Lessons from Medicare's Demonstration Projects on Value-Based Payment: Working Paper 2012-02

Working Paper
January 18, 2012

By Lyle Nelson.

This paper summarizes the results of Medicare demonstrations of value-based payment systems, which give providers financial incentives to improve the quality and efficiency of care. Only one of the four demonstrations for which results are available 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 expenditures 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 expenditures for their patients and met certain targets for quality of care.