An hfm Web Extra

Many observers believe that the Centers for Medicare & Medicaid Services' (CMS) ultimate goal in healthcare reform is to pay for covered services at capitated rates that are just high enough to assure adequate levels of quality and access for patients, but also low enough that providers are delivering affordable services at high levels of efficiency.

Mindful that capitated payment under managed competition failed in the 1990s, CMS knows that the major causes of that failure included:

  • Few evidence-based quality standards pertaining to the process and outcomes of care
  • Virtually no capabilities on the part of hospitals and most physicians to manage risk
  • Inadequate IT capabilities to support hospital and physician managers' need for real-time information to manage clinical quality, resource consumption, and financial outcomes
  • Rationing of care, often through fairly arbitrary denials, by the insurers who accepted capitated payment as they vendorized providers to maximize their profits.
  • Conflicting financial incentives between physicians and hospitals that tended to create overutilization of oversupplied acute care service capacity
  • The tendency of hospitals to cost shift their losses from HMO-covered patients to Medicare until the Balanced Budget Act of 1997 transformed relationships, spiked increases in private insurance premiums, and ended that era

To avoid such pitfalls this time around, CMS is planning to roll out several initiatives which if successfully implemented would allow the agency to set capitated rates that would pass most of the risk on to providers and insurers in ways that:

  • Are consistent with explicit quality standards
  • Maximize the population's health status and minimize demand for acute care interventions by utilizing primary care providers to manage chronic conditions more effectively through medical homes
  • Reduce the unit costs of hospital and specialty physician services per episode of care through the use of bundled payments for these services
  • Integrate the delivery and financing of healthcare through ACOs that would develop the tools and relationships necessary for successfully coordinating and managing risk, quality, access, and financial results

In a real sense, the successful development of ACOs would permit CMS to contract directly with providers in much the same way the agency now contracts with insurers under the Medicare Advantage program.

For more information, see James Reynolds and Daniel Roble's "The Financial Implications of ACOs for Providers," hfm, October 2011


Publication Date: Monday, October 03, 2011

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