All stakeholders in the US healthcare system are keeping a close eye on the wave of changes that CMS, the largest payor in America, is rolling out to the Medicare and Medicaid programs. We spoke with Charlene Frizzera, president of CF Health Advisors and former acting administrator and chief operating officer for the CMS to get her take on where these two programs might be heading and how innovation will play a role.

PULSE: The title for our conference this year is “The Innovation Game”. How do you think the Medicare and Medicaid programs are evolving and where are you seeing innovation?

CHARLENE FRIZZERA: If you look at the healthcare delivery system – the fee-for-service system, historically, it has always been a volume-based payment system where the more services you provide, the more money you get paid. CMS has been fairly clear that they want to move away from that system but it’s also not possible to entirely get rid of it. While the system is not necessarily completely going away, it is significantly changing and the number of providers that would want to use that system will decrease.

What CMS is already doing is making the fee-for-service model less attractive by putting a lot of risk into the fee-for-service model. For example, hospital reimbursements are now tied to hospital readmissions, hospital-acquired infections, quality measures and value-based payments. All of these make the fee-for-service system less attractive. Many providers are taking a look at that and realizing that it’s not the cash-cow that it used to be and that there are a lot of behaviors that have to change in order for them to continue to make money and provide healthcare in the future. This is a constant message that CMS continues to put out in their regulations, directly and indirectly, and the way they are changing their reimbursements.

Managed care is not a mandatory program – at any point in time, providers and beneficiaries can opt out and the program won’t exist, unlike fee-for-service which is not voluntary. So while there is a Managed Care model, which is used by 30-40%of the Medicare beneficiaries, CMS now allows providers to come up with alternative payment models, such as the Accountable Care Organization (ACO). There are also other models, such as health home models, independent home care. This results in a variety of alternatives that are all voluntary and give the industry a lot of opportunity to figure out how to deliver health care that is based on risk and value.

Most providers in the past haven’t paid much attention to these alternative models but as fee-for-service is becoming less attractive and CMS is putting more pressure on managed care plans, providers are now considering the alternative payments systems.

PULSE: Are we seeing a significant shift to and adoption of these alternative payment models and do you anticipate that the majority of beneficiaries and providers will still stay in either the fee-for-service or managed care models at least in the near-term?

FRIZZERA: If you look at numbers of beneficiaries and providers in the fee-for-service space versus the number in the managed care space, you are definitely seeing a movement towards managed care. A lot of that has to do with beneficiary-choice. We’re finding that baby-boomers are more comfortable with the managed care plans so when they age into the Medicare program, they tend to pick those over fee-for-service. Secondly, as more providers who have stature join plans, the more comfortable people are with joining them. Maryland is a great example. When John Hopkins joined a managed care plan, suddenly people were interested in that plan.

Now let’s take a look at alternative payment systems – let’s take ACO, for example. When we look at ACOs, I don’t think we’re seeing a lot of providers rushing to be part of ACOs, but there are many discussions going on and many potential partnerships happening that will make ACOs grow.

What’s important about the ACOs is that we need to look at the Pioneer ACOs models and the next-generation ACOs – they’re very different models. For example, the latest ACO model allows post-acute care providers to be part of an ACO. Post-acute care providers were not allowed to participate in the Pioneer ACO model or any models in between. That is a big message. ACOs are now responsible for the hospital care and for 30-days post-discharge care. Skilled nursing facilities are trying to figure out how to be a part of this new delivery system. They don’t want their competitors to be part of an ACO and be left behind.

While we’re not seeing a giant movement yet, there are a lot of discussions around what the alternative payment models might look like and how providers and beneficiaries can find them more attractive especially as the fee-for-service model will continue to build in more risk and quality measures. The ACO model encourages providers and beneficiaries to come together to improve health outcomes.

PULSE: Uncertainty around the sustainability of Medicare and Medicaid has been a topic of debate for a long time. With the proposed Medicare value-based reimbursement model, do you think we are finally on the cusp of a substantial and meaningful change to the way healthcare will be paid for?

