Continuing the Conversation concerning Medicare and Medicare Advantage

Continuing the conversation concerning Medicare and Medicare Advantage programs – Value Added Healthcare.


Kip Sullivan and I have had a running dialogue on Value Added (VA) healthcare. This usually starts up with my asking a question, giving my doubts on certain topics, and a back and forth in an exchange of emails. I have done this before with others, mining their knowledge banks.

The likes of which Value Added (VA) is being touted for healthcare, pharmaceuticals, and other processes in healthcare as a way to improve care. I have mentioned VA methods being used to promote new uses for older pharmaceuticals as a basis for increased pricing when there is no increased cost. The value touted being new uses with little R&D costs.

As Kip will points out in his dialogue, it is not the first time Value Added (VA) methods has been promoted and tried. Indeed, multiple forms of this methodology have been tried in Medicare with little success. The other attempts such as in pharmaceuticals I would classify as a way to increase profits or rent-taking. Justifying price increases as measured by the ICER has also stoked some intense conversations.

Kip offered up his paper Medicare’s “value-based payment” Programs are Failing, August 2021 for me to use. Much of this content is from his document which I have edited for some brevity. I am happy to introduce it at Angry Bear in readable segments. This Part 1.


Since 1972, Medicare beneficiaries have had the option of enrolling with insurance companies. Initially HMOs were the only type of insurance company allowed to participate in Medicare. Since 1997, all types of insurers have participated.

Since 2003, the program through which beneficiaries may enroll with insurance companies has been known as Medicare Advantage (MA). The initial argument for allowing insurance companies to participate in Medicare was they would save Medicare money. Instead the Medicare Advantage program and its predecessors have cost Medicare hundreds of billions of dollars since their start.

The overpayment was not deliberate, at least initially. It was caused by two factors:

  • Healthier Medicare beneficiaries enrolled in MA, and
  • The Centers for Medicare and Medicaid Services (CMS) used an inaccurate method of adjusting payments to MA plans to reflect healthier enrollees.

There is no question of whether traditional Medicare program is more efficient than the MA programs. Congress has required CMS to invent and insert into the traditional Medicare dozens of complex payment “models” seeking to cut Medicare spending by exposing providers (doctors, hospitals, nursing homes, etc.) to insurance risk. In other words, the exposure is to increase the possibility of making or losing money.

The great majority of these risk-shifting schemes were implemented after 2010 under authority granted CMS by the Affordable Care Act. The largest of these programs, the Merit-based Incentive Payment System, was authorized by the Medicare Access and CHIP Reauthorization Act (MACRA) enacted in 2015.

The risk-shifting schemes came to be known as “value-based payment” or “value-based purchasing” (VBP) methods.   Theoretically, VBP improves both elements of “value” (cost and quality) simultaneously. These programs are an attempt to measure quality by employing a very small number of outcome and process measures. An outcome measure asking;

  • whether a given outcome occurred (is the patient’s blood pressure under 140/80?), whereas
  • a process measure asks whether a certain process was conducted (did the doctor prescribe hypertension medication for patients with high blood pressure?).

Nearly all of the VBP programs CMS has implemented since 2010 have failed.

According to a recent review of the performance of the Center for Medicare and Medicaid Innovation (CMMI), the agency within CMS established by the ACA to invent VBP programs for the traditional Medicare program, only five of the 54 models “resulted in significant financial savings.” CMS Innovation Center at 10 Years — Progress and Lessons Learned | NEJM .

In this paper, the performance of eight of the largest of the VBP programs are reviewed (Kip):

  • Four Accountable Care Organization (ACO) programs;
  • three Patient Centered Medical Home (PCMH) programs;
  • the Merit-based Incentive Payment System (MIPS);
  • bundled payments;
  • three programs affecting hospitals; and
  • the Skilled Nursing Facility Value-based Purchasing program.

The ACO, PCMH, MIPS, and bundled payment programs have failed to cut costs. Some programs have increased costs. Data on the impact of the other four programs on Medicare spending are apparently not available.

