Looking AHEAD: CMS’ new global budget model for states
The Centers for Medicare and Medicaid Services (CMS) just announced a new model of care for states that provides an alternative to traditional fee-for-service payment. The AHEAD model (stands for “All-Payer Health Equity Approaches and Development”) would pay hospitals and primary care providers a set amount per patient ahead of time, rather than for each service after it is provided. What does this model entail and how will it impact hospitals?
Fee-for-service vs value-based care
In most states, the dominant payment model for healthcare is fee-for-service, in which providers get paid for each service they do. Hospitals and doctors therefore have an incentive to do more tests and procedures, even when they don’t make patients healthier. At the same time, there is little incentive to take on health-related social needs and preventive care that can keep patients out of the hospital in the first place.
The goal of the AHEAD model is to turn these incentives on their head (sorry!). Hospitals in participating states will receive a “global budget” — essentially an annual salary — that takes into account their previous Medicare and Medicaid payments, the populations they serve, and other factors. So when hospitals avoid unnecessary care and reduce preventable hospitalizations by addressing social needs, they get to keep those savings.
AHEAD builds on the success of previous global budget models. In Maryland, they have had global budgeting for hospital inpatient care since 2014, which has led to significant Medicare cost savings and reductions in avoidable readmissions. In Vermont, most hospitals participate in a voluntary accountable care organization model to reduce overuse and better coordinate care. And many rural hospitals in Pennsylvania received fixed global budgets through a CMS pilot program, which gave them financial stability during COVID-19.
The AHEAD model takes these existing models much further, which could result in transformative change for participating states. For one, AHEAD is a ten-year program, so states and hospitals will have the time to invest in primary care and social needs and actually see savings during the program. AHEAD is also comprehensive, including Medicare, Medicaid, and private payers (states are responsible for incentivizing or requiring participation from private insurers); including a voluntary fixed payment model for primary care providers as well as hospitals; and including outpatient as well as inpatient payments in the global budgets. Lastly, AHEAD holds providers accountable for achieving not only quality goals but equity goals as well. Participating states must develop a “health equity plan” for improving population health and reducing disparities.
The AHEAD program is promising, but this ambitious plan is going to face many challenges throughout planning and implementation. In a recent piece in Health Affairs, Troyen Brennan, adjunct professor of public health at the Harvard T.H. Chan School of Public Health, identifies potential roadblocks and unanswered questions for CMS.
For example, AHEAD goes further than Maryland’s global budget model by including outpatient care as well as inpatient care. Will hospitals join in the model without this “lifeline of fee-for-service support”? In Maryland’s model, Medicare pays hospitals much higher rates to make up for lower rates from private insurers. Is CMS prepared to offer these much higher rates to hospitals in more states?
Brennan also questions whether hospitals that are financially successful in the current fee-for-service system will take a gamble on global budgets when they might lose money. He writes:
“As a hospital executive, your key strategy, perhaps your only strategy, has been to increase in size, gain leverage with insurers, bargain for better fee-for-service rates, and do more procedures. Working under a prospective budget blocks that strategy. So one might ask about Pennsylvania, would centers like UPMC in the west, and Jefferson or University of Pennsylvania in the East, be ready to abandon the fee-for-service revenue generation program for one based solely on value-based care that improves population management. I wish that were true, but it seems doubtful.”
Ever since Maryland launched their global budgeting model, health policy experts have been hoping that other states will follow their lead. The AHEAD program presents an opportunity for more states to dive into the deep end of value-based care, with CMS holding their hand for support. Let’s hope states will take the plunge.