Do Alternative Payment Models Overcome Fee-for-Service Flaws?

October 03, 2017 - While alternative payment models, such as pay-for-performance, shared savings and risk, and bundled payments, were designed to improve the flawed fee-for-service system, the models are not addressing volume-based payment issues, according to a recent report from the Center for Healthcare Quality and Payment Reform (CHQPR).

The organization’s President and CEO, Harold Miller, explained that healthcare payment reform efforts have either completely missed the mark or only partially addressed fee-for-service payment system flaws, including:

• No assurance that healthcare services delivered are appropriate, high-quality, and achieve improved patient outcomes

• No guarantee that reimbursement rates meet the actual costs of delivering high-quality, appropriate care

• A lack of reimbursement or fees for high-value services, such as non-face-to-face encounters, proactive outreach, and educational services

• Limited cost transparency for patients and payers to predict the total amount they will need to pay for treatment

The alternative payment models also do not build on the strengths of the fee-for-service system, Miller contended. Its strengths include only paying providers if a patient receives care, reimbursing providers more for patients who require additional care, only paying providers for factors within their control, and ensuring providers know how much they will be paid prior to delivering care.

Pay-for-performance and shared savings and/or risk models especially do not overcome fee-for-service challenges or build on its strengths because the arrangements merely layer incentives on top of the traditional payment structure.

In particular, the models fail to ensure high-quality, appropriate care. The pay-for-performance model only rewards providers for achieving an outcome for a group of patients, not individuals. Therefore, providers can earn value-based incentive payments for only improving the care for 60 percent of their patients, while the remaining 40 percent do not receive the same high-quality services.

Shared savings and risk programs use the same incentive payment and penalty system as pay-for-performance. The alternative payment model also cannot ensure high-value care because providers can actually get paid more for delivering low-quality care as long as cost savings are achieved.

Bundled payments make more of an effort to address the flaws and strengths of the fee-for-service system, Miller argued. The fixed payment model allows providers to know how much they will be paid for services prior to delivery and the model only reimburses providers when care is delivered.

Patients and payers also know the total cost of care under bundled payments.

However, the model only partially ensures high-quality, appropriate care. The fixed payment may incentivize providers to deliver the most cost-efficient, high-quality care since complications or errors would be paid for by the single payment.

But providers may also be incentivized to deliver cheaper care since the bundled payment amount does not change based on specific services performed.

Bundled payments also only partially give providers flexibility to deliver high-value services for which reimbursement is not available under fee-for-service. The model does not provide the right type of flexibility since bundled payments are triggered by a specific hospital procedure. The flexibility does not extend to alternative care sites, even if the settings are cheaper.

Stakeholders have argued that value-based reimbursement will achieve higher quality care at lower costs when alternative payment models impose greater financial risk on providers. However, Miller argued that even as alternative payment models shift from pay-for-performance to shared risk and bundled payments, value-based reimbursement arrangements still fall short of achieving higher quality care at affordable prices.

Miller stated that a patient-centered payment system is needed to improve health outcomes at the most affordable cost to patients and payers. The patient-centered payment system would center on teams of providers that have agreed to work together to deliver high-value care.

Patients would be able to select which provider team to use based on their health outcomes and standards that each team commits to meet for that patient.

Provider reimbursement would also need to depend on flexible payments that give providers room to deliver high-value services. The system would contain four reimbursement categories, including:

• Preventative Care payments: a monthly preventative services management payment paid to a team to provide proactive monitoring of preventative care needs and a procedure-based bundled payment for appropriate preventative services for care associated with preventative medicine

• Diagnosis and Treatment Planning payments: to receive accurate diagnosis and treatment assessments, providers would receive a diagnosis and treatment planning episode payment for all the testing and evaluation services needed to determine diagnosis as well as a diagnosis coordination and treatment planning payment for a diagnostic coordinator who manages the testing and treatment development for complex diagnoses

• Treatment of an Acute Condition payments: providers would receive a standby capacity reimbursement to support emergency services and other essential care, a one-time acute condition episode payment to deliver all treatment needed for a specific condition, and an acute condition coordinated treatment reimbursement for uncommon conditions or when personalized, additional care is needed

• Chronic Condition Management payments: to reimburse providers for a chronic condition treated over an extended period, providers would receive an initial chronic condition treatment bundled payment for initial treatment, education, and self-management support services and a monthly continued chronic condition management bundled payment

Miller contended that the patient-centered payment system would overcome fee-for-service challenges as well as build on the traditional payment system’s strengths. For example, the value-based reimbursement model would assure appropriate, high-quality care by only paying providers who meet quality standards and pre-defined health outcomes.

Payments would also be based on the costs incurred by teams that deliver high-quality care, so reimbursement would align with actual care costs.

Since payments are also tied to results, rather than a specific service, providers would have the flexibility to deliver high-value services not traditionally reimbursed under fee-for-service systems.

“Patient-Centered Payment supports patient-centered care, which is what patients want to receive and what physicians and many other healthcare providers want to deliver,” Miller wrote. “But unlike current value-based payment models, Patient-Centered Payment also requires the kind of accountability for cost and quality that both patients and purchasers need and that is feasible for providers to accept.”