Care Delivery Provisions in the ACA

Along with two other laws that addressed health information technology and physician payment reform, the Affordable Care Act (ACA) was designed to move the healthcare industry toward a value-based approach that would increase efficiency and improve patient outcomes. The ACA created provider incentives and penalties to raise quality in certain areas. It also authorized the CMS to conduct demonstration projects.

The Center for Medicare and Medicaid Innovation (CMMI), also established by the ACA, helps CMS implement these provisions and tests new models of payment and service delivery. In an unusual feature of the law, Congress gave the Secretary of Health and Human Services the authority to expand the scope and duration of a new model, including the option of testing it on a nationwide scale. CMMI has broad leeway in this regard, provided the program does not raise overall government spending and maintains or improves care quality. Among the programs that CMMI has tested are the Comprehensive Primary Care (CPC) Initiative and CPC+, the Bundled Payments for Care Improvement Initiative (BPCI), and the Independence at Home Demonstration. CMMI also has been instrumental in rolling out CMS’s Quality Payment Program (QPP) for physicians and will play a key role in the new Primary Care First program.

Value-based Care

The law’s fundamental assumption is that if healthcare providers are paid for value rather than volume, healthcare will become more efficient and effective. “Value” is most often defined as delivering the highest-quality care at the lowest cost. In some cases, value is identified with the Triple Aim of the nonprofit Institute for Healthcare Improvement (IHI). Under the Triple Aim model, healthcare organizations strive to improve the patient experience of care, improve the health of the population, and reduce per capita costs.

Under the insurance reimbursement system in effect when the ACA was passed—and largely still in place—most physicians were paid on a fee-for-service basis; that is, they were paid every time they provided a service to a patient. The more services they rendered, the more they were paid. They were paid only for face-to face encounters, which normally occurred in offices, hospitals, or other facilities. If they spoke on the phone with patients, visited them at home, or had a nurse call them or visit them, these services usually were not covered by insurance.

The fee-for-service system is not well-equipped to deal with chronic diseases, partly because it doesn’t cover non-visit care.

This payment system came into being many years ago, when patients sought care mainly for acute illnesses. But today, chronic diseases such as diabetes, asthma, chronic obstructive pulmonary disease, and heart disease are the most common reasons for office visits, and the management of these chronic conditions requires regular follow-up and monitoring. The fee-for-service system is not well-equipped to deal with chronic diseases, partly because it doesn’t cover non-visit care. A volume-based payment system also invites physicians to overuse diagnostic and treatment services.

Hospital Incentives

Under Medicare’s prospective payment system, hospitals are paid a prescribed amount for each “diagnosis-related group” (DRG) of services. If they perform additional services within a DRG, or if a patient’s hospital stay is extended, they are not paid more for the DRG. For the most part, their revenues depend on how many patients are admitted to the hospital and the average severity level of the DRGs they assign to their patients. In essence, then, they also are paid for volume. The more they do for patients, and the more patients they treat, the higher their revenues.

Wherever healthcare is delivered, the fragmentation and poor coordination of care are responsible for much of the waste, the over- and under-utilization of services, and the less-than-optimal outcomes that characterize the U.S. healthcare system, according to a landmark Institute of Medicine report. All of this is encouraged by an insurance system—including private health plans, Medicare, and Medicaid—that pays largely for volume rather than value.

The main alternative to fee-for-service is prepayment, which requires providers to take financial risk for the care they deliver. Providers are paid a prospective budget in the form of a capitation rate—a set monthly fee for each health plan member—or a global payment that covers all costs of care for a patient population. This is how group-model HMOs such as Kaiser Permanente operate. The insurance arm of the organization sets a budget for its physician groups and hospitals.

Today’s value-based reimbursement models steer between the poles of unrestricted fee-for-service and pure prepayment

Prepaid group practices tend to have lower costs than fee-for-service healthcare organizations, while offering equal or better quality. But as the United States discovered in the 1990s, when insurers launched HMOs across the country, most care is not delivered by organized systems that are prepared to manage care within a budget. Grafting prepayment onto a healthcare delivery system that was largely fee-for-service and unorganized proved to be a disaster.

Payers learned their lesson. Today’s value-based reimbursement models steer between the poles of unrestricted fee-for-service and pure prepayment. They combine incentives for cost containment with bonuses for improved quality and service.

