America’s healthcare system is almost unanimously viewed as being unaffordable, dysfunctional and severely in need of transformation, APG President and CEO Don Crane talks with leading healthcare executives, physicians and other visionaries to explore solutions to lower costs and improving quality of care by accelerating the movement toward value-based care models and away from fee-for-service. Want to be inspired by our nation’s foremost thought leaders in healthcare? Then this show is for you. Here’s your host, Don Crane.
[00:00:35.670] Don Crane:
I had a chance to talk the other day with Michael Chernew, who, simply put, is one of the most influential individuals in American healthcare today. Dr. Chernew is a professor of healthcare policy within the Harvard Medical School and is the current chair of MEDPAC, the Medicare Payment Advisory Commission. As listeners know, MEDPAC is a federal agency that provides nonpartisan advice to Congress. It just released a 500-page report to Congress, which contains, among other things, many suggestions on how the Center for Medicare and Medicaid Innovation should overhaul the many alternative payment model pilots.
The inspiration for the podcast, however, was an article Professor Chernew authored that appeared in JAMA on May 6, the title of which was, “A Path Forward for Alternative Payment: Build a Portfolio, Not a Garden”, in which he offers his opinion that CMMI should trim the number of APM pilots to create a more harmonious and less conflicting collection of programs. But what really caught my eye was Professor Chernew’s very cogent summation of a primary goal of APMs—that is to treat avoidable waste in healthcare as an asset, an asset that can attract innovation and be harvested to produce value and yes, profit. This is bedrock APG philosophy, and it was sure nice to hear it described to perfection by the Chair of MEDPAC. In the podcast, Dr. Chernew explains this asset concept and many other points about the value movement that I think are important. I think you’re going to like it. Take a listen.
Professor Chernow, so good to have you with us this morning. Thank you for joining us in this podcast. How are you today?
[00:02:33.120] Professor Chernew:
I’m great. Thank you so much for having me.
[00:02:36.060] Don Crane:
Very, very good. If I may also, Professor, since we prepped and talked and I think we’re friendly, may I call you Michael? Is that OK?
[00:02:43.320] Professor Chernew:
You can call me Michael. You can call me Mike. Call me Betty.
[00:02:50.460] Don Crane:
Very good. Well, I want to obviously, you know, reflect the kind of respect I have for you. You’re the professor of healthcare policy at Harvard Medical School. You’re the Chair of MEDPAC, the Medicare Payment Advisory Commission. You were the vice chair in that commission from 2012 to 2014 and a member before that 2008 to 2012. You’re a member of the Congressional Budget Office’s panel of health advisor, co-editor of the American Journal of Managed Care. And on and on and on. I can hardly imagine more whatever powerful CV set of experience for our conversation today. So, I’m really pleased to have you with us. So, with that, let me dive into it, if I may. I think probably makes sense, Mike, to go ahead and have you say a word or two about MEDPAC and who it is, what it is, what it does. And then also this distinction today about when you’re speaking on behalf of yourself versus when you’re voicing a position of MEDPAC so that the audience is clear on that. May I have you do that?
[00:04:05.490] Professor Chernew:
Sure. MEDPAC is an independent congressional agency that advises Congress on Medicare payment policy. We’re required to put out two reports a year recommending to Congress things like the update factors for the different fee schedules. We address a whole series of other issues related to Medicare policy. The commissioners, myself included, are appointed by the GAO. There are sixteen plus me. There are experts in a whole range of areas. There’s many that are representatives of different industry segments. So, we have people for example, representative is too strong a word…people come with a perspective from different industry areas. So, we have people who work for large hospital systems, people that sort of are prominent in the physician community…primary care docs, specialist docs, academics, people that are expert in public policy, things like that. So, you know, I don’t know how many independent congressional agencies there are like MEDPAC, but we report to Congress and we do so sort of without any partisan angle.
[00:05:23.390] Don Crane:
Any comments about, you know, sort of your whatever representation here during the podcast today. When we think you’re here, we’re coming to you individually versus MEDPAC.
[00:05:34.930] Professor Chernew:
Absolutely. So, I think the easiest thing to say is you should take everything I say is an opinion of Michael Chernew, the professor, not an opinion of MEDPAC, although I think you’ll ask me questions about MEDPAC and I will comment about my views on that. But again, MEDPAC is a commission and the opinions of MEDPAC are reflective of the opinions of the commissioners writ large. When we make recommendations, we vote on them. So, I don’t speak for, you know, all of the commissioners per se, although I can certainly reflect where I think the consensus of the commission is.
[00:06:16.930] Don Crane:
Very good, perfect ground rules. So, let me dive into it. So, I would have wanted to speak with you under any and all circumstances, but what really prompted this was the article you wrote recently dated May 6, 2021, that appeared in JAMA entitled, “A Path Forward for Alternative Payment: Build a Portfolio, Not a Garden.” And that, of course, article says an awful lot of things. But I want to start with the assertion in it that waste in the basically delivery of care is an asset for harvesting by all of the APMs. Can you explain what you mean by waste as being an asset?
[00:07:01.840] Professor Chernew:
Yeah. So, I think we would agree…I hope your listeners would agree that there’s a lot of inefficiency in the American healthcare system. There’s a lot of ways you can define that inefficiency, but in my case, what I mean mostly is people are getting healthcare services that they perhaps shouldn’t get. Think, for example, about Choosing Wisely or getting services from sites of care that perhaps they didn’t need. So, they’re getting care in some more intensive post-acute care settings as opposed to less intensive post-acute care settings, things like that. And I spend a lot of time worrying about the quality of care and the access to care that people in the US get, particularly obviously Medicare beneficiaries is my role as MEDPAC Chair. But within that context, it’s important to understand that the country faces really important fiscal challenges and to address those fiscal challenges one strategy is to change the way that the providers, hospitals, physicians, nurse practitioners, skilled nursing facilities, all the different types of providers are paid.
And the essence of those changes is to make payment broader so that the payments aren’t as fragmented for particular DRGs or RVs or whatever they happen to be. But instead, they span time and they span providers. And in doing so, those broader payment models, those more flexible payment models, allow the provider system writ large to share in some of the savings when those inefficiencies are eliminated. So, if you can avoid an MRI that wasn’t needed, if you could avoid some testing preoperatively that wasn’t needed, if you can send somebody to a lower cost post-acute setting, for example, all the associated savings gets shared with the delivery system.
