Verma: Healthcare Payment Reform to Focus on Docs, Not Hospitals

July 26, 2018 - Focusing healthcare payment reforms efforts on providers, rather than hospitals, will be key to lowering healthcare costs, CMS Administrator Seema Verma recently told stakeholders.

“Over the coming months, we will create new opportunities for primary care doctors, who are best positioned among providers to help patients drive value,” the CMS leader said in a speech at the Commonwealth Club. “We want to focus on upstream providers, not hospitals, to eliminate unnecessary downstream costs.”

Healthcare reforms efforts have tended to focus on hospitals. Hospitals are cost centers, offering expensive inpatient, emergency department, and outpatient care all in one setting. And CMS pays more when services that can be safely performed elsewhere are delivered in the hospital setting.

“Medicare pays for things differently based on the site of care, paying more or less for the same service, but different locations,” she explained in her speech to the non-profit educational organization. “Now sometimes it makes sense, as some facilities provide a higher level of service.

“But other times, it creates misaligned incentives – decisions about whether a patient receives a service in a hospital or in a doctor’s office is influenced by how Medicare pays.”

READ MORE: The Difference Between Medicare and Medicaid Reimbursement

The misaligned financial incentives have spurred rapid consolidation, she added. “Because when we pay more for services provided in a hospital setting than in an office setting, we are encouraging the consolidation of providers around hospital systems,” she said.

Providers have been significantly moving to the hospital setting in the last couple of years. The majority of physicians (64 percent) in a recent Medicus Firm survey said they were employed by a hospital, medical, group, or other healthcare facility. And that percentage increased from 58 percent in 2017.

A 2016 Health Affairs study also found that the number of providers in group practices of nine or fewer physicians decreased from 40 percent in 2013 to 35.3 percent in 2015. At the same time, the proportion or providers working in large group practices of 100 of more physicians jumped from 29.6 percent to about 35 percent.

Providers are choosing to practice in hospitals and other large organizations to better position themselves in an evolving healthcare industry, researchers explained.

“[T]here are significant financial and technical challenges involved in running a modern medical practice, including the adoption of electronic medical records to comply with meaningful use requirements—a prerequisite to receiving certain Medicare benefits,” the report stated. “This in itself can offer a strong incentive for physicians to move toward larger group practices that have more administrative support than smaller practices can muster.”

READ MORE: Doctors, Employers Disagree on Healthcare Payment Reform Strategy

Verma warned stakeholders that the rapid rate of consolidation would cause healthcare prices to go up, while the competitive forces that encourage higher quality, lower cost care will disappear.

CMS intends to discourage harmful consolidation through site-neutral payments, one of many new provider-focused payment reform efforts, Verma said.

The federal agency has already implemented site-neutral payment policies that apply to long-term care hospitals and certain services at off-campus provider-based hospital outpatient departments.

Immediately following Verma’s speech in California, CMS also proposed to extend site-neutral payment policies to clinic visits. The policy would level the reimbursement rate for off-campus provider-based departments and physician offices, saving Medicare $760 million in 2019.

In addition to site-neutral payments, CMS also intends to shift its healthcare payment reform efforts by giving doctors more financial control, Verma added in her speech.

READ MORE: Will Site-Neutral Payment Reform Rule Cause Hospital Closures?

“In order for us to transform into a value-based system, we need to encourage providers to take responsibility for managing the health care budget for their patient,” she elaborated.

Currently, only 11 percent of Medicare providers participate in an alternative payment model that allows providers to control a patient’s healthcare budget, Verma reported. But the capitated or budget payment models truly incentivize providers to deliver lower cost care.

Under the provider-focused healthcare payment reform, Medicare payment systems would function more like Medicare Advantage, which “sets up the right financial incentives to deliver value,” she said.

“In Medicare Advantage, the government pays a fixed amount and health plans manage this budget,” she added. “CMS measures the plans on quality and this information is provided to our beneficiaries to help them select the plan that they want.”

“Providers compete to attract beneficiaries, through low premiums, provider networks and enhanced benefits. Plans also provide value to the Medicare trust fund, since they have to operate within the capitated payments.”

Implementing a similar payment structure for providers would allow CMS to offer additional flexibilities to doctors as it does for Medicare Advantage plans. CMS offers plans more flexibility when it comes to offering benefits to members. The federal agency also waives some administrative requirements for the plans.

“Because when the budget is set, we can waive a lot more regulations, program integrity rules, which give them more flexibility to focus on innovation, quality, and patient needs, instead of following CMS rules,” she said.

Verma also suggested less government price setting to lower healthcare costs.

“We will be developing models that move away from the government price setting to allow for competitive bidding amongst providers and creating new financial incentives for our beneficiaries to shop for quality and value as they seek high-value providers for their care,” she said.

CMS currently uses a competitive bidding program to purchase durable medical equipment, orthotics, prosthetics, and supplies. A competitive bidding component is also part of the Affordable Care Act’s insurance marketplaces and Medicare Advantage.

Through the provider-focused healthcare payment reforms, CMS aims to rein in the unsustainable healthcare cost growth rate. Healthcare costs are growing faster than the country’s GDP, and if the industry continues down this path, the country will spend one in every five dollars on healthcare by 2026, Verma reported.

“The status quo is simply unsustainable, and there is no easy solution,” she said. “Anyone who tells you that more government spending alone can fix this problem doesn’t understand the issue, because despite the huge increase in funding we saw from Obamacare, many of our healthcare challenges not only remain but continue to worsen. As a country, we have not figured out how to slow the rate of growth in health care spending.”