Monday, August 30, 2010

Healthcare Reform Models Focusing on Value to Consumers – Part 2

This post follows up on my previous one about Patient Centered Medical Homes (PCMHs), Accountable Care Organizations (ACOs), and Meaningful financial incentives models. In this post I focus on the issue of how to incentivize healthcare providers in PMCH-ACOs who render high value care to their patients.

According to a recent article by the New England Journal of Medicine:
The challenges to implementation of the PCMH model include two issues that lie beyond the direct control of the primary care practice. First, although the model calls for primary care practices to take responsibility for providing, coordinating, and integrating care across the health care continuum, it provides no direct incentives to other providers to work collaboratively with primary care providers in achieving these goals and optimizing health outcomes. Second, although evidence suggests that increased investment in primary care can result in savings from several types of reductions…most primary care practices do not…share in these savings…and under the…fee-for-service payment system it is unlikely that other providers will respond to reductions in the number of referrals or admissions by allowing their incomes to fall [Reference 1] .
These issues can be resolved if the PCMH model were implemented in the context of an ACO, which is:
…a provider-led organization whose mission is to manage the full continuum of care and be accountable for the overall costs and quality of care for a defined population. Multiple forms of ACOs are possible, including large integrated delivery systems, physician–hospital organizations, multispecialty practice groups with or without hospital ownership, independent practice associations, and virtual interdependent networks of physician practices.
Regardless of the organizational structure, an ACO will not succeed without a strong foundation of high-performance primary care…investment in the PCMH model could accelerate the development of high-performing ACOs…Performance measurement for determining the amount of shared savings or other financial incentives for ACOs must weight primary care measures heavily rather than focus narrowly on metrics related to hospital care…[And] the payment mechanisms used must align the incentives of the two models to increase accountability for total costs across the continuum of care while ensuring that a sufficient investment is made in primary care capacity. [Reference 1]
Payment models to support such PCMH-ACOs could include:
…fee-for-service payment and share in any cost savings achieved relative to a risk-adjusted projected spending target for their patient population; alternatively, payment could be partially or fully capitated, with risks and gains both being shared by all providers. Performance measurement to evaluate the quality of care and to prevent potential overuse (in fee-for-service organizations) and underuse (in capitated ones) is a cornerstone of the model. [Reference 1]
[For a PCMH]…a primary care fee for all primary care or a blended payment of part fee-for-service and part monthly medical home fees, is beginning to take hold…But the most complex case is when a single global fee (or risk-adjusted capitation payment) is made for all of the care a patient needs—including preventive care, basic primary care, specialty care, emergency care, hospitalization, and post-acute care that is provided by numerous independent providers over a period of time. In that case, where should the payment go? If savings across the entire continuum of care are to be shared with providers, how should those savings be distributed?
[If the PCMH were also an ACO (PCMH-ACO), then]…physicians and other providers…agree to be accountable for the total care of patients, their outcomes, and the resources used in providing it. This solves the basic question of "to whom should I write the check" and leaves it up to the organization to decide how best to compensate providers for their contribution. [Reference 2]
In other words, providers collaborating in a PCHM-ACO work together to prevent and treat patients' health problems by focusing on delivering higher quality and lower cost care through use of cost-effective evidence-based guidelines, along with more efficient and coordinated workflow processes. Instead of paying each provider a separate fee for tests and services rendered, the PCHM-ACO team approach can adopt a combination of the following payments models:
  • The primary care physician (PCP) could receive fee-for-service payments plus additional fees for running the PCMH.
  • The PCP and specialists treating the patient could receive a flat fee for each patient to cover the entire episode of care, with the amount based on the severity of the patient's health problems; if they deliver high quality care at a cost lower than projected for similar patients, they would share the savings as well.
And as with any performance-based accountability system, it is important to determine the best ways to measure important aspects of care quality, minimize the cost of delivering such care, and reward those who accomplish these objectives, including:
  • Mak[ing] the performance rewards large enough to matter, but not larger than the actual benefit of the improved performance.
  • Creat[ing] measures that people can influence. Do not hold people accountable for problems outside of their control. [Reference 3]
Note that various types of performance measures have been endorsed by different organizations, including Physicians Quality Reporting Initiative (PQRI) process guidelines [Reference 5] and ones that:
…can be calculated using longitudinal administrative data…but it should be possible to get even richer data more widely available…One 'gaping hole' where more experimentation is needed…risk adjustment…We don't know how to case-mix adjust for episodes of care. We can't even agree on the definition of episode of care. [Reference 6]
The "richer data" mentioned above should include comprehensive clinical biopsychosocial data … [wellness wiki Reference 6].

And finally, a PCMH-ACO ought to have these four characteristics, which shared by all ACOs:
  1. …an evidence-based approach to medical care; using the body of medical evidence
  2. …heavy investments in information technology to organize data so that caregivers have the most accurate information available
  3. …quality and cost reporting—the ability to actually report on costs and how quality is affected
  4. …To be successful…the purchasers of healthcare [must] distinguish between the highest value of all the ACOs in that market and direct their people to those organizations…Price…or premium controls…[should be] based on quality and cost reductions…demonstr[able] through data on a defined population. [Reference 7]
In my next post, I'll discuss the health IT requirements for a sustainable PCHM-ACO.