The challenge in all of these models is to define who in the delivery system gets to keep that share of the savings. The models are broad, so they span providers’ time. And as a result, if a post-acute care visit is avoided or the setting is shifted or an MRI is avoided, who should reap the savings associated with that? And so, there is a lot of organizations, some of which are provider systems, some of which are non-provider organizations that work with provider systems, are building business models around both generating the efficiencies that we want and then keeping a share of the savings. So, in order to be successful, you need as an organization to essentially own that waste, because if you own that waste, you can then get paid to eliminate it. If you eliminate waste that is owned by someone else, that other organization keep the savings. The last point I’ll make and then I’ll stop talking. In the existing system without alternative payment models, if waste gets eliminated, it is effectively owned exclusively by the payer. So, in the fee-for-service model, if a wasteful MRI or a low value MRI is not delivered, that simply lowers Medicare spending and the savings are captured by the Medicare program. And the delivery system doesn’t capture any of that. The beneficiary captures some because they don’t pay a co-pay or whatever. But for the most part, it’s the payer part is captured by the program. These new payment models take some of that ownership of that waste, if you will, and give it to the delivery system. So, if they can eliminate it, they can keep some of the savings.
[00:10:46.340] Don Crane:
Well, very good. Music to my ears. No surprise to you to hear this, because this is bedrock APG philosophy and I have spent the better part of my career trying to explain, perhaps less effectively than you just did, really the underlying basis for moving from fee-for-service to capitation. Capitation presents this opportunity to remove waste, which I think many, for a while there, I think it was almost the consensus view that some thirty five percent of the spend in the healthcare system is on avoidable care, a.k.a. waste, and that that could be translated basically into profit and thus, it’s a better model. So anyway, that’s been my mantra and so, so happy to hear you, I think, confirm that. I feel better already.
[00:11:36.190] Professor Chernew:
Wonderful. It’s always good to start out in agreement. And the fact that we agree, Don, is remarkably soothing to me.
[00:11:46.750] Don Crane:
Ditto here. So, next point in this interesting JAMA article is about moving from the ‘Let a Thousand Flowers Bloom’ approach to a portfolio model. So, now we’re referring to the CMMI, the Centers for Medicare and Medicaid Innovation, I think is the title and its charge in the Affordable Care Act to test models to help the system move from volume to value. And so, you have posited that we should get out of the gardening a little bit and move into something a little more…oh, I’ll just use the word intelligent. So, can you explain what you’re talking about there?
[00:12:29.860] Professor Chernew:
Yeah, although I’m not sure I would have used the word intelligent, but that’s fine. So, when we started to think about collectively transforming the payment models in this country, it was not clear the right direction to go in. Places like California and for that matter, Massachusetts, have a delivery system structured in particular ways. For example, here in Boston, we have a lot of large delivery systems, some excellent delivery systems that are quite comprehensive in the care they deliver and the components of care that they control and other parts of the country, not so much. So, the original paradigm in moving towards alternative payment models was, I think, this ‘let a thousand flowers bloom’ a model in which there was a lot of experimentation. And I think part of the bedrock of CMMI involves some of this testing and experimentation and diffusion, which by and large I’m supportive of it. I certainly understanding how it started that way. The problem arises that as models change, as there’s different rules about when they can be recertified and diffused, as they begin to bump into each other, they begin to work at cross purposes because you can have groups that are participating in a population-based payment model in which their accountability is assigned to one organization. And then the patients that are part of that may get a particular service that triggers an episode of care, in which case the accountability episode is given to someone else and you need a series of complicated rules. And as you launch new payment models, you can siphon away the responsibility, say, from the population-based payment model in different ways. There might be similar models that some, for example, the Affordable Care Act, initiated a population-based payment model called the Medicare Shared Savings Program, MSSP, that’s actually outside of the CMMI models.
But there’s similarities between parts of the MSSP program and some of the population-based payment ACO models that CMMI was running. And so, there are questions about, you know, should you be a Nextgen, could you be a direct contracting model, a bunch of things like that. How does the episode model for the joint CJR interface with the episode models more broadly, BPCIA, Bundled Payment for Care Improvement Advanced model? And CMMI more specifically have developed a whole series of rules about how these things work. They’re actually quite complicated. But more importantly than that, it’s a conceptual problem when you are launching models and running them independently and not acknowledging that they all interact together. So, I like the portfolio analogy because it makes me think when you buy a stock, you don’t just think about the performance of that stock, you think how it affects the sort of risk and return profile of your entire portfolio. So, you might want some stocks or bonds, some you’re building a bunch of different things in your portfolio that will work well together to give you sort of the risk-return trade off you would want.
That’s why I like the term portfolio. My friend and colleague Mark Fendrick, whose son is a tremendous bassoonist, thinks a lot about orchestras. He prefers an orchestra model where we think of all these different components of being able to play well together so maybe people can write and whether they prefer orchestra portfolio, please say portfolio, because otherwise I will have to change my article, which is already in print, but there are less…the theory is the same that we want to think about…we’re now at a stage where I think we need to think about a vision for how payment should work in this country. And while some testing is certainly still needed in a variety of ways, and there’s always going to be opportunities to change the model. So, I don’t in any way mean that we should lock payment in stone. I think that as we begin to develop and launch new models, we have to pay attention to how all of those models work together to give us the healthcare system we want in the healthcare payment system that we want as opposed to taking about a bunch of one-off things.
The last point I’ll make in this context is if you think about how we deal with drugs and drug testing is, we test drugs often against placebo. So, if you found that the J&J vaccine works against placebo, and the Pfizer vaccine works against placebo, and the Moderna vaccine works against placebo, you would never give somebody all three vaccines. You would acknowledge that they have to, you know, you have to think about how they interact and how they work together. And there’s an analogy to payment that even if you find that, you know, this works against fee-for-service, that works against fee-for-service, the other thing works against fee-for-service, if you adopted all three of them, that doesn’t mean they’re all going to work the same way, or that the collective thing would be the sum of the results from any of the three evaluations.
