CBO Report on Value Based Payment Demonstration Projects

Today’s Managing Health Care Costs Indicator is 10%

I blogged on Tuesday about the Congressional Budget Office report on disease management and care coordination. Today, I’d like to talk about the CBO reporton four demonstration projects on value based payment.

The headline is that these demonstration projects were not very successful.  That’s no surprise – the CMS payment demonstration projects violated basic fundamentals of effective extrinsic incentives.

-        The incentive system should be transparent and easy to understand

-        The goals would be clear and achievable

-        The incentive should be available soon after the desired behavior

-        The target of the incentive should clearly be able to influence the outcome

-        The incentive should be presented independently from other payments

CMS wasn’t able to build incentives that fulfilled any of these criteria.  The demonstration projects were long, there was little feedback along the way.  None of the surgeons or hospital administrators felt abiding confidence that they could influence the outcomes. Payments were made years after savings were realized. These programs were inadvertently designed to fail.

The real surprise is that not all of them failed!

The big news is that one of these projects actually saved money!  The Medicare Heart Bypass Bundled Payment project saved 10% of the cost of bypass surgery without any sacrifice in quality.  (David Cutler’s 2010 review says 15%).  Two of the other demonstration projects showed small improvements in quality-based process measures, and one of the projects showed no significant change in either cost or quality.

Here is a description of this project from Health Affairs in 2008:

…under Medicare’s Participating Heart Bypass Center Demonstration, four hospitals in the 1990s were paid a single amount covering both hospital and physician services for CABG surgery. An evaluation showed that Medicare paid 10–37 percent less, physicians identified ways to reduce length-of-stay and unnecessary hospital costs, and patients preferred the single copayment, with no cost shifting to outpatient care.

Gail Wilensky, a former CMS Administrator, asserts that further projects of bundling payment were stymied by regulatory findings that prohibited hospitals from gain-sharing with their physicians.  That’s possible. Clearly, an incentive for the hospital that cannot be transmitted to the cardiac surgeon making decisions isn’t very promising.  Also, the demonstration project was small – and it’s possible that it wouldn’t scale.

Still, it’s a surprise that CMS has not tried to replicate this!  I suspect that hospitals weren’t especially enthusiastic for expansions of this demonstration project. Through the late 2000s cardiac surgery was a reliable profit center, and lowering revenue from this service line looked very unattractive to hospitals.  .

The CBO conclusion is that we need to move away from fee for service. The writer concludes that it’s hard to have an impact with payment reforms that leave the underlying fee for service system untouched. I agree that fee for service is highly inflationary, and bundled or capitated payment systems can help bring us more value.  See a series of posts from 2009 on this topic: Part One Part Two, Part Three

But transitioning from the fee for service will require many changes in the provider system, and is unlikely to be successful in rural areas and medical communities with little competition.  Furthermore, fee for service is likely the best way to pay for some rare or unusual conditions.   Therefore, we need to develop payment reform that is compatible with the existing fee for service system. Here’s a link to a Catalyst for Payment Reform issue brief on this topic.  

Medicare showed us through this early 1990s demonstration project how to effectively implement bundled payment for selected services in the context of overall fee for service payment.  It’s time to put that knowledge to use.

Click image to enlarge.  Source 

The Congressional Budget Office Weighs in (Again) on Disease Management

Today’s Managing Health Care Costs Indicator is 34

The Congressional Budget Office released two important reviews of Medicare demonstration projects last week.  The first report is on disease management and care coordination, and the second is on value based pricing.   

I’ll cover the disease management and care coordination findings in today’s post, and will comment on the value based pricing demonstration projects in the next post.

There were a total of 34 different trials – enrolling almost 290,000 patients.  The first started in 2002 and the last was completed 2009.   A single project (at Mass General Hospital) showed significant savings, and a handful of projects showed lower inpatient utilization.  The programs were expensive; the CBO reports that the programs would have had to lower overall costs by 13% to break even.  You can get a sense of the financial results of these demonstration projects from the graphic below.  (Go to Page 22 of the working paper to see more details)

There are caveats, of course.  Medicare often wasn’t able to transmit timely data to the participating providers.   It’s hard to run a randomized or quasi-randomized trial in the real world; and providers could not make changes “on the fly” because of the study designs.  But these issues don’t change the headline.  The Medicare demonstration projects didn’t save the money that advocates promised.

My conclusions from this report

1)     There were many different trials targeting different patients using diverse approaches. All of the patients were Medicare beneficiaries who are old and are often ill – so the opportunity to improve care was large.  If it’s this hard to demonstrate impressive savings in this population – it will be harder still to show savings from similar interventions on a younger and healthier population. 

