The Centers for Medicare and Medicaid Services (CMS) is investigating the effects of different episode-based payment methodologies on health care cost efficiency and quality in the Medicare program. A new report released by the U.S. Government Accountability Office (GAO) details the results of some of CMS’ most recent Medicare payment reform demonstrations.

Methodology for Testing Payment Reforms on Quality and Efficiency

The GAO study looked at the effects of several different factors when determining the role that Medicare payment options had on the quality and efficiency of the care received by patients:

  • Episode-based payment models vs. traditional fee-for-service Medicare reimbursement
  • Voluntary vs. mandatory participation by Medicare providers, particularly hospitals and physicians
  • Bundled payments for care improvement (BPCI) vs. monthly or comprehensive care options

Six Episode-Based Payment Models

The six episode-based payment models were outlined in Table 1 of the GAO report:

  • BPCI Model 1: In this voluntary version of the episode-based payments testing, hospitals were provided with discounted payments for Medicare services during inpatient hospital stays. They were also held responsible for spending by Medicare on services rendered 30 or more days after the patient was discharged that added up to more than the historical average for these services.
  • BPCI Model 2: In this voluntary model, hospitals and group practices were assigned a target price for the treatment of up to 48 clinical conditions. If they exceeded this target amount, the health care providers were responsible for repaying Medicare. If they were able to treat the conditions for a lower amount, they received additional payments from Medicare.
  • BPCI Model 3: The retrospective post-acute care only model covered the 90 days following an acute care procedure. Like Model 2, this voluntary version offered financial incentives for keeping post-acute care costs low and required repayments for costs that exceeded the target amount.
  • BPCI Model 4: Model 4 of the Medicare episode-based tests provided an advance lump-sum payment to the hospital for all Medicare services provided by hospitals, physicians, and other practitioners during the patient’s stay. These health care providers received payments from the hospital and submitted no-pay claims to Medicare to substantiate their payment requests under this voluntary testing model.
  • Comprehensive Care for Joint Replacement: In this mandatory model, hospitals were eligible to receive additional payments or required to make repayments for Medicare services that exceeded a target price. This testing model also took into consideration the hospital’s compliance with established quality performance standards for the care provided during a single inpatient stay and 90 days of post-discharge care for hip or knee replacement surgeries.
  • Oncology Care Model: This innovative and voluntary testing model provides monthly payments to health care providers over a six-month period following patient chemotherapy. By keeping costs under a target price set by Medicare, providers can potentially receive performance-based payments,

The testing for Models 1 through 4 have already been completed. Testing for the Comprehensive Care for Joint Replacement model will continue through December 2020, and the Oncology Care Model is scheduled for testing through June 2021.  In October 2018, CMS launched a new nationwide bundled payments model, the Advanced Bundled Payments for Care Improvement (Advanced BPCI) demonstration.

A Range of Providers Included in Medicare Payment Reform Demonstrations

While most of the payment testing plans were based on hospital stays or in-patient treatment plans, the range of providers eligible for participation in these tests included the following groups:

  • Hospitals
  • Physician group practices
  • Individual physicians
  • Post-acute care providers who deliver treatment after the patient has been discharged from the hospital – particularly, skilled nursing facilities (SNFs) and home health agencies (HHAs)
  • Specific providers who offer treatment for complications related to the procedures or treatments covered by Medicare

Any or all of these providers, including the hospital, can be held accountable by Medicare for the success and quality of care and the charges billed for treatments provided by their facilities or medical practices.

Large Hospitals are More Likely to Participate in Medicare Payment Reform Demonstrations

The GAO report found that larger hospitals were more likely to participate than smaller hospitals and health care providers. Other factors that were positively correlated with voluntary participation in Medicare’s voluntary testing models included the following:

  • Hospitals located in urban locations were more likely to participate in the Medicare testing process than those in rural or suburban areas.
  • Higher spending per episode was also found to be prevalent in the hospitals that elected to participate in the voluntary testing models established by Medicare.
  • Teaching hospitals were more heavily represented in the testing models than in the overall health care industry in the United States.
  • Hospitals that reported a higher number of qualifying care episodes were also more likely to choose to participate voluntarily in this testing process.
  • Access to robust CMS data was cited as a motivating factor for voluntary participation for some physician group practices.
  • Gaining experience in modern value-based payment methods was also a reason given by some providers for deciding to participate in the voluntary testing phase of these CMS programs.

For the BPCI Model 3 Retrospective Post-Acute Care Only testing, the majority of participants were skilled nursing facilities and home health agencies. The Oncology Care Model, which was instituted as a mandatory testing strategy, involved 190 physician group practices selected by Medicare.

Preliminary Results Already Available

While two of the studies are still ongoing, initial reports indicate that the voluntary testing models were primarily chosen by providers who tailored their participation to ensure the greatest financial benefits for their organizations. Table 3 of the report indicated that health care providers were much more likely to join testing models that could be used to their financial advantage through redesigning their patient care models or altering their procedures in some way.

Mandatory participation, however, shifted the benefits more evenly between CMS and the providers, with some health care organizations and physicians indicating that they believe the benefits are primarily on Medicare’s part. CMS indicated that many of those who participated in the mandatory programs might have declined if that option had been available to them.

Mandatory vs. Voluntary Models of Payment Reform

While no decisions have yet been made about wide-scale mandatory or voluntary implementations of any of these Medicaid payment models, some specific benefits of each approach have been identified by CMS:

  • Voluntary participation is generally perceived to be more beneficial to health care providers and allows them to choose the models and the episodes best suited to their style of practice and their patient populations. This can also allow for greater flexibility in testing experimental payment strategies and in determining the practical effects of these models.
  • Mandatory programs allow CMS to perform a more accurate evaluation of these programs over a wider range of health care providers. This approach can often result in the best data collection during these testing regimens. Additionally, providers in the Comprehensive Care for Joint Replacement, which is currently the only mandatory testing model, indicated that their participation made it possible for them to access Advanced Alternative Payment Models (APM) as a part of the Quality Payment Program, which might not otherwise have been available to their practice or organization. This can provide significant benefits for physicians, health care providers, and hospitals while ensuring the best possible care for patients within the Medicare system.

Other Factors That Should Be Considered in Assessing Payment Reforms

During the course of the testing, participants and stakeholders were encouraged to comment on their experiences and to offer suggestions. Some of the most important factors that stakeholders cited included the following:

  • Ensuring the ability of participants in mandatory programs to access advanced APM options and their benefits
  • Adjusting target prices based on populations with sicker patients, allowing for greater flexibility in treating these severely ill individuals
  • Tracking and accounting for changes in the general characteristics of patient populations to reduce the risk of hospitals only accepting healthier patients and avoiding the added costs these individuals could represent

CMS plans to take GAO’s suggestions and comments into consideration when assessing the results of the completed testing regimens and the ongoing models. Health care providers should keep a close eye on future GAO reports concerning these CMS testing models to prepare effectively for future changes in the way Medicare processes payments for a wide range of medical services.