CBO: Medicare demos didn't save much money

A report details the lessons learned from Medicare demonstration projects that tried to reduce costs and improve quality of care.

By Charles Fiegl amednews staff — Posted Jan. 30, 2012

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A new government report on Medicare demonstration projects concluded that major medical payment and delivery system changes will be needed to reduce program spending while still maintaining quality of patient care.

Medicare experiments in care coordination, disease management and value-based purchasing during the past two decades did not reduce spending significantly, according to a January report by the Congressional Budget Office. In some instances, costs had increased because of the demonstrations.

The lack of success of most demo programs reflects the challenges of overcoming the limitations of Medicare's fee-for-service system, wrote Lyle Nelson of the CBO's Health and Human Resources Division. For instance, the current payment system rewards physicians for delivering more care, and a decentralized health care delivery system does not facilitate coordination among health professionals. "Moreover, programs that attempt to improve the care of beneficiaries with chronic conditions face a major challenge in motivating people to change their health habits regarding diet, exercise and other self-care behavior," he wrote.

The CBO report evaluated the outcomes of 10 major Medicare demonstrations, six of which involved some form of managed care. Compared with what the program would have spent without the demos, spending on 32 of the 34 managed care programs participating in the six initiatives remained unchanged or increased once management fees were factored into overall spending totals, the report said.

For the four value-based payment system demonstrations reviewed by CBO, only one of the projects -- involving bundled payments for heart bypass surgeries -- reduced average spending by a substantial amount. The three other value-based pay demonstrations -- involving physician groups, hospitals and home health agencies -- produced little or no savings.

One main takeaway from the report is that Medicare experiments with managed care projects have not worked, said Robert Laszewski, a former insurance executive and health insurance consultant in Alexandria, Va. "At the outset it's all bad news, but then we should move on to asking what other kinds of demonstrations do we have to try."

Laszewski also said he's concerned that the Medicare program has not learned from its mistakes involving coordinating care and paying for quality. The CBO report was critical of the physician group practice demonstration, a value-based model that began in 2005. That demo formed the basis for the accountable care organization pay model, which has started offering bonuses to hospital and physician groups that coordinate care to save money for the Medicare program.

An analysis of the second year of the physician group practice demo showed that overall spending was down only 0.1%, or about $7 per patient. But even those savings estimates probably were overstated, because some groups had changed diagnosis coding practices to increase risk scores, the report said.

Laszewski has criticized the new ACO program for not offering enough disincentives to prevent high spending by having physicians and health systems share more financial risk with Medicare.

There is a tradeoff when such an alternative payment program includes financial penalties, the CBO report said. There is a weaker incentive to reduce costs when doctor and hospital fees are not at risk. However, placing fees at risk discourages participation.

The Dept. of Health and Human Services tests a wide range of demonstration projects, an HHS official said in response to a question about the report. The projects included in the study were from previous administrations, but the Obama administration supports testing many payment models to learn what works and what does not.

"As the Obama administration moves forward testing new, stronger payment models in partnership with private industry, we're confident that they will achieve cost savings and quality improvements," the official said.

The American Medical Association has supported testing new payment models when structured appropriately. In May 2011, the AMA released a Medicare reform proposal that calls on Congress to repeal the current Medicare physician payment formula, stabilize payments for five years, and use the time to test -- and eventually transition to -- multiple payment models that enhance coordination, quality and appropriateness of care.

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A rare Medicare demo success story

The Medicare participating heart bypass center demonstration from the 1990s achieved significant savings by bundling payments for services provided by the hospital, surgeon and other physicians. Payments were negotiated among the Medicare agency, hospitals and physicians. A new Congressional Budget Office report recalls how hospitals performed in the demo.

HospitalAverage annual casesMedicare savings
Ohio State University Hospital (Columbus)15722%
St. Joseph's Hospital (Atlanta)7458%
St. Joseph Mercy Hospital (Ann Arbor, Mich.)3979%
University Hospital (Boston)25119%
Methodist Hospital (Indianapolis)3226%
St. Luke's Hospital (Houston)5737%
St. Vincent Hospital (Portland, Ore.)4466%

Source: Lessons from Medicare's Demonstration Projects on Value-Based Payment, Congressional Budget Office, January (link)

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