[00:17:30.180] Don Crane:
Got it, got it. You mention testing, so the CMMI, that’s their charge to test, they’ve been doing it now for many years. The Affordable Care Act was enacted in 2010 and they started their testing not too long thereafter. Do you have a vision, or MEDPAC for that matter, as to sort of when testing either ends or an implementation begins that’s graduated overlapping or when do we move out of testing and start to move into implementation?
[00:17:58.630] Professor Chernew:
Yeah. So, first of all, I’ll be explicitly clear here: MEDPAC does not have a view now on that per say. So, I’m talking as Michael not as MEDPAC. My personal view is testing is never going to end per se. There’s you know, you realize you’re talking to an academic. My actual day job is evaluation in a whole range of ways. And I think that there’s going to be continual system in process evaluation. And CMMI, both through statute and otherwise, does continue while testing.
I think the core question is what are they implementing and what are they testing and when are things part of the sort of natural background landscape versus whether they are an experiment? And I do think that there’s some semantic issues. I’ll pick one which is really illustrative of, I’m going to use some words, but I don’t mean them quite literally. There are several versions of what I would call high-powered population-based payment models. Think NexGen or Direct Contracting Global, just to pick two. There’s a bunch of parameter issues with each of those. How are benchmarks set? How is risk adjustment done? How is attribution working?…a bunch of things like that. There will be continued learning as those things develop. I think having a somewhat stable vision that a high-powered, population-based payment model track exists is an important direction to go in. The actual details of that, I think, can change over time as we learn more. The same is true, just again to pick an analogy…we operated in the early 90s the DRG system, which essentially changed the premise of how we paid hospitals towards this prospective payment system, which in some ways was the first bundle, although it didn’t span providers in quite the same way as these new alternative payment models do. But nevertheless, the DRG system has evolved and continues to evolve over time. We have MSDRG’s, we have a bunch of other changes and with the actual rates are. There’s a series of other processes that are overlaid on top of the hospital payment system that relates to DRGs.
So, there is this continual evolution of payment that I think is a good thing and there’s a continuing evaluation of it. The same is true with how we pay for quality. We have the hospital readmissions program. We have a bunch of other value-based payment models. We try and bring them together. MEDPAC has a bunch of recommendations about how to do value payment models. So, there’s always going to be these changes. These changes are always going to be evaluated and I think that’s important. The core point is to understand that these basic payment models are going to be moving forward and we want to maintain that direction. And it’s possible we get to a point where say, you know, this entire direction was wrong…we need to completely change course. But my read of the evidence now is that these alternative payment models, by and large, are a small win. And I think they could be made a bigger win. But at least for now, they are a small win. They serve a lot of purposes beyond just the fiscal. I believe they’re small fiscal savings. I think they serve broader purposes as we think about things like telehealth. Putting telehealth into a fee-for-service environment is a nightmare. So, I think you get a lot of opportunities to build out these models and we will continue to do that on an ongoing basis.
[00:21:43.950] Don Crane:
Very good. Well, I think that in listening closely to recent comments, Liz Fowler, the new head of CMMI as you know, I think that either agreeing with you or doing what you say in part, certainly because she’s talking about fewer models. I don’t know if she uses the word portfolio versus garden or orchestra, but nonetheless fewer models. The other point that they seem to be making is, is to convert some of them from optional to mandatory. You have a perspective on that?
[00:22:18.510] Professor Chernew:
Yes. So, first of all, I think CMMI and Liz are doing an absolutely outstanding job in a whole variety of ways. This is obviously a very complex area. I do agree with you, and again, I have no particular insight that they are trying to move to what I would consider to be the next phase of APMs where they’re thinking about how it all fits together and how you build a delivery system that works for the beneficiaries. But in order to work for the beneficiaries, it has to work for the providers.
And I really think there’s a lot of really good work now being done at CMMI, and CMS more generally for that matter. The issue of voluntary versus mandatory is a complex one. I tend to think of it as a little bit more of a spectrum. So, for example, there are people who believe in mandatory models, but I think there are providers that would not be well suited in certain types of mandatory models. There’s only so much risk for example, you could put on a provider system and when you have providers that are smaller, they may not have the capacity to bear that risk. So, you need to think through the heterogeneity of the provider system and how you’re designing the tracks and recognize because of that heterogeneity, it’s very hard to force an organization into one track or another, particularly as the tracks become more high-powered. But I do think that you can encourage participation in a range of ways.
I should point out that the existing fee schedules in Medicare, the current law baselines…I guess I’ll pick the physician one, because this is APG…is we have a system called the sustainable growth rate. There is many things that was not sustainable. We move to a system that’s basically the math permit system. And the win in that situation was to avoid the scheduled fee cuts, but to move to a system of baseline fee updates that are really, really, really flat. And in nominal terms, if you follow current law baseline, you would see a reduction in the inflation-adjusted fees that providers are getting. On the facility side, there’s in the Affordable Care Act productivity adjustments, which essentially deduct from the updates that facilities get a factor related to productivity in the country, which means that providers are getting fee updates below what their input costs are rising as. And in fact, if you look going forward, the inflation adjusted collective price increases in Medicare forecasted to be slightly negative over the next roughly five to 10 years. So, the core activity going on here is to allow institutions and providers to harvest some of the savings from removed inefficiency so that they can effectively survive financially with lower underlying fee updates because they can capture some other profits by doing less things. That is an incentive for going forward. It doesn’t make things mandatory. It allows providers to make a calculation in which they want to own the waste so that they can do better than if they’re just in a fee-for-service system that pays them for everything they do.
And so, you certainly can make that stronger. There’s issues I don’t have a strong opinion, but issues about, for example, the APM bonus, which is scheduled to go away and how you set up those things. I think it’s incumbent that I know CMMI and CMS are thinking about this. It’s incumbent to build models that are attractive. The advantage of making it more mandatory or having stronger incentives is it allows you more flexibility in how you design it. They don’t have to be quite as favorable to providers and it avoids a complicated actuarial problem, which is, for example, if you set a regional benchmark and there’s part of a regional benchmark in some of these models and participants are all people and organizations that were having spending below the region beforehand, you’ll end up losing money because of the selection of who’s participating. And so, getting more people to participate, particularly for that matter, the high spending groups, is unbelievably important.
