines a benchmark, that is, what it will cost to treat the average beneficiary in that geographic area per year–let’s say $10,000. The physicians submit their traditional claims to Medicare under the RBRVS system while the hospital submits its typical DRG-base claim. Thus, the traditional fee-for-service system remains in place. At the end of the year, Medicare determines if the ACO has provided care for less than $10,000. If they have, the ACO is entitled to share in the cost savings, and the savings are divided among the providers and hospital. Though simple in theory, ACOs become more difficult when attempting to construct payment models that will distribute the savings of the ACO to the individual providers. Shortell provides another helpful chart that lays out some of the options; Click on the image to enlarge.

Payment Models - Shortell 2009 - Click to Enlarge

Criticism of the ACO Model

The strongest criticism that I am aware of is from Dr. Jeff Goldsmith PhD, president of Public Health Services at the University of Virginia. In his Health Affairs article entitled “The Accountable Care Organization: Not Ready for Prime Time,” Dr. Goldsmith recalls previous attempts to at implementing payment reform models based on shared risk:

The problem with this movie is that we’ve actually seen it before, and it was a colossal and expensive failure. During the 1990s, many hospitals and physicians believed that the Clinton health reforms would force them into capitated contracts with health plans. . . . Risk-bearing physician/hospital organizations and hospital-sponsored preferred provider organizations (PPOs) sprang up all over the country. . . . Some of these hospital/physician efforts actually succeeded and survive today. . . . However, these were outliers in an expensive failure.  Employers and patients preferred open panels managed by health insurers to closed panels managed by providers. Billions of dollars were lost.. . . Many of the practice acquisitions were reversed, as hospital systems sought to rein in their expenses and adjust to an open-panel world dominated by point-of-service style health plans

However, the 1990s left behind an expensive legacy:  highly concentrated local provider markets….There were numerous reasons for the 1990s collapse of at-risk hospital/physician partnerships, besides the failure to find willing buyers of their services. These efforts lacked infrastructure, experienced management, as well as reliable and timely cost information to support cost management. They assumed global risk but paid for care on a fee basis, just as Fisher and colleagues propose.  But these hospital-sponsored organizations could neither redistribute income nor exclude their high-cost providers (who inconveniently generate most hospital profits).

Some things have clearly changed in the ensuing decade. . . . A rapidly increasing percentage of physicians, particularly primary care physicians, are now hospital employees.  A larger percentage of the physician community receives hospital subsidies for call coverage. Many of these subsidies are, in fact, extorted from the hospital by specialists in scarce supply, destined to become scarcer.  An entire generation of 80-hour-a-week baby-boomer physicians are retiring and being replaced by younger physicians who want to work 30 hours a week.  You are not going to see a lot of these younger physicians in utilization review committee meetings after hours; they are going to be at their kids’ soccer practices.

What hasn’t changed is the fragmentation of care, the huge disparities in income and political power inside physician communities, and also the level of suspicion that physicians have of their now much more powerful local hospitals.  There is also, sadly, a thundering absence of collegiality – in my view, the central precondition of assuming risk and managing care. This absence is palpable in suburbs and even more pronounced in many “lifestyle dominated” resort communities in the sunbelt.. . .They are “collections” of physicians, not communities.

The hospitals in these areas appear formidable:  they have beautiful campuses,  prestigious boards, and deep financial reserves. . . . But these hospitals have been picked clean of vital outpatient services by their medical “communities.”

….Entire disciplines have disappeared from hospitals: ophthalmology, cosmetic surgery, gastroenterology, urology. Even community-based internists and family practitioners have stopped coming to the hospital; their patients are cared for by hospitalists who work full time inside the hospital.

The result of our previous attempts at ACO-like integrated care, Dr. Goldsmith points out, is that…

. . . .while the hospital has become more involved in subsidizing physician practice, physician communities have drawn away from the hospital and function increasingly independently on a day-to-day basis. Wennberg’s own data show that something like 40% of physicians no longer have any Medicare hospital-related fee income. So squashing hospitals and physicians back together into economic interdependence in a joint hospital/physician economic pool makes no real-world sense.

Dr. Goldsmith goes on to note that there have been some successful ACOs, but that they haven’t been “virtual” in the sense that Dr. Fisher points out, rather, they are

. . . real organizations with P+Ls, medical directors, and management infrastructure. Prominent examples in my home region include Carilion Health System in Roanoke and the Bon Secours Health System in Richmond. Voluntary ACO arrangements, with Medicare and with private insurers, may find enthusiastic partnerships with many of these hospital-sponsored physician groups. . . .

The Senate Bill

In defense of the Brookings-Dartmouth model, the group has gone on record in favor of voluntary ACOs. To Dr. Goldsmith’s relief, the Senate’s health reform plan incorporates ACOs on a voluntary pilot program basis. You can read their rebuttal to Dr. Goldsmith here.  Section 3022 of the Senate bill — which amends Title XVIII of the Social Security Act (42 U.S.C. 1395) — introduces ACOs under the name “Medicare Shared Savings Program. (View a pdf of the extracted ACO part of Senate bill here).

The Senate’s plan is remarkably similar to the Brookings-Dartmouth model. Under the Senate’s plan, ACOs will be eligible to receive a percentage of the cost savings that they have realized under the traditional fee-for-service Medicare system. The requirements are set forth in section (B)(2). Furthermore, the ACO shall enter into a 3 year agreement with HHS whereby the ACO must agree to contain at least 5,000 Medicare beneficiaries, while being prevented from engaging in risk selection. The ACO must define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth or other remote patient monitoring tools. The ACO must also demonstrate to HHS that it meets the yet-to-be defined criteria for “patient-centeredness”.

