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Navigating Payment Reform

Paths to Value: The Act of Improvement versus the Habit of Excellence

Article · November 20, 2017

“Excellence is an art won by training and habituation. We do not act rightly because we have virtue or excellence, but we rather have those because we have acted rightly. We are what we repeatedly do. Excellence, then, is not an act but a habit.” – Aristotle


With the final rule for MACRA recently released and several explicit declarations from CMS leadership, the federal government continues to pursue an aggressive agenda to expand a portfolio of both voluntary and mandatory government-based alternative payment models. Whether in the population-based “accountable care” domain or in the episode-based “bundled care” domain, the basic premise is to migrate the health care delivery system to value, using financial incentives for improved outcomes. Regardless of what happens to the ACA under a Drumpf administration, the tenets of value-based payment models, such as increased efficiencies and accountable care, will in all likelihood remain intact, as evidenced by the strong bipartisan support for MACRA.

There are two different paths to achieving value. State Medicaid agencies, commercial payers, and, increasingly, large employer groups are following CMS’ lead, underscoring the need to better define metrics used to reward providers not only for acts of performance improvement toward excellence, but also for a habit of performance excellence.

Pay for Performance Improvement – The Act

CMMI’s Bundled Payment for Care Improvement (BPCI) model has fostered improvement through pay-for-performance incentives. Each care episode, triggered by an inpatient stay in an acute care hospital, incorporates the post–acute care and related Medicare Parts A and B services for up to 90 days after hospital discharge. These bundles have total-costs-to-Medicare target thresholds for each episode, based on historical cost data from individual providers.

The BPCI reward comes from comparing the actual costs to Medicare for each bundled episode against historical data for each provider participant. Any savings achieved beyond the predetermined thresholds are retrospectively attributed to that same provider. Thus this model favors individual providers that had relatively poor performance during the baseline historical period. It is designed to reward acts of performance improvement.

Yet the BPCI model is unappealing to providers that already achieved excellent performance in the baseline historical period. At Northwestern Medicine, as a case in point, during the BPCI bundled episode selection process, there was strong interest from clinical and administrative leadership to participate in cardiac surgery bundled episodes, given the organization’s past successes in clinical redesign efforts. However, once leaders reviewed their baseline Medicare claims and internal quality data, they found little room for marginal improvement.

Northwestern Medicine had already achieved excellent performance across multiple domains as a result of the organization’s prior deployment of key tactics for performance improvement. In other words, there was little or no room for acts of performance improvement toward excellence, given that excellent performance was already ingrained as habit.

Pay for Performance Excellence – The Habit

CMMI’s Comprehensive Care for Joint Replacement (CJR) model illustrates how CMS has begun to migrate from strictly pay-for-improvement models to a pay-for-performance construct. In this initiative, which is mandatory for 67 metropolitan statistical areas (MSAs) across the country, CMS moved away from a model based purely on utilization and the cost of care, and adopted clinically relevant quality measurements and the voluntary reporting of patient-reported outcomes (PRO) data, which are incorporated into the overall payment model methodology. CMS also introduced (albeit over a multi-year period) regional pricing methodology. By evolving from rewarding improvement based on an individual provider participant’s performance, to comparing performance among providers in a shared geographic region, CMS is essentially benchmarking performance.

(A more recently proposed initiative, the Episode Payment Model (EPM) for cardiac and orthopedic care, also addresses the issue of incentivizing individual providers that have historically performed well, but may raise concerns on potential perverse incentives for “cherry picking.”)

Balancing the Act and the Habit of Performance Excellence: Lessons from Transplant Bundles

Models of care across episodes that achieve the Triple Aim remain a work in progress. Yet for at least two decades, commercial payers have used payment constructs for bundled transplant services that resemble the BPCI models. These time-tested contractual agreements between payers and providers reward the habit of performance excellence rather than random acts of performance improvement, consistent with Aristotle’s premise.

A first step in transplant bundles consists of identifying Centers of Excellence (COEs), which are a narrow group of provider organizations showing success in standard process and outcomes measures. This creates the foundation toward bundled pricing constructs. Without COEs, bundled payments risk driving down quality for the sake of cost savings.

The next step is optimizing pricing of the bundled care delivery by creating case rates. Over time, payers and providers in the transplantation space have come to recognize that optimal pricing comes from a balance of market-driven factors (such as regional cost benchmarks) and provider-specific premiums (such as reputation). This balance encourages a consistent drive for cost efficiencies (a habit of performance excellence), since sustained profitability requires fiscal discipline.

Additionally, several commercial “performance aggregators” have emerged (many in the direct-to-employer market). These “bundle brokers” consist of COE networks and use pricing constructs that bear striking similarities to commercial transplant bundled models. These independent entities seek out providers with a habit of performance excellence. They differ from public initiatives such as BPCI and more recent federally run programs in that access to services can be more deliberate. For instance, individual physician providers can be included or excluded, which leads to rigorous network selection design, and sophisticated risk stratification and risk mitigation methodologies can be utilized.

In sum, there appear to be promising signs for the development of real value models in care delivery. What remains to be seen is how rapidly both providers and payers, including the public sector, can continue to evolve value-based care models that emphasize and reward providers that can deliver on a habit of performance excellence rather than those that merely perform one-time or random acts of performance improvement.

This article originally appeared in NEJM Catalyst on January 25, 2017.

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