I think mandatory might be a little strong, but we are going to have to think about which models can be designed in a way to really encourage participation. In some cases, particularly, CJR, where you can have some things that are mandatory because there are a little bit narrower. And so, this is going to have to be an ongoing discussion. Mandatory is a good thing in many ways, but it does have drawbacks that have to be balanced. And so, we’re going to have to be a little nuanced where we are on that spectrum.
[00:27:17.450] Don Crane:
Very good. So let me turn to one of the CMMI programs…pilots near and dear to APG’s heart. This is the direct contracting program involving both global and professional risk. So, we asked for that. Got it. Now it’s been shelved for some period of time as Liz Fowler and her team reassess all the models, which we fully expect a new administration to do. But it’s got us very nervous because we see those two models…and I’m not talking about the geographic which was indeed halted. And that’s probably OK from our perspective. But the two direct contracted models, the professional risk and the global risk, we see is sort of the logical next step in the evolution of risk-taking from groups. So, to start with upside-only in Medicare and in MS, its ACOs, et cetera, et cetera. And these models now shall represent the next step, evolutionary step in and get very close to our view of the destination, frankly, that we should all be headed to soon. So, we’re highly nervous and concerned as to the future of that model. Do you have a perspective on that yourself?
[00:28:33.150] Professor Chernew:
So, I can’t, look, I’ve already said I can’t speak or I’m not going to speak for MEDPAC per se. By the way, MEDPAC doesn’t have a particular view on that. I certainly can’t speak for CMMI. My overall view and actually my expectation is that there remains a lot of enthusiasm for alternative payment models. There remains a lot of enthusiasm for models that have some of the features of, say, the direct contracting global model. And by that what I mean explicitly, it’s population-based, it is working through the provider system as opposed to, say, the health plan. So, for example, the Medicare Advantage program is population-based, but it’s working broadly through plans. I think there is enthusiasm for this sort of what I call it before a high-powered, population-based model. I suspect as the world moves forward, you will see something like that. I understand there is a lot of tension in basically the transition period.
I think it is important that I know they are thinking hard at CMS about this transition period. On one hand, you don’t want to leave big gaps over time as you build what you say may ideally want to build. On the other hand, you don’t want to build something that eventually you then just going to change completely. So, my view is there should be and will be a high-powered, population-based payment model moving forward. And that, I guess I would urge patience as this all comes to fruition. But I think there remains…I’ll speak for me personally…I believe I’m enthusiastic about such a type of model and I believe that others, that are much more important than I, share that view. And so, I think it’s just a matter of working out the kinks in how this thing goes. I mean, one of the problems in anything I wrote moving from a ‘many flowers bloom’ to a portfolio model in any of those types of transitions. The actual movement is challenging and it’s complicated by some of the other rules around how these models become recertified and how they’re implemented and how they’re evaluated and what the comparison groups are.
So, the institutional aspects of this and success are not trivial. But I think the intent is probably one that I think you would be supportive of. There are, of course, other types of models as well. But I certainly think you will see these types of high-powered, population-based models going forward. I certainly hope you will.
[00:31:25.410] Don Crane:
I think you’re right and I agree with you. I’m not much of a mind reader. Certainly, have a high deal of respect for Liz Fowler. But I will…I do know that some of the opponents now or the critics of the direct contracting model urging that it be restructured entirely, are arguing that some of the applicants or participants are health plans and that health plans are sort of infiltrating the program and thus traditional Medicare and will bring with them their business model of upcoding and risk adjustment.
So, they see, you know, I think maybe the whatever pollution of a traditional Medicare with health plans, with a Medicare Advantage upcoding bent. Now, I don’t know if I exactly captured their criticisms, but I think I have it pretty much right. Do you share those criticisms or do you have that view?
[00:32:26.900] Professor Chernew:
I don’t have that view, I understand the criticism. I think there is a tension in who runs these models and what this actually means. I think, and again, Don, I’d love your view on this. I think there’s a big distinction between direct contract and global and direct contracting geo in the following sense. My understanding, and again, please correct me if I’m wrong, is direct contracting global fundamentally requires people be attributed to the model through the providers that are participating in it. So, you are not attributed, for example, to a health plan and then split across the primary care providers that you may go to. Instead, it’s a model that’s probably closer to some of the other companies like Gallaudet, as an example, that are working with signing up and partnering with provider groups. But at the core, the control remains. The attribution is working to the provider groups and they’re picking how it is working as opposed to having their provider groups mediated by the plans, if you will. So, before I say more about that, I think this is the opportunity for you to correct me if I’ve misinterpreted the rules around direct contracting global.
[00:33:45.720] Don Crane:
No, I think you’re about 90 percent correct. The one edit is in the inattribution. I think on the direct contracting model, there’s both attribution, complicated subject, but there’s also voluntary alignment. So, there’s an allowance for Medicare beneficiaries to voluntarily sign up, as it were. So, there’s both forms of alignment, I think. So, I think that’s about the only edit I would make. But you’ve invited my views and so I’ll share them with you. So first, just to be clear there, once upon a time there was the geographic model, not to be confused with the global model, and geographic really did seem to have it as its purpose to invite technology companies and who knows what really historically non-players in the healthcare system to come in. And indeed, that’s been scuttled and I think entirely and so not referring to that right now. When we look at professional risk and global risk, I think back actually to our initial promotion of global capitation in these models…we proposed it maybe six years ago. We called it the third option. But in that paper, we saw a role for health plans, but not as prime contractors, but as subcontractors, something akin to ASOs and the self-insured model or akin to TPAs on the theory that there’s a lot of work to do. It needs to be physician group centric as a prime contractor, but one that we probably need management consulting services from a variety of contractors working with it as we see across the landscape now, particularly in self-insured models, which is really these direct contractor models are very like that.
So, we always envisioned it as being a physician group model, but we thought there might be a role for health plans but we never really thought health plans as prime contractor. I think the only other thing I’d say before I’d ask your opinion is, you know, I don’t know, 80 percent of the healthcare system is sort of, quote-unquote, within the franchise of health plans. Now, when you think of MA, when you think of commercial, when you think of Medicaid, is now Medicaid managed care through health plans, I think across 80 percent of Medicaid.
