Payment Models and Metrics

Healthcare quality measures are a study in contrasts. Their overall purpose is straightforward enough: quality measures incentivize physicians and other healthcare workers to provide cost-effective care that ideally leads to better patient outcomes. But the sheer number of them can seem overwhelming. What’s more, figuring out the interplay between these measures and healthcare payment models adds a layer of complexity that can leave the most dogged researcher scratching their head.

This being the case, I thought it would be interesting to explore what healthcare quality measures are, who should be using them, and how they’re connected to healthcare payment models.

An Ongoing Healthcare Crisis

Let’s start with a quick history lesson to put things into context. For many years, a range of experts have been warning that America’s healthcare system was on the brink of collapse. Since at least 1969, and to some extent before that, American leaders have been sounding the alarm about a looming “healthcare crisis.” The Health Affairs article linked to above notes that “national health expenditures have grown from 6.9 percent of GDP in 1970 to 17.9 percent in 2016, according to the Centers for Medicare and Medicaid Services (CMS),” with that number having grown to 19.7% by 2020.

Over time, several attempts have been made to reign in spending and improve patient outcomes. The latest of these major efforts was the 2015 Medicare Access CHIP (Children’s Health Insurance Program) Reauthorization Act, otherwise known as MACRA. Among other things, MACRA aims to tie healthcare provider performance to reimbursement, incentivizing providers to participate in alternative payment models (APMs). This effort is ongoing and, as we’ll soon see, has begun bearing fruit. 

While there is a lot of inertia holding the current fee-for-service (FFS) physician reimbursement system in place, according to the website for the American Society of Health-System Pharmacists, or ASHP, there’s ample reason to try another approach: “In a FFS payment model, the provider or facility get reimbursed for each service provided. This can create an incentive for providers to increase the volume and cost of services provided versus focusing on value of care provided. This model can also lead to uncoordinated and fragmented care through inefficiencies within the healthcare system, which can also drive up overall healthcare costs.” 

The Rise of Alternative Payment Models

APMs have been proposed as an antidote to the U.S.’ fixation on FFS. These payment models come in different forms depending on a range of factors including how many direct patient encounters a physician/group has/have, and how much financial risk physicians are willing to take on. Financial risk-sharing refers to the concept that the cost burden for medical treatment should be shared by payers, physicians, and patients (as opposed to just insurers and patients). 

Within this concept is the idea of upside and downside risk-sharing: in upside risk models, physicians are permitted to share in any savings their efficiencies help create; in downside risk models, not only can physicians share in the savings, but they can also see their reimbursement levels adjusted downward if they miss quality goals. As the authors of one article put it when talking about a form of shared-risk payment model called “bundled payments,” “if healthcare costs exceed the set amount, providers lose out on the revenue they would have received from a traditional payment structure.”

Like most things, the big idea behind risk-sharing is that the bigger risk physicians are willing to take on, the bigger the potential reward.

Some flavors of shared-risk payment models include “accountable care organizations (ACOs), the Medicare Shared Savings Program (MSSP), pay for coordination, pay-for-performance (P4P), bundled payments, upside- and downside-shared savings programs, partial- or full-capitation, and global payments.” A thorough examination of APMs would require multiple blog posts, but, since capitation shares similarities with things like bundled payments and global payment models, looking at how capitation works might shed some light on the overall concept of risk-sharing. 

A useful definition of capitated payments can be found on the website of the American College of Physicians: “Capitation is a fixed amount of money per patient per unit of time paid in advance to the physician for the delivery of health care services. The actual amount of money paid is determined by the ranges of services that are provided, the number of patients involved, and the period of time during which the services are provided.”

In other words, payers and physicians look at historical trends to arrive at a lump-some payment for blocks of patients who require a range of services. If the doctors are able to provide efficient, high-value care that saves money, they can share in the savings; if, however, they go over budget for a given patient population, they’ll owe money to the insurer.

Capitation seems to work pretty well: a scoping review of 76 studies showed that, when done right, capitation can both improve health care utilization and reduce spending — all while not affecting the quality of care provided. Central to the concept of population health, the study also showed that capitation prompted an increase in preventative health visits. 

Importantly, physicians working in a capitated environment can’t restrict necessary care in the service of hitting agreed-upon benchmarks, so, as the ACP website notes, “managed care organizations measure rates of resource utilization in physician practices. These reports are made available to the public as a measure of health care quality, and can be linked to financial rewards, such as bonuses.”

While we’re on the topic of payment models, I should also say that there’s a parallel track for ensuring value-based care called the Merit-based Incentive Payment System, or MIPS. This value-based care system is reserved for qualifying physicians who meet certain criteria, including something called a “low-volume threshold” in which they fall short of dealing directly with a set number of patients and are thus exempt from full APM participation (although, somewhat confusingly, there’s a whole subsection of MIPS called “MIPS APMs”).

For the purposes of this blog post, I’ll focus on full APMs and leave MIPS and its associated value measures for a possible future blog post.

Alternative Payment Models in Practice

Pivoting away from the FFS payment model in which physicians are reimbursed for the individual services they provide instead of being held accountable for patient outcomes — and in the process attempting to mitigate suboptimal circumstances for each individual patient (a concept called whole-person care) – is, in a word, ambitious. This transition, which has been in full swing since 2015, is particularly challenging because not every physician provides the same level or intensity of care, so metrics for those participating in full APMs must be tailored such that the greatest number of doctors possible can participate. 

