Remember Dr. Kildare, Ben Casey, Marcus Welby, M.D., and the men and women in the 331 episodes of ER? They once stood for the absolute dedication and uncompromised excellence of US healthcare. When you finished watching one of those shows, you knew that if the patient died, whatever the cause, it sure wasn’t because of any lack of skill or commitment. And none of them overcharged!
But those people don't seem to be around any more. Today, we live in a country that simply doesn't get its money's worth for the vast amounts it spends on medical care. One solution, at least for now, is value-based purchasing. And, in a very new incarnation of this approach, the Centers for Medicare & Medicaid Services, or CMS, has teamed with and helped fund the new Vermont All-Payer Accountable Care Organization Model (or All-Payer ACO Model). This is a test to apply value-based purchasing to a broad range of medical services, including hospital, physician, and other social and community care functions. Meanwhile, the same week that CMS made this agreement with Vermont, Modern Healthcare reported that the number of hospitals receiving bonuses under value-based purchasing had actually gone down this year, and an article asked, "should Medicare pull the plug on value-based purchasing?"
Regardless, CMS is committed to value-based purchasing, and the Vermont test is extremely important because it shows the latest CMS ideas about how future healthcare funding could be structured. If this test is successful, this model − incorporating all payers and all providers − might become the template for healthcare programs in states all across the country. Payers and providers need to understand and consider, now, how this variation of value-based purchasing might affect them in the future.
The medical crisis: background to healthcare reform
First, some quick observations about the background to value-based purchasing.
It is well known that the United States spends more per person on healthcare than any other high-income country. The reports published by the OECD (Organization for Economic Co-operation and Development) are sobering and frightening. In 2016, we spent 16.9 percent of our gross domestic product for healthcare (while most developed counties spend slightly less than 8.9 percent), and this is expected to rise to 20.1 percent by 2025. We spent $9,523 per person, for a total of $3 trillion in 2014. This rate is more than 250 percent of the OECD average.
One fact, irrelevant in itself, provides a perfect icon of excessive medical care costs. On October 5, 2016, Fox News reported that a Provo, Utah, hospital charged new parents $39.95 for the privilege of holding their new baby after a Caesarean (billed as "skin to skin after C-sec"). Yes, the hospital explained that the charge was for a nurse to be in the room. But the more important point is that every moment of medical services now needs to get on the invoice. Medical practitioners used to provide compassion and understanding free of charge. Those days are over.
In return for paying the highest medical charges in the world, we rank right at the bottom of all economically developed countries in terms of national health quality. These peer countries include Australia, Canada, France, Germany, the Netherlands, New Zealand, Norway, Sweden, Switzerland, and the United Kingdom. What seems especially amazing are the areas where we excel in mediocre medical care. A report published by the National Research Council and Institute of Medicine reported that the United States has:
- the highest infant-mortality rate of any high-income country
- the highest obesity rate among high-income countries
- the highest rates of diabetes among peer countries (measured from age 20 onward)
- the second highest death rate from ischemic heart disease out of 17 peer countries
- a higher prevalence of arthritis than most peer countries
- a higher rate of lung disease than most peer countries and
- a shorter life expectancy than in peer countries.
The old maxim, "you get what you pay for," just doesn't seem to work any more.
Hospital value-based purchasing is an attempt to regain more value for every dollar. The concept is a product of the Affordable Care Act of 2010, which had provisions to reward acute-care hospitals for high quality treatment delivered to Medicare patients. It did so by radically changing the way that hospitals are paid.
Under the traditional fee-for-service system, hospitals got paid by the number of services they provided, regardless of the effectiveness of that service. If you ever had to take your car back to the dealer five times to get the same thing fixed, and had to pay each time, then you know what this means.
Under the Affordable Care Act, and starting in 2013, CMS began to pay for value. The value was based on three general criteria: (1) the quality of care; (2) the extent to which best clinical practices are followed; and (3) the patient's perceived experience with the hospital treatment.
CMS makes incentive payments based on either how well the hospitals perform on each criteria, or how much they improve their performance from a baseline measurement. This is obviously a complex task, and CMS uses what they call "an approved set of measures and dimensions grouped into specific quality domains." (Whatever the merits of the program, it is unfortunate that healthcare reform in the United States is characterized by doubletalk and endless acronyms − MACRA, CHIP, APMs, MIPS, PFPMs, MDPs − as if it were intentionally designed to be incomprehensible to the citizens who pay for it.)
