As I’ve been discussing in Health Affairs Blog each month, payment reforms can pose a spectrum of financial risk for providers, with financial upside only — such as pay-for-performance programs — on one end, and downside-only models — such as nonpayment for care that shouldn’t happen — on the other. In March, we examined pay-for-performance, an-upside only model.  This month, we look at another upside-only model, typically used to support care coordination and patient centered medical homes (PCMH). The technical term that Catalyst for Payment Reform (CPR) has coined for this payment model is “payment for non-visit” functions.

In its simplest form, this model is a per member per month (PMPM) payment, layered on top of another form of payment like fee-for-service. Providers typically receive this PMPM payment to help them manage their patients’ care and to support their coordination with other providers in the “medical home.” A lot has been written about care coordination and patient-centered medical homes and their ability to improve care outcomes; however, like their pay-for-performance “cousin,” the ability of these models to contain costs remains to be seen.

How common is this payment model?

According to CPR’s 2013 National Scorecard on Payment Reform, based on responses to eValue8, a nationwide survey of commercial health plans, 0.6 percent of commercial insurance payments to doctors and hospitals are payments for non-visit functions, such as care coordination fees for patient-centered medical homes. This percentage represents about 5 percent of all value-oriented payment as measured by CPR. (Approximately 11 percent of all commercial payments are value-oriented—designed to improve quality and reduce waste.)

However, in the public sector, payments for non-visit functions may be more prevalent. According to a 2012 article in Health Affairs, about half of all states are implementing some type of patient-centered medical home for their Medicaid populations Nineteen of those 25 states are paying providers a PMPM care management fee to perform the functions of a patient-centered medical home. The model may continue to gain popularity in the private sector as well.

Does this payment model help providers improve quality and reduce costs?

Just this spring, on the heels of a recent JAMA study showing NCQA-certified patient-centered medical homes failed to produce significant cost savings, the Medicare Payment Advisory Commission (MedPAC) questioned the patient-centered medical home model and its cost efficiency. The study showed the model was associated with limited improvements in quality and was not associated with reductions in utilization of hospital, emergency department, or ambulatory care services or total costs over three years, despite the payments for non-visit functions to the providers.

Similarly, Medicare has a long history of using care coordination approaches with little to no impact on spending. A 2012 Congressional Budget Office Report on various demonstration projects found that, “Most programs have not reduced Medicare spending: In nearly every program involving disease management and care coordination, 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.”

Studies of some specific PCMHs reveal the model can, under some circumstances, produce improvements in quality as well as savings. For example, Illinois Health Connect has had success; launched in July 2006, it is the state’s primary care case management (PCCM) program for certain populations covered by Medicaid, CHIP, and the state-funded program for children who would otherwise be uninsured. Participating primary care providers (PCPs) sign an agreement to provide better care and better access in exchange for an enhanced fee schedule and ongoing monthly PMPM care management fees. They are also eligible for performance incentives. In April 2010, the Illinois Department of Healthcare and Family Services announced that Illinois Health Connect saved the state approximately $150 million in fiscal year 2009, according to details shared with the National Academy for State Health Policy.

How and when is the model most likely to enhance value?

Experience has shown patient-centered medical homes are more likely to improve care quality and reduce costs when they have effective clinical information support systems and strong cross-organization infrastructure to support care coordination. The model is also more likely to succeed when paired with value-based insurance designs. For example, an employer should offer employees incentives for seeking primary care within the medical home, such as reduced co-pays for primary care visits, and zero co-pays for drugs to help manage chronic illness. Purchasers and employers can and should also play an active role in educating employees about the medical home and encouraging them to sign up with a primary care physician within that model.

The model may also be most effective when it is used to target specific populations of high-cost patients, and used in conjunction with other payment models. Consider NBCH’s case study of the Boeing Company, who worked with its health plan and the Everett Clinic to complete a two-and-a-half year pilot project focused on improving the care of complex patients. Starting in 2007, the pilot enrolled 740 non-Medicare Boeing patients in an Intensive Outpatient Care Program (IOCP). Patients were connected to a multi-disciplinary care team that included a dedicated nurse care manager and a supervising physician. Each IOCP-enrolled patient received a comprehensive intake interview, physical exam, and diagnostic testing. A care plan was developed in partnership with the patient and executed through intensive in-person, phone, and email contacts. The care plan included ongoing outreach by the nurse, education in self-management of chronic conditions, and care coordination by the IOCP team.

Providers were paid a per member per month fee; supplemental monthly per capita fees paid to the physician groups for primary care intensification were included in the spending attributed to IOCP-enrolled patients. As a result, functional status scores, HEDIS intermediate outcomes scores, depression scores, patients’ experience of care scores, and employees’ absenteeism scores improved compared to baseline. Unit price-standardized per capita spending dropped by an estimated 20 percent, primarily due to lower spending on ER visits and hospitalizations (in comparison to a control group of Boeing’s enrollees in Puget Sound that did not receive their primary care from one of the three physician groups).

Through the California Quality Collaborative, the Pacific Business Group on Health is currently providing technical assistance to 20 delivery systems in California and Arizona to spread intensive care management services for high-risk Medicare beneficiaries and commercially-insured members. The new model uses a combination of PMPM payments plus shared savings for employers and providers.

What do large employers and other purchasers think?

Many purchasers I speak with are keen on the concept of PCMHs, at least in theory, as they seem to provide an antidote for a health care system that typically coordinates care quite poorly. While many purchasers and large employers are turning to PCMHs to help improve care and reduce costs for their covered populations, they are also eager for evidence that the model works.  They believe the model will enhance the quality of care. But at the end of the day, they also want to see a return on investment for the care coordination fees, which today, feel like a cost plus approach. Purchasers will look to their health plans and direct contracting experience for evidence of overall savings.