FRIZZERA: CMS has already regulated value-based purchasing across providers. The question is how aggressive CMS will continue to be to implement a patient-centered healthcare delivery system. While there has been a lot of value-based purchasing requirements, the term “value” hasn’t been specifically defined. Ultimate value will be better health outcomes for patients but that’s harder to quantify than measures that are more process-driven. As the data collected continues to move toward outcome data, the measures will also move toward health outcomes across providers.

We have conversations with hospitals and health systems all the time about the data they need to start collecting given that they know that the value-based purchasing requirements will increase significantly over time to be health outcome measures and more patient-centered.

That encourages providers to figure out how they need to work better together over the continuum of care for a patient. That’s what you see CMS moving towards in a lot of the CMMI demos or in actual regulations. They want stakeholders to voluntarily figure out what will work. As the CMMI models mature and the evaluations show the models improve health care, CMS has the authority to make significant changes through regulation.

For example, the readmission penalty in hospitals requires hospitals to work with post-acute care providers. If the care in post-acute care provider setting results in a readmission, the hospital, and potentially the post-acute care provider could be subject to a readmission penalty.

I don’t think the message is subtle. There is no doubt that that is what the CMS is going to require providers to work together in caring for the beneficiary.

PULSE: What do you think that means for healthcare costs?

FRIZZERA: In order for healthcare costs to really be reduced, beneficiaries have to change behavior. Providers, regulations, and the government can only do so much; beneficiaries also need to do a better job of taking better care of themselves.

It’s a challenge because CMS can’t regulate beneficiary behavior – you have to cover them and pay for their services regardless of their health behaviors. It’s a longer-term goal but I think they’re very optimistic that they will be able to continue to make some rule-changes and value-based purchasing measure changes that will encourage providers, through penalties and rewards, to be more active advocates and educators for beneficiary engagement.

PULSE: Our theme for the conference centers on who will be most effective in bringing about the necessary changes in health care, either incumbents (existing, large players) or entrants (newcomers to industry). How does CMS think about this? Do you believe they are encouraging new entrants into the market or are they hoping that incumbents will successfully innovate and drive the change?

FRIZZERA: I don’t think the CMS favors incumbents over new entrants or vice versa. I think what they will care about is who can provide the best quality healthcare to beneficiaries.

We have seen a lot of interest in starting a brand-new Medicare Advantage plan in Florida. It’s interesting working with new plans and comparing them with what some of the incumbent Medicare / Medicaid plans do. They have the potential to deliver healthcare very differently from the incumbents.

What we’re finding is that the new entrants could have advantages in terms of designing delivery systems that cater to their patients and to their providers. Providers in these networks are very interested in new ways of doing business – they’re much more engaged in telemedicine, they’re much more engaged in innovative ways to deal with patients and in incorporating socioeconomics and home assessments needs into the healthcare plans of the patient.

There is some general agreement that new plans have some advantage over the existing plans because they get to start from scratch. The hard part, for new plans, is attaining the financial support they need to get started.

CMS would be interested in seeing new entrants come in who could do a better job, but they would also love to see incumbents do a better job. Again, they leave it up to the industry to see if they can do it themselves.

PULSE: CMS just revealed the draft Quality Measurement Development Plan (MDP) for physicians within which they are proposing value as measured based on four components: quality, resource use, clinical practice improvement activities and meaningful use of certified EHR technologies. What do you will be the key challenges in implementing this plan?

FRIZZERA: This plan replaces the old physician payment system that everybody agreed didn’t work and everyone is excited that there is a new system for paying physicians.

The new rule laid out two payment methodologies: the merit-based incentive system and the alternative payment model. In the new legislation, physicians have choices: they can stick with the mandated merit-based payment program or they can choose to participate in the alternative payment model.

CMS started the Physician Quality Reporting System almost a decade ago. These new metrics aren’t news to the physician community. The new model will look at the current PQRS measures and see how they “connect” to the other four categories.

That is what the new quality measurement plan is supposed to do – figure out how to take those things that today are separated but important and combine them together. This will be important if we want to get to either a good quality-based measure for the merit-based system and / or good alternative payment model.

