• AUTHOR'S NOTE: This is the second part of a two part series. Read "Alternative Payment Models, Part 1: A Primer".

    All alternative payment models are alternatives to the traditional fee-for-service (FFS) payment system. FFS payments are made to health care providers for every test or service performed. Today, FFS remains the most common payment mechanism in the United States and is most paid by insurers retrospectively on a discounted basis relative to the historical basis of usual and customary payments.

    A number of benefits accrue from the FFS model: productivity is encouraged, the system is flexible and providers have no incentive to withhold care from patients. However, there are a number of disadvantages. FFS encourages overutilization both on the part of providers, whose compensation is linked to the volume of services provided, and patients, who may be insulated from the full cost of care by insurance and may contribute to overutilization of new technology. Coding rules that are linked to payment may be complicated for physicians to understand. Similarly, bills with explanation of benefits are often difficult for patients to comprehend. FFS does not encourage integration of care and does not reward provider-patient interactions unless they are face-to-face. Finally, despite the fact that there is no incentive to withhold care, volume does not ensure quality.

    FFS is likely to diminish in frequency as payment moves from volume to value, but it is not likely to disappear entirely. Nevertheless, many different options exist. Below are four alternatives to the FSS model — including their advantages and drawbacks.

    Pay for Performance

    Pay-for-performance programs have been utilized for years and provide financial payments to providers who meet defined benchmarks, including quality, patient satisfaction and, increasingly, cost. Despite the logic that providers should be paid more when patients are satisfied and achieve desired outcomes with appropriate use of resources, results of pay-for-performance programs have frequently been disappointing. It has been argued that these failures have been the result of weak incentives and inappropriate metrics. It has also been suggested that greater success could be achieved if programs targeted only patients at higher risk of poor outcomes. Development of meaningful metrics that measure quality has also been difficult. Many programs do not adequately stratify risk, which could lead providers to avoid high risk and noncompliant patients to improve their measured performance. In addition, the administrative task of collecting data is cited as a burden, though clinical data registries such as the IRIS registry are helping address this drawback.

    Pay for Coordination

    This model of payment is typically directed at primary care providers and provides a payment for care coordination outside of the face-to-face interactions required under the FFS model. The primary care medical home, or patient-centered medical home (PCMH), is responsible for the following:

    • Providing comprehensive care,
    • Providing patient-centered care,
    • Coordinating care across the health care system,
    • Providing accessible services and
    • Demonstrating a commitment to safety and quality improvement/measurement

    Practices that adopt these principles may participate in incentive programs with local, state and national payers. However, many payers require accreditation as a PCMH in order for a practice to qualify. 

    A primary goal of this model is to reduce unnecessary care (e.g., redundant testing) and inefficient care (e.g., excessive emergency room use) and provide more cost-efficient care (e.g. through email or phone calls rather than through office visits). However, expectations among providers, patients and payers about what care should be provided for the payment of the fee may differ, and if this method of payment were to become dominant in a practice, it might crowd out time available for patient visits.

    Episode or Bundled Payments

    Ophthalmologists are already familiar with bundled payments, as global payments are used to reimburse surgical care. For example, with cataract surgery, portions of the professional component of the preoperative evaluation, the surgery itself and 90 days of postoperative care represent an episode of care that is reimbursed with a bundled payment. In general, bundled payments represent a single payment to one or more providers for a group of services related to a single treatment or condition over a defined period of time.

    Newer models of bundled payments focus on the integration of multiple health care providers and the potential for this group to innovate to find ways to reduce the cost of an episode of care. They also promote accountability for an episode of care and provide a simpler billing system, although providers need to determine how a single payment is distributed among multiple providers. In Medicare these models have focused on inpatient care and its post-acute-care follow up which have been the primary drivers of cost increases. Medicare recently proposed moving one such demonstration, that for total hip or knee joint replacement, to a nationwide bundled payment system.

