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Shifting reimbursement models: The risks and rewards for primary care


The Affordable Care Act (ACA) places primary care physicians front and center in the mission to improve the health of Americans, and lower overall healthcare costs. But new ACA-derived payment models that reward value, not volume, are driving skepticism and uncertainty among physicians.

The Affordable Care Act (ACA) places primary care physicians (PCPs) front and center in the mission to improve the health of Americans, and lower overall healthcare costs. But new ACA-derived payment models that reward value, not volume, are driving skepticism and uncertainty among physicians. Nine out of 10 physicians cited shifting reimbursement models and the financial management of practices as their top challenges, according to a 2013 Wolters Kluwer Health survey.

In the next two to five years, the shift from fee-for-service (FFS) to value-based reimbursement will be even more dramatic. The trend adds even greater urgency for physicians to better understand payment reform and plan to adapt, says Deborah Walker Keegan, PhD, FACMPE, president of the Asheville, North Carolina-based consulting firm Medical Practice Dimensions, Inc.

“This is really a tough time because physicians still need high productivity, but they also need to start measuring value,” she says. “The levers haven’t really switched from productivity to quality and value, but you don’t want to have a learning curve that is so steep you can’t deal with it when the switch gets flipped.”

Reform, however, doesn’t mean physicians will be paid less, counters Reid Blackwelder, MD, FAAFP, president of the American Academy of Family Physicians. Cost savings to the system from better efficiency and reduced duplication of services should benefit physicians.
“All of the new models, including the ACOs [accountable care organizations], are about sharing risk and sharing savings,” he says. And that can increase payments, especially to PCPs.  

Walker Keegan says many private payers are now entering into ACO-like contracts with medical practices based on shared savings models and other payers are paying case rates or a flat fee per patient to help practices develop infrastructure and support for a new system of care delivery. Others are contracting with medical practices for bundled payments or flat rates, betting on care coordination as a cost saving measure.

In many areas, private payers are ahead of the government in implementing value-based pay models, she adds, but Medicare’s value-based modifier for large medical practices treating Medicare patients is scheduled to go into effect in 2015 with full implementation scheduled for 2017.

Our coverage details key trends and considerations related to some of the new payment models, including:


Next: Pay for performance models are not one size fits all


Pay for performance

For solo and small practitioners, pay for performance models are not a one-size-fits-all fix to fee-for-service reimbursement. In fact, the best way small practices can implement these value-based payment models is to begin collecting and evaluating their own outcomes, says Reed Tinsley, CPA, a practice management consultant in Houston, Texas.

“The country is dominated with small practices. Finding administrative mechanisms that apply to all practices is not going to happen,” Tinsley says. “Smart practices are proactive, not reactive.”

Essentially, pay for performance models aim to compensate physicians on clinical and cost-saving outcomes rather than being reimbursed for services and procedures. Because PCPs help more patients with managing chronic illnesses, metrics such as reducing hospital readmissions, unneeded diagnostic tests, and brand-name drugs contribute to healthcare savings.  Pay for performance models reward physicians who can keep track of how they keep patient care cost-effective.

There are a plethora of different value-based programs, including the Physician Quality Reporting System (PQRS) and the Value-Based Payment Modifier offered by the Centers for Medicare and Medicaid Services (CMS), along with several Patient-Centered Medical Home (PCMH) models. Legislation to reform the Medicare Sustainable Growth Rate (SGR) formula combines these value-based programs and offers incentives to practices en route to patient-centered programs.

Both CMS and commercial insurance performance-based models allow practices to choose categories to be measured on including diabetes, obesity, congestive heart failure, and hypertension. It is important that your practice chooses categories that you are excelling in. With third-party payers, physicians will agree to receive a certain amount of their salary based on their performance in those chosen categories.

Though there is an industry-wide push toward these payment models, small practice owners may feel uncertain whether these initiatives can scale to their size. In 2012, primary care physicians earned only 3% of their income based on performance measures, according to the Medical Group Management Association (MGMA) physician compensation and production survey. Though amounts vary, many experts agree that physicians shouldn’t agree to receive more than 10% of their salaries based on performance metrics.

At the heart of all pay for performance models is data analysis. Tinsley suggests that tracking clinical data is essential to preparing for pay for performance models. Even if a small practice can’t participate in a large-scale, value-based model, it can surely implement measures that track and reward quality patient management.

