Health Reform Medicaid/Medicare Medicare

Reforming Medicare Provider Payment

With the ACA and now MARCA, Congress is moving full steam ahead with payment reform. An article by Paul Ginsburg and Gail Wilensky (2015) consider some of the implications of these reform efforts.

This belief – that a set of metrics can be developed or delivery systems specified that could lead to the delivery of care that would both increase quality and improve efficiency – has not been diminished by the fact that the early rounds of various demonstration and pilot projects have encountered multiple challenges and, so far, shown disappointing results.

The article makes another interesting argument on the role of benchmarks. CMS has typically recalibrated benchmarks every three years. On the one hand, this is a sensible approach. Updating the benchmarks regularly prevents the case where CMS sets poor benchmarks—and government price setting has traditionally been poor—and allows certain providers to realize large gains (or alternatively suffer large losses). The problem with this approach is that it undermines the business case for investing in efficiency.

Consider the case where a provider group spends $10,000 per patient, but is able to invest in improved efficiencies to reduce the per patient cost to $9,000. Although this seems like a good investment, it is only a good investment in the short-run. If the benchmark is recalibrated after 3 years, the provider would have lower spending below $9,000 to receive any bonus. Thus, the payback period for any efficiency improvement is likely too short.

Another complexity of implementing alternative payment systems is that there is not any one single system and these alternative payment systems need to talk to one another. Consider the following example:

[A] n orthopedic surgeon could be part of a group participating in a bundled payment for joint replacement. Some of the beneficiaries having a joint replacement with this physician may be attributed to an ACO, where the surgeon may or may not be a member of the ACO. Under current policies, CMS will subtract the savings from the joint replacement that are shared with the surgeon’s group from the savings calculated for the ACO. This avoids double payment for savings under an episode of care. But this appears to undermine a potential strategy for ACOs to achieve savings – to encourage beneficiaries attributed to the ACO to go to surgeons who are more efficient per episode of care.


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