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Sorting through the new reimbursement models


Healthcare providers and payers are experimenting with a variety of new payment methods aimed at improving patient outcomes while lowering costs.

The entire healthcare community is looking for ways to reduce costs and confusion, while yielding better patient outcomes. New reimbursement models being tested by Medicare, private payers and think tanks aim to consider all the entities in the payment process-and they all have their advantages and their drawbacks.

While many primary care physicians (PCPs) welcome the change, Jill Rubin Hummel, vice president of payment innovation at WellPoint, Inc., says she is often asked for advice on how to sort through the many new reimbursement models that are emerging.

“I always tell them that the days of fee-for-service medicine as they know it are really numbered,” she says. “The movement to value-based payment can take many forms, but the concept of not just paying for value but for the quality of the care delivered will, over time, become the new normal.”

 Marci Nielsen, PhD, MPH, chief executive officer of the Patient-Centered Primary Care Collaborative, says that for any new model to work, it is important that physicians not have to carry all the risk. Risk needs to be shared and adjusted; otherwise, it will be like the dreaded capitation of the past.

 “This is so different than the 1990s. We have much better access to information to improve risk adjustment,” Nielsen says. Moreover, she adds, many of the models now being considered have arisen from providers themselves, rather than being forced on them by payers.

 So which options are winners and which are losers for PCPs? Medical Economics recently posed that question to a variety of experts.

Advanced medical home

The medical home model gives a physician some form of upfront payment in anticipation that the money will be used to achieve savings down the road. What varies is the payment amount and the expectations attached to it.

“If it’s a very small payment and you are expected to achieve very significant changes in quality, it won’t be enough to put really aggressive improvements in place,” says Harold Miller, director of the Center for Healthcare Quality and Payment Reform.

Also, although Medicare may give a physician money upfront, the amount may decrease in subsequent years, he says. So if a practice hires a nurse manager to work with chronic disease patients now, it may not be earning enough to sustain that salary when the funding goes down. Fear of this dynamic may prevent many practices from investing enough to be successful in achieving quality-based improvements.

Currently, much of the medical home funding is coming through pilot programs that are not guaranteed to last. When the pilot ends, physicians may have to lay off an employee.

“You are making a bet on whether this is the way of the world,” Miller says. “The good news is that even though some of these are demonstration projects, they are where people are going. But you can end up with potential gaps.”

For example, he says, there could be a gap of 9 months before it resumes, which can leave a small practice with a real cash flow problem.

Bundled payments

The value of bundling payments depends on their content. Putting two things together that you would have already coupled does not mean a whole lot, Miller says.

Another use for bundling is paying two providers who were previously paid separately, for example, making a single payment to the hospital and physician. The question becomes, how do you divide it up? In some cases, Medicare has required that the payments be made to a physician-hospital organization that is jointly controlled.

Nielsen says some specialties lend themselves more to bundling, such as orthopedic and cardiac procedures, or maternity care. But others do not, such as the management of patients with multiple comorbidities where several caregivers are involved. Primary care is probably not the market for this model.

“How do you carve up all those payments?” Nielsen asks. “It is not as easy to do as if the patient was only being seen in the hospital. Hospitals are where we know how to do this.”

Episode of care

The episode-of-care model is a version of bundled payments, in that providers are paid for treating a specific condition over a period of time. It is also like fee-for-service in that doctors are paid for providing a specific service. What needs to be differentiated in the future is that it is not just an isolated visit, Nielsen says.

For example, when Nielsen recently broke her arm, treating it required an urgent care visit, an orthopedics specialist, and a radiologist, as well as multiple X-rays. The episode-of-care model would have made one payment that covers all of the work that needs to go into healing her arm.

Currently these doctors have no incentive for limiting how often they see her, she says, but if there was one payment across the system for treating her injury, it would incentivize them to possibly order fewer X-rays, for example. This would lower costs, save her time, and reduce her lifetime exposure to radiation.

“The broadest goal is to incentivize the right care for the right cost,” Nielsen says.

But it cannot only be cost-the quality has to be there, Nielsen emphasizes. If her arm is not treated properly and she needs surgery to fix it, the cost goes up. 

Miller says that episode-of-care models tend to have some costs for preventable events built in, such as hospital readmission costs. Physicians need to determine what the rates of readmissions, infections, or complication are for the conditions they are covering before they agree to an episodic fee.

“It assumes that they can figure out how to reduce readmission rates or other costs down the line,” Miller says. “If the physician can do that, it’s a win-win.”

He says one of the big problems in this type of model is getting the information needed to make good decisions.

“You have to have data to be able to analyze whether or not it is a good deal for you. This has been a challenge in the commercial sector and Medicare market,” Miller says. “They tend not to have current data or accurate data to give you and may ask you to sign a contract based on data from 2 years ago, but the numbers today may not look anything like they did 2 years ago.”

Physicians can protect themselves against this by creating risk corridors: if actual costs turn out to be significantly higher than expected, the physician may only be responsible for a small amount of the total risk, Miller says.

Shared savings

The shared savings model says, “we are all in this together,” starting with the insurer and the physician. Physicians split savings on patient care with the insurer. However, if care costs go over budget, physicians could be responsible for a percentage of the difference. Nielsen says the savings needs to be enough to motivate the providers to change their behaviors.

“If we make it significant and they really have some skin in the game, and they know how to do it because they have the right tools and infrastructure to do it, we are seeing there is really some potential for the physician to be in better alignment with health plans,” she says.

However, Miller says the shared savings models could be the worst option for providers because they are structured with no change in fee-for-service payments, yet they offer the possibility of a bonus payment in a year or more if providers can save money.

