Waiting for the Carrot? It May Take a While

Dawn Holcombe, MBA, FACMPE, ACHE
Editor-in-Chief
President, DGH Consulting, South Windsor, CT

The federal government is determined to shift Medicare’s traditional fee-for-service plans into alternative quality-based or value-based payment programs. Currently more than 400 accountable care organizations (ACOs) and more than 100 hospitals and other healthcare groups accept Medicare bundled payments, but they are predominantly focused on primary care. Medicare’s target is to shift about 30% of traditional payments to these alternative models by 2016, and about 50% by the end of 2018. In addition, Medicare wants to augment its spending with an incentive payment (eg, bonuses and penalties on top of traditional fee-for-service payments), with the goal of tying about 90% of Medicare spending to quality components by the end of 2018.

Those are good goals, and they read well in the press. However, many in the healthcare community will argue that Medicare is not set up to cover its costs, and that Medicare payments are often breakeven at best, especially for oncology practices. The goal of these Medicare alternatives is ultimately to reduce spending within the Medicare system, and to achieve savings over current spending levels. Consequently, the details about compliance in these alternative programs are very important. The rewards are initially proving to be elusive, which does not bode well for the programs or their goals.

Physician groups like Healthfirst, an independent physician practice association in Burlington, VT, announced in January that its 40-physician ACO would be dropping out of Medicare’s Shared Savings Program (SSP). Despite keeping expenditures well below state and national averages and improving quality of care, the organization did not meet shared savings goals. Leaders indicated that after 2 years of participation, the program was unsustainable, and until the program is modified to recognize practices already providing low-cost, high-value care, it could not continue to participate.

Thirteen of the 32 original health systems—nearly half—that joined Medicare’s Pioneer ACO program in 2011 have since dropped out. The Pioneer ACOs frequently cited as reasons the burden of compliance and the complexity of management and oversight, with some successes in quality-improvement measures and reduced readmission rates; however, almost half (14) failed to produce any cost-savings for which they could be rewarded. Participants who dropped out of the program reported in 2013 a willingness to pursue value-based programs, but no confidence in the Medicare program as the best way to move forward. Seven of the 9 that left in the first year moved into the Medicare SSP.

The Medicare SSP has also yielded some improvements on quality measures, but only about a quarter of the 220 early participating ACOs qualified for bonuses for reductions in cost of care. Medicare has recently modified the SSP to reflect these challenges. Participants’ initial contracts expire at the end of 2015, at which point they must decide whether they will continue in the program. At the end of 2014, Medicare proposed a rule change allowing ACOs to avoid the risk of nonperformance penalties for up to 6 years instead of the original 3 years.

Under the Affordable Care Act, Medicare has embarked on a number of new initiatives, hoping some of them will lead to the eventual solutions for healthcare reform. Initially, there is interest, but then the carrots (incentives) fail to materialize, and the sticks (penalties) hit—usually before the medical community is ready for them. These programs are often designed so that there will always be winners and losers, but is that a good incentive for those on the bottom of the scale? In 2013, more hospitals received penalties than rewards under Medicare’s Hospital Value-Based Purchasing program. That program reduced payment rates to all hospitals by 1.25%. Those funds were set aside in a pot for incentive payments, but at the end of 2013, more than half of the hospitals did not receive enough payment to recoup the money that was originally taken, leaving them with a net loss.

It is clear that, of all the programs that were started as a result of this new wave toward reform, not many are showing success. Physicians and hospitals are already in vulnerable financial situations, and elusive carrots of reform that ultimately do not materialize are not feasible incentives. Medicare sets very stringent rules, and then appears to define thresholds and benchmarks in ways that do not reflect the reality of the healthcare market.

In April 2015, large physician groups expressed concerns about the lack of quality bonuses being dispersed from the Centers for Medicare & Medicaid Services. These groups were early participants in Medicare’s Physician Feedback program/Value-Based Payment Modifier program that is intended to provide quality incentive bonuses to doctors—based on a list of more than 250 quality measures, 9 of which must be chosen for reporting. The program started payments in 2015 for 2013 performance by medical groups with ≥100 health professionals. In 2016, the program will start payments to groups of ≥10 health professionals based on 2014 performance. In the first year that groups are affected by the program, they can choose to forgo bonuses or penalties, but following that, the bonuses and penalties are mandatory. However, few of the 1010 large physician groups to which the program applied this year are receiving bonuses, and 319 are now being penalized with a 1% reduction in Medicare payments. This year, 564 of the 1010 groups opted out—most would have received penalties—but they will not have that option next year.

Why is all of this important for oncology practices? Any physician practice with ?10 professionals will be impacted by the physician value reporting program next year. In addition, Medicare has just launched (with great fanfare) a new Oncology Care Model, and practices have until the middle of June to submit applications for it. So far, the interest that has been generated seems to come from large health systems that incorporate both outpatient and inpatient care. Will promised shared savings targets, when announced, be realistic enough to justify the cost of participation? How many groups will find, 1 or 2 years into the program, that the sticks are more prevalent than the carrots? At some point, will it have been useful to be a participant at the table, or will groups find that pursuing private payer projects and initiatives is more rewarding, with less financial risks and penalties?

Unfortunately, Medicare’s track record with value-based and quality-improvement programs does appear to embrace penalties more than it does rewards, which is likely driven by the planned design of reducing Medicare costs at any expense. This is perhaps an unrealistic view of the actual deliverables that are possible in the healthcare market. First and foremost, Medicare quality programs are cost-reduction programs, with a nod to quality improvement to the extent possible and a very shaky movement toward shared savings, which are proving to be more of a promise than a deliverable.

Let us not confuse this with solid progress toward value-based, quality care. Read between the lines carefully when considering participation, and be realistic in your assessments. Does the program make sense if the shared savings do not materialize? That is far more likely than what is promised. It may be that the current Medicare focus on “full speed ahead” could derail these programs after 2 to 3 years, which may leave healthcare in the United States in greater jeopardy than it is now.

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