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Measuring the adoption of alternative payment models [PODCAST]

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The Hospital Finance Podcast

In this episode, Dr. Mark McClellan discusses a recent report from the Health Care Payment Learning and Action Network that looks at the adoption rate of alternative payment models.

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Mike Passanante: Hi, this is Mike Passanante. And welcome back to the Hospital Finance Podcast.

Today, I’m joined by Dr. Mark McClellan who is the Robert J. Margolis Professor of Business, Medicine and Policy and Director of the Margolis Center for Health Policy at Duke University.

He’s a physician-economist who focuses on quality and value in healthcare including payment reform, real world evidence and more effective drug and device innovation.

He is a former administrator of the Centers for Medicare and Medicaid Services and former commissioner of the US Food & Drug Administration where he developed and implemented major reforms in health policy.

He was previously a Senior Fellow at the Brookings Institution and a faculty member at Stanford University.

Dr. McClellan is also currently the co-chair of the Healthcare Payment Learning and Action Network which has recently published a report that looked at the percentage of healthcare payments tied to alternative payment models in 2016. And he’s here today to talk about the results of that report.

Dr. McClellan, welcome to the Hospital Finance Podcast.

Dr. McClellan: Hi, Mike. It’s great to be here with you and your listeners.

Mike: Well, we’re thrilled to have you.

For those in our audience who may not be familiar with your organization, can you tell us what the Healthcare Payment Learning & Action Network is and what you do?

Dr. McClellan: Mike, the Healthcare Payment Learning & Action Network is a public-private collaboration dedicated to advancing the adoption of effective alternative payment models.

And by alternative, we really mean alternative to fee-for-service which are quite useful and, obviously, very important approaches to payment. It’s very important for healthcare providers to get paid. They do well for certain procedures and services and things like that, but there is so much that goes on in healthcare today that doesn’t fit neatly within the traditional fee-for-service approach like team-based approaches to care, spending more time with the patient who needs it, coordinating care, adopting innovative approaches to care like using targeted diagnostics and telemedicine and wireless remote monitoring.

Many of these newer emerging and innovative approaches to care just aren’t paid for very well under fee-for-service payment.

So, there’s been a lot of interest in this country in moving to alternative payment models. But it’s hard. It can be additional work for health plans and CMS and payers to get these new models right. And it certainly can be additional work for healthcare providers, for hospitals, physicians, nurses, to deal with the additional administrative burden.

So, we are trying to find ways to reduce those burdens to help the private and public sector align their approaches where there are methods that work, and as a result of those kinds of steps, make it easier to have organizations succeed in these new payment models.

For the LAN’s efforts to move forward, there is a guiding committee that’s made up of experts and leaders from different sectors in the healthcare system—so, from hospital organizations, physician and other types of healthcare organizations, health plans, states, employers, consumer and patient advocacy groups, a wide range of perspectives. And this is meant to be an inclusive effort.

So, if you go to our website for the Healthcare Payment Learning & Action Network, you can Google that or go to, you can get more information about our webinars, our resources, and upcoming events and activities.

Mike: That’s great. And today, we’re talking about a report, which you can get on that website, that you recently published that measured the adoption of alternative payment models nationally.

Can you explain what you were looking at specifically and the methodology you used for gathering the data?

Dr. McClellan: Yes. I think some of your listeners may be familiar with CMS efforts to move into alternative payment models. And CMS has talked about their goal of getting to 30% of payments in alternative payment models by 2016 and more in later years.

And by alternative payment models, we mean models that have at least a significant component of the payment based on something other than fee-for-service.

And what that usually means is an episode payment or a medical home per member per month payment or some other kind of maybe partially capitated or population-based payment, payment that is more tied to the person or the population being served than it is to a specific service.

And the reason that’s important is, going back to what we were discussing a minute ago, this gives healthcare providers more flexibility to put resources into what matters for that patient, not just what’s on the traditional fee-for-service list.

And many experts believe that the right outcome is one that moves further in the direction of these alternative payment models, but that still has important roles for fee-for-service in some areas.

So, what this national measurement effort that the LAN has undertaken is about is seeing where we are as a country, not just in Medicare but in our private insurance plans, commercial Medicare Advantage and the like, and in state Medicaid programs or state-based exchange programs.