In the alternative payment model, there is more opportunity for the physician community to help the CMS design what the future quality measures will be.

PULSE: Patient experience is a large focus of the new plan; however, measuring patient experience is not new. What do you think the key changes or innovation will be?

FRIZZERA: Patient engagement is already being measured. It is a big component of the star ratings for the Medicare Advantage plan. In FFS, hospitals have the CAHPS (Consumer Assessment of Healthcare Providers and Systems) survey – that’s all about patient experience and satisfaction. What will be new is how to engage patients differently and how to improve their experience.

Tracking it is not new but where there is going to be a lot of activity is how to make the experience better. CMS is really getting into the meat of what makes a positive patient experience. How do we make it more than just “having a soft pillow”. These measures need to identify what is needed to improve patients’ health outcomes.

There are plenty of studies that confirm that poor doctors receive very positive ratings from patients because they are nice to them. While that’s important and we need to measure that, we also need to figure out what aspect of patient experience also contributes positively to better health outcomes.

PULSE: What role do you think innovation and new technologies can play in helping improve the patient experience?

FRIZZERA: Technology either exists today or will be developed when a problem is identified. It’s not designing the technology that’s a concern, it’s designing useable technology. Successful use requires both the provider and the patient to be comfortable with the new technology.

A good example is a telemedicine company we work with that works with physicians’ offices for follow-up consultation visits. For those patients, this company sets up the technology for the video conference, they do all of the billing, they do all of the patient follow-up, they do all of the scheduling.

This company’s rate of growth has been fairly significant in the past year. For patients who like using this type of technology, they love it. Physicians also love it because it saves them a lot of money and a lot of time. They don’t have to physically be in the office, they don’t have to schedule time, and their waiting rooms aren’t packed with people.

People wouldn’t really define that in the traditional patient engagement space, but that is patient engagement. This is a pretty new system for beneficiaries and the physicians and the office staff. While this company is operating in a small space for now, this technology can be applied in a lot of spaces.

PULSE: How do you think we can use innovation and technology to promote long-term patient engagement over an extended period of time versus just during a period of care?

FRIZZERA: It’s hard but it’s happening. Patients and providers need to change together.

For example, CMS released a new joint replacement bundle payment model that is also tied to quality measures. When we discussed this with an orthopaedic surgeon physician group, the group was divided regarding the feasibility of making this model work.

The providers who embraced this new system have changed their business model. Now they make their patients meet certain criteria before they will conduct the surgery. For example, they require patients to have a BMI of less than a certain number, etc. – patients have to take more responsibility in their pre-operative condition.

This has been successful. These physicians took a risk that their patients will go somewhere else, but that’s not what’s happening. They are making a big difference in patient behavior.

These physicians take the time to ensure their patients understand their surgeries will not be successful unless they meet these criteria. These physicians realize that they need to do things differently and they need to get beneficiaries healthier or else they’re not going to have successful outcomes and could lead to less reimbursement. Patients that understand the effect of “unhealthy” behaviors in the pre-op environment tend to continue the healthy behaviors post-op as well. When the providers’ actions and words are consistent and constant, it’s pretty impactful.

Another big thing that people are counting on is that the generation moving into the Medicare program, now and in the future, will have a different attitude towards their health. We are seeing that baby boomers want to be healthier – they want their delivery system to be very different than what their parents’ had been.

PULSE: The CMS has created a relatively new Innovation Center – the Center for Medicare & Medicaid Innovation (CMMI). What is the mission of this Innovation Center and generally, how does CMS engage in innovation?

FRIZZERA: The Innovation Center was provided $10BN to generate innovation in the healthcare system and the Medicare / Medicaid programs over 10 years. CMS has awarded grants for a variety of innovation models – from patient engagement to payment models.

It started with patient engagement models (e.g., how do you talk to beneficiaries) to more aggressive innovation models regarding bundled payment initiative.

Those innovations are very important. My advice is to look at what those innovations are and the areas that CMS puts money into studying, and be aware that they have the ability to make those become regulation without any law changes. There’s a huge incentive for providers to look at those and think about what is happening because some of those innovations will become incorporated into the program.