So, health plans have a huge role in the American healthcare system, for good or bad. And I’m not arguing right now. You know, they bring capital. They bring experience. I think actually, they probably should have not a primary, not a prime contractor role, but an ancillary role to support what goes on in traditional Medicare. That’s my kind of personal view, but that’s the debate and the tension right now. Some think that health plans are completely persona non grata and should be out of this program entirely. And I don’t agree with that. So, what do you think?
[00:36:49.700] Professor Chernew:
Well, so first of all, I think, of course, health plans increasingly own, for example, physician practices. So, the boundary between a health plan and a physician practice can be blurred, obviously, from California you understand Kaiser. So, we could have a longer conversation about that. And I think whatever ills you think there are in health plans, it doesn’t take you far to find issues going on in provider groups. You know that where they do a lot of the coding and a whole series of other things that are going on. So, I won’t go through some of the other issues there. I think the question about who should be subcontracting to who is a little bit beside the point. There are some economic theories that it doesn’t matter as long as the contract works well. While it’s true that health plans play a large role, obviously, in the American healthcare system, understand that the core of the American healthcare system is the providers. Like what we care about is people actually getting care.
The financing matters. I’m an economist. Boy, I think the financing matters. I think the financing sets the environment in which care is delivered. But the value add in the American healthcare system fundamentally is value added by providers. Like that’s what you need. People get sick. They want to get better. Health plans can set the environment, but the actual people that are getting them better are the physicians, the hospitals, and the whole slew of other people that are making medical services, drugs that they take that helps them get better. And I could see a world in which the contracting works through the providers and they contract out separately to the, say, health plans. It doesn’t have to be health plans, by the way, there could be a lot of organizations that are sort of information technology, other types of organizations that are risk-bearing that might not actually be a plan the way you typically think of as a plan organizations. And again, I don’t know, I won’t speak, I pick out and I can pronounce them. There’s Evolent, there’s Caravan…there’s a bunch of these types of organizations. Or, it could be a situation in which those other organizations fundamentally get the contract. But the only membership they get requires them to contract with the delivery system, which gives the delivery system some control about things like how risk is shared or what the terms are. And so, I could see this working in a bunch of different ways. Some organizations have more capabilities. They want to do a lot more in-house, so they don’t really need to work with other organizations.
And other providers really are not wanting to spend all their time building the data analytics, the communication skills, the interaction with beneficiaries, all the other things they do. And they want to find support from organizations that might help them, say, implement an EMR that supports their goals to one that actually helps them bear risk and do other data analytics to find where the waste is. We talked about waste before. I didn’t mean to be glib, but it’s easy to say as an academic, I think it’s important to understand that there’s a lot of nuance in high- versus low-value care. One reason why I like these models, it gives a lot of discretion and autonomy to the delivery system to decide what is needed and what is not within the sort of paradigm of accountability as opposed to a much more prescribed version of do this in this case, don’t do this in that case. But I don’t have a strong view about whether or not you should have the fundamental contract or be the provider subcontracting out to plans or other organizations, or whether you should allow the other organizations to be the fundamental contractor who then is partnering with the underlying delivery system.
What is clear is no organization, no plan organization, no IT organization. Look, no one can survive in this unless you have the providers actually delivering care. Like, that’s the product. And so, the providers at their core, will need to be on board with how this works, because if the provider system isn’t working, if the care delivery system isn’t working, there’s nothing that you can accomplish.
[00:41:02.870] Don Crane:
Agree completely. Let me shift our focus to MA, obviously a Medicare program. So thus, of interest to MEDPAC. And I’ll ask you to react basically to my thinking or observation here, a good way to approach it. So, as we look at the LAN reports and we try and evaluate the extent that value-based contracting and the like is penetrating various programs…you take a look at Medicare Advantage and I think the LAN schema has sort of four categories and the most sort of whatever of all of that is a population-based payment. And there, as you look at Medicare Advantage and ask the question, how much has value kind of penetrated Medicare Advantage? I don’t recall the precise percentage, but it struck me as small something on the order of 15 percent, I think, of payments in Medicare Advantage are, according to whatever the definition used by the LAN and the health plans that supply the data value base. I then further subtract from that percentage, California, where the capitated integrated model is almost exclusively used in Medicare Advantage. And so just for analytical purposes, subtract out California and it leaves me with the observation, maybe correct, maybe not, that quote-unquote value is not penetrated deeply into Medicare Advantage yet. What is your thinking on that?
[00:43:12.750] Professor Chernew:
You know, Medicare Advantage plans are very heterogeneous. They do a range of things to support value. It may not be exclusively in payment, although I haven’t looked at the numbers so I can’t comment on your sense of sort of value-based payment. They have a series of other tools they can use, benefit design. What does seem to be clear in the engagement with the health plans that I am familiar with, the Medicare Advantage plans, is they very much are engaged with their providers. Often, I think it’s in what we would call in the spirit of partnership. There are examples of Medicare Advantage that I think would pit the plan against the providers and how they do prior auth(orization), for example, in a bunch of things like that. So, there is a vision. It’s not crazy that the plan taking population-based responsibility enables them to engage the provider system and essentially procure the delivery system services they need in a way to promote value. And it may involve changing the incentives that the provider gets. It may involve a series of other activities to manage utilization. And I think the MA plans have a wide array of what they’re doing. I will tell you…now this is a self-selected comment…many of the plans that reach out to me about what they’re doing in MA or for that matter, in commercial, are plans that are doing alternative payment models. You should know my start in this area with Blue Cross Blue Shield of Massachusetts and the alternative quality contract they implemented.
And I actually think the private sector has been out in front of where government has been in terms of developing these models. It’s not clear that MA plans are always using them. But I know Humana, I know Anthem. I know Aetna. I’m sure a ton of others, United, has a series of these types of value-based payment models that they’re experimenting with and putting in place. And in many cases, they’re building much closer partnerships. And obviously, in the case of United, ownership of the parts of the delivery system, which is a separate topic, but this type of financing, integration with care delivery is an interesting mechanism, which, you know, through Kaiser is not new, right?
