Lessons from Medicare's Demonstration Projects on Disease Management, Care Coordination, and Value-Based Payment

In the past two decades, Medicare’s administrators have conducted demonstrations to test two broad approaches to enhancing the quality of health care and improving the efficiency of health care delivery in Medicare’s fee-for-service program. Disease management and care coordination demonstrations have sought to improve the quality of care of beneficiaries with chronic illnesses and those whose health care is expected to be particularly costly. Value-based payment demonstrations have given health care providers financial incentives to improve the quality and efficiency of care rather than payments based strictly on the volume and intensity of services delivered.

In an issue brief released today, CBO reviewed the outcomes of 10 major demonstrations—6 in the first category and 4 in the second—that have been evaluated by independent researchers. CBO finds that most programs tested in those demonstrations have not reduced federal spending on Medicare.

Most Disease Management and Care Coordination Programs Have Not Reduced Medicare Spending

The disease management and care coordination demonstrations comprised 34 programs that used nurses as care managers to educate Medicare beneficiaries about their chronic illnesses, encourage them to follow self-care regimens, monitor their health, and track whether they received recommended tests and treatments. Programs could earn fees to cover the costs of the interventions. All of the programs sought to reduce hospital admissions by maintaining or improving beneficiaries’ health, and because hospitalizations are expensive, that reduction was expected to be the key mechanism for reducing Medicare spending. CBO finds that:

• On average, the 34 programs had little or no effect on hospital admissions. There was considerable variation in the estimated effects among programs, however (see figure below).
• In nearly every program, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered.
• Programs in which care managers had substantial direct interaction with physicians and significant in-person interaction with patients were more likely to reduce Medicare spending than other programs. But, on average, even those programs did not achieve enough savings to offset their fees.

Results from Demonstrations of Value-Based Payment Systems Were Mixed

Only one of the four demonstrations of value-based payment has yielded significant savings for the Medicare program. In that demonstration, Medicare made bundled payments to hospitals and physicians to cover all services connected with heart bypass surgeries, and Medicare spending for those services declined by about 10 percent. The other demonstrations appear to have resulted in little or no savings for Medicare. One, the Physician Group Practice Demonstration, allowed large multispecialty physician groups to share in estimated savings if they reduced total Medicare spending for their patients. Another offered hospitals bonuses if they met certain criteria regarding the quality of care. The last (for which results are available only on a preliminary basis for the first year) allowed home health agencies to share in estimated savings if they reduced total Medicare spending for their patients and met certain targets for quality of care.

Demonstrations Face Significant Challenges

Demonstrations aimed at reducing spending and increasing quality of care face significant challenges in overcoming the incentives inherent in Medicare’s fee-for-service payment system, which rewards providers for delivering more care but does not pay them for coordinating with other providers, and the nation’s decentralized health care delivery system, which does not facilitate communication or coordination among providers. The results of those Medicare demonstrations suggest that substantial changes to payment and delivery systems will probably be necessary for programs involving disease management and care coordination or value-based payment to significantly reduce spending and either maintain or improve the quality of care provided to patients.

Other Lessons

The following approaches taken in various projects have been cited by observers as helpful in attaining the demonstrations’ goals:

• Gather timely data on the use of care, especially hospital admissions;
• Focus on transitions in care settings;
• Use team-based care;
• Target interventions toward high-risk enrollees; and
• Limit the costs of intervention.

The Medicare demonstrations reviewed here also offer several lessons for designing and evaluating demonstrations in the future. For example, evaluation findings should be reported consistently and promptly, and publicly available reports should provide as much information as possible on the features of the programs being tested. Such information is critical to explaining why some programs succeed or fail.

For more complete discussions of the demonstration projects, see:

• Lessons from Medicare’s Demonstration Projects on Disease Management and Care Coordination, CBO Working Paper 2012-01 (January 2012), and
• Lessons from Medicare’s Demonstration Projects on Value-Based Payment, CBO Working Paper 2012-02 (January 2012).

This brief was prepared by Lyle Nelson of CBO’s Health and Human Resources Division.