Old-timers who remember the Breaux-Thomas Bipartisan Medicare Commission from the late 1990s usually remember it for two main policy ideas. First, premium support, an idea to put Medicare’s fee-for-service (FFS) program into more direct competition with private comprehensive “risk” plans (now called Medicare Advantage plans). Second, modernizing Medicare’s benefits, particularly for prescription drugs.
Neither premium support nor the drug benefit materialized quite the way Senator John Breaux (D-LA) and House Ways and Means Chair Bill Thomas (R-CA) envisioned. Yet, over time Medicare has created a larger role for Medicare Advantage plans and Congress added Medicare’s Part D drug benefit in 2003.
But the Medicare Commission had a third policy goal: moving away from blind fee-for-service reimbursement toward a more selective approach to reimbursing health care providers under Medicare’s FFS program. The idea was that the FFS program, under competitive pressure from a premium support system, should be able to select high-quality providers and enforce data-sharing and cost savings requirements, particularly when the program added new benefits or services.
This third goal has largely gone unrealized. Implementing it now could address an obstacle to Medicare innovation: the high cost estimates assigned by the Congressional Budget Office (CBO) to proposals for new services and benefits in FFS Medicare. As explained more fully below, by using value-based arrangements (VBAs)—a third approach midway between limited demonstration programs and payment to all providers for a new service regardless of quality—policy makers could alleviate the concerns that lead the CBO to project large costs while not consigning innovative new benefits to the slow death that demonstration programs too often represent.
New Benefits And The “CBO Problem”
Over the years, we have worked directly for (Lemieux) and worked extensively with (White) the CBO, which estimates the budget impact of federal proposals like adding benefits to Medicare.
The CBO asks hard questions, like “Would allowing additional treatment options for patients raise Medicare’s overall costs? Would paying for a new service or a different type of care lead to an increase in billings from health care providers? At best, would there be offsetting savings via reductions in other services? At worst, could it lead to an onslaught of questionable claims from unscrupulous providers?”
The CBO’s economists often view themselves as the last line of restraint on Congress’ natural tendency to spend more on entitlement programs like Medicare. In the absence of hard evidence, which is rarely available, new benefits tend to get pessimistic CBO “scores,” which, in turn, greatly reduce their chances of being enacted into Medicare law.
It’s not the CBO’s fault; caution is a natural tendency when faced with something new. Perhaps the new treatment doesn’t have a long track record. Maybe any studies of its impact are too preliminary to rely on, or they were funded by the health care providers who offer the service and would stand to benefit if it were added to Medicare’s list of covered services.
In many cases, the CBO assumes the worst. Over time, this approach has undoubtedly protected taxpayers from some costly, dubious benefits. However, it has also “protected” Medicare beneficiaries from innovative new services and treatment opportunities—it has kept Medicare’s covered services stuck in the past.
Historically, the most glaring example was Medicare’ lack of a prescription drug benefit. Since we finally implemented the Medicare Part D drug benefit in 2006, it has consistently cost less than the CBO expected, as shown in Exhibit 1. Less remarked upon, however, has been the even more dramatic overprediction of Medicare’s Part A spending (for hospital and related inpatient care). As the Part D data have rolled in and academic studies have been done, the CBO has recognized the connection between drug benefits and corresponding savings in hospitalization and other medical interventions.
Exhibit 1: CBO Medicare Spending Projections, Ten Years Later (Billions of Dollars, Fiscal Years)
To get around a problematic CBO score, legislators often sentence new ideas to the purgatory of limited demonstration programs. In theory, a carefully constructed, thoroughly evaluated demonstration program sounds like a prudent solution to the CBO problem. In reality, a demonstration is often a death sentence—even great results from a demonstration don’t guarantee that the program will eventually be expanded. Given the uncertainty, innovative providers and their investors wonder if it makes sense to devote a tremendous amount of funding and energy to a project that may never fully scale.
To be fair, things are changing. Medicare is testing many new reimbursement concepts and Alternative Payment Models (APMs). The program now has the authority to test some new payment systems without specific legislation, particularly those in which health care providers share in the risks and savings. Medicare has the authority to scale some successful demonstrations nationwide.
Moreover, the CBO seems to be gaining confidence that updated payment methods or new approaches can and do save taxpayer dollars, and that fraudulent or unscrupulous billings, if any, could be identified and corrected more quickly than in the past.