Whether ACOs will succeed is impossible to determine with certainty. The panopticon that would be ACO management looking over the shoulders of physicians may be enough to turn off many physicians. Nevertheless, as even Dr. Goldsmith acknowledges, some ACOs have thrived. Moreover, the voluntary ACOs in the Senate’s bill represent a measured approach towards reforming our system without a wholesale transformation. As Dr. Atul Gawande describes in a lesser-cited pre-”Cost Conundrum” article, the most sound approach is often “path-dependent,”  that is, it builds on what already exists. As Dr. Gawande notes:

. . .accepting the path-dependent nature of our health-care system—recognizing that we had better build on what we’ve got—doesn’t mean that we have to curtail our ambitions. The overarching goal of health-care reform is to establish a system that has three basic attributes. It should leave no one uncovered—medical debt must disappear as a cause of personal bankruptcy in America. It should no longer be an economic catastrophe for employers. And it should hold doctors, nurses, hospitals, drug and device companies, and insurers collectively responsible for making care better, safer, and less costly. . .

Whether the shared savings will entice physicians on a large scale is uncertain.  What is certain is that our current fragmented system incentivizes providers to offer neither cost-effective nor coordinated care. Though it is unlikely that physicians and hospitals will flock to ACOs from the start, the vision of ACOs conceived of by the Dartmouth-Group and described in the Senate bill may nevertheless prove itself a useful tool in a larger arsenal of approaches meant to salvage our unsustainable health care system. In other words, the Senate’s approach could provide a path-dependent solution toward the collective responsibility and better outcomes that Dr. Gawande mentions. And as described in the Senate bill, physicians and hospitals will not be offered a new path, but rather a resurfaced path that would retain fee-for-service, while providing a safer and smoother ride for the patient.

The Cost of (Not) Implementing Chronic Care Management

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Health reform’s primary beneficiaries will be the uninsured, but it should also benefit those with “good” insurance.  We all know horror stories of well-insured relatives and friends driven from pillar to post in attempts to get good treatment for serious chronic conditions.  It too often seems that no one is in control: doctors aren’t paid to talk to patients, but rather to do things to them, and the roles of other professionals (e.g., advanced practice nurses) are sometimes minimized.  As I’ve described earlier, there is some good news regarding medical practice reform in the bills, particularly for people with Medicare or Medicaid.

How do we get people into medical settings where their chronic conditions can be well-managed?  Interesting work is being done in many quarters on this issue.  In a recent Health Affairs paper, Steven D. Pizer and coauthors reported that people with chronic conditions in regions of the country with thin Medicaid programs are likely to be uninsured, notwithstanding Medicaid’s strong orientation toward disability and chronic care.  In a companion article,   Andrew P. Wilper and coauthors reported on high levels of uncontrolled — often undiagnosed — chronic conditions (hypertension, diabetes, and elevated cholesterol) among  people without insurance.  Public insurance expansions in pending reform bills would assist these low-income people with chronic illness get coverage, and the chronic care provisions have the capacity to provide appropriate medical management of their most pressing conditions.

Structure is emerging on best practices for the delivery of sound coordinated care.  The NCQA has worked with physician groups to create tools to evaluate practice settings according to their ability to serve as therapeutic homes for all, but in particular for those with chronic conditions.  The Physician Practice Connections - Patient-Centered Medical Home program provides tools for public and private payers to evaluate a physician practice before designating it a “medical home” - and compensating it accordingly.  The tools evaluate prospective medical homes on factors such as their active support of patient self-management; use of non-physician staff for patient management; employment of procedures to maintain high levels of patient communication; and adoption and use of evidence-based care management protocols for chronic illness.

So how much does it cost to do this right?   A recent study from Commonwealth Fund sheds some light on this complex issue.  In the study, Stephen Zuckerman and coauthors take on the difficult task of examining the marginal cost of converting a 20^th Century practice to a 21^st Century medical home.  It makes interesting reading, and tentatively suggests that the cost could be modest.  Zuckerman et al. are attempting to compute cost. They recognize that cost is only a component in a more important calculation: what is the value of creating medical homes?  They cite to a 2008 Deloitte report that gathers research tending to show that the cost is probably worth it, even in purely economic terms.  That is, it appears that the savings achieved in avoided hospitalizations and other expensive interventions is significant, washing out the cost of supporting sound chronic care management.  It is not, of course, only about efficiency; ending the chronic care horror stories is the true goal.

Expanding insurance is only the first step in delivering the care people need.  For people with chronic illness, the finance and delivery system needs to work with the whole person, family, and community, and not slice the patient into 8 minute blocks and procedure codes.  A consensus statement of the American Academy of Family Physicians, the American Academy of Pediatrics, the American College of Physicians, and the American Osteopathic Association describes a commendable principle of care coordination that has particular application for people with disabilities and chronic illness:

Care is coordinated and/or integrated across all elements of the complex health care system (e.g., subspecialty care, hospitals, home health agencies, nursing homes) and the patient’s community (e.g., family, public and private community-based services).  Care is facilitated by registries, information technology, health information exchange and other means to assure that patients get the indicated care when and where they need and want it in a culturally and linguistically appropriate manner.

Practice follows payment.  Payment reform must facilitate the adoption of practices that serves chronic needs.