Legislative Watch

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June 2005

By George G. Olsen, JD

Improvements Government Style

The Medicare Health Care Quality Demonstration Programs aim to improve the entire health care system

Pursuant to authority granted in the Medicare Modernization Act of 2003 (MMA), the Centers for Medicare and Medicaid Services (CMS) has embarked on an extremely ambitious effort known as the "Medicare Health Care Quality Demonstration Programs." According to its undated briefing paper, Medicare Health Care Quality Demonstration Programs, CMS "intends to use this demonstration to identify, develop, test, and disseminate major and multi-faceted improvements to the entire health care system" (emphasis added). Projects approved under this demonstration authority may involve the use of alternative payment methodologies for services and items furnished to beneficiaries. Modifications to the prevailing Medicare benefit package may also be permitted.

STATUTORY RUBRIC
Section 646 of the MMA directs the Secretary of Health and Human Services to establish a 5-year program pursuant to which the "secretary shall approve demonstration projects that examine health delivery factors that encourage the delivery of improved quality in patient care." Congress specifically identified several factors that CMS was to consider:

The provision of incentives to improve the safety of care provided to beneficiaries;
The appropriate use of best practice guidelines by providers and services by beneficiaries;
Reduced scientific uncertainty in the delivery of care through the examination of variations in the utilization and allocation of services, and outcomes measurement and research;
Encouragement of shared decision-making between providers and patients;
The provision of incentives for improving the quality and safety of care and achieving the efficient allocation of resources;
The appropriate use of culturally and ethically sensitive health care delivery; and
The financial effects on the health care marketplace of altering the incentives for care delivery and changing the allocation of resources.

By statute, participants in the demonstration programs are limited to "health care groups." These include: (i) "a group of physicians that is organized at least in part for the purpose of providing physician's services" under Medicare; (ii) "an integrated health care delivery system that delivers care through coordinated hospitals, clinics, home health care agencies, ambulatory surgery centers, skilled nursing facilities, rehabilitation facilities and clinics, and employed, independent, or contracted physicians"; or (iii) "an organization representing regional coalitions of groups or systems described in clause (i) or (ii)."

In order to be eligible for participation, a "health care group" must meet express standards promulgated by the Health and Human Services Secretary. These standards are to include "implementation of continuous quality improvement mechanisms that are aimed at integrating community-based support services, primary care, and referral care"; establishment of "activities to increase the delivery of effective care to beneficiaries"; methods of "encouraging patient participation in preference-based decisions"; implementation of "activities to encourage the coordination and integration of medical service delivery"; and methods of "measur[ing] and document[ing] the financial impact on the health care marketplace of altering incentives of health care delivery and changing the allocation of resources." The Secretary is also authorized to establish such other requirements as may be deemed necessary.

Congress intended the Medicare Health Care Quality Demonstration Programs to be innovative and forward-looking. To this end, the statute specifically provides that health care groups seeking to participate in the demonstration may propose "the use of alternative payment systems for items and services provided to beneficiaries by the group" that are designed to "encourage the delivery of high quality care" and "streamline documentation and reporting requirements." In addition, Congress authorized health care groups to propose "modifications to the package of benefits available under the original Medicare fee-for-service program under parts A and B or the package of benefits available through a Medicare Advantage plan under Part C."

The most important limitation, which Congress imposed on the demonstration programs, is a "budget neutrality" requirement. This means that over the 5-year period of the demonstration program, the aggregate expenditures hereunder must not exceed the aggregate expenditures that would have been made if the demonstration programs had not been implemented.

The MMA anticipates the active involvement of several other federal agencies in the demonstration program. The director of the National Institutes of Health is authorized to expand the efforts of NIH to "evaluate current medical technologies and improve the foundation for evidence-based practice." The administrator of the Agency for Healthcare Research and Quality is directed "where possible and appropriate" to use the demonstration program "as a laboratory for the study of quality improvement strategies and to evaluate, monitor, and disseminate information" relevant to the program.