CMS forms partnerships with states
CMS started to look for ways to expand value-based purchasing by teaming up with states. It began with a partnership with Maryland on its All-Payer Model, which was designed to shift hospital budgeting to a value-based system. The program was possible because Maryland was the only state that had all-payer hospital rate regulation. At that time, CMS stated that this "presents an opportunity for Maryland and CMS to test whether an all-payer system for hospital payment that is accountable for the total hospital cost of care on a per capita basis is an effective model for advancing better care, better health and reduced costs." The Maryland program does not use ACOs, which are groups of healthcare providers who serve Medicare beneficiaries.
In 2013, Vermont was one of six states to receive a grant for alternative payment testing from the federal Center for Medicare and Medicaid Innovation. It also received six grant awards to build a health insurance marketplace. The grants were administered by Vermont's Green Mountain Care Board, a state regulatory agency with comprehensive authority over rate-setting; health plan approval; hospital and ACO budget approval; payment reform oversight; and the development and evaluation of healthcare payment and delivery reforms. The Green Mountain Board used the 2013 grant to create a multi-payer Shared Savings Program for ACOs that operated in the state. (Medical providers can share in cost savings when they participate in an ACO.)
The Vermont results showed improvements in quality, with costs savings for the ACOs participating in the Medicaid SSP but not for the Medicare or commercial SSPs. The Green Mountain Board attributed this to the fact that the ACOs were fee-for-service.
What's new in Vermont
On October 27, 2016, Vermont signed an agreement with CMS for the new Vermont All-Payer ACO Model. This builds on the Maryland hospital model mentioned above, but expands it dramatically. For the first time, a state all-payer model would be open to all classes of medical providers (including hospitals, physicians, federally qualified health centers, and community service organizations) and all payers (including Medicare, Medicaid, and commercial insurers). Participation by providers and payers is voluntary.
The Vermont Model is a six-year test program. The object of the test is to see whether healthcare will improve, and healthcare expenses will decrease:
- if payers offer to Vermont ACOs risk-based financial arrangements that are tied to health outcomes and expenses
- if most of Vermont's medical providers will participate in these risk-based propositions and
- if most of Vermont's residents will "align" to an ACO covered by these arrangements. ("Align" means to attribute a patient population to an ACO, even if the patient has not used its services. When a primary care physician joins an ACO, that physician's patients will be "attributed" to that ACO; if the physician does not join, the patients will not be linked to any ACO.)
The program does not mean that all payers will make the same payments. Instead, the press release states that "ACOs will continue to have payer-specific benchmarks and financial settlement calculations, but the ACO design (e.g., quality measures, risk arrangement, payment mechanisms, and beneficiary alignment methodology) will be closely aligned across payers."
How Vermont's incentive is set up
The Vermont plan is designed to move the state's medical delivery programs to a "Vermont-specific" alternative payment model for ACOs. Technically, CMS will offer the ACOs in Vermont the chance to participate in a Medicare ACO Initiative that is described as a "Medicare Advanced Alternative Payment Model for the providers in the two-sided risk Medicare ACO portion of the model within CMS' Quality Payment Program." (A "two-sided" risk model is one where the ACO can share in savings and losses; a "one-sided" risk model is one where the ACO can share in savings, but not losses.) The Initiative gives providers the chance to qualify for “Advanced Alternative Payment Model” bonus payments starting in 2018.
Each ACO will be paid a set amount for each "attributed" member, and the ACO will be financially responsible for each member's health. The ACO will provide Medicare Parts A and B services for each member. Medicare will, as now, pay providers directly or via through the ACO, so that each ACO needs to have its own agreement with Medicare. Separately, the ACO will make agreements with commercial insurers and Medicaid to provide health services (which are expected to be similar to Medicare Parts A and B). The ACOs will supposedly have an economic incentive to lower costs by relying on existing Vermont community-based services and home healthcare agencies. At the same time, the use of these local services should theoretically promote better access to a variety of healthcare services.
Political issues behind the agreement
Vermont agreed to enter into this program in part because of intense financial pressure caused by high medical expenses. Interested persons might want to read the board's "Vote Justification," an 11-page explanation of the agreement. It begins by saying, "The rising cost of health care imposes unsustainable financial burdens on Vermonters and their families, impedes equitable access to preventive care, and threatens to cripple our State's economy."
