Synchronization of Coverage, Benefits, and Payment to Drive Innovation

September 3, 2014
Annemarie V. Wouters, PhD
Annemarie V. Wouters, PhD

,
Nancy McGee, JD, DrPH
Nancy McGee, JD, DrPH

Volume 20, Issue 8

Implementation of payment reform, without a corresponding change to coverage, benefit, and other payment requirements, creates conflicting incentives that may nullify the intended aim of payment reform: to improve health outcomes, while saving costs.

More than 35% of Medicare beneficiaries receive care from

providers operating under some form of shared savings/risk type

of pay-for-performance incentive. Implementation of payment

reform without a corresponding change to coverage, benefit,

and other payment requirements, however, creates conflicting

incentives that may nullify the intended aim of payment reform:

to improve health outcomes, while saving costs. If related policies

do not evolve to align with payment reform, those entities

contracted to receive new bundled payments, such as hospitals

or physician groups, will only be able to redesign care to the

extent that care meets the myriad of related payment policy

requirements. Shifting greater medical management authority

from payers to entities managing the payment bundles is a

gradual process, as the experience of commercial payers proves.

Transitioning the responsibility for modifying coverage, benefit,

and payment requirements from CMS to principal accountable

bundlers (PABs) will depend on the PAB’s degree of financial risk

sharing as well as scope of the episode.

Am J Manag Care. 2014;20(8):e285-e293

More than 35% of the nearly 50 million Medicare

beneficiaries in 2013 received care from providers

operating under some form of shared

savings/risk type of pay-for-performance incentive. This

statistic reflects more than 14.4 million beneficiaries in

Medicare Advantage (MA) plans in 2013,1 plans which are

reimbursed paid using an annual capitation rate. It also includes

4.4 million beneficiaries in 2013 who are attributed

to 252 Medicare accountable care organizations (ACOs) under

the Medicare Shared Savings Program (MSSP),2 which

are paid using a combination of fee-for-service and shared

savings or losses. In October 2013, additional beneficiaries

began receiving care from providers participating in the

Centers for Medicare & Medicaid Innovation’s (CMMI's)

Bundled Payment for Care Improvement Initiative (BPCI).3

Under BPCI, awardees will be sharing financial risk with

CMS for selected episodes of care.

CMS is incentivizing providers through payment reform

to redesign healthcare services to improve health outcomes

while saving costs. However, implementation of payment reform

without a corresponding change to coverage, benefit,

and other payment requirements creates conflicting incentives

that may nullify the intended aims of payment reform.

To date, providers working under MA,4 MSSP,5 and the

BPCI6 must comply with 3 types of CMS policies. These

policies are core to the medical management of patients: (i)

coverage policies under Original Medicare Part A and Part

B (eg, national and local coverage determinations7); (ii) Medicare

benefit policies8 (eg, hospital services, physician services,

home healthcare, durable medical equipment, telehealth

benefit9); and (iii) other payment policy requirements tied to

payment systems for particular sites of care (eg, prior 3-day

inpatient stay for covered skilled nursing facility services,

3-hour therapy inpatient rehabilitation rule). Interestingly,

while traditional payment methodologies that are tied to the

site of service are rapidly changing to allow for more innovative

approaches—such as payment by episode of care, which

permits patients to receive treatments at multiple sites of

service for 1 bundled payment—these 3 principles of coverage

remain static.

Failure to evolve coverage, benefit, and payment policy

requirements as payment methods change is likely to

impede the ability of payment reform to reach maximum

quality, efficiency, and innovation in care. If related policies

do not evolve to align with payment reform, those

entities contracted to receive new bundled payments, here

referred to as principal accountable bundlers (PABs), are

only able to redesign care to the extent that care meets

the myriad of related payment policy requirements. PABs

may be hospitals, physician groups, post-acute providers

or third party entities who are in a position to financially

and clinically oversee an episode of care. As shown in

Figure

1

, coverage and benefit mechanisms that were designed

to support original payment models must be reconfigured

to be in synch with new pay-for-performance paradigms.

As a general rule, Medicare requires entities participating

in payment reform initiatives such as MSSP10 and

BCPI11 to have processes in place that document and support

adherence to evidence-based medicine payment initiatives.

The intent is to ensure that efforts to redesign care

actually result in clinically effective care. Tensions arise,

however, when new payment incentives conflict with traditional

coverage and benefit policies that have not changed.