But there is still a hesitancy, an inherent status-quo bias, that stems from the nature of the Medicare entitlement and its traditional fee-for-service reimbursement system.
VBAs From Carefully Selected Providers
In law, Medicare entitles beneficiaries to health care benefits. But for practical purposes, it’s often helpful to think of the entitlement flowing directly to health care providers. Medicare entitles health care providers to reimbursement for covered services provided to beneficiaries. The beneficiary gets the care and the provider gets paid.
Medicare’s traditional approach to fee-for-service reimbursement has paid providers regardless of quality. While recent payment changes are starting to reward good outcomes based on performance against certain benchmarks, Medicare will still reimburse even the bad providers for services provided, regardless of outcomes. The CBO worries about this: if a new benefit is added and even low-quality providers are paid, Medicare’s costs could expand quickly.
Medicare needs a new opportunity to introduce coverage for new benefits or treatment approaches on a selective, contingent basis. These opportunities should be available nationwide, not limited geographically like many current demonstration programs. The providers should be carefully selected, and should be required to re-qualify over time, based on criteria set out in the authorizing law for the benefit established by Congress.
That law, in turn, could require that the Medicare program only qualify providers to perform the service if they provide detailed data; it could also require the program to only re-qualify those whose services prove out over time to be high-quality and at least budget neutral. The whole benefit program itself could be made contingent on its success at reducing Medicare’s overall costs.
For some types of new benefits, this would largely solve the CBO problem. If some of the selected VBA providers failed to lower Medicare costs, they would not be re-qualified. If Congress passed a new benefit under selective, contingent conditions for providers, its costs could not spiral out of control unless Congress passed another law disregarding those criteria.
An Example: Emergency Care In Skilled Nursing Facilities
Here’s an example of how this could work: VBAs for emergency care in nursing homes. Currently, most nursing homes aren’t staffed and equipped to handle even minor emergencies; the usual standard of care is to ship patients to the hospital emergency department (ED) at any sign of emergency. However, unnecessary ambulance transfers back and forth between skilled nursing facilities (SNFs) and hospitals are very costly for Medicare and can be debilitating for patients.
There are solutions. For example, we are currently working on estimates for Call9, a new, venture-funded company that embeds paramedics with emergency diagnostic and treatment equipment in SNFs 24 hours a day, seven days a week, with live telehealth links to remote emergency physicians. The service is expensive to provide. But based on preliminary data—admittedly still sparse and not yet peer-reviewed and published—we think the on-site ED services in nursing homes can cut rates of ambulance transfers to hospitals substantially while improving patients’ health outcomes.
In-person, on-site emergency care service is being embraced by nursing homes, since it improves their “star” ratings and helps them keep their beds full, reducing “churn” of patients shuttled back and forth to hospitals. Hospitals like the service too, since it reduces their readmission rates (thereby helping them avoid payment penalties) and helps keep their emergency rooms from getting clogged with elderly patients with relatively minor complaints, sometimes in delirium and without family present to help.
Medicare Advantage plans are also eager to establish VBAs for ED services in SNFs, but on-site emergency care facilitated by the telehealth connection is not clearly recognized as a covered service under Medicare’s fee-for-service program. We believe VBAs for emergency care in nursing homes would be a particularly suitable example of how a new contingent, selective, fee-for-service VBA-type benefit could lead to much higher quality and more humane services for beneficiaries, and large Medicare savings over time.
Allowing Medicare to selectively contract for providers under VBA arrangements for modern services would likely save billions of dollars and could ramp up quickly. But until Medicare routinely contracts more selectively, with stricter value-based conditions for proven quality and savings, progress will be slow. Under the traditional fee-for-service system, with CBO’s usual skepticism of the traditional blanket approach to fee-for-service reimbursement for new benefits, we are missing opportunities to save both lives and money.
Jeff Lemieux is Chief Economist and Joel White is President of Horizon Government Affairs (HGA), including its coalitions the Council for Affordable Health Coverage (CAHC) and Health IT Now. HGA, CAHC, and Health IT Now have clients and coalition members, including Call9, who would benefit from expanded use of VBAs to add modern benefits and services in Medicare. Jeff was the staff economist for the National Bipartisan Commission on the Future of Medicare, and Joel was on the professional staff of the House Ways and Means Committee when the Medicare Part D program was enacted.