    Potential drawbacks include difficulties in deciding how to define or limit an episode of care, an incentive to avoid high-risk patients and limit episodes of care. Nonetheless, the Affordable Care Act mandates the evaluation of innovative alternative payment models such as bundled payments and gives Medicare the authority to quickly adopt models that demonstrate an ability to reduce costs without reducing quality. We are likely to see continued activity in this area as well as recommendations about how providers and payers might work together to overcome challenges.

    Comprehensive Care or Total Cost of Care

    One form of this model is capitation, wherein payment for health care services is provided based on the number of enrollees in a plan, regardless of whether or not they seek health care. This was popularized in the earlier HMO era of alternative payment models as a way to stem rising health care costs, but was decidedly unpopular with both patients and physicians.

    Capitation involves the assumption of financial risk on the part of the provider. Risk depends in part on the number of enrollees, with small numbers expected to have more variability in health care utilization. Risk also depends on characteristics of the enrolled population such as age, sex, health status, prior health care utilization history, and other factors.. It is incumbent upon the provider to insure that capitation rates are actuarially sound and not based simply on what providers will accept.

    Newer versions of the capitation model found in some Medicare Advantage plans are quite different than their older counterparts, however, and include “improved” ways to adjust for risk, limits on exposure and an emphasis on quality improvement. However, it is not clear how effective the risk adjustment program has been in encouraging Medicare Advantage plans to actually take on and retain higher-risk enrollees. Furthermore, some whistleblower cases have been filed, alleging that plans inflated patient severity of illness in order to boost payments.

    Recent variations of the capitation model include:

    • Small per member per month (PMPM) payments to primary care physicians in PCMHs (discussed earlier),
    • PMPM payments for professional services and
    • PMPM payments for all services (e.g., laboratory, diagnostic testing, pharmaceuticals, hospitalizations, etc.)

    Accountable Care Organization

    A more recent alternative payment model that involves the total cost of care is the Accountable Care Organization (ACO). An ACO is a specific type of delivery model in which a group of providers is held accountable for the total cost and quality of care of an assigned group of patients. An ACO may be comprised of hospitals, primary care providers (PCPs), specialists and commercial insurers in private programs; however, the main focus is primary care.

    At present, ACOs do not eliminate FFS payments but create an incentive for savings. One problem with ACOs is that this model encourages consolidation of health care providers as health care systems purchase more physician practices. This could increase health care costs due to decreased competition in the market and raise prices for those insurers and their enrollees outside of the ACO. In addition, a number of flaws in the current ACO models have been identified, including how spending benchmarks are established and how savings are distributed.

    As of yet, independent ophthalmologists have not been significantly impacted by the ACO model. They should stay informed regarding developments in local ACOs and avoid signing an exclusive contract with one ACO. Recent Medicare regulatory changes fought for by the Academy and other groups have made it possible for specialists to fully participate with more than one ACO.

    Looking Forward

    The specifics of today’s alternative payment models are likely to change, and some models may not be here to stay. The mandates to reduce health care spending, however, will not go away.

    And while the impact of these evolving models on ophthalmology practices has been limited to date, we all need to pay attention to the ways in which they can ultimately improve the quality and experience of patient care.

    About the author: Robert E. Wiggins, Jr. MD, MHA — Managing Partner — Asheville Eye Associates

    Dr. Wiggins practices pediatric and neuro-ophthalmology and is the managing partner of Asheville Eye Associates. He performed his ophthalmology residency at Duke and his pediatric ophthalmology and strabismus fellowship at Baylor and his neuro-ophthalmology fellowship at Duke. He worked in Saudi Arabia as a pediatric ophthalmologist prior to joining Asheville Eye Associates. He obtained a Master of Healthcare Administration degree at UNC-Chapel Hill in 2003. Dr. Wiggins currently serves as the Academy's Senior Secretary for Ophthalmic Practice. He is a member of the AAOE Board and also serves on the AAOE EHR committee, AAO Practicing Ophthalmologists Advisory Committee for Education, AAPOS board as secretary-treasurer and finance committee chairman, and finance and underwriting committees of OMIC.