With the possible exception of one of the three hospital programs (the one designed to reduce accidents), all of the listed programs had minor and mixed effects on the relatively few quality measures used. Most of them (possibly all of them) are worsening disparities. According to a paper in a recent edition of JAMA entitled,

“How value-based Medicare payments exacerbate disparities.”

“In this Value Based Payment game (VBP), the losers are likely to be physicians who care for poorer or sicker patients, and, in turn, their patients.

‘Karen Joynt Maddox (Cardiologist and health services researcher at the Washington University School of Medicine in St. Louis), ‘We are literally taking money from providers serving the poor and giving it to providers serving the rich.’”  

Kip demonstrates how VBP programs worsen disparities by reviewing research from CMS’s Skilled Nursing Facility VBP program. The disparities are due to overpaying for healthier and higher-income patients and underpaying for sicker and poorer patients. Each of the remaining seven programs listed above are reviewed.

Example(s) of the problem

CMS’s Skilled Nursing Facility (SNF) VBP Program was authorized by the Protecting Medicare Act of 2014 and inaugurated in 2017. It is supposed to improve both elements of value – that is, lower hospital costs and improve patient health – by subjecting SNFs to financial incentives to reduce readmissions to hospitals within 30 days of discharge from a hospital. The punishment and reward algorithm CMS uses works like this:

CMS withholds from nearly all of the nation’s 17,000 SNFs 2 percent of their payments during Year One, then redistributes the amount withheld in Year Two, giving bonuses to SNFs that had readmission rates below the national average in Year One and punishing SNFs with readmission rates above the national average in Year One.

Readers who are hearing about this program for the first time can probably spot its main defect immediately: The program will take money away from SNFs with above-average numbers of sick and poor patients and give it to SNFs with below-average numbers of sick and poor people.

Depicting  the “reverse Robin Hood effect.”

A study published in 2019 on the results of the first year of the Skilled Nursing Facility Valued Based Payment program (2017) confirmed it is taking from the poor and giving to the better-off In health and likely income. The authors of the study, Hefele et al., designated a nursing homes as;

  • “High Medicaid” if more than 85 percent of its patients were on Medicaid;
  • “Majority black” if more than 50 percent of its patients were black; and
  • “Majority Hispanic.”

The authors found all three of these categories of Skilled Nursing Facilities (SNFs) were far more likely to be penalized and far less likely to receive bonuses.

Conversely, Low-Medicaid and Majority-white SNFs were far more likely to receive bonuses.

“Exposing the value-based payment meme,” PNHP/JAMA, author Rita Rubin;

“under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), Medicare would assess the quality, value, and results of care physicians provided to these beneficiaries and reward the top performers while penalizing the worst.

The problem? What Health policy lacks is how best to apply and evaluate health care quality. Currently used measures fail to account for differences in patients’ socioeconomic and health status could skew quality scores in favor of practices caring for higher-income, better-educated, and less-complex patients.”

“Fewer Bonuses, More Penalties At Skilled Nursing Facilities Serving Vulnerable Populations”| Health Affairs, authors Jennifer Gaudet, HefeleXiao, “Joyce” WangEmily Lim:

“In the first year of the SNF Value-Based Purchasing Program (VBP), 26 percent of SNFs received bonus payments, 2 percent broke even, and 72 percent were penalized. 

Such programs use financial incentives to motivate providers to improve the quality of care. Concerns exist about these programs, as they may cause or exacerbate disparities. Specifically, if providers serving vulnerable populations are less likely to receive bonus payments or more likely to be penalized, then payment deficits may mean fewer resources for patient care and quality improvement.

This may (and probably will [AB]) translate into negative outcomes for the vulnerable populations served by these providers.”

I am going to stop here for the time being. Next and using much of Kip Sullivan’s detail, I will go deeper into how the VBP programs worsens disparities by reviewing research on CMS’s Skilled Nursing Facility VBP program.