Medicare population budget model could spur major pay shift

The CMS Center for Medicare and Medicaid Innovation's planned push for a regional population-based budget in traditional fee-for-service Medicare could launch a major transformation in curbing sprawling healthcare costs for the program.

That's the hope of the Trump administration's top health officials. On Monday they opened the public comment period for five primary-care pay demonstrations.

Their "population-based payment" demonstration—in which a health system, insurance plan or even a health technology company would bear full risk for at least 75,000 fee-for-service Medicare patients within a targeted geographic region—raised the most eyebrows. With many details yet to be filled in, it has also raised a lot of hope.

"This is a sweeping change," said Mike Leavitt, former HHS secretary under President George W. Bush and supporter of value-payment shifts. It has the capacity to go "right to the heart of Medicare" and affect regular fee-for-service patients, he said. "It is a move bold enough to really move the process forward, and so I'm very optimistic about what they've done."

According to the details available so far, payment would flow through a per-person fee each month. Patients in the model would include the chronically and seriously ill. The per-person payments for primary care would be based on historical Medicare fee-for-service spending, calculated with geography-specific costs in mind—not unlike the plans for capitated payments in Medicaid that roiled Washington during the Republican Congress' attempts to repeal and replace Obamacare.

The parameters are hazy enough that experts made the caveat that the Trump administration needs to clarify details before they can accurately assess the plan.

For John Feore, associate principal at the consulting firm Avalere, the model could spur more widespread adoption of something like the Maryland global budget system.

He pictures the demonstration as a state-level push, where "a couple of plans or organizations competing against each other, to take on full risk for all fee-for-service beneficiaries."

"You could see a real attempt at constraining Medicare costs because the only way you'll be approved as a geographic participant is, you're going to need to offer a discount to CMS," he said. "Whether it's the Houston area or the state of Ohio that could be covered, that could have pretty strong potential."

Feore also said Medicare Advantage plans could see the prospect as "welcome news," representing a chance to expand their business.

But there are substantial questions that need answers. On Twitter, Dr. Farzad Mostashari, CEO of the primary-care startup Aledade, said the CMS needs to decide whether physicians or hospitals could use their global budgets to pay for services beyond what's covered by traditional Medicare without needing to process claims.

He also criticized the use of a national inflation rate as the mechanism to boost the global budgets every year, saying this would add "variability and uncertainty." And he argued officials need to find a risk-adjustment mechanism to prevent groups that are shouldering a lot of risk from losing too much money.

Mostashari posited that geographic models aren't necessarily the best fit for Advantage plans, saying they're "best suited to primary-care providers that have learned how to use their close knowledge of—and relationships with—their patients to reduce hospitalizations and unnecessary care rather than the typical tools" of insurers.

"MA plans have had great success at using narrow networks with negotiated prices and utilization management to control costs, and neither of those are possible for beneficiaries that have elected for maximum choice offered by traditional Medicare," Mostashari said.

When it comes to implementation, Leavitt said he suspects CMS officials are eyeing regions currently dominated by one major health system. Under this direct-contracting model, the health system's payments would be determined by the care it offers rather than its monopoly power, he said.

"In markets where one large system is dominant, where there is no competition at all, it means we need to move those systems away from fee for service but reward them when they produce good results," Leavitt added.

For the model to work, however, at least one expert said state governments will likely have to play a big role.

Clif Gaus, CEO of the National Association of ACOs, drew comparisons to the Medicaid value-payment efforts in Oregon and Colorado, as well as the global budget model in Maryland.

"Short of a state mandating it or leading it, I'm a little tepid on whether communities will be able to on their own develop a geographic-wide plan," Gaus said. "Certainly there's a better chance where the community has an aggregation of providers through big systems primarily, but in those cases there's lots of competition between those systems, and it'll take some real on-the-ground discussions and cooperation to evolve a geographic based model."

The CMS' financial investment in the model will be key to whether the healthcare industry buys into the geographic model, according to Melinda Abrams, director of the Commonwealth Fund's Health Care Delivery System Reform program.

"The key is to make sure the payment is substantial enough to enable doctors to care for their patients," she said. "We can come up with a new set of incentives and a new structure, which are important, but we also need to adequately pay because there's so much value when there is more investment in primary care."

Stakeholders have a month to respond to the Innovation Center's request for information, and the groups that want to participate in most of the models would start transitioning in January 2020. Officials projected the transition period for the geographic model would start in mid-2020.

Overall, the industry response has been far different from other capitation proposals, perhaps because it is a demonstration program.

The proposals vary across the political spectrum and include the GOP-led Congress' idea to set capped payments for Medicaid as part of the 2017 Obamacare repeal effort. The demonstration echoed that idea, as CMS Administrator Seema Verma on Monday indicated she hopes to wrap some state Medicaid fee-for-service programs into the demonstrations.

It is also a far cry from the response to single-payer ideas. The geographic demonstration bears shades of the key payment provision in a House Medicare for All proposal introduced earlier this year by progressive Rep. Pramila Jayapal (D-Wash.). Her proposal would use a governmental intermediary in the form of a regional administrator, who would negotiate a lump sum to be paid to hospital systems quarterly, known as a global budget.

Leavitt characterized the discrepancy as political reality, as both Republicans and Democrats see the need to shift from fee-for-service medicine.

The details are where "there are going to be collisions of interest," Leavitt said. "And when you get close to an election, there is another element in play."