Medicare Debate Can't Only Be About Cuts

Two weeks ago, Gov. Thompson wrote an opinion piece on reforming Medicare incentives and suggested a capitated environment as a potential solution. In this piece, Gov. Thompson joined with Don Crane, president and CEO of the California Association of Physicians Group (CAPG) in discussing California's experience with a capitated environment.

Medicare spending is growing at an unsustainable rate of 7.9 percent and will soon reach 17 percent of all federal spending. In order to bring it under control, the Medicare system should be reformed to realign the financial incentives of doctors and other health providers. Specifically, the system should be reformed from the current "do more procedures, make more money" fee-for-service model, to a system where physicians are financially incentivized to provide the highest quality care to patients.

Despite this broadly recognized need to shift the way the federal government pays for health care, the debate up to this point has focused on the wrong tools needed to reform Medicare. Rather than discussing the need to change financial incentives for physicians and hospitals, the focus has been on concepts like the Independent Payment Advisory Board (IPAB), which cut Medicare spending without making any changes to the underlying systemic problems. The board represents a new federal bureaucracy that can propose binding cuts to Medicare. Only a Congressional supermajority can overrule the IPAB's recommendations.

However, instead of these broad cuts, lawmakers should get to the root of the problem and fix the underlying payment system.

One model for fixing this problem is already at work -- proving results in terms of improving quality for patients and reducing costs for payers. In California, medical groups and independent practice associations (IPAs) have been paid on a capitated basis by Medicare and some private payers. In a capitated setting, a set amount is paid for each patient's care, regardless of the number of procedures done. Rather than creating an incentive to do more, the physician has an incentive to create a patient-centered, coordinated care model.

The coordinated, integrated care these groups and IPAs perform has paid dividends in terms of cost savings and quality for patients. For example, in 2008, when physicians from CareMore, an IPA serving 43,000 patients based in Cerritos, heard news reports that a heat wave was going to hit southern California, the physicians began contacting their low-income emphysema patients. The physicians were concerned that without air conditioners, these patients would likely end up in the emergency room. For the patients that indicated they had no air conditioning access in their homes, the physicians went out and purchased and installed air conditioners in the patients' homes. The resulting cost of the air conditioners, about $500, paled in comparison to the cost of an emergency room admission-but perhaps more importantly, the physicians' actions kept these patients out of the hospital. The payment model that CareMore and other California physician organizations operate under allow these types of innovative approaches to improving patient care.

The models that allow this type of practice include the Integrated Health Association's pay for performance program. Participants include eight health plans and over 225 physician organizations, representing 35,000 physicians that provide care for 10.5 million Californians. The IHA evaluates physician groups using a survey that examines doctor-patient communication, care coordination, timeliness of care, and overall care experience and provides financial incentives for well-performing providers on each of these metrics. Results from the program have showed steady improvement on the measures since the introduction of the program in 2003.

Innovative approaches to prevention, wellness, and keeping patients out of the hospital, have helped California's physician groups and IPAs make great strides in terms of controlling the cost of care. In California, Medicare patients who were enrolled in a plan using a capitated payment methodology had hospital utilization rates of 982.2 hospital days per 1,000 as compared to Medicare fee-for-service patients with 1,664 hospital days per 1,000. Looking at the costs associated with these utilization rates, in Kern County, for example, the estimated savings were as high as $800,000 per year, if fee-for-service beneficiaries were seen by coordinated groups.

We believe that the success of California's medical groups and IPAs can spread across the country. For example, on March 31, 2011, Medicare released regulations creating accountable care organizations, which are designed to promote integrated, coordinated care. A properly structured ACO could embrace the quality, efficiency and patient-centered standards that California's medical groups, IPAs, and payers have already achieved. The success of this model requires attention to the available payment models, the quality metrics, and other key aspects of the program to ensure that we are truly changing the delivery system and not just repackaging the flawed, existing system.

Honorable Tommy G. Thompson, Akin Gump Strauss Hauer and Feld
Donald H. Crane, President and CEO California Association of Physician Groups (CAPG)