Transitioning from Volume to Value: Opportunities and Challenges for Health Care Delivery System Reform

In early 2014, the Bipartisan Policy Center’s (BPC) Health Project began discussions with a diverse set of health care experts and stakeholders on issues related to physician payment reform and transitioning to alternative systems of payment and delivery. In the coming months, BPC will issue a series of white papers, drawing from those discussions and other resources, to offer legislative and regulatory policy recommendations on the implementation and acceleration of delivery system and payment reforms. As the first in this series, this paper identifies opportunities and challenges in the transition to organized systems of care through the lens of the current legislative and regulatory environment. This includes pending Medicare physician payment legislation as well as a discussion of the primary alternative models of health care delivery.

In April 2013, BPC’s Health and Economic Policy Projects collaborated to produce a comprehensive solution to improve quality and value in the U.S. health care system. The report, A Bipartisan Rx for Patient-Centered Care and System-Wide Cost Containment, was based on the growing consensus that the current fee-for-service (FFS) payment system inherently rewards volume and drives excessive utilization. Health care providers seeking to improve population health by coordinating care, providing appropriate services, and improving the overall quality of care are often penalized under the current FFS structure because many services used to improve care are inadequately rewarded, and accompanying decreases in volume result in lower revenues. BPC’s 2013 recommendations centered around delivery system reforms designed to incentivize health care providers and patients to transition from the current volume-driven FFS system to organized systems of care, as well as reforms that would improve Medicare Advantage with competitive pricing, and modernize the Medicare benefit.

While BPC’s leaders continue to support and remain committed to the broad range of policies advanced in A Bipartisan Rx, the report was conceived in an environment of impending budget sequestration and the possibility of bipartisan compromise on deficit reduction, or a so-called “grand bargain.” Since that time, the political environment has shifted, and prospects for comprehensive changes in the near-term are dim. Although there will be limited opportunities for legislative action in the coming year, it is still possible to advance the goals of improving quality and value in the health care system through the enactment and implementation of bipartisan physician payment reforms and regulatory changes in the structure of existing alternative systems of care.

Opportunities for Reform in the Near-Term

Over the next year, opportunities to promote improved alternatives to the current FFS reimbursement system will likely be limited to two options. First, Congress will likely address Medicare physician payment reform, which is necessary to avoid a 20.9 percent payment cut in 2015. Second, there will be opportunities through regulatory action by the Centers for Medicare and Medicaid Services (CMS) related to transitioning to organized systems of care, which are the basis for the alternative payment models described in pending Medicare physician payment legislation and thus integral to implementation of the legislation.

Physician Payment Reform

Earlier this year, the three congressional committees of jurisdiction?the Senate Finance Committee, House Ways and Means Committee, and House Energy and Commerce Committee?reached agreement on the core elements of legislation to replace the Medicare sustainable growth rate (SGR) physician payment system (referred to here as the “tri- committee” bill). The tri-committee bill links payment updates for physicians to participation in alternative payment models (APMs) that require physicians to assume some financial risk for the patients they serve, with the goal of improving quality and value of care. The legislation creates a two-track payment system, retaining a modified FFS system with a value-based incentive structure and providing incentives for providers to participate in APMs in the form of bonuses and higher payment updates. Several fundamental elements to physician payment reform employed in the tri-committee bill are consistent with BPC’s approach and other major payment reform proposals. While there is agreement on the tri- committee bill, Congress has been unable to pass the legislation because of disputes over how to offset its cost. We believe that costs associated with this approach should be fully offset in a thoughtful way that can garner bipartisan support. Currently, it is unclear whether the legislation will pass this year, will be delayed until next year, or if yet another temporary “patch” to prevent Medicare payment cuts must be enacted first. Nevertheless the bipartisan, bicameral consensus achieved in each of the committees?and ultimately across committees?points in the direction of payment reforms for physicians that might be politically feasible. ?

Regulatory Action on Alternative Systems of Care

Once the law is enacted, CMS faces a considerable task in implementing physician payment reform. A critical component of the success or failure of the law depends on the status of a number of alternative systems of care currently underway. The CMS Center for Medicare and Medicaid Innovation (CMMI) continues to develop and test innovative care models, some of which are critical to the success of physician payment reform. Many, if not most, of the opportunities and challenges outlined in this report are relevant to both physician payment reform and overall delivery system reform, which goes beyond physician-only models and includes the full range of providers and payers, including hospitals, post-acute care, non- physician practitioners, and private health insurers.

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Read more from BPC’s series on delivery system reform.