“There is always more money behind knowing the clinical outcomes and data behind your requests. A lot of doctors are saving payers money and not getting a piece of the pie,” Tinsley says.

Most doctors remain confused about new rules guiding payments to physicians under the Medicare Physician Fee Schedule because they are a moving target, says Jennifer Gasperini, MA, a senior government affairs representative for MGMA Healthcare Consulting Group.

“As soon as physicians begin to understand the rules, they change them,” she says.

The Value Modifier provides for differential payments to physicians or groups of physicians based on the quality of care furnished compared to cost during a performance period. It relies heavily on the CMS PQRS for the quality component.

According to the latest update from CMS, beginning in calendar year (CY) 2015:

  • Medicare will apply the Value Modifier to physician payments under the Medicare Physician Fee schedule for physicians in groups of 100 or more eligible professionals, but the performance period for these payments will be CY 2013.

  • Beginning in CY 2016, Medicare will apply the Value Modifier to physician payments under the Physician Fee schedule for physicians in groups of 10 or more eligible professionals, based on CY 2014 performance.

  • Beginning in CY 2017, the Value Modifier will be applied to all eligible professionals, according to Gasperini.

Next: 5 ways to start pay for performance at your practice




Next: Approach shared savings models with caution


Shared savin


Shared savings programs offer physicians a chance for financial gain, but experts say such programs should be approached with great caution, especially by primary care practices.

While shared savings programs vary in their details, the basic structure consists of a group of physicians (and possibly other medical professionals), joining together to form an ACO. The ACO contracts with a payer to provide care for a patient population and meet certain quality and cost benchmarks for that population over a set period of time.

If the ACO can provide care at a lower cost than the predetermined threshold, it shares the savings with the payer.  If the care costs exceed the threshold, the ACO absorbs the difference. The ultimate goal is to give the participants a financial incentive for improving patient outcomes and lowering the cost of care.

Probably the best-known shared savings ACOs are run by Medicare-the Medicare Shared Savings Program (MSSP), which has 114 participants, and the Pioneer Program, which has 23 participants. Several Blue Cross/Blue Shield and commercial payers also offer versions of shared savings. These often target a single objective, such as lowering hospital readmission rates.

While shared savings programs are simple in concept, realizing their financial benefit can be difficult. It requires substantial resources in the form of people and money, which is why the vast majority of ACOs are health systems or large multispecialty groups, says David Zetter, PHR, CHBC, principal of Zetter HealthCare Management Consultants in Mechanicsburg, Pennsylvania.

“In order to be part of an ACO you’ve got to have the wherewithal to have done some homework and know what this is all about in the first place,” he says. “And most smaller practices these days are struggling just to keep their doors open.”

For many ACOs, meeting the quality thresholds of a shared savings program requires adding personnel, such as a case manager, thereby adding costs in the short-term. Moreover, participating in shared savings-and benefitting from it-requires collecting, tracking, and transmitting huge quantities of data related to treatments, cots, and outcomes, then checking to ensure the payer has interpreted it correctly.

“It’s wrong to just assume the government or payer’s going to use your information accurately, because they make mistakes very day on your reimbursement for a simple CPT [current procedural terminology] code. So how can they be trusted to be perfect in using all that data? Someone’s got to be on top of the process, or you won’t know where you stand,” Zetter says.

An additional challenge, he points out, is that caregivers who are not part of the ACO could negatively affect patient outcomes. “You could have other doctors who could cause patients to be readmitted for something that isn’t your fault, but you’re stuck with the consequences,” he says.  

Zetter advises practices considering whether to join an ACO that is part of a shared savings program to “make sure that you go through the agreement with a fine-tooth comb” and ask these questions:

  • What is the nature of the patient population under the ACO’s supervision?

  • Which providers are covered by the agreement?

  • Who else will have the ability to affect patient outcomes?

  • Will you have access to the data the payer uses to decide if the ACO has met the savings and quality thresholds?

  • How specific will the data be?

  • If the ACO does qualify for a financial incentive, what form will it take, and over what period of time?

In January, CMS announced preliminary results from the first year of operations for the MSSP and Pioneer programs. It found that 54 of the 114 MSSP participants spent less than their budget benchmarks, but only 29 of those lowered spending enough to qualify for shared savings. The latter group generated shared savings of $126 million for themselves and $128 million for the Medicare trust fund.