For instance, based on review of clinical evidence, a PAB’s

medical leadership team may find that although a particular

medical innovation is reasonable and medically appropriate

for its patient population when provided following

the medical team’s clinical pathway the service cannot be

offered because it: (i) is not covered by Medicare; (ii) is not

a Medicare benefit; or (iii) does not comply with a payment

policy requirement. The net result is an unintentional

stifling of innovation, not due to payment concerns, but

because coverage and benefits are not synchronized to cooperate

with the change in payment to allow an alternative

treatment without roadblocks to payment.

A case in point is CMS’s recent negative response to

public requests to convert coverage of innovative remote

access technologies (eg, telemonitoring, Web-based technologies,

nurse hotlines, and other similar services) from

the status of supplemental benefit to a basic benefit because

CMS does not have the authority “to define Part C

basic benefits as being broader or different than the Parts

A and B benefits provided under original Medicare.”12

CMS has experience modifying payment requirements

and coverage policies to support more bundled methods

of payment, but to date, the approach has been ad hoc.

Some examples include developing customized waivers

for each payment model, and reviewing each request for

a new supplemental benefit in the MA program. With

new payment reforms emerging, a one-by-one review approach

will soon become unwieldy, and implementation

of payment reforms will be delayed. What’s more, an

unintended consequence of an ad hoc approach is that

it often lacks transparency. For example, little is known

about the waivers requested and offered under MSSP and

BPCI.13 It is an opportune time for CMS to adopt a more

systematic and transparent approach to modifying coverage

and benefit constructs to support the goals of payment

reform.

As we will see, most coverage, benefit, and payment

policy decisions are currently made centrally by CMS or

regionally by local Medicare Administrative contractors,

while decisions on how to spend the “bundle” are made

by the PABs. The failure to delegate decision making to

PABs regarding policies that are core to medical managementm

is understandable in these early stages of payment

reform, since current bundled arrangements with either

Medicare or commercial payers include only limited financial

risk for most PABs.14,15 As payment reform moves

ahead and PABs assume more financial risk, they will also

want more authority to redesign all aspects of care; they

will, for example, want to take on a greater role in designing

all policies that impact medical management.15

In our recommendations below about how we believe

the path forward should develop, we note that sharing

more authority with PABs does not mean abandoning all

existing coverage, benefit, and payment policies, but rather

allowing PABs to modify these policies when they meet

the conditions designed to ensure beneficiary protections.

Examples of such conditions might include: (i) requiring

PABs to meet baseline performance thresholds; (ii) having

evidence-based decision-making processes in place,

including a consensus-based approach by the PAB’s medical

leadership team, accompanied by ongoing evaluation

mechanisms; (iii) ensuring transparency of these processes

and policy modifications to providers and patients; (iv) establishing

opportunities for appeal; and (v) using patientcentric

decision-making tools (eg, shared decision-making

tools) to ensure that patients are empowered to make informed

decisions. If the PAB meets these conditions, CMS

would not necessarily be required to approve every policy

modification, but could transition to a role of monitoring

performance and enforcement of these conditions.

In order to create a plan for synchronicity, it is helpful

to review CMS’s past efforts to adapt coverage, benefit,

payment policies to payment innovation. The discussion

begins with a review of Medicare coverage policies.

We then provide an examination of CMS’s experience

with MA, the BPCI, and the introduction of the inpatient

rehabilitation facility prospective payment system. We

conclude with recommendations to guide steps forward,

illustrated with examples from private payers who are facing

similar challenges.

Targets and Criteria for Medicare Coverage Policies

CMS focuses most of its attention on developing formal

coverage policies for items and services that are likely

to have a major impact on quality, safety, and the government

budget. Although many items and services do not

reach this level of attention, CMS is tasked with meeting

the statutory requirement for Medicare services that

“[n]o payment may be made under Part A or Part B for

any expenses incurred for items or services, which...are

not reasonable and necessary for the diagnosis or treatment

of illness or injury or to improve the functioning

of a malformed body member.”16 Notably, this language

has never been amended, or interpreted through public

rulemaking.17,18

CMS determines what is reasonable and necessary

based on whether there is “adequate evidence to conclude

that the item or service improves health outcomes.”19,20

CMS ranks the quality of clinical studies based on numerous,

coherent, and sensible criteria that help assess

the reliability of the data generated.21 When there is no

specific coverage policy, a local Medicare Administrative

Contractor (MAC) may remain silent or may decide to

cover the service or item on a case-by-case basis.