The agreement with CMS was signed after heavy lobbying by interested groups, including the Vermont Medical Society, which asked (a) that Vermont increase Medicaid reimbursement rates to at least the Medicare level; (b) that Vermont's predicted low spending for each Medicare enrollee not be reduced any further; (c) that physician freedom of choice be retained (meaning that physicians who chose not to join an ACO could continue to work under current Medicare, Medicaid, or commercial payer policies); (d) that there be a 30-day period when providers could review individual performance data before it is publicly released; and (e) that providers would not be penalized for receiving payments under Quality Payment Programs. The program was modified to largely accept these provisions.
The federal government is paying a substantial amount for this program. Under Section 1115 of the Social Security Act, the federal government will fund Vermont's Medicaid program, to allow it to pay rates comparable with Medicare, meaning it can be a partner in this program. The government will also provide $9.5 million in startup funding for the program.
The key targets of the final version of the program are:
- for Medicare beneficiaries, the protection of all beneficiary rights, including provider choice, with service and coverage the same as original Medicare, and some enhanced benefits including telehealth services
- for commercial and Medicaid beneficiaries, the protection of all beneficiary rights, including provider choice, with service and coverage consistent with their plans
- for physicians, "maintaining full provider choice on whether to participate," but offering participants the chance to qualify for "Advanced Alternative Payment Model bonus payments" from CMS' Quality Payment Program
- Vermont will impose a 3.5 percent limit on all major payers for annual per-capita healthcare costs (but this excludes increases in Medicaid reimbursement rates)
- Vermont will impose a limit on Medicare annual per-capita healthcare costs that is at least 0.01 percent-0.02 percent below projected national per-capita Medicare growth rates)
- Vermont will encourage both payers and providers to participate, with the goal that, by the program's end in December 2022, 70 percent of all Vermont insured residents, and 90 percent of all Vermont Medicare beneficiaries, will be "attributed" to an ACO
- The program will preserve Medicare funding for Vermont's Blueprint for Health (for complex health needs) and Vermont's SASH program (Support and Services at Home) that coordinates social service agencies, community health providers and nonprofit housing organizations to help people in Vermont get services and still live in their own homes) and
- Finally, and most important, Vermont will set its own state-specific health improvement goals, including (1) improving access to primary care; (2) reducing deaths from suicide and drug overdose; and (3) reducing the prevalence and morbidity of chronic obstructive pulmonary disease, diabetes, and hypertension.
Marking the test: accountability
Under the test program, CMS will hold Vermont accountable for three defined "measurement domains" for each of the health improvement goals mentioned in the last bullet. These measurement domains are defined as:
- "Population-level health outcomes measures and targets": This covers statewide measures and targets related to the health of the Vermont population, regardless whether people seek care or not, and whether or not they are aligned with an ACO.
- "Health care delivery system measures and targets": This is primarily related to the performance of healthcare services delivered by an all-payer ACO. It evaluates both the ACO and people attributed to it.
- "Process Milestones": These are milestones during the early years of the Model that measure achievements in healthcare improvement and population health.
These target goals will be phased in. For example, the general goal is that, in test Years 1 and 2, there be a general improvement; by Year 3, a 30 percent improvement; by Year 4, a 65 percent improvement; and by Year 5, a 100 percent improvement.
The Model runs from January 1, 2017 to December 31, 2022. It includes seven related Health Care Delivery System Measures and Targets, and seven related Process Milestones, with reporting on target achievements starting after the first year, which is considered a startup phase. If Vermont fails to achieve the targets for two consecutive years (after the first year), CMS can provide a warning that requires the state to develop a corrective plan. If it doesn't, within the prescribed time, CMS can immediately terminate the agreement. However, Vermont does not need to return the $9.5 million if the targets are not achieved.
The Vermont test program is ambitious, and its stated goals (lower costs, better treatment) sound great. It boldly goes into unexplored territory and sets goals that require voluntary action by a wide range of people and organizations with conflicting interests. Vermont bears the responsibility for achieving the targets, and, after startup year one, must meet CMS goals at the risk of warnings and possible termination.
With this test program, Vermont has a chance to be a leader in developing a model that will restore public confidence in a failed health system. It remains to be seen if it will succeed where others have failed.