Alternative Payment Model Promises More Penalty Than Pay

Otolaryngologists and doctors across the country are being doused in an alphabet soup of new payment models and concepts, swimming through terms like CPIA, ACO, and MACRA.

One of the most important acronyms in the soup is MIPS, or Merit-Based Incentive Payment System. In the federal legislation that forever abolished the reviled sustainable growth rate (SGR) reimbursement formula, the MIPS, a new pay-for-performance program, was born.

The new financial realities hitting healthcare were discussed in a session on new payment models at the American Academy of Otolaryngology-Head and Neck Surgery’s Annual Meeting.

Under the MIPS, Medicare reimbursement for physicians will be a function of quality determined by the so-called Value-Based Payment Modifier (VBM) and the Physician Quality Reporting System (PQRS), along with resource use determined by the VBM, meaningful use of electronic health records (EHR-MU), and clinical practice improvement activities (CPIA).

Potentially big swings of reimbursement money are possible, said Robert Lorenz, MD, MBA, who co-chairs the American Academy of Otolaryngology’s Ad Hoc Payment Model Workgroup with Jane Dillon, MD, MBA. “You’ll see either an additional revenue of 4% to 9%, or a penalty of 4% to 9%, so [it is] a significant change in CMS funding over time,” he said.

But centers that participate in certain alternative payment models (APM) can opt out of the MIPS. “The problem is, we don’t know much about what CMS [Centers for Medicare and Medicaid Services] has in store for us with the alternative payment model,” Dr. Lorenz said. Centers using APMs will be required to take financial risk, use quality measures that are equivalent to those in the MIPS, and use an EHR.

Who Pays Out of Pocket for Medical Care?

Two nontraditional payment models were discussed in the session. In one, used by a group in Georgia, patients pay a flat fee for a whole package of care. The other, an “episode of care” model used in Arkansas, is a system in which physicians can be rewarded or penalized based on how their expenses compare to an average.

The first model, used for the past two years at Northwest ENT and Allergy Center in the Atlanta area, is designed to appeal to the uninsured and those with high deductibles.

Drew Locandro, MD, president of the center, called it “the most pure payment system ever devised.” Patients pay a guaranteed cash price for all of the care required for a certain procedure: the office consultation, in-office testing, surgeon fees, anesthesiologist services, facility services and supplies, and pathology lab fees. The cash package option is available for the most common ENT procedures, including tonsillectomy, septoplasty, and ear tubes.

The fee doesn’t cover medications, and the facility tells patients that if something unexpected were to happen, any fees incurred at other facilities, such as an emergency room, aren’t covered, although that situation hasn’t arisen yet.

Dr. Locandro noted that there has been a 34% drop in the uninsured since 2013, but 27 million Americans still have no health insurance. For those patients, the flat fee is an attractive option. Two-thirds of those who have chosen this option are uninsured.

The rest have high insurance deductibles and figure it would be cheaper to pay straight out of pocket than to go through an insurance company. Because patients are billed separately for a variety of services in traditional billing that is done through insurance, they can save thousands of dollars in some cases by choosing to pay the flat package fee, Dr. Locandro said.

He said the center is able to charge these fees because because they have full control over the facility. “We know our costs very clearly to run our center,” Dr. Locandro said. “We know our fixed overhead and the variable overhead with staff requirements. We know our equipment needs and costs.”

In 2014, the cash packages accounted for 6% of the center’s business. So far in 2015, they have accounted for 7%.

An uninsured woman from Nevada, who needed a tonsillectomy, recently chose the cash payment option. She said the cheapest tonsillectomy she could find near her home was $8,000. At Dr. Locandro’s center, it cost a fraction of that.

He said it takes a savvy customer to understand that it might be smarter financially to pay out of pocket, but the option hasn’t caught on. “That’s a change in mindset. How many people pay cash for medical services?” he asked.

The center has suggested to insurers that they could accept these amounts for the procedures, because it is almost certainly cheaper than having them performed in a hospital. “We’ve had that discussion,” he said. “I’d like to do that.” But Dr. Locandro said he’s found that insurers haven’t been “as flexible” as he’d like.

Physicians Wary of Episodes of Care

In northwest Arkansas, the Ear, Nose and Throat Center of the Ozarks and other practices have essentially been forced to participate in the Arkansas Health Care Payment Improvement Initiative, or they would not be eligible to be paid by the three major insurers, including Arkansas Blue Cross Blue Shield, which collaborated to create the payment system, said Lance Manning, MD, the president and managing partner of the center.

Under the system, patients seek care and choose a provider, as always. Claims are submitted normally, and payers pay them. For each “episode of care”—from 90 days before the procedure to 30 days afterward—a principal accountable provider (PAP) is assigned. That physician is essentially the quarterback and is most influential in controlling costs.

At the end of the performance period, which covers one year, each PAP’s average cost per episode is calculated and compared to the average of the whole system. If their costs lie within a range—the top end is the “acceptable” line and the bottom is the “commendable” line—then there is no change to their reimbursements. But if their average falls above the range, they have to pay back half of the difference, with no limit on that amount. If their average cost falls below that range, they receive half of that amount back as a reward, as long as certain quality metrics are met, and there is a floor for this amount.

For a more accurate average, there are provisions to acknowledge cases that are extra challenging: Down syndrome cases or cases in which the tonsillectomy is performed on the same day as a uvulopalatopharyngoplasty (UPPP), for example, aren’t factored into the average.

It’s a model that could have implications beyond Arkansas; a similar system has been considered for use in other states and by Medicare, Dr. Manning said.

Dr. Manning emphasized that he was not necessarily a supporter of the system, although he participated in panels that helped to develop it, in order to try to “minimize harm” to patients and physicians.

Still, there have been difficulties. “If you have pediatricians who order a lot of sleep studies, those are included in your episode, irrespective of you ordering it,” Dr. Manning said.

And otolaryngologists may be penalized for using pathology services even when it is mandatory under their hospital’s bylaws. Also, Dr. Manning said, even though physicians were told there would be no “floating” floors or ceilings to the acceptable range of costs, that hasn’t been the case.

“After two years, that’s changed. The acceptable level that I showed you, above which you have a penalty, that’s been lowered,” he said. “Even with the resetting of those levels, the exclusion criteria, the basic quality metrics, and [the] overall functionality and validity of the program have not been reassessed by the workgroup, and the academy has not been engaged, not in a formal fashion.”

Dr. Manning continued, “With this program in particular, and I think this is pretty widespread, quality has become synonymous with efficiency, and that’s not necessarily the case, for obvious reasons.”

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Thomas Collins is a freelance medical writer based in Florida.