Assessing Medicare’s value-based payment experiment

By Judith Garber | December 21, 2020

Widespread overuse in the Medicare population harms patients and wastes considerable time and money. More than 40% of Medicare beneficiaries receive at least one low-value service each year. As a potential solution, the Affordable Care Act created opportunities for the government to introduce alternatives to fee-for-service payments in Medicare.

As we’ve previously written, value-based payment initiatives, such as bundled payments, have had mixed results in terms of reducing costs. In a recent JAMA Viewpoint piece, Associate Professor of Health Management and Policy at Saint Louis University Dr. Kenton Johnson and colleagues outline some of the lessons learned from Medicare’s experiments in value-based payments.

The Medicare Quality Payment Program is a mandatory value-based payment program that gives clinicians either penalties or bonuses (up to 4% of their Medicare reimbursement) based on their performance. Almost all clinicians use the Merit-Based Incentive Payment System (MIPS), which allows clinicians to choose between 400 different performance measures on which they would like to be evaluated.

What’s going wrong?

While moving to value-based payments is a necessary change, Johnson et al. identify several problems with the MIPS program that may hinder progress:

While the MIPS program incentivizes doing less, it is based within the fee-for-service system. Because the MIPS payments/penalties are relatively small, it is likely not enough of an incentive to stop doing more procedures overall.
Doctors caring for patients dealing with poverty, food insecurity, and housing instability are more likely to receive penalties, because social risk factors are not included in the risk adjustment formulas.
The measures on which doctors are graded are not always correlated with outcomes that patients care about. Measures like quality of life and functional status are not usually included. These programs “often designed to improve value for CMS rather than patients,” write Johnson et al.
Doctors take on even more administrative burden because they have to report MIPS measures manually.

What’s going right?

Yet Johnson et al. also identify several successful alternative payment models in Medicare, such as Medicare Shared Savings Program for Accountable Care Organizations and population-based payments in Medicare Advantage. Why did these programs have a greater impact?

First, these were not small penalties layered onto value-based programs, but population-based models that gave both primary and specialty care groups global spending targets. The measures used were better metrics of patient care quality and clinical outcomes, there were fewer measures, and clinicians got feedback throughout the year on how they were doing. These models also judged participants not against each other– which can exacerbate penalties to safety net institutions that have more complex patients–but against their own historical performance.

Global budgeting in Covid-19

Experiments in global budgeting have also shown to be helpful to hospitals in the Covid-19 pandemic. While many health systems are in financial free-fall due to lack of volume, all 13 hospitals in Pennsylvania’s Rural Health Model have stayed afloat during the pandemic. This global budget experiment provides a stable lump sum in revenue regardless of volume, allowing hospitals to plan their year with more security. While costs have yet been reduced in this system, the growth rate is lower and more stable for these hospitals, according to Modern Healthcare.

The change has required hospitals to rethink their strategies since they can no longer depend on doing more to get more revenue. This frees up hospital administration to consider ways of keeping their communities healthy from the start. “It’s liberating for healthcare executives to get the money upfront because they don’t have to chase MRI scans,” said Dr. John Chessare, CEO of Maryland-based GBMC HealthCare.

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