[1] Primary Care and Accountable Care — Two Essential Elements of Delivery-System Reform

[2] Coherent and Transparent Health Care Payment: Sending the Right Signals in the Marketplace

[3] Financial Incentives Can Improve Public Sector Performance

[4] Building A Path To Integrated-Care Payment Systems

[5] Physician Quality Reporting Initiative (PQRI)

[6] Wellness Wiki and

[7] Making Healthcare Accountable

Tuesday, August 10, 2010

Healthcare Reform Models Focusing on Value to Consumers - Part 1

Many important things have been happening in the healthcare industry. What I found most exciting is the recent focus on establishing and supporting:
  1. Patient Centered Medical Homes (PCMHs)
  2. Accountable Care Organizations (ACOs)
  3. Meaningful financial incentives models for clinicians and organizations demonstrating care quality improvement and cost control (i.e., cost-effective healthcare delivery bringing value to patients/consumers).


I've written about the PCMH model several times over the past four years (see this link). A PCMH is, in essence, a physician practice headed by a primary care physician, which provides coordinated care through collaborating interdisciplinary teams. These groups of sick-care and well-care practitioners focused on delivering high-quality preventive care and effective chronic disease management focused on demonstrating positive patient outcomes.


An ACO, which goes hand-in-hand with the PCMH, is a related model that focuses on "…the alignment of incentives and accountability for providers across the continuum of care" [Reference]. Together, the PCMH and ACO "…are helping organizations to create systems where care delivery is performed by a team of professionals led by the primary care physician and are held accountable for the care they provide…[T]he patient and the family are the major focus of the program. Engaging them into the process is key to the success. The programs that have been successful have [been] identifying patients at risk and developing a coordinated plan with the help of a multidisciplinary team" [Reference].

Financial Incentives: Pay for Value

Financial incentives used in performance-based accountability systems (such as the PCMH/ACOs) have been found to help improve performance, resulting in better outcomes (more effective and efficient care). "…But creating an effective performance-based accountability system requires careful attention to choosing the right design for the system, which must be monitored, evaluated and adjusted as needed to meet performance goals" [Reference]. And, I'd add, the incentives must be great enough to matter.

For example, "pay for performance" (P4P) programs that give small financial incentives result in only modest care quality improvements since the potential financial reward represents only a small percentage of the overall physician pay and thus do not serve as a strong incentive. This doesn't surprise me. As I wrote three years ago at this link, we ought to be focusing on transforming from P4P to a "pay for value" (P4V) approach that rewards providers who deliver high-value care to patients/consumers that promotes the cost-effective prevention and treatment of illness, dysfunction and distress. Dealing with such a complex and controversial issue is certainly a challenge.

In any case, the three inter-related transformational models discussed above hold great promise! They provide useful approaches for improving our dysfunctional healthcare system. These strategies and processes are consistent with the Patient Centered Value Chain I wrote about three years ago at this link.

A key question remaining is: How should P4V be implemented so it fosters and supports PCMH/ACOs through adequate incentives and meaningful use of health IT?

Affordable Care Act

The Federal government's Affordable Care Act offers answers to this question, although finding a solution is made more difficult--as stated eloquently by Karen Davis of the Commonwealth Fund--because the healthcare industry:
…is not like markets for other goods and services. Information on prices is not typically available, decisions…are often made in an emergency, and patients lack knowledge about the value of diagnostic and treatment services…or where to go for the best care with the best prospects for full recovery, functioning, and quality of life.
Nevertheless, the Affordable Care Act offers a solution by presenting:
...important provisions to increase access to information on the quality of physician and hospital care and establish multi-payer databases that will provide a more comprehensive picture of patterns of care across providers. It also begins to address the imbalance between primary and specialty care by increasing primary care payment rates under Medicare and Medicaid. [It seeks]…new ways of paying for and delivering health care, including 'bundled' methods of payment to encourage providers to work together across health care settings…[and] rewarding those who offer appropriate, high-quality, and efficient care.
These initiatives represent a move away from the current fee-for-service system…[and] can help improve transitions in care from one provider to another and one care setting to another. Many errors occur during these hand-offs and patients often experience frustrations due to inadequate communication among providers involved in their care. These initiatives are one important step in the evolution of a new payment system that will provide incentives to achieve the best results…and in doing so achieve savings from the elimination of wasteful, duplicative, or avoidable treatment.
[In addition to changing payment methods]…new health care organizations that are accountable for both patient outcomes and the resources devoted to care will need to be formed …[and supported with] better information, tools, and technical assistance to ensure that essential services are provided efficiently while quality, innovation, productivity, and prevention are enhanced. Safeguards will also be needed against potential under-provision of care or exercise of undue market power [Reference].
In my next post (part 2), I examine various financing models for paying for the kind of coordinated, high quality, affordable care PCMH/ACOs can deliver.