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Fee-for-service Dooms Medicare Cost Cutting, CBO Says

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  • January 27, 2012
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Two decades of demonstration projects aimed at reducing Medicare expenditures and improving patient care have failed to produce meaningful results, according to a Jan. 18 Congressional Budget Office (CBO) report, “Lessons from Medicare’s Demonstration Projects on Disease Management, Care Coordination, and Value-Based Payment.” The CBO pointed to the fee-for-service payment model as the primary reason for the demonstrations’ failure, stating “… 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.”

The CBO reviewed the outcomes of 10 Medicare demonstrations projects. Six demonstrations designed to improve care coordination for patients with chronic diseases produced mixed results. Programs lowered hospital admissions in some cases. Of those projects that reduced Medicare spending, most did not produce enough savings to pay for the cost of the demonstration. Of four demonstrations that implemented value-based payments, only one (bundling physician and hospital payments for heart bypass surgery) reduced Medicare spending by approximately 10 percent.
Summarizing the results of the Medicare demonstration projects, the CBO criticized “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 Affordable Care Act includes several programs designed to improve care coordination (of which accountable care organizations (ACOs) are one example). These programs do not fundamentally alter the fee-for-service payment model, but instead either offer bonus payments to participating doctors or give them a share of any savings to the Medicare program.

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