[00:45:42.390] Don Crane:
Absolutely. Well, so, and indeed, these MA plans and other plans have an array of tools to promote sort of managed care, better integration and value, the kinds of things we want. But if they are not paying some budget-based payment downstream and continue to cling to a kind of a fee-for-service payment model, are they really moving the needle for us? And are they achieving the value that we envision. In other words, is moving away from fee- for-service, an indispensable element of value?
[00:46:17.080] Professor Chernew:
Yeah. So, my quick answer to that is no, it is not indispensable. You can look at a lot of other countries that pay varying versions of fee-for-service. And I think you can make fee-for-service systems work with the right infrastructure around it. So, you know, again, for the Medicare Advantage plans to work, they need to have a bunch of providers participating with them in a range of ways. And that limits what they can do. Their issues broadly about what I would call market power. And, you know, we have to think a lot about competition policy writ large. But for the most part, I think ignoring some issues about how we pay Medicare Advantage plans, which rely on, you know, there’s some concerns about how markets are defined. There’s concerns about coding. You mentioned there’s concerns about the quality Stars program and Medicare Advantage. There will be a chapter in the MEDPAC report coming out shortly on this. But I think at its core, the evidence is pretty clear that Medicare Advantage can provide value in terms of utilization in a whole range of ways, and they can engage the delivery system to get rid of waste in a whole range of ways, and what the problem now with Medicare Advantage is, is writ large, how they’re paid. But I think we can make some relatively modest changes…I hope people like the MEDPAC report on this…I think we can make some relatively modest changes to the program to help us share in some of the savings that the Medicare Advantage plans are generating.
They have the advantage, I might add, of being able to engage with the delivery system in a way that isn’t impeded by some of the underlying cultural issues that occur within the delivery system. So, for example, in…we talk about APMs. Physician-led APMs, ACOs in particular, have performed better, much better than hospital-led ACOs. We could debate as to why. We could debate the analysis. But I believe that that basic conclusion is true. I believe part of the reason why that conclusion is true is if your goal is to keep people out of the hospital, that’s harder to do if you’re a hospital.
And I think there’s a lot of hospital systems that can do a lot of things. I believe we can change the models in ways that support their success. But the health plans can go after those things with their data analytics and other tools in ways that are sometimes difficult for the medical community to do. So, I could say I have one last point on that, which is one of the things that has been most exciting for me in the past decade in many ways has been the Choosing Wisely initiative from the American Board of Internal Medicine Foundation.
I suspect many listeners are familiar with it. I assume you are, Don. And they identified a lot of low-value care and this came from the medical specialty societies. This was not imposed upon them from an outside organization, and they published four hundred plus or so of these things. If you look at the utilization trends of these things, pre-post, you find stunning little movement. There are pockets, there are pockets, there are pockets of success, so I don’t want to deny that there are. There are organizations working at this. But it is simply not the case that labeling and identifying sort of waste and associated practice patterns makes the medical community just melted away. And because of that, I think there really is a role for a broader change to both payment…we’ve done some work in Medicare that shows under these other payment models, low-value care drops more than otherwise. So, I think there’s a role for payment.
Payment is certainly not sufficient. It really takes a lot of hard work. We’ve been working with Beth Bortz in Virginia. She’s worked with a lot of delivery systems about low-value care and how to get rid of it. And there is a role for plans and other entities to help do it, because while it is nice to believe that the medical community, once sort of it’s published, will change their practice of practice efficiently, I think the decades of geographic variation work and the experience, I’ve seen, with Choosing Wisely says we certainly need physicians and hospitals and all the other nurse practitioners and providers that matter in the system.
But without some sort of broader management, limited engagement and initiatives, you simply won’t see efficiency take hold miraculously.
[00:51:00.960] Don Crane:
So, completely agree. I mean, you’re talking to somebody in Don Crane here that believes firmly in the expression ‘money talks.’ Well, payment models talk and not while not alone sufficient, utterly necessary in terms of moving to value. So, certainly in my view. Hey, let me throw in my California hat for a minute, which I seldom do these days. I have more members outside of California than inside California now. But as I look at the CMMI and Brad Smith’s now almost-famous article, I think, in the New England Journal of Medicine, that basically concluded that of the fifty-four of the CMMI pilots and demos, only forty-nine delivered a net savings to CMS. I think that…
[00:51:54.210] Professor Chernew:
I think you mean that in reverse. Forty-nine. It was not forty-nine delivered savings.
[00:52:01.020] Don Crane:
Oh, did not. Did not. That’s what I do mean. And I won’t use the word they were all failures because as you pointed out earlier, it ain’t just savings by which we measure improvement in value and so on. But it was stunning to see forty-nine out of fifty-four not deliver savings, which is something that I think we all expected from these alternative payment models, affordability of being such an important point. So, looking at that kind of experience shifting my gaze now to California, where I think I have about one hundred eighty-five members, I don’t know their individual financial circumstances, but we haven’t had any insolvencies for a long time. And so, I have a strong feeling that they’re doing very well and have done so for a long time. And so, I compare, you know, difficulty with the CMMI model’s success with the California models, plural, because there’s a plurality of different ones in California. And I have a hard time reconciling the two. And so, I ask you to help me…what’s going on here? Why is California so successful and why are the APM models and pilots and so forth not? And should we be looking at that?
[00:53:16.250] Professor Chernew:
Well, let me start with your original scorecard approach. I don’t think the score-carding of 54 and X percent saved should be used to generalize across APMs writ large. I think, for example, if you look at those models that overwhelmingly the population-based model saved money. They certainly changed behavior generally, in some cases because of the amount of savings that was shared, the benchmarking and a bunch of other things, a selection. They may not have saved money for Medicare, per se. There’s some issues related to what the comparison groups are. But I think by and large, the evidence on population-based payment models are that they A) change behavior and B) save the case of MSSP. But I think others, Pioneer, for example, clearly saved a little bit of money net for the Medicare program. And just by the way, if you look at Medicare Advantage and you gave it the same criteria, you would think Medicare Advantage is a failure because it hasn’t saved money net for the Medicare program.
