Congressional Budget Office
January 2012

In the past two decades, CMS has conducted two broad categories of demonstrations aimed at enhancing the quality of health care and improving the efficiency of health care delivery in Medicare’s fee-for-service program.

* Disease management and care coordination demonstrations have sought to improve the quality of care of beneficiaries with chronic illnesses and those whose health care is expected to be particularly costly.

* Value-based payment demonstrations have given health care providers financial incentives to improve the quality and efficiency of care rather than payments based strictly on the volume and intensity of services delivered.

The evaluations show that most programs have not reduced Medicare spending: In nearly every program involving disease management and care coordination, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered. Programs in which care managers had substantial direct interaction with physicians and significant in-person interaction with patients were more likely to reduce Medicare spending than other programs, but on average even those programs did not achieve enough savings to offset their fees.

Results from demonstrations of value-based payment systems were mixed. In one of the four demonstrations examined, Medicare made bundled payments that covered all hospital and physician services for heart bypass surgeries; Medicare’s spending for those services was reduced by about 10 percent under the demonstration. Other demonstrations of value-based payment appear to have produced little or no savings for Medicare.

The results of those Medicare demonstrations suggest that substantial changes to payment and delivery systems will probably be necessary for programs involving disease management and care coordination or value-based payment to significantly reduce spending and either maintain or improve the quality of care provided to patients.

http://www.cbo.gov/ftpdocs/126xx/doc12663/01-18-12-MedicareDemoBrief.pdf

Comment: 

By Don McCanne, MD

Recognizing the need to slow the increase in health care spending, much hope has been placed on disease management, care coordination, and value-based payments such as pay-for-performance. Medicare has authorized numerous demonstration projects to prove that these programs are effective. They aren’t.

The results of these demonstrations have shown that they have not reduced spending because the costs of the interventions were not offset by the savings, and frequently the costs were greater, resulting in a net loss.

The one exception in the report – bundled payments – doesn’t really belong in this list anyway. The demonstration study negotiated a single fee for coronary bypass surgeries, covering both the hospitals and the in-hospital treating physicians. The negotiated fee was about 10 percent less than the itemized fees had been previously. Thus the savings for Medicare was about 10 percent for these bypass surgeries. There was no attempt to determine if this reduction resulted in efforts to recover the difference from other patients or payers, which makes it difficult to know whether or not bundling actually reduced total health care costs.

On the other hand, imagine a system in which all payments are negotiated, as with a single payer system. Hospitals negotiate an annual global budget. That budget includes their costs of services, such as coronary bypass surgeries, without the need to itemize each single item for the services, nor the need to bundle payments in some sort of pretense that global costs are reduced. The hospital already has incentives to improve efficiencies to stay within budget.

Likewise, physicians collectively negotiate their payments, whether fee-for-service, capitation, or salary, as appropriate to their clinical circumstances. Payments are adequate to ensure a very comfortable net income.

Other nations have proven that negotiated, administered payment is effective in obtaining greater value for health care spending. We’ve now proven that intrusion of market-model games players such as outside disease managers, or pay-for-performance administrators, have failed to improve value. So we should go with a system that really does work – a single payer national health program.

Lessons from Medicare’s Demonstration Projects on Disease Management, Care Coordination, and Value-Based Payment

Congressional Budget Office
January 2012
In the past two decades, CMS has conducted two broad categories of demonstrations aimed at enhancing the quality of health care and improving the efficiency of health care delivery in Medicare’s fee-for-service program.
* Disease management and care coordination demonstrations have sought to improve the quality of care of beneficiaries with chronic illnesses and those whose health care is expected to be particularly costly.
* Value-based payment demonstrations have given health care providers financial incentives to improve the quality and efficiency of care rather than payments based strictly on the volume and intensity of services delivered.
The evaluations show that most programs have not reduced Medicare spending: In nearly every program involving disease management and care coordination, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered. Programs in which care managers had substantial direct interaction with physicians and significant in-person interaction with patients were more likely to reduce Medicare spending than other programs, but on average even those programs did not achieve enough savings to offset their fees.
Results from demonstrations of value-based payment systems were mixed. In one of the four demonstrations examined, Medicare made bundled payments that covered all hospital and physician services for heart bypass surgeries; Medicare’s spending for those services was reduced by about 10 percent under the demonstration. Other demonstrations of value-based payment appear to have produced little or no savings for Medicare.
The results of those Medicare demonstrations suggest that substantial changes to payment and delivery systems will probably be necessary for programs involving disease management and care coordination or value-based payment to significantly reduce spending and either maintain or improve the quality of care provided to patients.
http://www.cbo.gov/ftpdocs/126xx/doc12663/01-18-12-MedicareDemoBrief.pdf

Recognizing the need to slow the increase in health care spending, much hope has been placed on disease management, care coordination, and value-based payments such as pay-for-performance. Medicare has authorized numerous demonstration projects to prove that these programs are effective. They aren’t.
The results of these demonstrations have shown that they have not reduced spending because the costs of the interventions were not offset by the savings, and frequently the costs were greater, resulting in a net loss.
The one exception in the report – bundled payments – doesn’t really belong in this list anyway. The demonstration study negotiated a single fee for coronary bypass surgeries, covering both the hospitals and the in-hospital treating physicians. The negotiated fee was about 10 percent less than the itemized fees had been previously. Thus the savings for Medicare was about 10 percent for these bypass surgeries. There was no attempt to determine if this reduction resulted in efforts to recover the difference from other patients or payers, which makes it difficult to know whether or not bundling actually reduced total health care costs.
On the other hand, imagine a system in which all payments are negotiated, as with a single payer system. Hospitals negotiate an annual global budget. That budget includes their costs of services, such as coronary bypass surgeries, without the need to itemize each single item for the services, nor the need to bundle payments in some sort of pretense that global costs are reduced. The hospital already has incentives to improve efficiencies to stay within budget.
Likewise, physicians collectively negotiate their payments, whether fee-for-service, capitation, or salary, as appropriate to their clinical circumstances. Payments are adequate to ensure a very comfortable net income.
Other nations have proven that negotiated, administered payment is effective in obtaining greater value for health care spending. We’ve now proven that intrusion of market-model games players such as outside disease managers, or pay-for-performance administrators, have failed to improve value. So we should go with a system that really does work – a single payer national health program.