Coverage and Benefits Under Medicare Advantage

The MA program, formerly Medicare + Choice, was

designed to give CMS an alternative way to provide services

for patients who were willing to forgo some flexibility

in selecting providers to get, in return, improved benefits

and lower costs.22 Commercial payers sponsor MA plans

and assume the insurance risk under a capitated payment

system for the services offered to their Medicare enrollees.

CMS requires that Medicare Advantage Organizations

(MAOs) “provide coverage of...all services that are

covered by Part A and Part B of Medicare…and that are

available to beneficiaries residing in the plan’s service

area.”23 By the same token, if a service or item is explicitly

not covered under Medicare Parts A or B, then it is

also not covered under MA. For example, in a recent

update to the Medicare Managed Care Manual, CMS

notes, “An MA plan may not offer home health coverage

or home health services beyond that covered by Original

Medicare, if the Home Health Agency manual has classified

those additional services as not covered by Original

Medicare because they are not considered medically nec

essary.”24 The Home Health Benefit Manual interprets the

statutory requirement25 that a Medicare beneficiary must

be homebound to qualify for home healthcre.26 Therefore,

an MA plan cannot offer home healthcare to patients

who are not homebound.

Additionally, MA plans may not add prerequisites to

covered services. For example, if an MA plan wants to

implement step therapy for a covered Part B drug as an approach

to improving quality and saving costs, it would not

be allowed to do so if step therapy is not also a requirement

under Original Medicare.27 CMS requires enrollees in MA

plans to have, at a minimum, equal access to items and services

covered by Original Medicare in their service area.28

For services or items on which CMS is silent (ie, where

there is no Medicare national or local coverage determination),

an MAO may choose to adopt the coverage policy of

another MAO in its service area or make its own coverage

determination. If an MAO makes its own coverage determination,

it must provide its rationale using an objective,

evidence-based process based on authoritative evidence.29

When an MAO would like to cover services beyond

those covered under Original Medicare, the MAO must

meet CMS conditions for “supplemental benefits.”30 Each

supplemental benefit must be additional to the benefit

covered by Original Medicare, be medically necessary,

and must result in the plan incurring medical costs.31 Examples

of supplemental benefits include services such as

additional inpatient hospital days (acute or psychiatric);

waiver of the Medicare payment policy that requires a

qualifying hospital stay of 72 hours (the 3-day rule) before

skilled nursing coverage is available; availability of Medicare

Part B; drugs and nursing services in the home and

other Part D drugs as a bundled service.32

In recent years, CMS has been expanding the list of

supplemental benefits. Some examples of services are certain

counseling programs for mental health conditions;

in-home safety assessment by qualified health providers;

enhanced disease management; post discharge in-home

medication reconciliation; readmission prevention services;

telemonitoring services; and Web- and telephone-based

technologies to help diagnose and treat some conditions.33

For CMS to approve each supplemental benefit, the

benefit must meet certain requirements—telemedicine

should supplement and not replace face-to-face visits, for

example, and all allied health professionals involved in

providing care must be licensed and certified. CMS reviews

and approves each supplemental benefit annually

as part of the plan bidding process.

Along with defining eligible supplemental benefits,

CMS defines services that are ineligible. For example,

stand-alone brain training/memory fitness is ineligible

as a supplemental benefit because according to CMS, no

conclusive evidence proves that any such services improve

memory or brain function. Therefore, these services

are not accepted clinical treatment modalities.34

The criteria CMS uses to differentiate between eligible

and ineligible supplemental benefits are not transparent.

CMS “encourages plans to offer supplemental benefits to

enrollees that are of value and based on sound medical

practice,”35 and offers MA plans the opportunity to comment

on changes to supplemental benefits. In the end,

however, CMS retains the authority to determine what

is considered an eligible new “health benefit.” Often, it

provides limited documentation explaining its decision.

While MA plans are paid on the basis of a broad bundle of

services, they have limited flexibility to cover new services

or modify existing coverage or benefit policies. CMS provides

tight guidelines on what is eligible as a supplemental

benefit, with minimal public discussion of its decisions.

Coverage and Benefits Under Original Medicare

Payment Reform Initiatives

In contrast to the MA program in which Medicare

benefits are provided through commercial insurance, the

BPCI and MSSP Initiatives are part of Original Medicare.

