Health Law Daily CMS testing episode-based payment models to reduce skyrocketing Medicare costs.
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Wednesday, January 23, 2019

CMS testing episode-based payment models to reduce skyrocketing Medicare costs.

By Jeffrey H. Brochin, J.D.

With traditional Medicare health care services expenditures expected to increase by 85 percent by 2027 over the 2017 figure, CMS is forced to explore reimbursement methods that will slow this growth while at the same time improve the quality of care provided to beneficiaries.

As of February 2018, CMS has tested or is in the process of testing six episode-based payment models as alternatives to the traditional Medicare payment system. In these models, rather than paying providers based on the volume and complexity of each individual service, CMS has established a target payment amount to cover the costs of all the services a Medicare beneficiary may receive during a defined "episode of care" initiated by a health care event, be it surgery or a different type of medical care event. Provider participation in all but one of the six models being tested is entirely voluntary. (GAO Report, GAO-19-156, December, 2018).

Why GAO conducted the study. In 2017, expenditures for health care services provided through traditional Medicare totaled approximately $394 billion and are expected to grow to a staggering $730 billion by 2027. This 85 percent increase is expected to be driven by multiple factors, including increases in the number of services provided per beneficiary. In an effort to slow this growth and improve the quality of care provided to beneficiaries, CMS is testing alternatives to traditional Medicare, such as episode-based payment models. Under episode-based payment models, providers such as hospitals or physician group practices are held accountable for the cost and quality of the services provided to Medicare beneficiaries during a defined episode of care.

GAO was asked to review the various episode-based payment models developed by CMS, and their report (1) describes the characteristics of the providers that participated in these models and (2) compares the relative advantages of voluntary versus mandatory episode-based payment models, as identified by stakeholders.

How the study was conducted. GAO conducted the study by analyzing CMS data on participants and other providers, and reviewed CMS’s evaluations of the models. GAO also interviewed multiple stakeholders, including officials from CMS, its contractors, selected providers and organizations representing providers, as well as Medicare experts.

Provider participation in all but one of the six models being tested was entirely voluntary (i.e., eligible providers could choose to participate in the model and generally had an option to leave the model before testing ended), with participation in the remaining model mandatory for some providers (i.e., eligible providers were required to participate and could not leave the model before the testing ended).

To identify factors that influenced participants’ decisions to participate in voluntary episode-based payment models, GAO reviewed information from available model evaluation reports and interviewed stakeholders, including CMS officials from the Office of the Actuary and the Innovation Center, officials from five provider organizations representing provider types that participate in Medicare episode-based payment models, nine Medicare payment experts, and representatives from five hospitals that participated in the Comprehensive Care for Joint Replacement (CJR) model. They selected Medicare experts based on their published research on episode-based payment models and Medicare payment policy, as well as through recommendations from other stakeholders.

What the study found. According to CMS data and reports that GAO reviewed, providers participating in the six episode-based payment models typically had more beds or larger practices, had higher episode volume, and were more often located in urban areas compared to all providers that participated in traditional Medicare. Stakeholders—participants, experts, and provider groups—that GAO interviewed noted that the likelihood for financial gain under voluntary models can influence providers’ decisions to participate in the models. Stakeholders also identified relative advantages of voluntary versus mandatory episode-based payment models. In general, stakeholders reported that voluntary models largely benefited providers. For example, those models tend to have more generous terms and providers can choose to participate in only those models where they are likely to be successful. On the other hand, mandatory models were more likely to give CMS generalizable evaluation results.

Although the Innovation Center’s six episode-based payment models tested different approaches for paying providers for their services during an episode of care, all of the approaches are designed to create incentives for providers to improve the quality and efficiency of the care they deliver to Medicare beneficiaries while addressing the urgent need to lower to cost of delivering those services.

MainStory: TopStory GAOReports CMSNews QualityNews

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