This report, sponsored by the American Medical Association (AMA), describes how alternative payment models (APMs) affect physicians, physicians' practices, and hospital systems in the United States. Payment models discussed include fee for service, capitation, episode-based and bundled, shared savings, pay for performance, retainer-based, and combined payment models such as medical homes and accountable care organizations.

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Effects of Health Care Payment Models on Physician Practice in the United States

Follow-Up Study

by Mark W. Friedberg, Peggy G. Chen, Molly M. Simmons, Tisamarie B. Sherry, Peter Mendel, Laura Raaen, Jamie Ryan, Patrick Orr, Carol Vargo, Lindsey Carlasare, et al.

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Research Question

  1. How do alternative health care payment models (i.e., models other than simple fee-for-service payment) affect physicians and physician practices in the United States?

This report, sponsored by the American Medical Association (AMA), describes how alternative payment models (APMs) affect physicians, physicians' practices, and hospital systems in the United States and also provides updated data to the original 2014 study. Payment models discussed are core payment (fee for service, capitation, episode-based and bundled), supplementary payment (shared savings, pay for performance, retainer-based), and combined payment (medical homes and accountable care organizations). The effects of changes since 2014 in the Affordable Care Act (ACA) and of new alternative payment models (APMs), such as the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) Quality Payment Program (QPP), are also examined. This project uses the same qualitative multiple–case study method as the 2014 study, relying primarily on semistructured interviews with physician practice leaders, physicians, and other observers. Findings describe the challenges posed by APMs, strategies adopted to deal with APMs, the effects of rapidly changing and increasingly complex payment models, and how risk aversion influences physician practices' decisions to engage in new payment models. Project findings are intended to help guide efforts by the AMA and other stakeholders to improve current and future APMs and help physician practices succeed in them.

Key Findings

Payment models are changing at an accelerating pace

  • Physician practices, health systems, and consultants find it difficult to keep up with the proliferation of new models, with some calling for a "time out" to allow them to better adapt to current APMs.

Payment models are increasing in complexity

  • Alternative payment models have become increasingly complex since 2014. Practices that have invested in understanding complex APMs have found opportunities to earn financial awards for their preexisting quality — without materially changing patient care.

Risk aversion is more prominent among physician practices

  • Risk aversion among physician practices was more prominent. Risk-averse practices sought to avoid downside risk or to off-load downside risk to partners (e.g., hospitals and device manufacturers) when possible.

Recommendations

  • Simplify APMs to help practices focus on improving patient care as the preferred strategy for earning financial rewards.
  • Slow the pace of change in payment models to benefit practices, payers, and other stakeholders.
  • Help practices invest in data management and analysis and supply timely, understandable performance data to help them succeed in APMs.
  • Consider offering upside-only APMs or helping practices manage downside risk (e.g., subsidizing up-front investments in new practice capabilities) to improve APM uptake.
  • Design APMs with input from practicing physicians and other practice leaders to encourage clinical changes that physicians see as valuable (i.e., leading to noticeable improvements in patient care).

The research described in this report was sponsored by the American Medical Association (AMA) and conducted by RAND Health.

This report is part of the RAND Corporation Research report series. RAND reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND reports undergo rigorous peer review to ensure high standards for research quality and objectivity.

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