6 min read

To Whom Do The Rewards Of Advanced Alternative Payment Models Go? Those Who Deserve It Most

By François de Brantes on 1/25/22 11:43 AM

In its recent Strategy Refresh, the Center for Medicare and Medicaid Services’ Innovation Center performs a needed introspection of the work done to-date with the alternative payment models piloted and fully implemented, and lays out a clear agenda for continuing its work and meeting important objectives. This report, which is the focus of the virtual Value-Based Payment Summit, has elicited many reactions from health policy experts and, in some cases, raised questions about the potential negative impact of these models on Medicare beneficiaries and the enrichment of model participants at the expense of the Medicare Trust Fund.

Questions about model impact are important and, in fact, the Innovation Center has been very diligent since its inception to evaluate the models it has tested and implemented. And the facts are that there is no evidence in any of the evaluations of today’s Medicare APMs that outcomes have worsened for beneficiaries. And there is evidence from independent research that beneficiary outcomes have improved. The primary reason lies in the intended purpose of changing payment from fee for service to alternatives that are based on budgets.

Providers that are given a budget – which is determined from historical observed costs of care – experience degrees of freedom in terms of allocating that budget to preventive services, patient monitoring and follow-up, and social services, all in the interest of improving outcomes and reducing the total cost of care, that they simply don’t have under fee-for-service, where their only incentive is to focus on services they directly provide – and to provide ever more of such services. That freedom comes with responsibility and accountability. And in advanced alternative payment models the accountability extends to losses when actual costs of care exceed the budget. It is an accountability that providers willingly accept and, in doing so, deliver better outcomes than when they are tied to fee-for-service payments.

Patients Deserve It

In our own experience working with  provider organizations, health plans, states, and employers across the country, in implementing advanced alternative payment models, we have continued to see improvement in outcomes as a direct result of value-based payment and care delivery programs. Every year, we have helped our provider partners manage tens of thousands of bundled payments in a wide variety of health episodes, impacting tens of thousands of Medicare, Medicaid and commercially insured beneficiaries. 

A real-life example of one of these patients is a Medicare beneficiary for whom English was her second language. She and her husband live on a relatively modest retirement income of $1,600 per month and have a tough time making ends meet. Having just been discharged to home from an acute inpatient stay that triggered a Medicare bundle, she was contacted by a Signify Health social care coordinator, who speaks the beneficiary’s native language, to make sure that she had the right support and follow-up care. During the call, the coordinator identified the need for assistance for food and utilities and contacted the local council on aging and other community based organizations to ensure the patient’s family would get help with food deliveries and financial assistance for utility bills. In addition, the coordinator made an appointment with the patient’s primary care provider, and subsequently followed-up to ensure all identified needs were addressed.

That help and support was made possible through an advanced alternative payment model in which the provider organization assumes financial risk for the Medicare beneficiary’s outcomes.  This allows the physician to address needs that aren’t clinical in nature but can have an impact on a patient’s health and well-being and prevent more acute and costly interventions down the road. That’s simply not possible in fee for service, where the only incentive is to provide more services, irrespective of their value. Creating a margin by reducing low-value care (i.e.,waste) and having discretion on how to use that margin in a more patient-centered manner, is one of the reasons why providers remain engaged in Medicare’s advanced alternative payment models. As such, it’s essential that those margins be maintained.

Model Participants Deserve It

There’s a reason why less than half of Medicare beneficiaries are in any accountable care relationship, let alone the ones that have real accountability: it takes a lot of hard work for physicians, hospitals and health systems to adopt the care systems and processes that will make them successful in advanced alternative payment models.

There’s a big difference between models that have no downside risk or very modest downside risk and those that create much greater exposure to financial losses. And that difference – the exposure to losses – is what stimulates the greatest level of change within provider organizations. The changes take a variety of forms, one example of which is illustrated above, and there are others. Participants in advanced alternative payment models have to adopt care processes that optimize patient outcomes or they risk paying for the added costs of excessive ED visits or hospitalizations. They also have to continuously monitor patients, which is partially why the United States experienced such an upsurge in the use of telehealth tools during the pandemic. They also have to add clinicians that have been trained in addressing mental and behavioral conditions.

These investments in care processes and people are simply not possible without the prospect of generating sufficient savings to at least cover the cost of the investment. And, for most organizations, in addition to covering the investment costs, there has to be some expectation that the savings will also be sufficient to generate an added margin. As mentioned in the Innovation Center’s Strategy Refresh, current models have too often dashed the expectation of sufficient savings by squeezing out past savings, resetting baselines, and making it ever harder to generate incremental savings. And that’s why there are still not enough providers engaged in these models, and why we and many others in the industry have called for reforms in how the budgets in advanced alternative payment models are set. The movement away from fee-for-service has to continue in order for plan members to reap the benefits, and also so that those who pay for healthcare get some relief from ever rising costs.

Payers Deserve It

United States employers have borne the brunt of healthcare inflation and have had to shift some of that increase to their employees, who have also been deeply affected by these increases over the past decades. These increases have mostly come from rising prices of common medical services that are now multiples of what Medicare pays, and the only recipe for relief from these price increases is to put providers in fixed price contracts – which is the essence of advanced alternative payment models. That model is what large employers have adopted and many more want to adopt and broaden because it works. As such, we now need even bolder action to ensure that the harmful effects of fee-for-service payments are reduced and the beneficial effects of advanced alternative payment models are increased.

The Path Forward

The Strategy Refresh sets a goal of having all Medicare beneficiaries in an accountable care relationship by the end of this decade. Employers should set the same goal and continue to follow Medicare’s lead. However, to reach that goal requires concrete actions:

  1. The Innovation Center must broaden its portfolio of advanced alternative payment models as recommended by the Leonard Davis Institute at the University of Pennsylvania. In particular, it must implement programs that appeal to specialty care physicians;
  2. The Innovation Center must also stay the course with existing advanced models, such as Direct Contracting, in which there is the most flexibility in managing patient budgets and re-allocating waste to patients’ benefit;
  3. And as mentioned above, advanced models must maintain the prospect of savings for participants.
  4. Employers have to hold their health plan administrators strictly accountable for increasing the volume of payments in advanced alternative payment models;
  5. And employers must also reward higher value providers with more plan members by rewarding plan members that select higher value providers.

As a nation, the United States has made great progress in creating far greater accountability for patient outcomes than there was a decade ago. The credit goes in large part to the Innovation Center and private sector health plans, such as Medicare Advantage plans, as well as leading employers. Now is the time to stay the course and double down, for the benefit of all Americans.

François de Brantes is Senior Vice President, Episodes of Care, Signify Health