Is payment reform working?

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Since the enactment of the Affordable Care Act, health plans and employers have built on Medicare’s momentum as it shifts from paying healthcare providers using traditional fee-for-service to holding providers accountable for costs, outcomes and patient experience. In the last eight years, Catalyst for Payment Reform (CPR) has observed significant growth in the proportion of commercial dollars flowing through value-oriented payment methods. But the jury is out on whether these new methods improve the quality of care and make it more affordable.

Benefit managers will want to track which models of provider payment are most promising. In assessing the evidence on payment reform from a mix of 75 independent, academic and self-published studies from across the country, CPR found mixed results.

Pay-for-performance (P4P): May improve quality, but not reduce cost

Pay-for-performance offers financial rewards for a provider to meet certain expectations based on predetermined quality measures. These measures generally examine whether providers follow guidelines and improve patient outcomes and experience. Examples include whether heart attack patients receive aspirin or are counseled to quit smoking as well as how patients perceive communication by providers.

We reviewed seven studies of P4P programs and few demonstrated significant improvements in the quality of care in the short term. However, evidence of improvements surfaced over longer periods. The Integrated Healthcare Association’s Value-Based P4P program, for example, saw no changes in clinical quality measures and patient experience from one year to the next, but significant improvement over a four year period on measures such as blood pressure control and medical attention to nephropathy. None of the P4P programs CPR studied produced a reduction in the cost of healthcare.

Nonpayment: Effective at limiting unnecessary or harmful practices

Nonpayment programs decline to pay for unnecessary or potentially harmful care and have been found to reduce delivery of the service for which payers discontinue payment. Two examples of nonpayment include the South Carolina Birth Outcomes Initiative and Healthy Texas Babies Initiative. In both programs, nonpayment reduced early elective deliveries, which increase risk to both babies and mothers and often result in neonatal intensive care unit admission, longer hospital stays and higher costs.

Shared savings: Positive initial impact on quality; middling results on cost

One of the more prevalent types of payment reform today, shared savings, provides an upside-only financial incentive for providers to reduce unnecessary healthcare spending for a defined population of patients by offering providers a percentage of any realized net savings. Providers must meet performance thresholds on access, quality and efficiency measures to be eligible to share in any savings. Examples of these measures include the percentage of people getting preventive services and rates of surgical complications. Shared savings arrangements support accountable care organizations (ACOs) that aim to coordinate care across physician, hospital and other settings, to improve quality and reduce waste.

Of the 30 studies we reviewed, the arrangement with the greatest attention to evaluation was CMS’ Medicare Shared Savings Program (MSSP), which saw improvement in the aggregate quality score across four domains of ACO quality performance. Intel Corporation’s Connected Care Program also led to statistically significant improvements in diabetic care and patient satisfaction. Many shared savings arrangements appear to generate savings, as they seem to encourage providers to keep spending below the target budget. However, Medicare and health plans only give payouts and do not recover money when ACOs overspend.

Shared risk: Trending positive, but more to learn

Shared risk arrangements build on shared savings by also placing the provider at risk for bearing a portion of spending that exceeds a target. Less common than shared savings, studies of 11 shared risk programs found generally positive impacts on the quality of care and healthcare spending. CMMI’s Pioneer Program, for example, reduced hospitalizations and emergency department visits by 8% and 6% respectively, generating an estimated $115 in net savings per beneficiary. There are limited studies available from the private sector. Unlike the net losses under shared savings, payers may see net savings with shared risk because they recover costs from ACOs that overspend.

Bundled payments: Trending positive, but more to learn

Representing only a small fraction of healthcare payments, bundled or episode-based payments are a single payment amount for all the services needed by a patient across multiple providers and possibly multiple care settings, for a treatment or condition. Studies of CMMI’s Bundled Payments for Care Initiatives were mixed. But efforts by Medicaid programs in Arkansas and Tennessee, the Pennsylvania Employees Benefit Trust Fund’s program and UnitedHealthcare’s oncology model all demonstrated reduced costs.

Bottom line

Given the mixed state of the evidence, there is ample room for more experimentation and evaluation. It’s important for employers to check in with their health plans: Are they trying new models of provider payment? How it is going? If their approach isn’t improving the quality of care or making it more affordable, employers must press them to ditch the status quo and experiment further to create the right incentives for providers, including placing them at greater financial risk for overspending.

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