The evaluation of the Pioneer program, which was conducted by an independent agency, found that the program saved Medicare $147 million. Of the 23 participants who stayed in the program after the first year, nine had lower spending growth compared with Medicare fee-for-service.

In its analysis of the CMS data, the Brookings Institution said, “Initial health spending data from these ACOs and the overall low spending growth for Medicare over the past several years bodes well for the financial sustainability of the MSSP and Pioneer Program from a CMS perspective. At the same time, many individual ACOs are struggling to keep their head above the water. The transition to accountable care is a multi-year enterprise that involves a great level of clinical and organizational transformation that many ACOs are simply not well equipped to handle.”

Zetter echoes the Brookings analysis. “Basically you’ve got to do an ROI [return on investment] analysis on the agreement,” he says. “Are you going to make money off it or not? If you’re not sure then you probably shouldn’t be doing it.”

Next: Bundled payments--who is the gatekeeper?


Bundled payments

Bundled payments allow payers and providers to negotiate fixed payments for episodes of care. Alice G. Gosfield, JD, of Alice G. Gosfield and Associates in Philadelphia, Pennsylvania, says that in some cases these models could provide cost incentives for physicians to manage care more effectively.

“The theory of bundled payments, on which we have almost no evidence, is that it will do this magical thing that everyone has been talking about for the last 25 years-it will align the incentives,” she says. “So the providers who are all treating the patient under the bundle have the same financial incentives because there is one budget.”

Under the bundled payment model, two providers who would otherwise have different incentives would be put under the same budget for risk purposes. For example, if a patient receives a knee replacement, the hospital, the orthopedic surgeon, and the physical therapist would all fall under the same budget.
Zetter says the problem is that it’s unclear who would delegate the reimbursements, especially if the medical services are provided by separate organizations.

“My concern is-who is going to be the gatekeeper? If it were one of my clients, I would say, ‘Before you get involved and agree to this, we need to have every single question answered so we know what the expectations are,’” he says. “You need to know all the details upfront. With bundled payments, it depends what the service is. How is it going to work, who is affected and who makes those decisions.”

But do bundled payments work well for solo practitioners or small practices? Zetter says there isn’t a definitive answer.

“Bundled payments are various,” he says. “They’re different all across the country. Different payers and health systems, even Medicare, have different ideas as to how they are going to do them, so there is no one set of rules.”

In 2013, CMS launched the Bundled Payments for Care Improvement (BPCI) initiative. It’s testing four bundled payments models at organizations across the country for 48 different episodes of care, including stroke, congestive heart failure, and diabetes.

Gosfield says bundled payments may be financially viable for PCPs when managing patients with chronic conditions. But she says the key is to base the budget on supported clinical data.

“The real issue for any physician looking at a bundled payment is what is the budget based on?” she says. “If it’s based on clinical practice guidelines, published consensus information, or it tracks the way physicians treat patients, then [providers] are at risk for medical management, which is what they should be at risk for. Can you manage efficiently? Can you stay within the budget?”

Before entering into a bundled payment contract, follow these steps:

  • Determine who will be involved. Will you need to contract with another practice for your patient to receive additional services, such as physical therapy? If so, will that provider be able to comply with the budget?

  • Calculate your return on investment. Use patient data to determine if the bundled payment will be financially viable. Compile a report on all of your patients with the condition. Find out how often you see them, how much you bill them, and how much you get reimbursed to determine if your practice will make money, lose money or break even.

  • Communicate with your payer. Zetter says 99% of physicians sign the contract that a payer gives them. But bundled payments need to be evaluated on a case-by case basis. Get answers to all of your questions in advance.

Next: Is capitation still a bad word?



Capitation involves prepayments to physicians or medical groups for pre-defined services. The compensation is typically calculated based on the range of services provided, the number of patients involved, and the period of time that the services are provided.

According to the American College of Physicians (ACP), capitation rates vary from region to region because of local cost differences. In many plans, a risk pool is established and money in the pool is collected throughout the year. If the plan does well financially the money is paid to the physician. If it does not, the money is kept to pay the deficit expenses.

A capitation agreement includes a list of specific services that must be provided to patients. Typical services include:

  • Preventive, diagnostic and treatment services,

  • Injections, immunizations, and medications administered in the office,

  • Outpatient lab work performed either in the office or a designated laboratory,

  • Health education and counseling services performed in the office, and

  • Routine vision and hearing screening

The argument against the capitation payment model is well known. Essentially, practices are given a fixed allowance to care for patients based on historical data from insurance companies. The incentive is to spend less money on each patient, which doesn’t take the value of patient care into account, says Gosfield.

