Experts discuss alternative payment models’ impact on healthcare costs in Tennessee and across the nation


Maddie McCarthy


Policy and data experts met at the 2023 Tennessee State of Reform Health Policy Conference to discuss alternative payment models (APMs), and how they’re changing the way healthcare is paid for.

Brooks Daverman, Medicaid expert consultant at McKinsey & Company, began the discussion with a brief overview of the four APM categories.

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The first category is the traditional approach to medical payment; a fee for a service with no link to quality or value. The second is also fee-for-service, but with some link to quality and value. 

The third category is fee-for-service based, but with some sort of shared savings and shared risk (which could include either upside only or an upside/downside risk). An upside only risk means a provider is financially compensated when performing well, but they bear no risk of losing money. An upside/downside risk means a provider could be financially rewarded or penalized based on performance.

The fourth category is a population-based payment system, like accountable care organizations (ACOs) or global budgets. ACOs use a coalition of providers that work together to deliver quality, low-cost care to patients.

“We currently have 41 percent of healthcare payments in categories three and four,” Daverman said. 

In the commercial market, about 35 percent of payments are category three or four APMs. For Medicaid, it is 40 percent. And in Medicare, it is about 41 percent. Daverman said Medicare Advantage tops that category with 57 percent.

“These numbers have been somewhat static over the past several years. I think you could point to the pandemic,” Daverman said. “It’s another thing that kind of got put on pause while everybody was working on that. It was growing somewhat—not very quickly, not as quickly as we’d all like—prior [to the pandemic].”

Daverman also mentioned episode-based payment systems, an APM that has a spending target for one episode of care. If a patient has an issue with their knee, for example, the episode of care would include all the patient visits it took to take care of that problem. Providers may bear part or all of the risk with the model.

“One thing that has changed over the past couple of years, which I was really glad to see given we all collectively worked on episodes, [is that] Tennessee is a leader in episodes that have upside and downside risk. So that’s an area where even though the topline numbers are static, you can see there’s movement in category three from the payments that are upside only to upside and downside.” 

— Daverman

Karly Campbell, chief quality officer at TennCare, discussed three programs the division has started to help reduce costs and ensure quality, including Episodes of Care.

“We’ve actually seen measurable improvements already in cost and quality as part of that initiative,” Campbell said.

She also discussed patient-centered medical homes (PCMHs). In Tennessee, there are almost 500 PCMH sites throughout urban and rural areas. Campbell said about 40 percent of the TennCare population is connected to a primary care provider through a PCMH. 

Campbell also discussed the Tennessee Health Link program. It works closely with community mental health centers, and is “meant to really produce better health outcomes and better linkages between the behavioral health and the primary care services that our TennCare members need,” Campbell said.

“We’re really proud of those programs, and we often talk to other states who are trying to innovate and learn how to improve care for their Medicaid populations. We really feel like what we’ve done so far has already improved cost and quality, but we still have a long way to go.”

— Campbell

Enam Haque, senior vice president of strategy and growth at Episode Solutions, spoke about the national success some APMs see. He said the Medicare Shared Savings Program saved $1.8 billion in 2022.

The ACO Realizing Equity, Access, and Community Health (REACH) program “made a significant improvement overall: 7.7% reduction in total medical [spending],” Haque said.

Haque also discussed possible challenges with APMs, specifically ACOs and ACO REACH. One challenge is patient choice. A patient may choose not to go to a provider they were referred to by another ACO physician.

Another challenge is the provider practice pattern. Just because “the organization signed up for ACO or ACO REACH, it does not necessarily mean the physician [will] change their practice,” Haque said. Another challenge is care coordination.

“Because the [ACO] patient is not receiving all their care in one place, they’re going to different care providers and settings…[a hospital’s] discharge plan may be very different than what the physician expects for that patient. The patient may be better off going to outpatient therapy. But the hospital may discharge them to a skilled nursing facility, and the skilled nursing facility may keep that patient for 20 or 30 days, when the patient probably could recover in 10 days. So how do you coordinate those?” 

— Haque

There could also be challenges with patient data, because every ACO provider might not have or understand all of the patient’s information. ACO patient data is shared across organizations, but patients are allowed to opt out of having their medical records shared.

Haque also expressed concern about CMS’ change in risk adjustment methodology for Medicare Advantage plans, the upcoming changes in payment, and how that may affect patient care and payment going forward.

Panel moderator Carl Mueller, senior consultant at Health Management Associates, asked the participants where they see Tennessee, or the nation, with APMs in the future.

Haque discussed the primary care first model and Medicare specialty care improvements, and how “those are heading in the right direction.” 

He also raised a question: how do you incentivise participating organizations and downstream providers to meet the APM objectives?

Campbell emphasized how difficult it can be to make changes, especially in government-funded care, because of all the layers involved. However, she ideally wants to see an introduction of more downside risk in APMs.

“The reason I want to introduce downside risk is because I think it gives us the opportunity to reward the high value payers even more, and motivate the rest of the groups to come along and change too,” Campbell said. 

Campbell said she also wants to focus on addressing social determinants of health.

Daverman said it’s not just about what is being done, but how things are being done, in regard to APMs.

“Often, the real impact is not in the first couple of years—it grows over time … it involves so many different aspects to really change how an organization does anything, but especially in healthcare, I think,” Daverman said. “So it’s about increasing the volume of care that’s being covered by these new models, but it’s also the innovations you pick up along the way as you are engaging in a different way.”

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