So it’s a broad based survey intended to assess how the entire country is doing in terms of the adoption of these alternatives to fee-for-service payment models.

The framework that we used for this approach is one that’s been developed in collaboration between the private sector, CMS, and all of these stakeholder groups. And it’s one that’s being adopted now by a number of states and private organizations so that they can gauge where they are and we can, again, try to get more alignment, common understanding of how we’re doing and the shift from fee-for-service to alternative payment models, and also provide a better way of identifying what’s working best in the alternative payment models as well.

So, the survey is an important part of our overall effort. The results, Mike, as you mentioned, are on the website. And we focus particularly on what we call category 3 and category 4 payment models. Those are models that have this element at least (if not a more significant component) that is not based on fee-for-service and is based on tying payments to the population or the episode of care, the set of services that a patient needs with flexibility for healthcare providers in how they deliver those services.

And what we found is that there’s a growing percentage of payments in these plans. I’ll talk more about that in a minute. But what we also have found is that this is a useful way for health plans to kind of align on how they are tracking the shift away from fee-for-service payment and how much of their payments are in fee-for-service, how much of their payments are in fee-for-service with a little bit of quality adjustment—that’s what we call category 2, fee-for-service category 1—and then how much of payments are in these alternative models (where category 3 is essentially a bit of a payment in this patient or a  person or episode-based approaches. Most of the payment is still on fee-for-service).

And then, category 4 is a bigger shift away from that like payments that are fully based on episodes or payments that are mainly based on a per member per month payment that is adjusted for performance.

And I would emphasize that in all of these LAN categories, measuring performance is really important. And it gets more important to measure how patients are doing, to measure what really matters to patients the more you move away from fee-for-service to help make sure that the flexibility that these new payment approaches give to healthcare providers are really leading to better outcomes and lower cost for patients.

Mike: And what were the results of the survey?

Dr. McClellan: Well, we found that in 2016, the amount of payments in these alternative payment arrangements—our so-called category 3 and 4 payment arrangements—are up to 29%. So that’s right about at the goal that CMS had set and also the goal that the LAN had set for private sector organizations.

Again, the LAN includes a lot of private organizations that are committed to moving to payment reform models based on better results and lower cost for patients but doing so effectively and thoughtfully.

This survey which included a vast majority of some health plans and people covered in the United States showed that we’re up significantly from 2015. That previous survey showed about 23% of payments in these alternative payment models (so from 23% to 29%). Pretty big shift in this past year.

We also saw a shift away from payments that were only  based on fee-for-service into what we call category 2. That’s a fee-for-service payment with an adjustment for quality like some of the MIPS payments saw that many of your listeners are familiar with that resulted from the recent Medicare legislation to fix the physician payment system.  So that’s a big shift too.

Much fewer payments that are fee-for-service only, more payments now up to 28% that are in category 2 (fee-for-service with a link to quality) and 29% in category 3 and category 4 together. It’s a big shift away from what we had seen in the previous year.

And I just would emphasize that this is intended to be a pretty good picture of the whole country, the survey that we undertook, thanks to the collaboration of a wide range of private insurance plans and states as well as CMS. It covered 84% of the people with health insurance in the United States. It included data from a large number of plans, three states, as well as the traditional Medicare program. So it’s pretty comprehensive.

Mike: In your report, you offered some reasons for the increase in EPM adoption. So let’s walk through those. First, you noted that higher participation rates in ACO’s likely drove an increase in the category 3 and 4 measures which deal directly with population-based accountability as you said. Can you tell us about that?

Dr. McClellan: Yeah. I do think a big part of this increase is related to accountable care organizations or ACO’s. These are healthcare organizations. Many of them are physician-led; some of them involve hospitals or are hospital-led.  But what they have in common is that they moved to these category 3 or 4 models because a significant part of their payment, at least shared savings (and in a growing number of cases, two-sided risk payments), are related to the overall costs and the outcomes and quality of care in their population of patients that they serve.

And these ACO’s have been growing in the US, particularly ACO’s that are based on shared savings. And in some research that I’ve done with David Milstein at Leavitt Partners and one of our colleagues at Duke, Rob Saunders, we saw that the number of organizations participating as ACO’s in the United States grew by almost a hundred between 2015 and 2016.

