In The Digital Era, Payment Reform Is Key To Shaping A Modern Medicare Program

Given the expected negative impacts of COVID-19 and other factors weakening Medicare’s financial solvency, the benefits of the digital age have never been more necessary to realize. This requires an effort to modernize the program: updating its coverage and payment approaches to digital technology as part of a larger effort to realize more value from modern program operations and benefit design. A program capable of using coverage and payment to achieve better financial and care quality outcomes is best positioned to realize available gains from the Fourth Industrial Revolution.

Coverage Reform Within The Payment Systems

Medicare’s Part A and Part B payment systems date back to the 1960s, which distinguish payments to hospitals and physicians based on where and in what volume care is provided. Care in an inpatient hospital, outpatient hospital, a physician’s office, and durable medical equipment all have their own unique payment system and regulations as a result.

Policy makers interested in updating Medicare’s approach to digital technology should consider: establishing standards for coverage of products that provide new opportunities for value under Medicare’s “reasonable and necessary” determinations; updating payment calculation methods for digital care and services to better account for care delivery costs; increasing the use of alternative coverage approaches, including basing coverage on digital function and reimbursement models for digital products; and reinvesting savings that result from modernization back into the existing payment systems to address program insolvency, medical provider reimbursement challenges and access inequities faced by minorities, rural Americans, and those with rare diseases.

Updating CMS Digital Coverage Standards to Prioritize “Value”

Value is a widely used term in health care, but shared understanding of it is less common. In a Medicare context, we view value as: opportunities for coverage to improve cost, quality, access, and operational efficiency. This is the context in which we use the term throughout the rest of this post.

The current standards for determining whether coverage is reasonable and necessary are outdated and do not sufficiently take into account the value of new digital technologies. As was recently noted, the Centers for Medicare and Medicaid Services (CMS) rules written decades ago don’t sufficiently account for the value of digital technology and in some instances intentionally so.

There have been attempts to address this problem. CMS recently proposed establishing standards for achieving desirable outcomes that it will consider when determining whether coverage for breakthrough technologies is “reasonable and necessary.” This action is a welcome sign and underscores the need to better define value within coverage determinations. It is not sufficient, however; the proposal limits coverage to only those products designated as breakthrough technologies by the Food and Drug Administration (FDA), excluding many digital technologies not granted status even if the product or service otherwise provides reasonable and necessary medical care and coverage.

Similarly, the Department of Health and Human Services Office of Inspector General recently established new “safe harbors” to the criminal Anti Kick-Back statute that will allow health care providers from diverse subsectors (hospitals, durable medical equipment suppliers, payers, and so forth) to better coordinate their efforts under “value-based arrangements.” While its goal of promoting greater collaboration on activities that can deliver new value is promising, it only applies to a small subset of claims Medicare pays annually. Therefore, it is not enough to overcome the weaknesses of CMS’s antiquated approach to coverage determinations.

Policy makers should update Medicare’s “reasonable and necessary” coverage determination processes to better identify opportunities for new value from digital technology coverage. Clear metrics for measuring quantifiable improvements—such as the amount of program savings or improvements in health outcomes without a commensurate increase in spending—should be used to determine “value.” Moreover, value should account for instances when digital care obviates the need for additional expenditures or burden—such as resources that might have previously been spent on travel to receive care, now delivered by smartphone to patients where they are. Approaches to determining and measuring value within coverage determinations should be reviewed regularly to ensure they keep pace with the speed of innovation to optimize returns. Establishing quantifiable ways to measure value stand in stark contrast with today’s approach and hold great promise for Medicare’s future.

Calculating Digital Reimbursement Amounts More Accurately

CMS’s reimbursement calculation methodology accounts for overhead such as the costs of maintaining an office building or providing for an MRI in a hospital. Coded claims are required to consider such costs to determine appropriate payment amounts for physicians. The rationale for coding digital services is the same versus brick-and-mortar services but doesn’t necessarily require the same things to deliver it. That is because although access to a digital service may not require a physical structure, engineering and cloud-computing costs would need to be considered. Other factors, such as malpractice or practice expense calculations, may apply but in different ways. While certain types of digital medical products and services are well-served by current coding approaches, they are exceptions. To realize more value from coverage, CMS will need to become familiar with the costs of providing digital care and how it is different from the brick-and-mortar care of today. In fact, CMS is already thinking about the relative costs of in-patient settings versus ambulatory surgery centers in its 2021 reimbursement rules; it should do so for digital products and services as well.

Coded data are also used for operational purposes such as to support research to gain a better understanding of how existing coverage and reimbursement approaches are working at a population level and where improvements in coverage or reimbursement can be found. Coding appropriately for digital technologies can improve the effectiveness of these efforts and improve the data CMS uses to modernize the program.

Policy makers should ensure that CMS adopts modern payment calculation methods for digital technologies more in line with their costs of providing care. In addition, calculation methods should account for other value opportunities as discussed above. Modern cost and payment calculation methods can be an effective means of controlling costs by paying more appropriately. What is more, they can help stakeholders deliver savings to the program.

