The following is reprinted with permission from Oliver Wyman.
Several weeks ago, the Congressional Budget Office released an analysis of 10 CMS demonstration projects. The headline for CBO and much of the media coverage that followed was negative: The demonstration projects — which collectively included 34 disease-management and care-coordination projects, plus four value-based purchasing projects — had failed to reduce Medicare spending. This much-discussed finding has left many healthcare providers with serious questions about their own efforts to transform healthcare delivery: Does it really make sense to invest the time, energy and resources? And if the investment is justified, is now the time to make it?
But we think there is another question to answer first: Is it correct to conclude that value-based reimbursement, disease management and care coordination are ineffective? A closer look at CBO's issue brief and working papers suggests that it is not, and that the documents in fact tell a more nuanced story with a host of practical takeaways.
Failure? What failure?
CBO is correct that the demonstration projects collectively failed to produce material savings. But that doesn't mean they all failed. The four most impactful disease-management and care-coordination projects reduced hospital utilization by 15 to 25 percent, and one of the value-based payment programs reduced Medicare spending by about 10 percent. And it is important to remember that CBO was looking at Medicare costs net of incremental program costs, suggesting that many of the programs may have reduced fee-for-service payments for participating patients but not enough to offset incremental program costs. There are many reasons (some of which we will discuss below) to think that program costs in the study are not necessarily representative of what costs would be in a fuller implementation.
The CBO is not wrong to judge programs by overall impact. But innovation is rarely easy or inexpensive. It takes time, refinement and iteration to distill best practices that yield the maximum benefit for the minimum cost. It is no surprise the demonstration projects fell short; that is an unavoidable part of the process CMS and the healthcare industry are engaged upon. The more relevant question today is whether programs like those studied by CMS can become more cost-effective in delivering services that ultimately reduce fee-for-service utilization and payments. And to that, the answer is undoubtedly yes.
Consider that:
Looking forward: What did we learn?
As providers contemplate their next steps toward value-based care, it is crucial to understand what the successful programs in CBO’s study did right — what exactly went into their "secret sauce." Here are several key lessons we took away:
In conclusion, the CBO's analysis should not be perceived as an indictment of value-based care programs; rather, it serves as a reminder that value-based care has always been more than the sum of its parts. Care management alone can't bring about healthcare reform. Neither can care coordination or reimbursement reform. But put them together, and add wisely chosen care models, transition plans and incentives for quality applied at a population level, and they not only can — they will.
Jim Bonnette, MD, is a partner and chief medical officer in Oliver Wyman’s Health and Life Sciences Practice. He focuses on strategic transformation of healthcare delivery systems, fee for value and health reform.
Zachary Hafner is an associate partner in Oliver Wyman’s Health and Life Sciences Practice. His background is in health system strategy, capital formation and value transformation.
Several weeks ago, the Congressional Budget Office released an analysis of 10 CMS demonstration projects. The headline for CBO and much of the media coverage that followed was negative: The demonstration projects — which collectively included 34 disease-management and care-coordination projects, plus four value-based purchasing projects — had failed to reduce Medicare spending. This much-discussed finding has left many healthcare providers with serious questions about their own efforts to transform healthcare delivery: Does it really make sense to invest the time, energy and resources? And if the investment is justified, is now the time to make it?
But we think there is another question to answer first: Is it correct to conclude that value-based reimbursement, disease management and care coordination are ineffective? A closer look at CBO's issue brief and working papers suggests that it is not, and that the documents in fact tell a more nuanced story with a host of practical takeaways.
Failure? What failure?
CBO is correct that the demonstration projects collectively failed to produce material savings. But that doesn't mean they all failed. The four most impactful disease-management and care-coordination projects reduced hospital utilization by 15 to 25 percent, and one of the value-based payment programs reduced Medicare spending by about 10 percent. And it is important to remember that CBO was looking at Medicare costs net of incremental program costs, suggesting that many of the programs may have reduced fee-for-service payments for participating patients but not enough to offset incremental program costs. There are many reasons (some of which we will discuss below) to think that program costs in the study are not necessarily representative of what costs would be in a fuller implementation.