For example, PCPs claim that hiring a nurse care manager can help reduce chronic disease hospitalizations. But the physician has to find the money to pay the nurse the first year, with the hope that the expense will lead to overall savings for the practice. Numerous factors, some beyond the physician’s control, can prevent that from happening, and the physician would take the loss. But the physician has to find the money to pay the nurse the first year and hope that the expense leads to overall savings for the practice. A variety of factors can prevent that from happening, some beyond the physician’s control, and he or she would not get any money back.

“Moreover, these are often based on minimum savings percentages, so you cannot stick your toe into the water a little bit,” he says. “You either have to dive into it significantly or there is no opportunity to benefit.”

Miller says the minimum savings percentages are higher for smaller practices because they might have more opportunities for random variations in cost, and Medicare doesn’t want to risk making payments that are not deserved.

“This makes it more difficult for small practices to do enough to hit that threshold to get money back to cover their costs,” he says.

Tracking shared savings works on a several-year cycle and the clock resets every 3 years, he says. 

“(Shared savings) are portrayed as an easy starting point for practices, but in fact they can be the worst to get into,” Miller says. “A payment model that has a shared savings component in it can be good but it needs to have other features, such as getting enough money up front and the savings being based on costs the physician can control.”

Nielsen has speculated that the shared savings model would be more effective if it went beyond just insurers and providers to include patients as well. The need for patients to improve their health-related behaviors is critical, yet many lack the motivation to sustain changes, once initiated. What about letting patients in on them? Incentivizing them to improve their behaviors is so important and yet some lack the motivation to follow through.

“Patients should get more than just chastised,” she says. “Humans need incentives to change.”

And do not forget employers, she adds. Many large ones are self-insured and they would love some savings to come to them, and not just to the health plan managing the benefits.

Involvement could grow to non-clinical entities that help lower costs, like YMCAs and other programs. “We focus a lot of the medicine side of the ledger. We don’t often focus on everything else, and all those nonclinical factors can be so important,” Nielsen says.

Direct pay

Erika Bliss, MD, FAAFP, is chief executive officer of Qliance, a Seattle-area company that was an early pioneer of direct primary care movement. Bliss says that patients of Qliance’s five clinics in the Puget Sound area pay a flat monthly fee in exchange for comprehensive primary care. “There is no billing insurance, and no per-visit fees. It is a true membership model,” she says.

She says this model removes the barriers to accessing primary care that many people face. Since patients have unlimited access to their physician or a colleague in an urgent situation, they do not allow small problems escalate. They are not deterred by the possibility of facing co-payments, and they do not have to limit their visits to 15 minutes. Many are for 30 to 60 minutes.

The patient and physician are able to create a strong relationship from which they both benefit. “We are restoring primary care physicians to the role they are supposed to play,” Bliss says.

New access methods

In addition to office visits, Qliance patients can access their physician via phone and email, and, soon, video chats. Bliss says some physicians worry they will be overrun by their patients’ demands if they adopt such a method, but she has not found that to be the case.

“Once you make yourself available to patients, they are quite respectful of your time and sometimes you have to bug them to call you. It’s not overwhelming at all,” she says.

Bliss adds that patients enjoy having a predictable monthly cost and physicians enjoy earning a steady income in an environment that allows them focus on the patient, free from billing concerns. It is especially liberating for PCPs, she says, because they rarely bill for complex, costly procedures, so they spend a lot of time and money pursuing small claims.

Of every dollar paid to a PCP today, she estimates, about 40 cents goes to pay for the billing process. “That is a huge waste of an already small dollar,” Bliss says.

She says the direct-pay model changes the way physicians think by making them accountable to their patients directly. “It frees you up to think about wholistic care and encourages you to treat them better with nothing getting in the way,” she says. “You are not just cranking through enough visits to pay your bills.”

In order for direct pay to work, however, it is important to limit the number of patients each physician has. She and her colleagues cap their practice at about 800 patients each, as opposed to the several thousand that many PCPs carry. 

Patients pay $54 to $94 per month, based on their age, with the average being about $70. The fees are paid by individual patients or employers/unions. Recently, a Medicaid managed care company also has contracted Qliance services.

Most PCPs have only about $20 per month in resources per patient, and billing costs usually have to be deducted from that. “Seventy dollar per person per month can enable physicians do so much more for their patients,” she says.

“We find patients join for many reasons but once they engage with us, they all stay for the personal relationship they build with someone who really cares about their health,” Bliss says.

Direct-pay patients are advised to have some type of catastrophic insurance coverage if possible, but Bliss says that Qliance sees a lot of variety in the coverage its patients have, from having no insurance to high-end plans.

Nielsen notes that one problem with direct pay is that there are still a lot of administrative tasks associated with it. Practices must be willing to fill that gap if the “middle man” of insurance companies are eliminated.


When coupled with risk adjustment and consistent quality metrics, capitation, once a dirty word in healthcare, can still work, Nielsen believes. She calls Kaiser Permanente a great example-its physicians are paid salaries with performance bonuses available.

“When you own all of the pieces in the care spectrum and all of those folks are on your team, capitation can absolutely work,” she says.

It will not work if all the onus is on the providers, if quality is not incentivized, and if patients are unhappy, she adds.

Fee for service

Many experts think a revised version of the fee-for-service model will remain part of the healthcare system for a long time to come. In fact, fee-for-service payments are the underpinning of shared-savings models.

“There are some very real barriers to fee-for-service going away entirely, but gradually more compensation will ultimately be value-based, not volume-based, where payments are based on outcomes, quality, and cost,” says Hummel of Wellpoint.

Nielsen also sees some room for fee-for-service to continue in the new quality arena: Since it incentivizes providers to offer more of whatever type of care they offer, using it to reimburse for preventive services can make a lot of sense.

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