New analyses of the major payment reforms begun during the Obama years suggest they do in fact lower healthcare spending. While the savings are small, they provide a strong argument for HHS Secretary Alex Azar to step up the pace of value-based reimbursement reform.
Two studies in the latest issue of JAMA looked at the early results from bundled payments for knee and hip replacements. Bundled payments cover all medical services during a well-defined episode of care. Hospitals earn a share of the savings if their costs are less than the bundle. They are penalized when they go over.
The knee-and-hip bundle became mandatory in 67 hospital markets in 2016. Another 332 hospitals took on that risk under a voluntary program that began in 2013.
The research on the mandatory program showed the CMS saved an average of $453 per case, or about 2% of the cost of the average bundle, without a diminution in quality. Most of the savings came from reduced spending on post-acute care, which can last up to 90 days.
A separate study of the voluntary program showed the CMS still saved money despite a small (although statistically insignificant) increase in the volume of surgeries. That's of concern since there were fears that bundled payments would give hospitals making money under the program incentives to step up the pace of operations. So far, the increases, if any, appear to be minor.
That most hospitals in the mandatory program successfully adapted to the new payment regime offers the best evidence to date that the CMS can expand the scope of mandatory value-based reimbursement programs without putting hospital finances at risk. Alas, when Azar announced a proposed expansion of bundled payments to other care episodes earlier this year, he opted for a purely voluntary approach.
The latest accounting for the much-maligned accountable care organizations also should encourage the CMS to continue pushing toward more risk-based contracts. The vast majority (92%) of the 472 ACOs in the Medicare Shared Savings Program do not face downside risk if they go over the average Medicare patient's costs.
About 60% of the ACOs in the program generated $1.1 billion in savings in 2017 with 70% of that going to the ACOs. Of course, that meant 40% of the provider networks went over the benchmarks.
That helps explain why many providers in the program still haven't shown the fortitude to take on two-sided risk and why the CMS' latest proposed rule calls for limiting hospitals to just two years in the risk-free model, down from the current six years. Graduation rates to Next Generation ACOs, where providers take on the greatest amount of risk, are disturbingly low. Just 51 networks have opted into the program that, in some cases, can include full capitated payments for the Medicare patients in their care.
When the Affordable Care Act created the CMS Innovation Center to push providers toward value-based care, shared savings programs were seen as the training wheels that would help providers learn how to take on risk. Trump administration officials are wrong to say the government is losing money under the program. But shortening the time period for upside-sharing-only participation is the right thing to do.
Given the recently enacted tax law and the continued graying of the population, the financial pressures on Medicare are only going to grow more intense in the years ahead. Some form of capitated payment is coming. That, in essence, is what the rapidly growing Medicare Advantage program run by private insurers offers the government.
Providers are eventually going to have to live within the limits set by capitated payments. They will be in a far better position to survive in that world if they learn the skills of managing risk.