They are, therefore, directly insured by CMS. Under

these initiatives, CMS plans to transfer a portion of the financial

risk to PABs through shared savings and discount

arrangements.

In the MSSP, CMS plans to eventually pay some participating

providers a fully capitated payment similar to

MA plans. In all cases, however, PABs remain bound to

the established coverage requirements under Medicare

Parts A and B.36,37

Under the BPCI initiative, in Model 1 (acute inpatient;

retrospective), Model 2 (acute inpatient and post acute

care; retrospective), and Model 3 (post acute care; retrospective),

Medicare pays for all services, including waived

services, using fee-for-service. In return, CMS generates

savings based on prearranged discounted episode bundled

payment amounts. Under BPCI Model 4 (Acute inpatient;

prospective), providers pay for the all services, including

waived services, by drawing on their prospectively determined

episode payment amount.

In the BPCI initiative as in the MA program, CMS reviews

and approves (or not) each request for a waiver of

Medicare payment rules, referred to as “payment policy

waivers.”38 CMS’s review criteria include an assessment

of whether the waived requirement is integral to care redesign,

leads to program success, and has the potential

generate internal cost savings.

Table 1

shows an illustrative

list of waivers that BPCI applicants requested compared

with waivers that already exist in the MA program,

as well as those CMS has officially approved for all BPCI

awardees. For example, a BPCI applicant requested a

waiver of the “3-hour rule” for inpatient rehabilitation

facilities (IRFs). The 3-hour rule states that IRF patients

generally require 3 hours of therapy for 5 days per week,

unless the patient is unable to tolerate that level of therapy.

Any patient in a post acute setting who is not able to

tolerate 3 daily hours of therapy must be transferred to

a sub-acute care facility. According to the applicant, this

requirement may lead to potentially unnecessary readmissions

to a skilled nursing facility, especially when the patient’s

fragility is only temporary.39

Table 2

demonstrates that there is substantial variability

in CMS’s payment policy waivers across payment

models. CMS granted few waivers in the BPCI initiative.

Those waivers that were granted may be attached to other

requirements (eg, patients transferred from hospitals

must go to high-quality SAFs).40 Examples of inconsistencies

include: (i) the qualifying 72-hour rule before transfer

to a covered skilled-nursing stay is waived for MA plans

but waived only with the conditions in the BPCI initiative;

(ii) pre-surgery home safety visits are waived for MA

plans, while post discharge home visits are waived in the

BPCI initiative; (iii) CMS does not waive conditions for

Medicare’s traditional telehealth benefit for MA plans,

but does expand the telehealth benefit for BPCI awardees;

(iv) CMS allows some remote monitoring in MA

plans, but not for BPCI awardees. CMS has not had a

public discussion of the rationale behind these differing

decisions.

This lack of public discussion contrasts sharply with

the way CMS approached its 2003 change in payment

methodology for IRFs from cost basis to prospective

payment (IRF-PPS) and the subsequent revisions to the

IRF coverage requirements. CMS made those changes

through a multiyear rule making process that vetted the

recommendations of a CMS internal working group

through opportunities for public comment.41

As a result of the rulemaking process, CMS deleted the

coverage guidance previously published in HCFAR 85-2-1

“to reflect changes that have occurred in medical practice

during the past 25 years and the implementation of the

IRF-PPS.”42

Summary

CMS has used various approaches to adapting coverage,

benefit, or payment requirements in response to

changes in payment methods. Examples are presented in

Table 2.

In the MA program, which bases reimbursement on

a capitated rate rather than on a fee-for-service amount,

CMS has created supplemental benefits. For BPCI awardees,

CMS has not relaxed coverage policy requirements.

It has, however, granted payment policy waivers to remove

certain site-specific payment requirements. When

prospective payment was introduced for IRFs, CMS revised

requirements for covered admissions through rule

making. That is, to introduce a single policy change, CMS

has engaged multiple mechanisms. For example, CMS relaxed

the requirement to have a qualifying hospital stay

of 72 hours before covering a skilled nursing admission as

a “supplementary benefit” in the MA program, and as a

payment policy waiver in the BPCI initiative.