But in fact, I think the Medicare Advantage program is quite a big success. It’s just the payment isn’t working well. And I think there’s some analogies. The point is that the reason I think California has been successful is because California writ large is in a broader population-based payment world. And those are the type of models that I think have been successful at the level of CMS and the type of things they’ve done…and certainly here in Massachusetts we looked at the alternative quality contract, we also demonstrated this. So, the notion of sort of moving California to the rest of the world is complicated because the rest of the world turns out not to be California. The delivery system is different. It takes a long time to build these models of processes. I don’t think, you know, people say we should make the American healthcare system like the Canadian system or the British system. And there’s certainly things in those systems we can learn. In many ways they do better than we do.
But I don’t think it’s as simple as turning a switch and making us look like those other places. The same is true in California. In fact, some of the California things that have a quite successful have had a hard time diffusing outside of California. I think the principle of looking at the type of models that have been implemented and how they have done and the learnings from them is much more important than a score-carding. And I really bristle at the sort of generalizations of looking at a sort of top-line result and generalizing. So, I think it’s important to A) understand the type of models that have been successful or not. Again, I think the population-based models, even if you look within bundles, I’ll give you an example with BPCIA. I have absolutely no doubt that some of the bundled episode-based payment models have saved money and I think with no deleterious consequences of quality, maybe even improvements. But if you look again at BPCIA, you’ll see huge heterogeneity in results across the bundles.
So, you could either conclude that bundles don’t work because on average it hasn’t been successful or you conclude there’s certain places…I’ll pick Ortho…, but there’s a bunch. There’s certain places where bundles actually really work well. And so, I am constantly trying to get the policy community and people writ large to understand the nuances of what we’ve learned from these evaluations is opposed to take the top-line sort of results and conclude we need to go on a different path. And I think in California, the one reason why you’ve been successful, apart from a lot of hard work, you know, I know Bob Margolis, Healthcare Partners well. I mean, that’s not like it just came up overnight and I don’t know a ton about what went on there. You could tell me a lot more. But these are…you know Kaisers’ the same way…decades-long continuing evolution about how these systems work. And my perception of California, and I did live there for a number of years, is it is, broadly speaking, a population-based payment world in ways that much of the rest of the country is not. And I think the evidence from CMMI, and the evidence of California, and the evidence that we did hear from Massachusetts alternative quality contract, is that you can be successful in these models, although there are a lot of design issues and details that matter.
[00:57:35.060] Don Crane:
It’s sort of funny and probably should leave this point, but I’m thinking of an analogy. So, during the fires in California, just like, I guess last year, that were so destructive, there was the complaint that Washington, DC, didn’t care as much as it should. Maybe the administration and some suggested that the distance, the many, many, many miles geographic distance between DC and California had something to do with the oh, I guess, you know, lower level of attention that DC gave California, and should. I’m wondering maybe that California success is somehow not as appreciated as it should, also because of the distance involved, I don’t know.
[00:58:25.610] Professor Chernew:
I don’t know. I mean, a lot of things start in California and diffuse across the country. So, I won’t comment on that. Certainly people, you know, I have lived in California a bunch, but I haven’t for years. And, you know, it’s a big state. It’s a state that has a lot of outstanding and prominent people that work there. Is not a state that is unknown. I think it’s not so much distance, I think it’s just sort of context. By the way, the same Massachusetts…a lot of work on health reform has been modeled off of Massachusetts, but not every place can be Massachusetts. And so, I think at the end of the day, healthcare is largely local. Again, the delivery system in different places varies. The culture of different places vary. The solutions in different places will likely vary. I think the building of models that will allow organizations to survive…so, this is why I would call this is why I think, for example, of a multitrack model, you’re not going to be able to build or diffuse California one place or another.
In fact, the real question of what is the California model? And again, I would argue even within California, there’s big differences between different parts of California, different plans within California. It’s not like one California model. I think, you know, CMS is not going to be able to run an infinite number of models. And I think if they did, it would be a disaster because the models have to work well together. But I do think they can provide a set of models that span the core things that I suspect you like in California and then allow the local areas and the delivery systems and other organizations, plans…and, you know, there’s all these new startup companies with advanced primary care and whatever adapt to those models. I think the mission of payment is to create a payment landscape that enables people to succeed without, you know, overly…without creating a landscape that works across purpose. And I do think this is exactly where CMS and CMMI are broadly heading, and it is so complex, it’s just not something to expect to be built instantly. But I guess the last thing I’ll say is, as much as I care about health quality and access and all of those things, the core forces driving healthcare right now, I believe, are financial.
And, that means we will only succeed if a delivery system can deliver care as efficiently as possible, and we will see with the new Alzheimer’s drug, for example, all of the sort of blemishes of the American system, which is not designed in many ways for fiscal sustainability. And I think for all the providers, hospitals, physicians, a whole slew of other professionals, nurse practitioners, a whole bunch of other physician assistants, med techs, you know, have to think about how we can combine the underlying resources devoted to healthcare in a way that provides access to high-quality care for everybody in a fiscally sustainable way. And I think that basic core goal has to transcend a lot of activity now, which I think is exploiting the nooks and crannies of flaws in the way that we set up our healthcare system.
[01:02:09.110] Don Crane:
So, I happen to agree completely that fiscal sustainability, affordability really is the primary driver. I think our trust funds are due to go insolvent in 2024. So, I mean, we clearly have fiscal issues, but I’ll push back a little bit maybe. We also have a huge issue in terms of health equity, right? And brought to light for a number of reasons, but dramatically because of the pandemic. And it’s a clearly a huge priority for the administration and I think Congress and appropriately so. So, let me ask you about health equity and payment models and your view on how we might address health equity issues basically through payment. Is population payment helpful, necessary, desirable or not? Can we look at fee-for-service to get it done? Or do we again find ourselves looking at payment model as being an important element of the, you know, the armamentarium into mitigate disparities and the like? What do you think?
[01:03:11.240] Professor Chernew:
Well, I mean, I agree. I’m the Vice Chair of the Connector here in Massachusetts. We put all of our policies now through an equity lens. I think it is…it has been for a long time. We did work on benefit design, I don’t know, 10, 15 years ago, where, as healthcare benefits were becoming less generous, there was more out-of-pocket focused on the disparity aspects of using a cost-sharing strategy to control healthcare spending growth. So, while it has certainly taken the forum on public policy, it’s been an issue important to me for a long, long time. I think any payment model can be supportive of these goals. There’s certainly some reasons why I think it could be helpful in alternative payment models. Some of…we did a study again before years ago on impact of alternative payment models, on disparities. We actually found here in Massachusetts at the AQC lessen disparities. But again, the devil in all of these things is in the details. It’s in how you build the measures, how you implement the various programs you put into place.
