Most Medicare demonstration projects haven’t saved money

By Chris Anderson, Senior Editor, Healthcare Finance News

Most of the Medicare fee-for-service demonstration projects launched in the past two decades using disease management and value-based payments have failed to reduce costs, says a report issued yesterday by the Congressional Budget Office.

“In nearly every program involving disease management and care coordination, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered,” the report stated.

Further, while it noted that projects where care managers had substantial direct interactions with both physicians were more likely to reduce costs, the size of those reductions weren’t enough to offset the care managers’ fees.

Of the 10 demonstrations studied, six in disease management and care coordination, and four in value-based payments, the only one to show savings was a project that bundled payments for heart bypass treatment. In all, the heart bypass program reduced Medicare’s expenses for the procedure by about 10 percent with no significant changes in patient outcomes.

“The Heart Bypass demonstration yielded savings because Medicare was able to negotiate bundled-payment rates with the seven hospitals and the relevant physicians on their medical staffs that were lower than the separate payments that they otherwise would have received,” the report noted.

There were two other demonstration projects associated with different models of paying for heart bypass care, both of which didn’t show savings. According to the CBO, the key factor that affected the results was the nature of the incentives offered to providers. While the bundled payment demonstration showed savings at all seven participating hospitals, the demonstrations that paid bonuses to providers on the basis of their quality scores, estimated savings, or both, produced little or no savings.

The CBO also noted specific approaches taken in some of the demonstration projects that showed promise for savings if applied broadly to help achieve the program’s goals, including:

  • Gathering timely data on the use of care, especially hospital admissions;
  • Focusing on transitions in care settings;
  • Using team-based care;
  • Targeting interventions toward high-risk enrollees; and
  • Limiting the costs of intervention.

In the end, it may be the very structure of how Medicare pays for services that was the biggest culprit, the CBO concluded.

“Demonstrations aimed at reducing spending and increasing quality of care face significant challenges in overcoming the incentives inherent in Medicare’s fee-for-service payment system, which rewards providers for delivering more care but does not pay them for coordinating with other providers, and the nation’s decentralized healthcare delivery system, which does not facilitate communication or coordination among providers,” wrote Lyle Nelson of CBO’s Health and Human Resources Division, on the CBO’s Director’s Blog.

“The results of those Medicare demonstrations suggest that substantial changes to payment and delivery systems will probably be necessary for programs involving disease management and care coordination or value-based payment to significantly reduce spending and either maintain or improve the quality of care provided to patients,” concluded Nelson.

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