A Path Forward

Shifting greater medical management authority from

CMS to PABs is a gradual process, as shown by the experience

of commercial payers who have partnered with

ACOs. For instance, Fairview Health Services in Minnesota,

which has been working with accountable care models

for over 10 years, is continuing to take on more duties

around care management that were traditionally assumed

by health plans.43 One of the many lessons learned from

Premier’s Partnership for Care Transformation (PACT

Population Health Collaboration is the importance of

creating new divisions of labor between providers and

payers around responsibilities for care management.44

In 2010, the experiment of UnitedHealthcare (UHC)

that provided an upfront “episode payment” for the treatment

of selected cancers to medical oncologists, rather

than fee-for-service reimbursement, demonstrated that

payment, coverage, and benefit silos can be effectively

synchronized to deliver better health outcomes at a reasonable

cost within a system of care.45,46 In this case, a

team of oncologists acted as the PAB, evaluating clinically

equivalent regimens and developing recommendations for

coverage based on cost. They also incorporated the flexibility

to accommodate other treatment regimens based

on a patient’s unique profile. The net effect was to disconnect

the income of the oncologist from the sale and use

of specific drugs, while covering the most effective treatment

regimens in order to improve patient outcomes.46

Both the American Society of Clinical Oncology and the

American Cancer Society—Cancer Action Network issued

positive statements about the new program, because

at a minimum, it allowed UHC to test whether or not the

change in payment methodology actually influenced

drugs that physicians prescribed for their patients.47 UHC

undertook several measures to ensure appropriate patient

care. For example, a team of oncologists developed

evidence-based clinical pathways that guided patient care.

Only when pathways were deemed to be clinically equivalent

was the least expensive regimen selected.48

Figure 2

As shown in , transitioning the role of medical

management from CMS to PABs, including the ability

to modify coverage, benefits, and payment requirements,

can be viewed as a continuum that includes 3 main stages.

The stages are tied to the PAB’s degree of financial risk

sharing, as well as the scope of the episode. PABs assuming

minimal financial risk would fall under Stage 1 and

receive limited delegated authority focused primarily on

modifications of payment requirements directly relevant

to the payment methods being replaced (eg, prior 3-day

inpatient stay for covered skilled nursing facility services;

3-hour therapy inpatient rehabilitation rule). PABs assuming

greater financial risk, (eg, prospective bundled

payments for selected patient conditions) would fall under

Stage 2 and would have the delegated authority to

modify not only payment policy requirements but also

coverage policies for the patient conditions they are targeting.

PABs assuming full financial risk for a comprehen

sive set of clinical conditions would fall underStage 3 and

would be delegated even more authority, allowing them to

modify benefit policies. Except for changes in benefit policies,

these stages, for the most part, could be implemented

without legislation and in ways that satisfy the statute to

provide reasonable and medically necessary care.

National and local coverage policies would be the

starting point for any explicit coverage policy for a PAB.

In Stage 2, however, the PAB would be able to expand/

limit coverage or even cover otherwise noncovered services

(by overturning a local or national noncoverage policy),

allowing more opportunities for medical innovation.

For example, based on an evidence- and consensus-based

approach, the medical leadership team could choose to

cover an otherwise noncovered innovative diagnostic or

treatment service for their population. The PAB could

target provision of the service within a carefully defined

clinical pathway.

CONCLUSION

Moving away from volume-based fee-for-service payment

methods to value-based payments is widely recognized

by many as a way to incentivize patient-centric,

high-quality, innovative, and efficient care in the Medicare

program. Making the unit of payment broader and

tying payments to performance measures is helpful for setting

the direction for health- system change, but it will not

be sufficient. The myriad of payment, coverage, and benefit

policies—and the processes for establishing them—

were created during the era of payment silos. They now

will need to be revisited and redesigned if we are to fully

realize the objectives of payment reform. As in the commercial

payer world, how fast this occurs will depend on

the CMS’s appetite for change, the PAB’s ability to take

on these new responsibilities, and Congressional action

to support change.

Author Affiliations: Manatt Health Solutions, Washington, DC (AW,

NM).

Funding Source: None reported.

Author Disclosures: The authors report no relationship or financial

interest with any entity that would pose a conflict of interest with the

subject matter of this article.

Authorship Information: Concept and design (AW, NM); acquisition

of data (AW); analysis and interpretation of data (AW); drafting of the

manuscript (AW, NM); critical revision of the manuscript for important

intellectual content (AW, NM); provision of study materials or patients

(AW); administrative, technical, or logistic support AW); and supervision

(AW).

Address correspondence to: Annemarie V. Wouters, PhD, Manatt

Health Solutions, 700 12th St, NW, Ste 1100, Washington, DC 20005. E-mail:

awouters@manatt.com.

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