One thing that is nice about these other types of alternative payment models is they allow you some flexibility to deal with issues related to social determinants of health in ways that might be more difficult in a fee-for-service environment where you’re constantly trying to figure out is this particular service you want to deliver to this population covered? Whereas in a broader population-based payment model, you don’t have to worry that once you cover a new service, its use will spin out of control.
It can be used much more strategically by organizations focused on better care, less disparities, things like that. But that doesn’t mean that if you change the payment models or guarantee to get what we want. So, we one of the areas of continual learning, including the quality measurement portion of this, is going to have to focus around disparities. You know, again, my general view is the word disparities is important. People use other words for it. I agree. I think it’s really about where the rubber meets the road. What are you actually doing? And that’s why you get to connect the phrase, put things through an equity lens. I’m not sure that’s the best phrase of semantics are hard. But the spirit is to think about things that perhaps weren’t always thought about. And I think you could do that. And there’s some flexibility in payment models that allows you to do that, but certainly doesn’t guarantee that they will happen.
[01:05:46.610] Don Crane:
Well, well, well. So let me push it one step further. Maybe this is simplistic of me, but it’s as follows. Me thinks that if you capitate a group for a population and a portion of that population is the victim of structural or institutional racism such that their health status is lower than others in the population that hurts the group, so they’re financially incented to think about that issue and maybe address it. The payment model, creates just some opportunity that there will at least be a fleeting thought about the problems that we’re talking about. Fee-for-service? Not, not at all the case. I also think that most of these value-based programs, even now MIPS, which means fee-for-service to a certain extent…but most of the value-based programs are bolted on to prospective payment. I think in California pay-for-performance, I think could Medicare Advantage Stars program, which performance measurement programs create the architecture right now for us to add multiple measures to assess how we’re doing with disparities and the like? So, I have this strong bias, as you can tell, that these value models are a horse that’s sitting there ready to be saddled to help a deal with health equity issues better than fee-for- service and yet another reason for us to move to value. Is that…am I thinking crazy or is that…
[01:07:21.090] Professor Chernew:
I think it’s certainly not crazy. I would think what I would say is that is certainly reasonable, but understand that a core component of these value-based models tends to be transferring accountability, which is a euphemism in many ways for risk, to the providers. And that means there is an underlying incentive in many of these models to deliver less care. So, while it is certainly the case that you have more flexibility, can do a lot more good, you may also worry that some populations may be disadvantaged by organizations that are not incented to give them care.
They are incented to keep them away from the delivery system. So, it is important that we continue to monitor the actual performance of these things. As I said, here in Massachusetts, for a bunch of reasons, the empirical result was in fact that spending went down, quality was better or the same, and disparities also were reduced. That’s what happened here. But that is not a guaranteed outcome. There are a whole range of issues around system design and management that the details matter. And so, I think you and I and many people share, aspirationally, the desire to make the healthcare system better for everybody. And that includes making sure that all populations have access to high-quality care in a bunch of ways. And, in doing so, we, I think, have to not assume that we can set up payment this way or that way and will therefore inherently get the result that we want. But we have to continue to monitor. We have to think about that. You mentioned this in how we measure quality. And I don’t, I’m not a quality measurement person, per se, but we need to think about what type of measures might be incorporated. I think there are some folks in California that are working on those types of measures now. California has been a leader in some aspects of quality measurement.
[01:09:27.930] Don Crane:
Jeff Rideout and IHA are working on it right now.
[01:09:30.990] Professor Chernew:
Yeah, exactly. So, I do think and I know Jeff, and I think they’re doing very important work. It’s that, you know, we didn’t get into where we are now particularly quickly, and we’re not going to have the system change quickly. In fact, I there’s a lot of people that want us to move bolder and faster, and I certainly understand that and I’m sympathetic to it. My concern, of course, is we have to move in a way that doesn’t create large disruptions in the system. And so, I tend to be a bit of a nibbler in some ways about how we should change things. I think we need to build models. We need to have people to have sort of on-ramps to alternative payment models. We need to understand that we can’t have dramatic changes in the revenue that organizations are getting. Because, you know, you can’t just assume that if you cut revenues by 20 percent, the delivery system will just be exactly the same…everyone gets 20 percent less. There’s a lot that can be done that can be harmful. And we need to maintain as we go through this transition, access to care in the interim. And so, it’s a bit of a slow, hopefully somewhat deliberative and certainly hopefully flexible process as we do that. And I think it’s a good thing that the health equity disparities issues has been put on the table and is receiving the attention it is receiving. And hopefully we will be able to move the system in the right direction. But it really depends on evaluations of very specific policies and certainly COVID illustrated how important these things are.
[01:11:26.460] Don Crane:
Well, I, for one, am very, very glad we have you and MEDPAC helping us work through these issues that feel in good, good hands, frankly. And with that, I should thank you and wrap up. I think Michael have taken more of your time than we expected because it’s been so much fun talking with you. And I think we should do it again soon.
[01:11:45.550] Professor Chernew:
So, first of all, thank you for the opportunity to talk to you. I always enjoy your perspectives and thank you for the opportunity to talk to your audience. They are really, I think, the bedrock of how we’re going to transform the system. I’m sorry, we’re long, it’s surely because my answers were not capitated, but nevertheless I would love to talk more and so feel free to reach out again.
[01:12:11.910] Don Crane:
We’ll make sure your comments get four stars across the board. So, it’s well worth it.
[01:12:17.050] Professor Chernew:
There you go. There you go. Thank you, Don.
[01:12:20.480] Don Crane:
Thank you, my friend.
[01:12:21.120] Professor Chernew:
[01:12:21.610] Don Crane:
All right. As you may have observed, our annual conference this year will now be held in person December 9th through December 11th at the Marriott Marquis San Diego Marina. Please save the date and be sure to register. It will be, to say the least, and extraordinarily welcome and refreshing chance to see each other in person once again. In the meantime, stay safe and be well.