Securing New Value Via Modern Reimbursement Methods

Elevate New Approaches To Reimbursement

Modern reimbursement approaches are needed to realize more value from digital coverage. Establishing new payment silos or updating the Durable Medical Equipment, Prosthetics/Orthotics, and Supplies fee schedule may look attractive at first glance but cannot secure sufficient returns because they do not account for the actions of the program’s other payment systems. Rather, policy makers should focus their efforts on updating the capabilities of all Medicare Part A and B payment systems to better realize the benefits of digital technology coverage and use throughout the program.

There is evidence that in covering innovative technology, alternatives to fee-for-service payments can improve the value of coverage. For instance, capitated payment approaches such as per-member-per-month, mainly used for the younger than 65 population, allow payers to better limit the total cost of all products and services provided by basing payment on metrics other than volume. Such payments allow payers to de-link the costs of care from the volume of products and services provided to beneficiaries.

From the standpoint of Medicare, alternatives to fee-for-service reimbursement are attractive because they would allow CMS to define absolute costs up front without having to contend with an impact on the volume of services available to beneficiaries. Digital products function in ways that blur the familiar lines on which the current payment systems have been built, providing new opportunities to realize “value.” Were CMS to step outside the rigid structure of the current payment systems, the agency can begin to determine the best way to develop coverage and reimbursement that provides value encompassing traditional and digital products and services.

Where possible, reimbursement alternatives for digital technologies should be established directly with technology sponsors. Routing payments for digital products and services through medical professional reimbursements is inefficient. It limits opportunities to align the interests of those providing digital products and services with those of CMS and beneficiaries by impeding effective communication and cooperation. Inefficient approaches to payment can also lead to increased program expenditures without additional benefits. Some payments may be more efficient when routed through medical professionals given a specific use case, but in many instances it is not. As with other conditions of participation, CMS should ensure that physicians and nurses have complete pictures of their beneficiaries’ health status when those beneficiaries are using digital products or services.

Consider Technologies’ Function, Not Their Modality

Medicare coverage should better consider the function of digital technologies as the basis for coverage and payment, and not just its modality, as a means of securing additional “value.” The FDA’s approach to digital technology approvals offers a good example of benefits that CMS can realize.

The FDA’s approval process for digital technologies focuses primarily on whether a specific function of a digital technology, versus the product category from which it originates, is safe and effective for use. It allows the agency to focus its regulatory efforts on only those aspects of a product relevant to the function under review, more effectively using scarce government resources and applicants’ time.

A similar focus by CMS can help increase value by paying only for what is necessary from a digital product rather than the entirety of the product. Treating functions of digital products more like medical services for purposes of coverage can also allow the payment systems to better integrate digital service and service alternatives into the existing payment systems. Looking at a health care product’s or service’s function—rather than the person or thing that supplies that care or the building in which it is supplied—can allow CMS to better orient Medicare coverage and reimbursement decisions around considerations of value by putting new and effective modalities on equal footing with traditional modalities.

Policy makers should ensure that the Part A and B payment systems are equipped to use modern payment approaches such as capitation, and coverage of individual digital services, when those products and services hold new opportunities for realizing greater value over more-traditional approaches.

Payment System Reinvestment

Generating greater value from modern coverage and reimbursement methods should yield savings that can be reinvested to address Medicare insolvency and other priority problems.

First, Medical professionals are the foundation upon which the current health system sits. The human connection between a health care professional and a person seeking their expertise will, properly, always be with us. A 21st century health care program requires a strong workforce to be successful. Existing reimbursement problems compounded by the need for policy makers to address Medicare insolvency, however, mean that health care providers are under threat. Reinvesting savings back into physicians and other medical professionals’ reimbursement can alleviate much of this distress.

Second, it is critically important to improve access to care for minorities, low-income beneficiaries, rural communities, and rare patient populations. The savings that could result from a greater focus on realizing value could fulfill this critical need. Expanding beneficiary access to medical services through digital means can also increase the overall availability of care, especially under national health emergencies.

The process of reinvesting savings can also provide opportunities for the provider community and patient advocates to better collaborate with CMS on program modernization.

Medicare’s Future Viability

Politically, there has never been a more compelling case, or a better time, for modernization. The Medicare program is under a financing threat with no solution in sight. An aging yet technologically adept population with increasing health care needs, combined with a better understanding of access inequalities and strained financing structures exacerbated by the economic impacts of COVID-19, threaten Medicare’s future viability. The amount of new financing needed to address these problems is staggering. Absent solutions, there is broad agreement that they will negatively impact beneficiaries. A modern Medicare program can aid policy makers in efforts to address these problems.

By updating the program’s approach to coverage and reimbursement, policy makers can maximize its potential and establish the functions of a modern program—better prepared to fix problems and use resources wisely.