WASHINGTON–Medicare officials in Washington are trying to woo doctors and hospitals to participate in a strategic new pilot program they hope will save money, improve care, and become a model for the future.

The week-old project has already sparked intense debate among Connecticut health care providers, although few are rushing their applications to Washington just yet. For now at least, there’s perhaps as much hesitation as there is enthusiasm.

At issue is a wide-ranging demonstration project that aims to dramatically revamp how providers are paid for health care services. It’s part of a broader effort, envisioned by the federal health reform law, to create a more efficient health care system that rewards good health care outcomes, rather than lots of appointments, tests and other services.

“Today, Medicare pays for care the wrong way,” Secretary of Health and Human Services Kathleen Sebelius said in a conference call with reporters last week. “Payments are based on the quantity of care… not the quality of that care.” She noted that the current system can even “punish the providers that are most successful in getting and keeping their patients healthy.”

That’s because Medicare and private insurers currently reimburse providers under a “fee-for-service” system; the more tests, procedures, or appointments a doctor schedules, the more reimbursements he or she gets.

That rewards volume. And critics say it also fosters fragmented care, where the primary care doctor doesn’t talk to the specialist, and the pharmacist doesn’t talk to the home care nurse. Each provider works in their own silo, without coordinating the patient’s overall needs, leading to duplicative care or misdiagnoses.

As part of an effort to streamline the payment system, HHS unveiled its new pilot project last week, which would pay hospitals and doctors for an entire “episode” of care. Instead of paying different providers for each separate procedure or test, Medicare would pay one lump sum for treating a patient’s illness from start to finish.

In Washington jargon, it’s been dubbed the “Bundled Payments Initiative.” And it sounds good–in theory at least.

“Physicians and hospitals have not always had the most equal relationship. This gives them the opportunity to come together as true partners, for the benefit of the patient,” said Nancy H. Nielsen, a doctor and past president of the American Medical Association who is now serving as an HHS advisor on health reform for Medicare and Medicaid Innovation.

But some Connecticut providers see it a little differently.

“What Medicare is trying to come up with is a way to incentivize providers to provide less care,” said Vincent G. Capece Jr., president and CEO of Middlesex Hospital.

“There’s a sense that there’s over-utilization in the system, so they’re trying to wring out some of that,” he said. “Whether the models being proposed will provide the right incentives is yet to be seen.”

But the gamble for providers is clear. “They want us to propose a payment that’s at least 2 or 3 percent less than what we get paid right now,” Capece said.

The upshot, ideally, is that the program “gives us the flexibility to work with physicians to make up that discount by lowering our costs internally,” he said. But there’s no guarantee of finding those savings.

For doctors in particular, the pilot program looks risky at best, and unworkable at worst. “The proposed bundling approaches that were outlined really aren’t structured in a way that benefits or allows the majority of Connecticut physicians the opportunity to participate,” said Matthew C. Katz, executive vice president of the Connecticut State Medical Society.

Because the vast majority of physicians in the state practice in solo or small offices, “the assumption of risk, whether it’s at the front end or back end, is not something they can do,” said Katz. “And when you don’t have the data from an integrated health system, it’s virtually impossible to understand what the total cost for an episode of care will be.”

So Connecticut doctors have been somewhat frustrated and puzzled by the new initiative, he said, because they aren’t even in a position to figure out how much they should or could get paid if they coordinate with a hospital, pharmacist, and other providers for an entire swath of care.

The HHS initiative outlines four models that providers–whether a hospital, group of doctors, or another organization-can follow to participate in the demonstration project.

Under the Bundled Payment Initiative, Medicare would link payments for multiple services that patients get during an “episode of care,” such as a hip replacement or heart bypass surgery.  For example, instead of a surgical procedure that results in multiple claims from a bevy of different providers, an entire team of providers would be work to provide care that for one lump payment.

If they do that efficiently–i.e., at a lower cost than under the fee-for-service–the team gets to share in the savings with the Medicare program. But if they don’t, in at least one of the four models, they could end up getting stuck for the extra costs.

“It’s clearly the wave of the future,” said Nielsen. “We’ve really got to, as a nation, drive the cost of health care down. And we have to do it in such a way that the quality of care delivered to Medicare beneficiaries is the same or better.”

She said that CMS structured the program with maximum flexibility to make it appealing to different kinds and sizes of providers. Even if doctors don’t apply themselves, she said, they will be key players if the hospitals where they’re admitted to practice opt to participate.

“The way we envision doctors participating is being on equal footing with the hospitals where they practice and working together to try to improve care,” she said.  “We know that there are efficiencies to be had in every hospital in the country, so if people bring their best efforts to the table in partnership–the hospital, the nurses, the pharmacist and the doctor–we do believe that not only will patients benefit but” providers will too.

But the doctors and administrators at Middlesex Hospital say it’s a big risk. And they should know.

For the last five years, they’ve participated in a similar project, in which they have tried to treat all their Medicare patients in a more efficient, more coordinated way, while reducing costs. While they’ve hit all of Medicare’s quality targets, they haven’t been able to reach the savings goals–and thus to reap any of the shared rewards.

“One of the things we learned in that program is that again how difficult it is to control costs,” said Dr. Arthur V. McDowell, III, vice president of clinical affairs at Middlesex.

Still, Capese said he and other Middlesex officials are weighing whether to apply for the new pilot program. “The advantage would be that you get to learn quickly and perhaps get a leg up on the industry,” he said.

While it might be easier to sit back and learn from the mistakes of other providers, “I think you learn quicker and better when you’re learning from your own mistakes,” he said. And if this is the payment model of the future, “we’re going to have to learn to do it, sooner or later.”

He said that whether a new bundled payment system replaces the current fee-for-service model remains an open question. But what’s clear is that payments to providers are going to be slashed, one way or another.

“We’re definitely moving towards programs that are going to pay providers less,” he said. “What CMS is trying to figure out is, what’s the best way to do that, what’s the fairest way.”

Katz, for his part, said he fears the CMS pilot program is more focused on saving money than anything else. “These models don’t seem to address quality as much as cost,” he said. “It’s hard to see where the quality achievements really are.”

And he said so far, he doesn’t know of any doctors groups, even the larger networks, who are gearing up to apply.

Even if they opted for one of the models that offers incentives, he said, “there is still a risk because doctors will how to figure out how to change their billing, how to change their practice managing systems,” and make other adjustments to the fee structure. “We’ve been advising physicians to proceed with caution.”

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