CMS IMPLEMENTATION
It is manifest that CMS intends to take full advantage of the authority and flexibility that Congress has afforded in the Medicare Health Care Quality Demonstration. In a recent "Request for Information," which the agency made available to prospective participants, CMS carefully articulated its expansive view of its mandate: "CMS intends to use this demonstration to identify, develop, test, and disseminate major and multi-faceted improvements to the entire health care system. The focus will be on redesign projects that 'bundle' multiple delivery improvements so as to introduce 'system-ness' across the spectrum of care delivery.... Another way to say this is that redesign must make the system patient-focused and must undo the effects of a payment methodology that systematically fragments care while encouraging both omissions and duplication of care." In perhaps its most telling comment, CMS stated that "[a]t its ‘grandest,' particularly if a demonstration project is conducted by a regional coalition and entails the participation of other payers besides Medicare, this demonstration affords CMS and awardees an opportunity to reinvent the health care delivery system" (emphasis supplied).

CMS' Request for Information elucidates that for projects to qualify:

The project should address a population that is defined either by geography, enrollment, or some form of "methodological assignment" to a demonstration group-ie, CMS is not interested in projects designed for limited groups such as patients with a particular disease or condition.
The project "must be replicable and exportable" and "must have the ultimate potential to transform the health care delivery system in this country."
Given the statutory budget neutrality requirement, any project "must allow for comparison to what Medicare payments would have been in the absence of the demonstration."
Participating organizations must be willing to assume some financial risk for failure to meet the budget neutrality requirement.
The demonstration project must focus on "linking financial incentives to improvements in quality."
The proposed model should "require changes in the regulatory and/or payment environment or other aspects of the environment that CMS controls or influences to encourage enhanced performance."

As explained above, the MMA encourages the Secretary to entertain proposals that alter the payment methodologies for services and items provided to beneficiaries contingent upon the proposed mechanism being budget neutral. CMS will also require that payments made under the demonstration program be related to cost savings as well as improvements in "process and outcomes measures in the targeted population compared to a similar group or sample." For illustrative purposes only, CMS described several types of payment options that would be considered by the agency. They are as follows:

Shared Savings. Pursuant to a shared savings model, any savings to Medicare would be allocated between the demonstration entity and the Medicare program. Performance payments would be permitted and would be predicated on the entity's achievement of quality standards.
Per Member Per Month Fee with Guaranteed Savings. Under this mechanism, Medicare would pay participating groups a fixed fee per beneficiary per month for services not presently covered under Medicare. If an entity failed to achieve the savings that it had "guaranteed," "its fees would be at risk up to the amount of the shortfall."
Regional Capitation. As CMS describes this alternative, "participating organizations may propose a regional capitation model whereby a single organization or regional consortium of organizations takes responsibility for and receives reimbursement for all clinical services to beneficiaries residing in their catchment area." The participating entity must demonstrate how it would coordinate the delivery of services within its service area and provide for services outside that area.
Capitation or Partial Capitation. Various forms of capitated payments will be considered by CMS, but in each instance enrollment must be voluntary and the entity must demonstrate how it will reward performance on quality measures.
Restructured Fee-for-Service Payments. Revised fee-for-service methodologies-eg, payment of monthly fees to physicians for managing patient care in conjunction with lower payments for individually billable services-will also be countenanced by CMS.

CURRENT STATUS
The Request for Information described above was recently released by CMS, and comments on the demonstration design delineated therein were accepted until May 6, 2005. The request is posted on the CMS Web site at www.cms.hhs.gov/researchers/demos/mma646/default.asp. Solicitation of applications for participation in the demonstration program will commence later in the year after CMS has reviewed all of the comments submitted pursuant to the Request for Information. The agency currently contemplates two rounds of applications. The first round will be due 90 to 120 days after the solicitation is published later in the year. Implementation of projects pursuant to this phase is expected to begin 8 months thereafter. A second round of solicitations, largely geared to new regional health care coalitions or proposals for major system redesigns, will then be initiated. Proposals pursuant to this solicitation will be due about a year after publication, and implementation will begin approximately 8 months later. CMS intends to select eight to 12 organizations to participate in the demonstration, with no more than half selected in the first round.

EN GARDE!
It is beyond dispute that Congress and CMS intend the Medicare Health Care Quality Demonstration to generate innovative approaches for delivering and paying for health care services that may be utilized for a broad array of US health care systems, not just the Medicare program. As a result, providers and suppliers of all types would be well advised to closely monitor the evolution and performance of projects initiated pursuant to this broad authority.

George G. Olsen, JD, is an attorney with the law firm of Williams & Jensen, PC, Washington, DC.

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June 2005