The Biden-Harris health care proposal offers a public option plan for the uninsured and for those who prefer it to alternatives for which they are eligible. We strongly support the features and principles of the Biden-Harris public option plan to expand insurance coverage but believe that it should not be based on the traditional fee-for-service payment model. We know from long experience that fee-for-service payment promotes more care, but it does not promote, support, recognize, or reward better care.
The US health system needs a payment approach that promotes, supports, measures, and rewards better care that is continually improving. We need to pay providers, provider networks, and care systems an upfront amount of money to keep people well. We need to pay providers, as teams, a pre-determined risk-adjusted amount per person per month that provides hospitals and physician organizations with a predictable revenue stream and incentives to continuously improve care. We call this the Better Care Plan. It is based on the success, care improvement approaches, and high levels of customer loyalty and satisfaction of the current Medicare Advantage (MA) program. We discuss the benefits of the Better Care Plan, note evidence of its ability to deliver higher quality of care at lower cost compared to fee-for-service-based models, and highlight a few issues associated with its implementation.
Major Advantages Of The Better Care Plan
The Better Care Plan would provide the following major advantages over any coverage proposal based on fee-for-service:
- Incentives to provide continuously improving evidence-based care with an emphasis on prevention;
- Incentives for innovation to develop new models of care; and,
- Up-front cash flow and revenue predictability for providers at a time when COVID-19 and similar events seriously threaten the financial viability of many providers.
Pre-paying a risk-adjusted per-member-per-month amount to maintain, restore, and improve the health of enrollees engages the inherent motivation of physicians and other health professionals to provide the best current evidence and clinical judgment. Such payment creates a “health budget” for providers to work with patients on prevention, encouraging behaviors to keep them well, and providing evidence-based care when needed. The natural result of not being paid by each “piece” of care delivered is to eliminate visits, tests, procedures, services, and hospitalizations that are not needed and that do not add value. The goal of the broader payment approach is to keep patients safe from harm because the providers benefit financially when patients escape harm.
Upfront, risk-adjusted, per-member-per-month pre-payment to care for a defined group of insured people also creates incentives for innovation and the development of new models of care. When you no longer have to worry about how many pieces of care you need to produce to be financially viable, you are free to redesign care in ways that best meet patient needs. Examples include increased visits by phone and video (telehealth); use of patient navigators, care transition managers, and community health workers; adding pharmacists as members of the care team to assist with medication adherence; development of hospital-at-home programs; and related innovations. Each of these innovations produces more coordinated and integrated care. Each is enhanced by using electronic health records to facilitate shared information and knowledge between patients and providers. The fee-for-service limitations of payers and the cash flow needs of providers currently keep this exchange of information from happening. Having upfront “health budgets” promotes technology-enabled team-based care that patients need. Technology-enabled team-based care will also be needed to take advantage of advances in artificial intelligence based on large clinical and social determinants of health databases used to promote population health.
A third major advantage of the Better Care Plan public option is that it provides a predictable, upfront revenue stream and cash flow for providers. Nowhere has the need for such predictability been more evident than in the experience of dealing with COVID-19. Based on the decades-old legacy model of fee-for-service payment, hospitals and physician organizations across the country have lost hundreds of billions of dollars due to the pandemic. In contrast, those operating with an upfront-negotiated budget base have largely maintained their financial viability. Furthermore, they have been able to redeploy resources to those areas and patients most in need.
The Evidence
There is growing evidence that pre-paid, risk-adjusted, per-member-per-month revenue streams result in better care at a lower cost than fee-for-service payment. The evidence is based on studies of MA plan experience and on public Centers for Medicare and Medicaid Services (CMS) and private commercial plan experience with accountable care organizations (ACOs) and related payment models. The evidence suggests that it is better to pay for “whole person” health care than “by the piece” illness care.
Medicare Advantage
Recent studies indicate that despite having a higher proportion of clinical and social risk factors, MA beneficiaries with chronic conditions experience lower use of high-cost services, comparable average costs, and better outcomes, compared to fee-for-service Medicare beneficiaries with similar conditions. In particular, dual-eligible MA beneficiaries with chronic conditions had better patient outcomes and lower costs compared to dual-eligible fee-for-service beneficiaries. Out-of-pocket costs for MA patients are lower than for those in traditional Medicare. MA patients receiving end-stage renal disease care under the Special Needs Program had lower mortality and lower use than a comparable group of fee-for-service patients receiving such care.