The CBO is not wrong to judge programs by overall impact. But innovation is rarely easy or inexpensive. It takes time, refinement and iteration to distill best practices that yield the maximum benefit for the minimum cost. It is no surprise the demonstration projects fell short; that is an unavoidable part of the process CMS and the healthcare industry are engaged upon. The more relevant question today is whether programs like those studied by CMS can become more cost-effective in delivering services that ultimately reduce fee-for-service utilization and payments. And to that, the answer is undoubtedly yes.
Consider that:
- Participants in the demonstration programs were given no assurances that the programs would continue beyond their planned completion dates, limiting the incentive to invest significantly in transformational change.
- In CBO's opinion, many programs enrolled too few beneficiaries for their results to be statistically reliable. But even setting aside the reliability of data, scale is a major consideration here. The technology, expertise and intellectual capital required to create an effective care-management program might seem perfectly reasonable at the level of a health plan's full population — but totally unsustainable at the pilot level. Moreover, off-the-rack solutions for value-based care delivery are still scarce. As they become more available over the next few years, they will radically change the cost of transformation.
- Participants in the demonstration programs targeted a small subset of their total patient populations, but continued to operate the rest of their businesses as fee-for-service enterprises. This resulted in conflicts of interest and misaligned incentives at all levels, from administrators accountable for enterprise-wide financial performance to the physicians who continued to be compensated for productivity.
- Overall, the CBO found that value-based payment programs were generally more successful in reducing costs, with bundled payment arrangements achieving the greatest impact. Disease-management and care-coordination programs were less successful, but it is important to note that these programs were not explicitly designed to reduce costs. Rather, they started from the premise that better-quality care of patients with chronic conditions will ultimately reduce costs by reducing hospital utilization, and they pursued that goal through high-touch primary care, enhanced monitoring of key condition-related metrics, and education.
Looking forward: What did we learn?
As providers contemplate their next steps toward value-based care, it is crucial to understand what the successful programs in CBO’s study did right — what exactly went into their "secret sauce." Here are several key lessons we took away:
- Patients respond best to in-person interaction with physicians, care managers and program coordinators. If a program relies on phone calls, patient self-management, education or other indirect interaction, it is far less likely to change patient behaviors in ways that translate to meaningful reductions in cost. With higher touch comes higher program cost; finding an appropriate balance will be key to program success.
- Access to timely information is essential. Claims data are not enough. At a recent CMS conference, the surgeon, author and public health researcher Atul Gawande, MD, made the point with an analogy: What if your car speedometer only told you how fast you were driving last week — how would that help you make decisions in the here and now?
- Programs that include care model redesign with significant physician involvement (for example, the heart bypass demonstration) have a greater likelihood of success in both cost and quality of patient outcomes, particularly when key program objectives are identified early and include transitioning patients to lower-cost settings.
- Participating providers must be allowed to work together in meaningful ways. The Medicare Acute Care Episode demonstration project achieved greater success than most because physicians and hospitals were allowed to negotiate together on supplies and to structure incentives for patient compliance with recommended treatment protocols.
In conclusion, the CBO's analysis should not be perceived as an indictment of value-based care programs; rather, it serves as a reminder that value-based care has always been more than the sum of its parts. Care management alone can't bring about healthcare reform. Neither can care coordination or reimbursement reform. But put them together, and add wisely chosen care models, transition plans and incentives for quality applied at a population level, and they not only can — they will.
Jim Bonnette, MD, is a partner and chief medical officer in Oliver Wyman’s Health and Life Sciences Practice. He focuses on strategic transformation of healthcare delivery systems, fee for value and health reform.
Zachary Hafner is an associate partner in Oliver Wyman’s Health and Life Sciences Practice. His background is in health system strategy, capital formation and value transformation.