The number of physicians who have capitation contracts continues to dwindle. According to a 2011 MGMA cost survey, 21% of physician-owned practices receive capitation revenue.  “It’s a take it or leave it proposition from health plans, and primary care physicians don’t get to negotiate their contracts,” Gosfield says.

However, there are advantages to revamped versions of capitation plans. Called global payment or global capitation, the consist of practices and hospitals joining together and receiving fixed monthly payments for health plan members. Working within a group could be risky, but if managed properly, it could give practices more leverage when negotiating with payers.

MGMA research also indicates that practices with capitation contracts received 36% more revenue than those that rely only on fee-for-service reimbursement. Practices with higher capitation revenue also have higher staffing and technology expenses, however, due to the resources needed to run a risk-based payment system.

Zetter says he usually advises clients to walk away from capitation reimbursement contracts because they are difficult to manage due to high utilization from patients and greater time commitment for less compensation.

If you are presented with a capitation reimbursement plan from a payer, even as a small practice, there is still room for negotiating terms. “There’s always the ability to negotiate. You just have the answers before you go the payer,” Zetter says.

Zetter suggests that practice managers compare capitation contracts, and look at which are paying less. Then, be ready with data that supports your top Current Procedural Terminology codes and cost-saving measures that gives you leverage during negotiations. “You have to know your practice and what you do better than your peers,” he says.

Next: Hybrid payments might make sense to most practices


Hybrid payments

Many experts believe that a hybrid approach that combines more than one payment model is a likely solution, or at least a transitional step on the road to payment reform. Gray Tuttle, CHBC, a principal with Rehmann Healthcare Management Advisors and a Medical Economics editorial consultant, says hybrid payments are a convenient way for PCPs to transition from a system that pays for volume to one that pays for value.

Hybrid or blended payments often include traditional fee-for-service payments in addition to capitation and pay for performance, and is a method used in many ACO and PCMH models.

Blackwelder says supporters of the new payment models need to make skeptics understand that while fee-for-service isn’t going away, a blended payment model is coming and they need to embrace it.

“There will always be a place for fee-for-service, but much of what we do going forward will also require more creative approaches such as capitation or care management fees,” Blackwelder says. “Blended payments are the way to go.”

These hybrid models may be especially important for PCPs, because fee-for-service does not compensate well enough or at all for many of the essential services PCPs provide, most notably care management, Blackwelder says. The AAFP has advocated for a blended payment system that pays PCPs a care coordination fee that would compensate them for services they aren’t being paid for now.

K.J. Lee, MD, FACS, an otolaryngologist and associate clinical professor at Yale School of Medicine who is a long-time advocate for physician payment reform, says a hybrid model that includes a base fee-for-service payment and pay-for-performance payment bonuses (or reductions) based on outcomes, patient satisfaction, and adherence to clinical guidelines would balance the needs of the physician with the need for accountability. His formula would call for 60% payment by fee-for-service and 40% based on performance measures.

Lee says fee-for-service alone encourages too much volume, while a capitation model encourages minimizing medical services. He sees the hybrid model as striking a balance that is lacking today.

“The practical solution is a hybrid payment system that incentivizes doctors to be good stewards of the healthcare dollar as well as rendering accessible, quality care,” he says. “It allows the doctor to concentrate on patients rather than trying to document to get paid more.”

Next: What's the solution?


Will it work?

Many reports document physician skepticism as to whether payment reform will work, Their doubts appear to be validated by early reports that ACOs and PCMHs using hybrid payment models are not producing expected results.

The problem is that these payment changes are not based on an economic analysis of what practices need to be able to transform, explains Harold D. Miller,  executive director of the Center for Healthcare Quality and Payment Reform.

“One of the things least appreciated by policy makers is that physicians want to use different payment models, but ones that work,” he says. “The resistance is because most of these models are really not designed to provide the capabilities for physicians to actually succeed. It has to be the right amount of money, delivered in the right way, with the right information, and the right accountability standards.”

But Miller says physicians are skeptical because they’ve been burned before by Medicare and payer-imposed models that do not take into account the on-the-ground needs and challenges of running a medical practice.

“The key message is that any payment model has to be something physicians have a role in creating to ensure it will work for them,” Miller says.

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