2)     The interventions were expensive.  Medical management efforts either have to be very tightly focused (but predictive modeling is notoriously unreliable) or the interventions have to be low-priced.  The CMS demonstration projects were neither

3)     The success of interventions had at least some relationship to proximity to care delivery.  It’s better for a medical management intervention to be delivered by (or with ) the health care system than by a third party on its own. Here’s an essay I wrote about this in 2005)
4) Surprising to me, "at risk" programs were no more likely to lower overall Medicare costs than programs where the program would not have to repay management fees if costs were not reduced.

My recommendations based on this report:

1)     CMS should continue to do demonstration projects.  Careful measurement is crucial to our making the right investments in the right care management.  

2)     CMS and private payers and employers should carefully measure the results of their   medical management programs.  Just because a program seems like it should work doesn’t mean it will! 

3)     Medical management programs need the engagement of patients, their families, and physicians.  Programs that are designed without connection to the provider community and engagement strategies for patients are unlikely to succeed.

Click on image to enlarge.  Source 

Next post: Value Based Payment Demonstration Project 

Freezes and Clawbacks and Cliffs, Oh My!

Today’s Managing Health Care Costs Indicator is 29.4%

The Congressional Budget Office  just released  physician fee schedule that would be required in 2012 under current Medicare rules. The SGR short for sustainable growth rate, mandates that if the increase in total physician costs exceeds an index of practice cost inflation, unit prices will be decreased by up to 7% the following year. The SGR has generated steep physician fee schedule cuts each year since 2002, and Congress has stepped in on multiple occasions to “fix” the SGR and be sure that physician fees would be level, or go up slightly. 

But Congress hasn’t simply appropriated more money for Medicare to account for reversing these fee schedule decreases.  That would have been too transparent!

Instead, Congress has utilized a two accounting maneuvers to maintain a fiction that increased costs in the next year would be recouped at some point in the future.   These accounting maneuvers have been used through Democratic and Republican administrations and legislative majorities. They have allowed our representatives to kick the can forward.     

                                                                                                                                                                            The CBO explains these accounting maneuvers in yesterday’s briefing.

Clawback:   Congress pretends that costs will be decreased  in the ‘out’ years, so that when the CBO is scoring ten year impact, it appears that there is little or no cost to preserving the physician fee schedule.

Cliff: Congress eliminates the floor for payment, and pretends that in subsequent years the SGR could lower fees by more than the initial SGR would have allowed.  Again, the CBO would follow this fiction and project little or no cost to the SGR override over a ten year time horizon.

 

Congress has intermittently also chosen to freeze, rather than decrease physician fees.   A freeze keeps fees at current levels, offering no cost of living increase.  Freezes mean that overall Medicare costs continue to climb, as physicians deliver more and higher intensity services.  A freeze means that no one is happy – Medicare costs go up AND physicians see their office expenses increase without a corresponding increase in their reimbursement.

As I said at the top of the post, a 29.4% decrease in Medicare reimbursement of physicians would be catastrophic.  Most nonprocedural physicians have office expense that approaches or exceeds 50% of revenue – so losing a third of revenue could theoretically cut physician income by 2.3.  Physician access for senior citizens would be severely diminished, and the viability of many physician practices would be threatened.   I don’t think there are any responsible health policy experts who think that’s a good idea.

Click to enlarge. Note "baseline" assumes that SGR is reversed and there is no 29.4% physician fee decrease. 

As you can see in the CBO chart, every option leads to higher provider costs over the next 10 years.   The “baseline” case assumes that the 29.4% decrease is implemented this January.   We’ve had ten years of accounting tricks that obscure the real cost of Medicare.  We need to overturn this potentially devastating cut in physician payment. We also need to support fundamental reform, including bundling payments to limit fee-for-service and implementing  the Independent Payment Advisory Board, bundling payments to address the underlying causes of increasing Medicare costs.

CBO: Health Reform will Increase Value (and no segment will personally pay higher premiums)

The Congressional Budget Office has weighed in on the impact of the Senate health care bill on insurance premiums.  It's highly likely that opponents will latch on to 10-13% increases projected for health insurance premiums for those in the nongroup market (17% of the population).  However, as Ezra Klein notes on the Washington Post blog, this is a "steal." In fact, the cost is up a bit - but these are credible insurance plans of 27-30% greater actuarial value. Furthermore, more than half of those in the nongroup market will receive subsidies, so their cost of having insurance will effectively drop by more than half.  The CBO projects no change to a tiny decrease in cost of premiums for the small and large group market. For both the small and nongroup market, the CBO projects that the SAME policy would cost between 1-10% less.

All told - this is a solid double for the health care reform plan. However, we'll see how this gets interpreted by the talking heads.

