The Origin of Fee-For-Service

Michael J. Montgomery, MS

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The U.S. is first among all industrialized nations by to have one of the most high-tech and advanced care repertoire for cardiovascular disease in the world. A significant amount of money has been and continues to be invested in research and development for advances in cardiovascular care. As a result, the U.S. has experienced a considerable degree of success in reducing the mortality rates for coronary artery disease, acute myocardial infarction (AMI), heart failure and arrhythmia disorders.

What threatens the sustainability of progress for the U.S. is the inability to control the cost of care. The U.S. currently has the highest per capita cost for care (which is two and a half times higher than most developed nations in the world), with the rate of acceleration for the cost of health care rising faster than any other industrialized nation. Although the U.S. spends more than any other industrialized nation, it ranks near the bottom on key performance measures tracked by the World Health Organization.

Title XVIII and Title XIX of the Social Security Act established the Medicare and Medicaid programs in 1965. This was a significant legislative health reform initiative designed to provide a safety net for retirees, certain low-income individuals and the medically underserved. This legislation provided health care coverage for most individuals age 65 and over as well as for low-income children and the disabled. This is the foundation of the fee-for-service reimbursement system, where services are paid for separately.

The “perverse incentive” with fee-for-service means the more health care services provided, the more that can be billed. The problem resulting was that this reimbursement incentivizes care to be provided if no evidence supports the care as being medically necessary. Quality and patient-reported outcomes are not tied to the cost of care to determine whether this provides patient value. Reimbursement depends on the quantity of care rather than the quality of care.

Journey to Value

In a value-based health care delivery model, providers such as hospitals and physicians are paid based on patient health outcomes. Providers are incentivized to help patients improve their health, reduce the incidence and effects of chronic disease, and live healthier lives. The “value” comes from measuring outcomes against the cost. The Centers for Medicare and Medicaid Services (CMS) initiated three important programs — mandated by the Affordable Care Act — that reward hospitals based on the quality of care provided to patients. They are:

  • The Hospital Value Based Purchasing Program initiated in 2012;
  • The Hospital Readmission Reduction Program initiated in 2012; and
  • The Hospital Acquired Condition Reduction Program initiated in 2014.

So far, the results have been described as “mixed” for these value-based care programs. While there are no blockbuster results to point, those who continue to support value-based payment say more time is needed to truly know their effectiveness. The key for the future will be whether there is clear data showing that the value-based care programs have made a difference in patient engagement, outcomes and costs. As Christina Boccuti, associate director of the Program on Medicare Policy at the Henry J. Kaiser Family Foundation states, “Some initiatives are returning positive savings and positive quality results and others are more mixed.”

Bundled Payment Care Improvement (BPCI)

BPCI is based on the expected costs for clinically-defined episodes of care. BPCI, which includes 48 clinical episodes (15 related to cardiovascular care), can be described as “a middle ground” between fee-for-service reimbursement and capitation. The transition from fee-for-service reimbursement is likely to continue accelerating based on a statement that Alex Azar, secretary of Health and Human Services, made during speech to the Federation of American Hospitals, “...there is no turning back to an unsustainable system that pays for procedures rather than value. In fact, the only option is to charge forward — for HHS to take bolder action, and for providers and payers to join with us.” Although the Federal government saw BPCI as a way to control Medicare costs, commercial payers have also offered bundled payment arrangement as a key means for cost reduction.

Read for more information on BPCI and other alternative payment models.

Bundled Payment Models Mandated For Cardiovascular Care

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In 2016, CMS issued a final rule to mandate bundles for 98 randomly chosen Metropolitan Statistical Areas (MSAs). The final rule mandated an episode payment model for AMI, percutaneous coronary intervention (PCI) and coronary artery bypass graft (CABG). This would be considered an Advanced Alternative Payment Model under the Quality Payment Program with financial risk to be assumed by hospitals. As an added measure, the proposed rule also consisted of a Cardiac Rehabilitation Incentive Payment. Payment was provided ($25 per session) for each Phase 2 cardiac rehabilitation session by AMI, PCI and CABG patients who participated in up to 11 sessions, with the highest amount per session paid ($175) for those patients who completed at least 11 cardiac rehabilitation sessions.

The cardiac rehab incentive would be implemented in 90 MSA’s (half would be hospitals in the episode payment model [EPM] and the other half would be hospitals not in the EPM MSA). This proposed rule — similar to models 2 and 3 of BPCI — also stipulated retrospective payment reconciliation to a quality adjusted target price with the fee-for-service payments continuing as usual. Model 4 uses prospective payment.

The quality-adjusted target price was more highly discounted for hospitals that had a lower level of quality, whereas hospitals with higher levels of quality had a lower discount (i.e. easier to meet or come in lower than the quality adjusted target price). The quality measures for AMI and PCI were: Hospital 30-Day Risk Adjusted Mortality Rate Following AMI Hospitalization (NQF #0230); Excess Days in Acute Care For Hospitalization After AMI; Hospital Consumer Assessment of Health Care Providers and Systems (HCAHPS) Survey (NQF #0166); and a Voluntary Hybrid Hospital 30-Day, All Cause, Risk-Standardized Mortality eMeasure (NQF #2473) data submission. For CABG, the quality measures were 30-Day All Cause, Risk Standardized Mortality Rate Following CABG and HCAHPS Survey (NQF #0166).

Additional credit was given for public reporting of STS quality measures. Once again, if the hospital came in under the quality-adjusted target price, they would be paid the difference from CMS. If the hospital was over the quality-adjusted target price, they would owe CMS the difference. With this mandate, the acute care hospital was at risk; however, there was a provision for “financial arrangements” with other care providing stakeholders that were part of the care continuum. Those stakeholders that entered into financial arrangements had the potential of either sharing in the gain or loss, respectively, according to the retrospective reconciliation.

ACC’s advocacy efforts included three comment letters (for each of the published rule) providing member suggestions and concerns.

With the advent of a new Administration, the EPM was cancelled in a final rule prior to requesting comments on delaying the start date of the EPMs twice.

BPCI — Advanced

In January 2018, CMS announced BPCI Advanced as a voluntary bundled payment model, also to be considered as an Advanced APM. Read for more details on BPCI advanced.

Where Do We Go From Here?

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The inability to control the costs of medical care is a challenge that threatens the sustainability of the U.S. health care system. Cardiovascular disease imposes one of the highest cost burdens of any disease category. A study performed by the American Heart Association concluded that within the next two decades, the number of Americans with cardiovascular disease will rise to 131.2 million — 45 percent of the total U.S. population. Costs are expected to reach $1.1 trillion.

Federal government and commercial payers are going to continue to look for ways to get costs under control. We can expect to see approaches not only by programs being implemented at the Federal level for Medicare and Medicaid patients but also among health care providers and commercial payers. The highest possible quality of care at the lowest reasonable cost; in other words, value, is what will prevail. Those health care organizations who are unable to achieve value in the provision of cardiovascular care will find their programs unsustainable as the health care organizations that “get it” may dominate their markets and become the provider of choice for health care consumers and payers. Bundled payment models are here to stay.

This article was authored by Michael J. Montgomery, MS, director of the Cardiovascular Service Line at the Lee Health Heart and Vascular Institute in Fort Myers, FL.