Early evidence on primary care models has shown is promising outcomes. The patient-centered medical home pilot test at Geisinger Health System reduced hospitalization by 20 percent and overall cost trends by 7 percent in its first year (Paulus, R.A., Davis, K., and Steele, G.D., 2008). The North Carolina Community Care Model (NCCCM) of medical homes achieved $231 million in savings in 2005–2006 (Rittenhouse et al., 2008).
Shared-savings payment models also provide the promise of slowing the growth in Medicare outlays over time. The multispecialty group practices participating in Medicare’s Physician Group Practice Demonstration (PGPD) have pursued a variety of strategies to reduce overuse, avoidable hospitalizations, and readmissions, resulting in Medicare savings and improved quality (Trisolini, M. et al., 2008). The Medicare Payment Advisory Commission (MedPAC) has estimated that 75 percent of all hospital readmissions are potentially preventable and that these preventable readmissions account for $12 billion in spending a year (Medicare Payment Advisory Commission, 2008). Although not all of these readmissions can be eliminated, many of them could be.
Another line of risk is that provider organizations would shift care to nonbundled services—for example, primary care physician practices might increase specialist referrals; similarly, hospital systems might increase admissions for relatively simple and low-cost cases. Such behavior might be financially advantageous to the individual provider organization, even if it undercuts the overall savings available to be shared. Practice patterns should be monitored, and peer pressure might be brought to bear on providers with unusually high volumes of referrals or inappropriate admissions, through a system of peer site visits and “structured dialogue,” as occurs in the German hospital quality benchmarking system.17 In addition, good performance on these dimensions could be included in the system of rewards for high performance. Providers persisting in abusing the system could be penalized by withholding rewards or be dropped from participation.
One potential barrier to provider participation is the assumption of risk for large losses—resulting from either catastrophic medical events or the need for extensive services that are included in the bundled fee but provided outside of the provider organization (for example, out-of-network subspecialty care). To help protect against this risk, Medicare should offer a reinsurance mechanism to organizations taking a global fee for ambulatory care, global DRG case rates, or a global payment per enrollee. A variety of mechanisms are possible at both the organization and individual case levels, such as risk corridors, stop-loss insurance, and outlier payments.
Another possible barrier to participation is the need to implement new systems to meet the requirements for participation and accreditation/certification—such as better implementation of evidence-based guidelines and rapid performance reporting. Participating organizations will need electronic information systems, but fewer than half of medical groups with twenty or more physicians have such systems in place now. Nonetheless, new systems and the ability to meet requirements are necessary to safeguards on quality and address patients’ and the public’s concerns over the incentives for underuse that derailed the managed care movement in the 1990s. This issue can be addressed in two ways. Medicare could provide practices with technical support in choosing and implementing such systems; indeed, it is already providing such support to some extent through its Doctors Office Quality Information Technology (DOQ-IT) project and several other initiatives. In addition, Medicare ultimately may need to place similar requirements on nonparticipating providers, and the extent to which it is responsive to providers’ input on opportunities for streamlining current regulatory burdens will affect the rate of participation among provider organizations.
