Payment Models

A Carrot or a Stick?

January 29, 2018 11:25 am

Mandatory alternative payment models (APMs) fell out of favor under the leadership of Tom Price, the former secretary of the U.S. Dept. of Health & Human Services. Are incentives sufficient to elicit a voluntary shift to APMs, or do we need models that offer both carrots and sticks?

Price clearly was not a fan of mandatory payment models. During his brief tenure as the head of the agency, which oversees both the Centers for Medicare & Medicaid Services (CMS) and that agency’s Center for Medicare and Medicaid Innovation (CMMI), three planned mandatory episode payment models were canceled and the existing Comprehensive Care for Joint Replacement (CJR) model was scaled back to move about half of the CJR markets (33 of 67) from mandatory to voluntary participation in the model.

The CJR model, which started on April 1, 2016, was the first CMMI APM that made participation mandatory across hospitals in the 67 metropolitan statistical areas (MSAs) where the model was introduced. The mandatory component of the model drew comments from many organizations. The American Association of Orthopaedic Surgeons (AAOS), for example, emphasized its support for voluntary bundled and episode-of-care models, but cautioned against the impacts of a mandatory program that would “force many surgeons and facilities who lack familiarity, experience, or proper infrastructure to support care redesign efforts into a bundled payment system.” It advocated for “a more systematic, incremental approach.”

The American Hospital Association (AHA) also commented on the mandatory element of the model, noting the need for hospitals and health systems “to align with other providers, both physicians and post-acute facilities, to achieve efficiencies under the model,” a process that the AHA also notes “will entail forming new and different contractual relationships that build valuable partnership and incentivize successful strategies.” The association further notes, “While some hospitals have already taken significant steps toward achieving such alignment, others are not as far down this path.” Notwithstanding these considerations, however, the AHA agrees that “joint replacements are appropriate procedures upon which to launch Medicare’s first mandatory bundled payment program,” citing, among other things, the high prevalence of these procedures in the Medicare population and the presence of clear, evidence-based practice guidelines for these procedures.

The AHA did caution against expanding the mandatory model until the lessons of the program from the 67 original markets had been thoroughly evaluated, and advocated that the program’s introduction of downside risk be delayed, recognizing that it can take many months before significant improvements in quality or reductions in cost become evident.

What Moves Markets?

Although the AAOS objected to mandatory participation in CJR, while the AHA offered its qualified support, the two organizations pointed to the same issue: Provider organizations are in very different places in terms of their readiness to participate in APMs. The question is, Which approach will best move provider organizations, and the markets in which they are located, down the path of innovation in payment and care delivery models—a carrot or a stick?

Over the past year, HFMA has been engaged in a research project with Leavitt Partners and McManis Consulting examining the factors influencing growth in the total cost of care in healthcare markets across the United States. This research, supported by the Commonwealth Fund, involved site visits to nine markets across the country for interviews with a wide range of stakeholders, including health systems, physician groups, health plans, and employers.

Several markets visited also were designated CJR markets, and despite having some reservations about the program, interviewees recognized benefits in its mandatory participation. Reservations arose mainly around the program’s placement of risk entirely upon hospitals, which control only a portion of the activity covered by the bundle and have less influence over physician services and post-acute care. But others saw the program as a valuable catalyst in making changes across the continuum of care, encouraging more conversations with physicians and post-acute care providers about the quality and cost.

Of particular interest in the study was the question of a catalyst. The extent to which provider organizations in the nine markets were participating in APMs and innovative apporaches varied widely. But consistent across all markets was the acknowledgement that no market yet had sufficient incentives in place to make widespread changes in how health care is delivered and paid for. The question of where those incentives would come from did not have an apparent answer. Employers, who might seem a likely choice, are facing tight employment figures in most markets and have little appetite for changing benefit structures that they see as valuable recruitment and retention tools. Without an appetite for APMs and value-based insurance design from employers, health plans lack a market for innovative plan designs. And without a critical mass of revenue tied to APMs, provider organizations lack incentives to change care delivery models. CMS, with its significant presence across markets and statutory direction to test innovative payment and care delivery models, may very well be best positioned to be the catalyst that move markets.

A Combined Approach

With both carrots and sticks at its disposal, CMS might want to reconsider its movement away from mandatory payment models. Early results from the CJR program suggest that the model is successfully driving change: Nearly half of the hospitals in the 67 CJR markets qualified for reconciliation payments in the first performance year, during which none of the participants faced the downside risk of financial penalties.

The movement away from mandatory models may, in fact, be short lived. In testimony before the Senate Finance Committee, the new nominee for HHS secretary, Alex Azar, agreed with comments from Sen. Mark Warner (D-Va.) that voluntary models tend to attract providers that already are focused on more efficient delivery models, and that mandatory models may be needed to engage more providers in changes to the payment and care delivery system. d

There is much to be said for voluntary models, especially those that reward providers who have committed to change. The APM track under MACRA represents just such a model. But for change to truly take hold, new payment and delivery models must penetrate deeply within markets. That might require a little push.

James H. Landman, JD, PhD, is director of healthcare finance policy, perspectives and analysis, for HFMA.


a. Sept. 8, 2015, letter to Andrew M. Slavitt, acting administrator, CMS, from David D. Teuscher, MD, president, American Association of Orthopaedic Surgeons.
b. Sept. 8, 2015, letter to Andrew M. Slavitt, acting administrator, CMS, from Thomas P. Nickels, executive vice president, American Hospital Association.
c. The markets visited included Baton Rouge, La.; Billings, Mont.; Grand Rapids, Mich.; Huntsville, Ala; Los Angeles; Minneapolis/St. Paul; Oklahoma City; Portland, Maine; and Portland, Ore.
d. Daly, R., “HHS Nominee Would Support Mandatory Models,” HFMA Healthcare Business News, Jan. 11, 2018.


googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text1' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text2' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text3' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text4' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text5' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text6' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text7' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-leaderboard' ); } );