Health Care Reform Passes the House. Access Will Improve - Cost Increases Not Likely to Abate

The House passed health care reform 220-215 last night – a landmark bill that could decrease the uninsured by as much as two thirds.  The Congressional Budget Office estimates that the bill will decrease the federal budget deficit by $109 billion over the next 10 years.  The Senate is not yet ready to pass its health care reform bill, and after it does, the bills will need to be reconciled – so the final bill that emerges could look substantially different. But let’s examine -  if this bill became law, what would it likely do to health care costs?

I reviewed the likely impact of the Baucus Senate  bill on overall health care spending – using analysis from the CBO, in a post last month.   Essentially – the deficit goes down even while the cost of health care continues to rise.   That’s because the government is collecting taxes and penalties to fund all of the increase that is not funded by cuts in government health care spending (mostly on Medicare).

Here is a breakdown, again from the CBO,  of the House reform bill (that is very similar to what ultimately passed on Saturday night.  (Note that I have simplified this a bit – and there are rounding errors)

According to the CBO, the total amount of incremental dollars going into the health care system over the next ten years will be $633 billion ($1.06 trillion minus the $427billion in Medicare and other cuts).  And that’s assuming that these cuts will “stick.”  There is also the additional $210 billion required to reverse the “sustainable growth revenue”(SGR) formula that would require 21% Medicare physician pay cuts this January, and continued smaller decreases for many years to come.

The House health care reform bill is a political success – it has already gotten further than the Clinton Health Plan in 1994.   It’s also a policy success - increasing access to coverage, providing subsidies to bring healthy and middle class people into the system, and enacting regulations to protect against some health insurance practices that have frozen the sick out of our system.  Assuming this bill, or something like it, passes – the next big job will be figuring out how to lower the cost of health care!

The Commonwealth Fund and the Congressional Budget Office recently released competing estimates of the impact of various interventions on the federal deficit. The Commonwealth Fund's report is also explicit about the impact of these initiatives on overall health care costs - which is not the focus of the CBO report. I've pulled out five initiatives
1) Medical Home
2) Accelerate Health Care IT Adoption
3) Estabish a Center for Comparative Effectiveness
4) Increase tobacco tax
5) Place tax on sweetened beverages
The CBO suggests each of these will cause modest increases in the federal deficit, while the Commonwealth Fund analysis (performed by the Lewin Group) sees pretty substantial deficit reduction. The Commonwealth Fund's analysis is more in line with the budget proposed by the Obama administration.

I'm skeptical of the CBO's contention that raising taxes on sweetened beverages and tobacco will actually RAISE the federal deficit slightly. But it's important to note that the CBO's calculation of impact of the Clinton Health Plan on the federal deficit played a role in that plan's defeat. (See "The System" by Broder)

Keep your eyes on the Congressional Budget Office!

Comparative Effectiveness: Discordant Drumbeats

There is increasing interest in comparative effectiveness research – and the Annals of Internal Medicine has an editorial this week pointing to the importance of knowing the real value of what we are paying for.   (Harvard Link) The stimulus package and the 2010 budget proposal both envision a large federal investment in such research, and the Congressional Budget Officehas even suggested that such research will save health care dollars (although perhaps not as many dollars as the research will cost).   On the other hand, a heartfelt opinion piece in the Boston Globe last week by the CEO of the Society for Women’s Health Research, points out that what is good for a population might not be good for all individuals.   Phyllis Greenberger says:

 

As the American comparative effectiveness agency is assembled in the coming months, administrators must take into account the personal needs of individual patients. If the council were to primarily focus on cost effectiveness, it would likely only consider the "average" patient. But in medicine, every patient is unique.

 

So – here’s a dilemma.  It will be difficult (or impossible) to make cost-saving decisions that will not make anyone feel like they were given every chance.   See a previous post on the woes of the National Institute for Clinical Excellence NICE in the UK.  l Lowering health care costs means standardization and sometimes making tough choices and tradeoffs.

 

Another dilemma raised by opponents of using comparative effectiveness research to determine what should be covered is that costs decrease when there are competitors for effective innovations. There is an article in this week’s Annals of Internal Medicine (Harvard Link)  reviewing cost-effectiveness of cholesterol-lowering therapy to prevent heart attacks.  Cost-effectiveness is hugely dependent upon price.  Before it became available generically, Zocor cost over $3 per pill, meaning that it was not cost-effective to use on even a small portion of the “at risk” population.  On the other hand, generic simvastatin can now be obtained for only 10 cents a day,  making it cost-saving (not merely cost-effective) for all patients with LDLs over 130 (a majori ty of the population).  If we had not approved the use of Zocor at $3-$4 a pill a dozen years ago, we would not now have available one of the few cost-saving interventions in adult medical care.

 3/9/09 Update: Good column in Newsweek today noting the irony of a physician-legislator's opposition to science guiding medicine.