The New Health Dialogue

Getting professionals to work together can be hard. Take Washington's football team, for example. All the players are paid by the same owner. Yet they can't seem to get a win.

USA Today/Kaiser Health News featured a story this week on how to get physicians and hospitals to work together. Featuring Tulsa, Oklahoma's Hillcrest Medical Center, the story explores the new Medicare Acute Care Episode (ACE) Demonstration Project and its effect on providers and patients. Hillcrest, a for-profit hospital owned by the Ardent chain, receives a global or "bundled" payment for certain Medicare services. Then -- in line with previously negotiated arrangements -- it pays physicians from the global payment funds. The idea is to encourage coordination of care between physicians and hospitals, which (due to a relic of history) traditionally recieve not only separate payments but from separate Medicare funding streams (part A for hospitals, B for doctors).

It's important to remember that these physicians are affiliated with the hospital, not employed. To participate in the program, providers must form or be part of an existing physician-hospital organization (PHO). PHOs allow hospitals and physicians to go into business together while remaining distinct entities. This could become a popular way to tentatively embrace accountable care organizations (ACOs), which we've detailed numerous times, while maintaining some professional autonomy.

As Phil Galewitz's article states, physicians have an incentive to both contain costs and improve quality:

Hillcrest's doctors were guaranteed their regular surgical fees as part of the pilot project. But they also get a 25% bonus from Medicare if they keep costs down while maintaining high-quality scores in areas such as low infection and readmission rates.

(One physician) helped persuade the medical staff to stop using costly antibiotic cement for hip and knee implants rather than the standard version, saying there was no evidence the more expensive adhesive worked better in preventing infections.

Hillcrest doctors also have reduced the number of surgical drapes and disposable drill pins they use and have worked with the hospital to negotiate bigger discounts on certain brands of implants, stents and other supplies.

This program is a demonstration, but if is successful, it could allow for similar pilots to be spun off. The difference between "demonstration" and "pilot" might seem semantic, but it's more. The three year program began in May, but it was actually part of the 2003 MMA law. What's more, three of the five participating hospitals haven't even started their programs yet. It's not unusual for a "demonstration" to take the better part of a decade to get off the ground. But as the article points out, Medicare can expand "pilots" on its own if they prove successful. This is a key reason that you see a number of pilots in the various health reform bills circulating through Congress.

I wrote on the ACE/bundling demonstration this past summer, which highlighted a thorough article from Modern Healthcare (registration required) on the matter. That piece went on to explain the differences and similarities between bundling and capitation. One bundled payment covers an episode of care (like a knee replacement in the USA Today article); a new episode would be eligible for an additional bundled payment. Capitation, on the other hand, requires that providers accept prepayment for all of a certain kind of care, such as all primary care, or even for all care period, depending on the arrangement over a given period of time.

The ACE demonstration, the USA Today piece goes on to say, is also inventive for cost savings it produces for Medicare and beneficiaries:

Under the...project, Medicare is saving 4.4% on the base rates for heart and joint surgeries at Hillcrest because the hospital is offering a discount. For (patient) Morrow's knee replacement, for example, the government is paying $13,211, about $450 less than it normally would.

Meanwhile, (patient) Morrow, who is eager to get back to playing basketball, gets a portion of the savings from Medicare -- $271 as an incentive for going to a hospital that participates in the program...

...The incentive payment is supposed to help drive higher admissions to the hospitals in the program, and the pilot is designed to test whether paying Medicare beneficiaries from $250 to $1,157 sways their choice of facilities.

Nearly all Medicare demonstrations must be certified as deficit-neutral by the Office of Management and Budget. The real challenge will be whether the demonstration can keep providers and patients happy. Hillcrest has spent nearly half a million dollars to participate (that includes advertising and new brochures) and worries about making a business case if they only break even.

Congress, though, has the power to determine Medicare payment policy. If they deem the ACE demonstration a success, look for more projects like it in a few short years.