Climbing the Ladder of Risk

The ACA’s care delivery provisions attempt to move providers from pay for volume to pay for value in gradual steps. Essentially, this approach requires or incentivizes healthcare providers to take ascending levels of financial risk. At the bottom of the ladder is value-based purchasing, in which providers are financially rewarded or penalized for their performance on cost, quality, and patient experience measures. This “pay-for-performance” program is similar to those that many commercial insurers instituted in the 15 years prior to the ACA.

The next step up the risk ladder is “shared savings,” in which provider groups try to reduce the total cost of care. If they’re successful, and if they meet quality benchmarks, they can share in the savings. Under an upside-only shared savings arrangement, organizations may get bonuses for cutting costs, but they aren’t liable for losses if they overspend their budget. In a two-sided arrangement, they must pay back some of the losses they incur to Medicare.

Some healthcare organizations take financial risk for overspending under one of the ACA’s bundled payment programs. Bundled payments require hospitals, physicians, and post-acute care providers to take financial responsibility for an episode of care such as a hospital stay plus 90 days of post-acute care.

Most of the ACA’s care delivery provisions apply only to Medicare; however, this program accounts for about a fifth of U.S. health spending and is hugely influential in the private sector. So, these aspects of the ACA are a lever designed to move the entire health system. In at least one ACA program, private insurers are already collaborating with CMS. Moreover, most insurers have value-based-care initiatives that complement those of the ACA.

The ACA levies fines for high rates of hospital-acquired conditions (HACs) such as bed sores, falls, infections, and surgical complications. Since it went into effect on October 1, 2014, the HAC Reduction Program has penalized hospitals that rank in the worst-performing quartile of facilities. Medicare payments to these hospitals were lowered 1% in FY 2019.

Like the readmissions reduction program, this initiative has been effective. The rate of hospital-acquired conditions among Medicare patients declined by 13% from 2014 to 2017, saving the providers $7.7 billion and averting 20,500 hospital deaths, according to the Agency for Healthcare Research and Quality (AHRQ). From 2010 through 2017, the average annual reduction in HACs was about 4.5%.

Value-Based Purchasing

The ACA authorized two other major programs to rein in hospital costs: the hospital Value-Based Purchasing (VBP) program and the Bundled Payments for Care Improvement (BPCI) program.

The hospital VBP initiative, which began in 2012, is a pay-for-performance program in which CMS withholds a percentage of Medicare payments from hospitals—for fiscal year 2019, this was 2%—and then redistributes the money to the hospitals based on their quality of care, patient experience, safety, and efficiency and cost-reduction.

CMS launched the BPCI in 2013. Nearly 7,000 hospitals, physician groups, and post-acute care providers (nursing homes, home care agencies, and others) signed up for the BPCI, but most of them were just kicking the tires. In 2015, when CMS began requiring BPCI participants to take financial risk for all program bundles, only 1,500 providers remained in the program.

In 2016, CMS introduced a mandatory bundled-payment program, the Comprehensive Care for Joint Replacement Program (CJR). Approximately 800 hospitals across a large swathe of the country were required to participate in CJR, which covered all services for hip and knee replacements during hospitalization and for 90 days of post-discharge care.

Under the Trump administration, CMS cut in half the number of areas where bundled payments for joint replacement were mandatory. At the same time, it canceled the planned introduction of mandatory bundled payments for myocardial infarction, coronary artery bypass grafts, and surgical hip and femur fracture treatment.

Hospital Value-Based Incentives

The ACA’s value-based-payment provisions include initiatives to improve the safety and quality of hospital care. Alone among the ACA’s care delivery initiatives, these programs have no upside for providers; they simply punish hospitals for poor performance.

The Hospital Readmissions Reduction Program, which was implemented in 2012, penalizes institutions that have an excessive number of readmissions. If a hospital’s risk-adjusted, 30-day readmission rates for conditions such as heart attack, heart failure, and pneumonia exceed a benchmark, all of the hospital’s Medicare payments are reduced slightly for a year.

In fiscal year 2019, CMS imposed readmission penalties on 2,599 hospitals, or 82% of those participating in Medicare. Experts estimated that these fines cost hospitals a total of $566 million. Early evidence from the CJR program was promising: Medicare payments for episodes of care decreased, and nearly 50% of hospitals achieved bonus payments by maintaining quality and reducing costs below a predefined benchmark. As of Feb. 1, 2018, 465 hospitals remained in the program, which meant that most hospitals had dropped out in areas where CJR was no longer mandatory.

Excerpted from Physician-Led Healthcare Reform: A New Approach to Medicare for All by Ken Terry