reports

Models for Medicare payment system reform based on group-specific volume performance standards (GVPS)

Waltham, MA, USA: Brandeis University.

Brandeis University, Waltham, MA, USA

This report discusses potential policy options for Medicare based on Group-Specific Volume Performance Standards (GVPS). We developed a basic model and analyzed several variations with the following fundamental objectives:

• To study alternatives to the current system of Medicare Volume Performance Standards (MVPS) that would allow qualified physician groups to elect separate performance standards; and more generally,
• To explore ways for HCFA to control the rate of increase in the volume and intensity of services delivered to Medicare beneficiaries.

The proposed models could give providers financial incentives to manage the services delivered to their Medicare patients, and reduce Medicare spending for all covered services, not just physician and supplier services.

Under MVPS, fee updates for all physicians can be reduced if annual volume performance standards (national expenditure targets for physician and supplier services) are not met. There are at least three problems with the mandatory national groupings:

• Physicians have weak economic incentives to be efficient because individual performance is aggregated with the rest of the nation.
• If national standards are exceeded, physicians who are relatively efficient get penalized as if their own performance were average.
• Over many years, shrinking Medicare payment levels relative to other payers may threaten beneficiaries’ access to physician services.

When MVPS was enacted, Congress acknowledged that refinements to the basic approach could be warranted, and specifically called for development of group-specific performance standards. This report discusses models that would allow HCFA to monitor and reward physician organizations separately from the national experience. Furthermore, incentives can be expanded to include efficient management of all Medicare-covered services. Given its general applicability, this approach may have advantages over other policies such as capitation. Whereas Medicare has not achieved savings from HMO enrollment because of favorable selection, Medicare cannot lose money on GVPS but would share savings generated by efficient providers. In addition, GVPS would encourage the most efficient physician groups to serve the most expensive Medicare beneficiaries.