News Ticker

Creating New Payment Strategies in Medicare

Traditional fee-for-service payments for health care services are inefficient and reward volume over quality. Likewise, the separate payments for outpatient, acute care, and subacute care do not promote coordination of services.

Among the many changes created by the Patient Protection and Affordable Care Act (PPACA),  a new institution within the Center for Medicare and Medicaid Services (CMS) was created to support and test new health care payment models. The aim of new payment models is to reduce healthcare costs and improve the coordination of healthcare for Medicare beneficiaries.

Payment mechanisms that must be tested include involving hospitals in post-acute management, bundled services, chronic care models, and community-wide cost management.  Of note, all of these payment mechanisms shift more financial risk to either the hospital or physician, placing the financial stability of these parties largely at the whim of the success or failure of these new payment systems.  Last month, Jeff Goldsmith published a review of these payment systems, which serves as a useful tool for physicians to predict how these systems might fare in their particular practice setting, specialty, or community.

Post-Acute Management. In response to the fact that twenty percent of Medicare patients return to the hospital within thirty days of an admission, and that up to half of these re-admissions are considered ‘avoidable’, the post-acute management model extends the financial responsibility of the hospital to the time surrounding any admission.  Specifically, hospitals would be responsible for all care thirty days after the admission, encouraging hospitals to facilitate and support more thorough discharge plans.  Implementation of this type of payment system may be opposed by independent providers of rehabilitation and home care which currently bill Medicare separately for their services.

Acute Episode Bundling. Shown to decrease costs and increase quality in previous demonstrations, bundling of payments describes one lump payment by Medicare for all services surrounding a hospital-based procedure.  The fundamental change with this system is a shift from both DRG-based hospital payments and Medicare Part B physician payments to one single payment.  Ideally physicians and other clinical stakeholders would work together to prevent costly complications surrounding the acute episode, thus improving quality of care.  This model is structurally very difficult, however, if the physicians involved in care are not salaried employees of the hospital (such as hospitalists). To this point, hospital groups have strongly opposed imposing these systems at a national level.  Other, less drastic, suggestions in this same category propose bundling payments for consultants, or possibly for hospital-based specialties (such as pathology, radiology, and anesthesiology), directly into the DRG payment.  Hospitals would be left to decide how to contain costs.

Chronic Care Models. Differing from the above systems which focus on acute care, chronic care does not revolve around episodes or individual office visits.  Rather, the concept of the patient centered medical home has been introduced to focus on avoiding clinical risks over a long period of time.  This model includes increased sophistication of information technology systems to assist in predicting health risks. It also emphasizes non-physician services to assist patients in managing their own care more effectively.  One concern is that primary care physicians are typically not reimbursed well enough by Medicare to support the large overhead these service necessitate, despite the recent increased reimbursement rates passed by the PPACA.

Community-wide Cost Management. Although similar systems have not been predictably successful in the past, Medicare will also test a system of “shadow capitation” through community-based accountable care organizations (ACOs).  These ACOs, typically hospitals that have established their own health plans, will be financially responsible for all inpatient and outpatient care provided to Medicare patients in a certain geographical area. Medicare will reimburse these ACOs based on a retrospective, geographic-specific cost average per patient.  This system may work well in communities where inpatient medical care is provided at one main hospital.


No matter which of these payment systems gain further support, it is clear that more financial risk and responsibility will be placed on physicians, either directly or through the hospitals at which they work.  Interestingly, all of these models emphasize that physicians must integrate themselves with the remainder of the health care system (non-physician services in chronic care, rehabilitation and close home-care follow up in periods after acute care episodes, etc.) to produce higher quality, lower cost care.  It seems that in order for physicians to embrace these positive changes, acceptance of staffing models as salaried employees of hospitals or ACOs is imperative. The private physician, as reflected by the current Medicare Part B fee schedule, may become obsolete.  Fitting, then, is the growing interest of younger physicians in this staffing model, which promotes higher quality of life for physicians and quality of care, over the traditional independent solo-practice.


Lisa Maurer, MD

Lisa Maurer, MD
About Lisa Maurer, MD

Dr. Maurer is an attending physician with Emergency Medicine Specialists in Milwaukee, WI where she serves as Legislative Liaison. Contact: Facebook | More Posts

1 Trackbacks & Pingbacks

  1. 2010 Year in Review | Policy Prescriptions

Comments are closed.