Exploring Episode-Based Approaches for Medicare Performance Measurement, Accountability and Payment Final Report. The Cost and Quality Problem


Substantial deficits in the quality of health care and persistent and unsustainable growth in health care spending have led to calls for reforms of the Medicare system, including such steps as increasing performance accountability and making changes in payment policies (IOM, 2001; IOM, 2006).  Deficiencies in the quality of care delivered to patients in the United States are well documented (Schuster et al., 1998; Institute of Medicine, 2001; Wenger et al., 2003), with adults receiving approximately 55 percent of recommended care (McGlynn et al., 2003).  The deficits exist across all sociodemographic subgroups with substantial underuse of recommended care regardless of income, race, or age (Asch et al., 2006). Although there have been some improvements in the quality of care delivered to Medicare beneficiaries (Jencks et al., 2003; Lindenauer et al., 2007), quality of care remains a problem for the Medicare population (Higashi et al., 2007), especially in coordinating the care.

Existing Medicare fee-for-service (FFS) performance measurement and payment policies focus on individual providers in each distinct health care setting.  However, the actual care delivered to beneficiaries for an episode of illness reflects a continuum of care that can cross settings and providers.  On an annual basis, Medicare beneficiaries receive care from a median of seven physicians who practice in multiple different health care settings, and it is common for beneficiaries to move from one setting to another as they experience changes in health and functional status (Pham et al., 2007). The number of physicians seen in a year is even greater for beneficiaries with common chronic conditions such as diabetes and coronary artery disease (CAD) and increases with the number of conditions experienced by the beneficiary (Pham et al., 2007). In the current fragmented system of care, no one provider or set of providers claim ownership or responsibility for managing a patient's care, and this fragmentation contributes to the overuse of services, duplication of services and use of costly services rather than efficient, high-quality care (Davis, 2007). 

In addition to quality of care problems, health care costs continue to rise and account for an increasing amount of theUnited States ' gross domestic product (GDP). In 2007, health expenditures were projected to make up 16.3 percent of the GDP and are anticipated to account for 19.5 percent of GDP by 2017 (Keehan et al., 2008). Medicare's 2007 expenditures were $432 billion and accounted for 3.2 percent of GDP (Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medicare Insurance Trust Funds, 2008).  One of the contributors to the spending problem is the substantial geographic variation in the use of health care services, which has raised concerns about the over use of health services (Fisher et al., 2003a; Fisher et al., 2003b).  The Fisher study demonstrated that regions with higher utilization did not achieve better patient outcomes or greater patient satisfaction with care as compared to lower utilization areas—suggesting over use of services (i.e., greater resource consumption) absent benefits to Medicare beneficiaries.  

The unsustainable growth has resulted in a level of spending that, in each of the past three years, has resulted in the Board of Trustees issuing in their 2006, 2007 and 2008 reports a determination of “excess general revenue Medicare funding.” As established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA),this finding in two consecutive years in turn triggers the “Medicare funding warning,” which were present in the Board of Trustees Reports in 2007 and 2008, Triggering of the Medicare funding warning requires the President to propose and Congress to consider legislation to control Medicare spending. In response to the Medicare funding warning in the Board of Trustees 2007 Report, the Medicare Funding Warning Response Act of 2008 was proposed in February 2008. Title I of this proposed bill, contains language that, if enacted, would provide the Secretary of the Department of Health and Human Services (DHHS) with the authority and responsibility to introduce initiatives to make the Medicare program a value-based purchaser of health care services, consistent with President Bush's August 2006 Executive Order, “Promoting Quality and Efficient Health Care.” The urgency for reform to reign in spending was underscored by a 2008 projection from the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds that, without intervention, the trust fund for Medicare Part A will be completely depleted in 2019 (Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medicare Insurance Trust Funds, 2008).  MedPAC stated in their 2008 Report to the Congress: Medicare Payment Policy that multiple strategies will be necessary to reform Medicare (Medicare Payment Advisory Commission, 2008).

A variety of reform mechanisms are being considered to address the problems of underuse and overuse of services, including the establishment of performance accountability mechanisms and incentives that reward the delivery of the right care compared to the current approach which fosters lack of coordination of care, overuse of services, and lack of accountability and ownership for management of patient care.  Among the reforms being considered and tested in demonstrations, are competitive bidding, pay for performance, gainsharing, and—the subject of this study—the alignment of performance measurement and financial incentives for service delivery around a beneficiary' episodes of care.

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