By the way, we’re seeing in more recent surveys even more ACO participation as well as participation growing in other types of alternative payment arrangements like advanced medical home payments for primary care and episode-based payments for specialists.

So, this is a significant trend. And the ACO part is probably the biggest, single component of it.

I would like to add too that, within that ACO shift, most of the growth were in what’s called shared savings ACO’s which is kind of a starter version of getting into the alternative payment models where you still get your fee-for-service payments, but in addition, you track how you’re doing in terms of cost per person and a set of population-based quality measures against a benchmark goal.

And most of the organizations that participate in this ACO program were able to increase their quality significantly… so very good results on quality.

Some of the organizations, especially in their early years, were able to get savings as well—so both increased quality and lower cost. And as ACO’s get more experienced, and especially as they move farther into these alternative payment models (so less payment dependent on fee-for-service, more payment dependent on how they’re doing in terms of overall cost and quality for the population), as ACO’s get more experienced and move further into these alternative payment models, they do better.

So, we’re still very much in the process. Even though this is a significant increase in the share of payments in alternative payment models, many of those new payment models are at early stages. And we have more work to do to help organizations succeed in going further and to make more progress in improving outcomes and lowering costs.

Mike: And of course, legislation has played a role in this shift as well. What are your thoughts on that?

Dr. McClellan: Yeah, I mentioned briefly earlier that many physicians are now getting into the experience of the Medicare Access and CHIP Reauthorization Act (MACRA) which was passed several years ago to shift away from the old physician payment system towards a physician payment system in Medicare called MIPS, the Merit-Based Incentive Payment System.

Those payments generally, those MIPS payments, are what we would call category 2. So they’re still fee-for-service. But the physician groups or hospitals or the organizations they’re working with report some quality measures that might adjust those fee-for-service payments up or down. So that’s a category 2 payment.

But very importantly, MACRA also set up a mechanism and a direction for CMS to make more alternative payment models available for primary care physicians, for specialist physicians, for healthcare providers working together, hospitals working with physicians like the ACO program that I described before. And I think we’re seeing some of the early effects of this shift.

The increase in category 2 resulted from the adoption of the MIPS program in 2016. And the efforts for CMS to make more alternative payment models available I think are increasing interest in healthcare organizations in moving into alternative payment models, category 3 and 4, where again they have more flexibility in how they deliver care. And they also get out of some of the—or many of the—reporting requirements under MIPS. So, they have more flexibility in terms of administrative activities and operations too.

Mike: And one of the themes that came out of the report is how important it is for health plans to get a perspective on what’s happening in local markets. Why is that so important?

Dr. McClellan: Well, all of our work on this shift from fee-for-service to alternative payment models has shown that it’s happening in very different ways from market to market around the country.

We were talking about ACO’s a few minutes ago. And some markets in the US, the total share of patients, public and private, Medicare and commercial and ACO’s is now well over 30%—and in my cases, over 40%. In contrast, in other markets, it’s down around 10%. In some markets, there’s been more adoption of primary care medical home episode payment models.

So, it does vary from market to market. Also, state policies have differed significantly with many states like Arkansas, Washington, New York, Tennessee moving fairly significantly in a state-led effort shift to alternative payment models improved care. Other states are taking other approaches.

So, it does vary. If you look at the results at least by the LAN as we were able to break that out reliably across states or markets, we would see significant variation. In our future surveys, we hope to be able to take a more quantitative look at what’s happening at the state or market level.

As I’ve said though, there are some very good, existing research, including research from the Leavitt Partners Group that I mentioned earlier, that does show significant variation at the state and market level and the adoption of alternative payment models and the types of alternative payment models that have been adopted.

Mike: And for a copy of the report we’ve discussed today, you can visit Dr. McClellan, thank you for joining me today on the Hospital Finance Podcast.

Dr. McClellan: Mike, great to talk with you all. And thanks for your interest in these important issues related to payment reform. It’s a very busy time for healthcare providers, hospitals and others these days. And I really appreciate all the attention and effort to trying to improve care and lower cost at the same time. And that’s what the LAN is intended to support.

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