Are Payment Reform Efforts Enough to Fix Future Medicare Financing Woes?

With the 1-year anniversary of the COVID-19 pandemic and the passage of President Biden’s American Rescue Plan, considerable attention is being paid to increasing access to and affordability of quality health care in the United States.

A session presented at the America’s Health Insurance Plans (AHIP) National Health Policy Conference, Michael Chernew, PhD, the director of Healthcare Markets and Regulation Lab at Harvard Medical School, and Mark McClellan, MD, PhD, founding director at Duke Margolis Center for Health Policy, discussed one aspect of the quality health care discussion—the potential for Medicare innovation and reforms in 2021 and beyond.

In 2020, over 62 million Americans were covered by Medicare, with expenditures amounting to almost $800 billion. But in the coming years, both enrollment and expenditures are expected to continue, while spending is projected to grow faster in Medicare than in Medicaid or in private coverage, explained session moderator Mark Hamelburg, the senior vice president of federal programs at AHIP.

These estimates prompt concern about the financial feasibility of the program, its potential strain on the nation’s economy, and the quality of care delivered. And despite numerous advancements in previous years, “there's recognition that much more needs to be done, and the need for change isn't only about cost or quality,” but also barriers to care, Hamelburg said.

When it comes to financing Medicare, much of the problems “relate to the broad trends of demographics that we’ve known about for years, exacerbated by the COVID-19 pandemic, which put a big strain on revenue,” said Chernew, who is also co-editor-in-chief of The American Journal of Managed Care®.

The general policy challenge does not solely involve inefficiency, but rather the nature of demographics and associated revenue, he explained.

Chernew said solutions will likely focus on tweaks to Medicare, such as site-neutral payments. “My general sense is that if we hit about as efficient as we could get, we would still have a core financing problem,” Chernew said, adding, “We're going to have to, at some point, deal with the core demographic financing issues but we will have to see how that plays out.”

Both changing demographics and biomedical progress will drive further increases in Medicare spending, McClellan said. “In the meantime, any steady steps that we can take to make the program spending more efficient, would be helpful.” These steps could include reforming the Part D drug benefit or adopting spending flexibilities to deliver in-person services via telehealth.

But underlying these incremental steps should be a transfer from payment-for-volume to payment-for-value-based-care via alternative payment models, both men stressed. “Where we are now in the alternative payment model movement is a need to move away from experimenting and ‘letting many flowers bloom’ towards what I would call a broader targeted strategy of what payment in Medicare is going to look like going forward,” Chernew said.

Although alternative payment models have saved some money and improved quality, the core goal should be to lower the rate of spending growth as opposed to lower spending altogether, Chernew explained. To do so, there needs to be better refinements of model parameters, and to better define how benchmarks are set up and how risk is adjusted, he said.

“Our problem is largely what spending is forecast to be. And obviously we should reap any efficiencies we can as soon as we can. But the core challenge is going to be to slow the rate of growth, to help finance the demographic and…the innovation pressures, the system will inevitably face,” Chernew said.

A broader end goal strategy and sense of parameters will help the use of alternative payment models to slow the rate of spending growth. This goal is achievable, “but I think there’s going to be some period of debate about what that portfolio model should look like as we go forward,” Chernew said.

Throughout the pandemic, practices that had already moved into relatively advanced alternative payment models were able to better withstand the financial disruptions, McClellan pointed out. “The organizations that were in those programs already had a foundation around longitudinal health information technology (IT), data analytics, infrastructure around team-based approaches to care, around telehealth and virtual care models that were really effective.”

By using these models as a baseline, organizations can build on the successes and adapt aspects that work best for them. These examples can also help address disparities brought to light by the pandemic. “It's the flexibility in those [alternative payment] models to invest in community health workers in other upstream steps to reach out to patients, not to make them come to you, that we really need to both improve population health, reduce costs and also to reduce disparities,” McClellan said.

Touching on the relatively small impacts on cost and quality stemming from alternative payment model adjustments, McClellan pointed out that many of the programs are voluntary. If organizations are “doing pretty well under a fee-for-service [model] even if costs are high and quality is not clearly better, it's hard to get those providers to move into the alternative model,” he said. To do so, resources and tools enabling the shift all together need to be developed and distributed.

McClellan underscored that the full transition is possible, citing successful shifts in site-of-care carried out by some behavioral health providers during the pandemic. But leadership from CMS and health plans will be crucial. Having clear goals for improving care in addition to “not restarting low-value care, keeping costs down, I think make this a unique time for progress on a real strategy around accelerating alternative payment models and value-based care,” McClellan said.

Revisiting how benchmarks are set to ensure organizations aren’t competing against themselves is also instrumental in this effort, Chernew added.. “When money gets tight providers are going to want some way to control the money so they can capture the savings associated with efficiencies generated.”

Alternative payment models, regardless of savings size, are ultimately a mechanism to allow providers to control funds that will be increasingly limited, Chernew explained. “The more we can all grow in the same direction, to give incentives, to create efficiencies and allow providers to share those efficiencies, I think the quicker we’ll move to where we want to be.”