As a consequence, uptake of value-based care hasn’t been as swift as many had hoped. In 2015, Health and Human Services (HHS) chief Sylvia Burwell set the following targets: “85% of Medicare FFS payments should be tied to quality or value by 2016, and 30% of Medicare payments should be tied to quality or value through alternative payment models by 2016 (50% by 2018).” (The bold is mine.) These challenging targets would be met, HHS theorized, by enticing physicians and healthcare systems into upside and downside risk-sharing arrangements (as discussed above).

According to the latest data compiled by the Health Care Payment Learning & Action Network (HCPLAN), while a little behind schedule, FFS is on the road to becoming an antiquated concept. In its “2020 APM Measurement Effort,” the HCPLAN surveyed representatives from not just Medicare, but also commercial health plans, Managed Care Organizations (MCOs), state Medicaid agencies, and Medicare Advantage (MA) plans to find out the mix of FFS versus value-based reimbursement flowing through each of these “lines of business.”

For starters, 39.3% of U.S. healthcare payments were FFS payments not linked to quality and value (which includes more than just Medicare, as described above). In other words, over a third of payments made for healthcare services are doled out on the basis of discreet services performed by healthcare providers without any tie to coordinated care.

That being said, there is some good news: 19.8% of all reimbursements made in the year 2020 (again, across all “lines of business” surveyed) were FFS payments linked in some way to quality. The HCPLAN defines this FFS designation as “Payments that are set or adjusted based on evidence that providers meet quality standards or improve care or clinical services, including for providers who report quality data, or providers who meet a threshold on cost and quality metrics.” Further, 34.2% of payments made in 2020 belonged to a category called “APMs Built on FFS Architecture.”

Taken together with “Population-Based Payment Models” (which I covered in a previous blog post here), the HCPLAN website reports that “In 2020, 40.9% of U.S. health care payments, representing approximately 238.8 million Americans and 80.2% of the covered population, flowed through Categories 3&4 models” (category 3 and 4 models include  “APMs Built on FFS Architecture” and Population-Based Payments).

Comparing Payer Lines of Business

That’s great, but how does it match up with HHS projections way back in 2015?

Well, let’s take a look at what they said one more time: “85% of Medicare FFS payments should be tied to quality or value by 2016, and 30% of Medicare payments should be tied to quality or value through alternative payment models by 2016 (50% by 2018).” (Again, the bold is mine.)

I couldn’t find a snapshot of where things stood in 2016 with respect to uptake of value-based payment models, but if you look only at the Medicare-related “lines of business” on the most recent HCPLAN survey — that is, Medicare Advantage and traditional Medicare — payments linked to quality and value (and, consequently, not strictly FFS) accounted for 62% and 85%, respectively.

While Medicare has undoubtedly made progress toward ensuring that payments flowing to physicians are adjusted based on quality metrics, it’s significantly ahead of both commercial payers and Medicaid. If you zoom in on Categories 3 and 4 payments (again, the categories that most resemble pure APMs with no FFS elements) these markets accounted for only 35.5% and 35.4% of payments linked to value, respectively. It’s also important to realize that as of 2021, in all its forms, total Medicare enrollment was only 63,964,675. In a country of 331,893,745 people (as of 2021), that equates to about 19% of the population.  

While I grant that it’s easy to become jaded, and you might be forgiven if you think of value-based care as just the latest fad, destined to be tossed into the waste bin of history when it inevitably fails, I think this whole approach holds a lot of promise. What keeps me optimistic about it is that, in a sense, we can’t afford the quality care movement to fail. Too many people are losing everything to pay for their healthcare these days, and that’s just plain wrong (I’ve covered how insurance works in previous blog posts here and here). For this reason, we have to figure out a way to make care more affordable while also ensuring optimal patient outcomes.

The Importance of Metrics

One quote you often hear repeated when researching quality measures is some variation on “What gets measured gets done.” This thought is often attributed to a Scottish mathematician and physicist named William Thomson, a.k.a. Lord Kelvin. Even though Lord Kelvin didn’t have healthcare quality metrics in mind when he uttered these words, they can just as easily be applied to physics as they can to improving healthcare provider performance.

Given a growing emphasis on patients becoming active participants in their own care, it has been understood for some time that while quality metrics linked mainly to process or adherence to clinical practice guidelines (for instance, the percentage of diabetes patients who had their blood sugar tested and controlled) can play a role in physician compensation, patient-reported outcome measures would likely take center stage at some point.

And that point is quickly approaching. Patient-reported outcomes measures, also called PROMs, have indeed begun factoring into the mix. CMS defines PROMs as “tools used to capture patients’ reports of their outcomes, which measure developers can use as the basis for patient-reported outcome-based performance measures (PRO-PMs).”

PROMs have been around for a while, but only recently have they bubbled up to the surface enough for me to notice them. In a publication called RTI Press, the authors of a 2015 paper noted a range of PRO measures, from functional status measures, to those quantifying patient outcomes in dealing with chronic illnesses, to measuring the intensity of fatigue, to getting a handle on health behaviors.

One common element among these measures seems to be that they’re best reported by patients, as opposed to solely being assessed by physicians. Most PROMs I’ve read about involve healthcare interventions in one way or another, but I imagine some could be dedicated to measuring social determinants of health outside of the clinical setting. This bears more research and I’ll aim to follow up with more blog posts in the future on this topic.

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