Humana recently reported that medical costs were nearly 19 percent lower for seniors enrolled in Humana MA plans that use value-based payment methods with physicians, compared to those in traditional fee-for-service Medicare. The MA plan patients spent 211,000 fewer inpatient hospital days and had 10.3 fewer emergency department visits than did comparable fee-for-service patients. Most recently, a study of patients with diabetes receiving care under traditional Medicare versus under MA plans over a period of six years found that the MA plan beneficiaries had less annual health care use, including 22.0 fewer medical provider visits and 3.4 fewer hospital outpatient visits, with no or little difference in satisfaction with care or health outcomes. Analysis by UnitedHealth Group finds that MA costs are about 40 percent less than traditional Medicare fee-for-service. There is little or no evidence that these results are due to MA plans enrolling or “cherry picking” heathier patients as occurred in the early days of the program when risk adjustments were based only on patient age and sex. Subsequently, adjustments for diagnosis and severity of condition categories have been added, in addition to requirements that beneficiaries remain in their chosen plan for many months.
Given the positive performance of the MA plans noted above, MA premiums are expected to decline about 11 percent in 2021. Customer/patient experience ratings are high, with enrollment projected to grow to about 27 million people, representing nearly 4 out of 10 of Medicare beneficiaries. It appears that many Americans are already voting with their feet for better care.
Accountable Care Organizations And Other Prepaid Models
ACOs agree to provide care to a given group of patients for a pre-determined fixed sum of money. Contingent on meeting quality of care criteria, participating physician organizations and hospitals can share in any savings with the insurer without being responsible for any losses (called upside risk) or may also be responsible for losses (called downside risk).
The consensus of studies to date is that ACOs have reduced Medicare spending by 1–2 percent annually, although some of this has been offset by shared savings bonuses earned by the ACOs. Most of the lower spending is due to reduced inpatient use, reduced emergency department visits, improved preventive care, and chronic disease management. In the longest-studied ACO commercial contract in Massachusetts, there were savings of 11.7 percent over a period of eight years with greater improvement in quality of care measures and outcomes relative to fee-for-service payment models.
Participants in the ACO Investment Model, operating mostly in small, rural areas, receive upfront funds from CMS to invest in redesigning care to help them succeed under fixed payments. While many have dropped out of the program, those that stayed had a net aggregate reduction in total Medicare spending of $381.5 million over three years. In rural areas, spending was between $28 and $38 per-beneficiary-per-month lower than those receiving care under traditional fee-for-service Medicare, with no decline in quality of care.
Finally, while they are not ACOs as such, California’s delegated model medical groups operating under full pre-payment for both hospital and physician care had significantly lower total cost of care and higher quality of care than those operating under partial or full fee-for-service payment.
Better Care Plan Implementation
Despite the growing evidence in support of paying for “whole person” care upfront, piecemeal fee-for-service payment remains prevalent throughout the country. Choosing to offer the Better Care Plan pre-paid model as the public option can greatly accelerate the opportunity for more Americans to receive better care for less money.
Key to implementing the Better Care Plan is the negotiation of per-member-per-month payments between insurers and provider organizations. The negotiated budgets would initially be based on the adjustments for risk in the current MA plans. Over time, measures of the social determinants of health such as those represented by the deprivation index can be incorporated. Some of the funds based on the deprivation index could be used for expanded targeted outreach to enroll and provide increased access to care for uninsured and underinsured African American, Hispanic and Latinx, American Native Indian, and related populations. Based on experience with the public option in states such as Washington, initial hospital payments within the overall budget may need to be 1.5 to 2.0 times current Medicare rates.
Transparent and uniform cost, quality, patient safety, and patient experience data are necessary to promote competition among the Better Care Plan insurers. Patients should be able to report directly on their experience of care. The data should be reported on an annual basis to all stakeholders—insurers, provider organizations, and the public at large. A reduced set of standardized, comparable quality of care measures is needed to minimize the reporting burden on providers.
Implementation of the Better Care Plan must also recognize the special needs of rural America. Adjustments to a total global budget approach may initially be needed to assure the financial viability of essential rural hospitals. Narrow or “selective” networks of providers can also limit access to care and people’s choice of providers in rural areas. One approach for addressing this challenge is to require that insurers who want to offer the Better Care Plan public option have to demonstrate the adequacy of their networks to serve the rural population. Expanding broadband service and developing rural-urban hospital partnerships can assist in making the Better Care Plan attractive to rural residents.
Conclusion
Paying for health care piece by piece under fee-for-service has resulted in the costliest health care system in the world with some of the poorest health outcomes. The noted British epidemiologist Archie Cochrane is believed to have said: “It is better to be roughly right than precisely wrong.” Creating prepaid risk-adjusted per-member-per-month whole-person health budgets is the foundation of the public option Better Care Plan. It will set the United States on the roughly right path to continuously improving better care for all Americans. It will also help to assure that universal coverage envisioned in the Biden-Harris plan will be sustained over time.
Authors’ Note
Gail Wilensky is on the board of United Health. Steve M. Shortell is on the advisory board of Centene.
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November 16, 2020 at 08:07PM
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“Better Care Plan”: A Public Option Choice - Health Affairs
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