Medical Home Model Calls for New Payment Methods

Experimentation Is Name of the Game

February 17, 2009 03:55 pm Paula Haas

No doubt about it: Most health care stakeholders agree that primary care is in crisis. Most also agree that the patient-centered medical home, or PCMH, with its enhanced payment to primary care practices, is a promising solution to that crisis.

But when it comes to how much that enhanced payment should be, and what form it should take, the agreement ends.

"We're in a period of great experimentation," says John Swanson, director of the AAFP Practice Support Division and co-chair of the Patient-Centered Primary Care Collaborative(, or PCPCC, Center for Multi-Stakeholder Demonstrations. "The reality is that, when it comes to medical home pilots and demonstration projects, payment methods and the amounts paid vary greatly."

Michael Bailit, president of the consulting firm Bailit Health Purchasing in Needham, Mass., agrees that experimentation is the name of the game. Bailit has worked extensively on the issue of medical home payment and recently co-authored the "Patient Centered Medical Home Purchaser Guide" for the PCPCC and the National Business Coalition on Health.

Payment Methods

According to Bailit and Swanson, payers often are using combinations of four basic methods to pay for such medical home services as care management and care coordination -- services that haven't been reimbursed under the current fee-for-service system. The four methods are:

  • Supplemental fee. This is the most frequently used method. It's often a per-member, per-month fee for medical home services, paid on top of existing fee-for-service payments. "Usually, but not always, practices have to do something to qualify for it," Bailit says, such as going through the National Committee for Quality Assurance(, or NCQA, medical home recognition process. Often, the supplemental fee is accompanied by a pay-for-performance payment or the practice shares in any savings to total health care spending that can be attributed to the medical home.
  • New service codes. Instead of a supplemental fee, some payers are developing new fee-for-service codes to pay for medical home services.
  • Boosted fees. In this scenario, practices that meet certain criteria, such as NCQA Level 1 recognition, receive larger fee-for-service payments for currently existing codes than other practices receive. "Everyone recognizes this is not where we want to be going," Swanson says, "but it's easy, and claims processing is already set up to handle it. That's a huge deal for health plans."
  • Capitation payment with additional performance incentive. "It's the least common approach, but it's talked about a lot," says Bailit. "Many think capitation was done incorrectly the last time, and we need to do it right this time. It's sometimes called a global payment because the word capitation has such a bitter taste for many people."

How these methods are used varies wildly from payer to payer.

AAFP's Recommendations for Medical Home Payment

According to the AAFP, the medical home payment structure should

  • reflect the value of physician and nonphysician staff work that falls outside of the face-to-face visit associated with patient-centered care management;
  • pay for services associated with coordination of care both within a given practice and between consultants, ancillary providers and community resources;
  • support adoption and use of health information technology for quality improvement;
  • support provision of enhanced communication access, such as secure e-mail and telephone consultations;
  • recognize the value of physician work associated with remote monitoring of clinical data using technology;
  • allow for separate fee-for-service payments for face-to-face visits, but payments for care-management services that fall outside of the face-to-face visit, as described above, should not result in a reduction in payments for face-to-face visits;
  • recognize case mix differences in the patient population being treated within the practice;
  • allow physicians to share in savings from reduced hospitalizations associated with physician-guided care management in the office setting; and
  • allow for additional payments for achieving measurable and continuous quality improvements.

"For example, one pilot is paying practices money up front for infrastructure development, then giving them fixed supplemental payments quarterly, instead of per month, once they achieve NCQA (recognition)," Swanson says. "Another is basing 80 percent of its supplemental fee on whether a practice becomes NCQA-designated, with the other 20 percent as a pay-for-performance (fee), based on reported outcomes. Others are combining fees-for-service with pay-for-performance (fees)."

Some medical home initiatives also offer practices significant in-kind benefits, says Bailit. Examples are participation in a learning collaborative, coaching to help the practice transform, and free patient registry software and the training to use it. "Or you may have a pilot that provides a per-member, per-month fee and also provides nurse care managers from a central location to all the participating practices," says Swanson.

Payment Levels

The supplemental fees that payers are paying vary widely, too. "I'm seeing payments in the ballpark of $3 to $6 per member, per month" for commercial populations, says Bailit, "and right now, the payment tends to be in the lower part of the range."

The upcoming Medicare medical home demonstration project will pay a normal fee for service plus per-beneficiary, per-month care management fees that are substantially higher than the fees of other pilots and demonstration projects. CMS plans to pay an average of $40.40 or $51.70, depending on whether a practice qualifies as a Tier I ("typical") or Tier II ("enhanced") medical home, respectively. Fees will be adjusted upward or downward to take severity of illness into account.

The fee levels may be high, but they're not off the charts, says Swanson. "That's because every single patient will be over 65, with one or more documented chronic diseases. People may be surprised that Medicare would be willing to pay that much, but within the context of the patient population, it makes complete sense."

In addition, practices in the demo will be eligible to receive a share of any cost savings the demonstration project generates within Medicare, including hospital inpatient and emergency room savings.

A Time for Change

Even with the current economic free-fall, "I'm optimistic that things are beginning to fall together for the medical home concept," says Paul Grundy, M.D., M.P.H., chair of the PCPCC and IBM's director of health care transformation. "The Obama administration has said that this (health care) is an area in which they want to stimulate the economy. There's lots of conversation about putting health information technology in a more robust system of primary care."

Times of turmoil often become times of social change, Grundy adds.

"In the Great Depression, Social Security came along," he says. "I think this time of turmoil exposes our weaknesses in terms of having folks who don't have health care coverage. That makes it more painful and visible. Even those who are gainfully employed are thinking, 'What if I lose my job?' There's a lot more political will now."