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September 27, 2010

Massachusetts health care payment plan gets renewed attention: Global payments to replace fee for service?

Federal health reform and Massachusetts health reform may find a point of convergence in the development of ACOs (accountable care organizations) and the payment mechanisms that will make them tick (or hum, or do whatever it is that we want them to do).  The Federales will be holding a listening session next week on the issues raised by ACOs across the HHS and FTC landscapes.  Meanwhile, back in Boston, the inner circle of health care regulators and the regulated community are busy hashing out an approach to global payments that could be ready for prime time by January 1.

The need for payment reform in Massachusetts has been well-documented -- see the health care market report from the AG's office, as well as an earlier report on the imperative to keep insurance risk on insurers and place performance, or quality, risk on providers.  Now, this may be easier said than done, but we've got some of the best and brightest working away at the issue.

Unfortunately, the Massachusetts legislature blinked, and has not mandated the approach across the board -- at least not yet.  Initially, the global, or bundled, payment for episodes of health care approach is being tentatively applied to just a couple of types of episodes of care. (See Section 64 of Chapter 288 of the Acts of 2010 - the small group market reform legislation enacted this summer.)

This baby-steps approach, while better than nothing, is likely fueled at least in part by the inside baseball nature of the discussion: any change may produce losers -- or at least that's the way the zero-sum-game-players see it, and none of the folks at the table wants to be a loser.  On the bright side, it seems that MassHealth (Massachusetts Medicaid) may be heading in this direction sooner rather than later, which may end up dragging other payors along as well.

Implementing global payments for episodes of care will go a long way towards incentivizing providers to join together in ACOs -- not only for purposes of qualifying for an as-yet-to-be-defined CMS demo project, but also for purposes of improving outcomes, and improving financial performance for all providers involved.

David Harlow
The Harlow Group LLC
Health Care Law and Consulting


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Whether a payment model is FFS or global-capitated, costs will not be controlled but only escalated if the model for setting the payment level is not changed. Currently M'care and 'caid say we will pay you $x, accept it or leave it, and these underpayments are balanced out by over-payments which the private insurers who negotiate with groups of providers, i.e. ACO/IDNs, pay.

As management of costs, increased administrative burdens, EHR force more providers into ACO/IDNs, the bargaining power of these groups will increase thus promoting greater payment per unit whether this be FFS or global. Where is the cost savings?

Hmm ... Are you advocating a single-payor system? (Not that there's anything wrong with that!)

As the payors are corralled into state-level exchanges and otherwise regulated under PPACA, there should be additional limits placed on premium creep and medical loss ratios, thus limiting some of the potential for inflation driven by market-dominating ACOs/IDNs. Perhaps a long-term requirement for ACOs (once "in the wild" and not operating under CMS demo project status) should be that there must be several per market (absent extenuating circumstances, e.g., low population or low population density).

Cost savings will also come through the elimination/reduction of avoidable readmissions, etc., once the financial incentives of FFS are eliminated: Fragmented, DRG-driven "sicker-and-quicker" acute discharges, followed by post-acute admissions, followed by acute readmits, should be replaced by a focus on the entire episode of care. Just as Medicare (with commercial payors falling in line) has, over time, ratcheted down reimbursement for services as they becomes less expensive to provide (e.g., once-new technology, once-innovative surgery), I'd expect provider-level cost savings realized through a focus on the entire episode of care to eventually be shared with the payors.

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