Some News from OMB on Medicare and Building Roads

Lessons from Medicare’s Demonstration Projects on Disease Management, Care Coordination, and Value-Based Payment

In the past two decades, Medicare’s administrators have conducted demonstrations to test two broad approaches to enhancing the quality of health care and improving the efficiency of health care delivery in Medicare’s fee-for-service program.Disease management and care coordination demonstrationshave sought to improve the quality of care of beneficiaries with chronic illnesses and those whose health care is expected to be particularly costly. Value-based payment demonstrations have given health care providers financial incentives to improve the quality and efficiency of care rather than payments based strictly on the volume and intensity of services delivered.

In an issue brief released today, CBO reviewed the outcomes of 10 major demonstrations—6 in the first category and 4 in the second—that have been evaluated by independent researchers. CBO finds that most programs tested in those demonstrations have not reduced federal spending on Medicare.

Most Disease Management and Care Coordination Programs Have Not Reduced Medicare Spending

The disease management and care coordination demonstrations comprised 34 programs that used nurses as care managers to educate Medicare beneficiaries about their chronic illnesses, encourage them to follow self-care regimens, monitor their health, and track whether they received recommended tests and treatments. Programs could earn fees to cover the costs of the interventions. All of the programs sought to reduce hospital admissions by maintaining or improving beneficiaries’ health, and because hospitalizations are expensive, that reduction was expected to be the key mechanism for reducing Medicare spending. CBO finds that:

• On average, the 34 programs had little or no effect on hospital admissions. There was considerable variation in the estimated effects among programs, however (see figure below).
• In nearly every program, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered.
• Programs in which care managers had substantial direct interaction with physicians and significant in-person interaction with patients were more likely to reduce Medicare spending than other programs. But, on average, even those programs did not achieve enough savings to offset their fees.

Effects of 34 Disease Management and Care Coordination Programs on Hospital Admissions

(Percentage Change in Hospital Admissions)

Note: Bars with lighter shading represent programs with fewer than 400 enrollees. The estimates for those programs are less precise than the estimates for the other programs.

Results from Demonstrations of Value-Based Payment Systems Were Mixed

Only one of the four demonstrations of value-based payment has yielded significant savings for the Medicare program. In that demonstration, Medicare made bundled payments to hospitals and physicians to cover all services connected with heart bypass surgeries, and Medicare spending for those services declined by about 10 percent. The other demonstrations appear to have resulted in little or no savings for Medicare. One, the Physician Group Practice Demonstration, allowed large multispecialty physician groups to share in estimated savings if they reduced total Medicare spending for their patients. Another offered hospitals bonuses if they met certain criteria regarding the quality of care. The last (for which results are available only on a preliminary basis for the first year) allowed home health agencies to share in estimated savings if they reduced total Medicare spending for their patients and met certain targets for quality of care. 

Demonstrations Face Significant Challenges

Demonstrations aimed at reducing spending and increasing quality of care face significant challenges in overcoming the incentives inherent in Medicare’s fee-for-service payment system, which rewards providers for delivering more care but does not pay them for coordinating with other providers, and the nation’s decentralized health care delivery system, which does not facilitate communication or coordination among providers. The results of those Medicare demonstrations suggest that substantial changes to payment and delivery systems will probably be necessary for programs involving disease management and care coordination or value-based payment to significantly reduce spending and either maintain or improve the quality of care provided to patients.

Other Lessons

The following approaches taken in various projects have been cited by observers as helpful in attaining the demonstrations’ goals:

• Gather timely data on the use of care, especially hospital admissions;
• Focus on transitions in care settings;
• Use team-based care;
• Target interventions toward high-risk enrollees; and
• Limit the costs of intervention.

The Medicare demonstrations reviewed here also offer several lessons for designing and evaluating demonstrations in the future. For example, evaluation findings should be reported consistently and promptly, and publicly available reports should provide as much information as possible on the features of the programs being tested. Such information is critical to explaining why some programs succeed or fail.

For more complete discussions of the demonstration projects, see:

• Lessons from Medicare’s Demonstration Projects on Disease Management and Care Coordination, CBO Working Paper 2012-01 (January 2012), and
• Lessons from Medicare’s Demonstration Projects on Value-Based Payment, CBO Working Paper 2012-02 (January 2012).

This brief was prepared by Lyle Nelson of CBO’s Health and Human Resources Division.

This entry was posted on Wednesday, January 18th, 2012 at 2:02 pm and is filed underHealth.

Do Public-Private Partnerships Build Roads More Quickly Or At A Lower Cost?

Currently, the federal government and state and local governments face calls for more and better highways but confront budgetary constraints in providing them. Some analysts have suggested that public-private partnerships might supply at least a portion of that capacity by providing additional financing for road projects and improving the efficiency of a highway’s construction and operation over the life of the road.

A CBO study, which was prepared at the request of the Chairman of the Senate Budget Committee, focuses on the following questions:

• What are public-private partnerships and how often are they used?
• Does private financing increase the resources available to build, operate, and maintain roads?
• Do public-private partnerships build roads more quickly or at a lower cost?

What are public-private partnerships and how often are they used?

The term “public-private partnership” refers to a variety of arrangements for highway projects that transfer some of the risk associated with a project and some of the control of a project to a private partner. That transfer is achieved in part by bundling some of the elements of providing a highway. Among the most extensive public-private partnerships are those in which a private firm provides financing for a highway project, designs and builds it, and then, in exchange for the right to charge tolls, operates and maintains it over its useful life.

The most common type of public-private partnership, however, is a more limited agreement in which one contractor agrees to both design and build a highway rather than having a government agency manage each of those steps separately. Under such a partnership, the contractor assumes greater risks than it would under the traditional approach (in which a state or local government assumes most of the responsibility for carrying out a project and bears most of its risks) because the terms of the partnership’s contract generally limit the private firm’s ability to renegotiate the contract.

The use of such partnerships for providing highway infrastructure is limited in the United States. Between 1989 and 2011, the value of highway projects financed through such partnerships represents a little more than 1 percent of the approximately $3 trillion (in 2010 dollars) that was spent on highways during that period by all levels of government. The use of public-private partnerships is increasing, however especially for limited-access highways in urban areas.

Does private financing increase the resources available to build, operate, and maintain roads?

Private financing will increase the availability of funds for highway construction only in cases in which states or localities have chosen to restrict their spending by imposing legal constraints or budgetary limits on themselves. The sources of revenues available to pay for the cost of a highway project—whether it is financed by a government or a public-private partnership—are the same: specifically, tolls paid by users or taxes collected by either the federal government or by state and local governments. Therefore, absent restrictions on governments’ ability to borrow, there is no difference between the amount those governments could raise themselves and the sums that public-private partnerships could raise because the same resources are available to remunerate investors in either case. Private financing can provide the necessary capital, but it comes with the expectation of a future return, the ultimate source of which is either taxes or tolls.

The total cost of the capital for a highway project, whether that capital is obtained through a government or through a public-private partnership, tends to be similar once all relevant costs are taken into account—including the cost of the risk of losses associated with the project. A construction project is never without such risk, even when a government guarantees repayment of any debts incurred to finance construction. Someone always bears that risk: That is, some form of explicit or implicit equity investment is necessary to absorb potential cost overruns or revenue shortfalls. For highways that are financed by public debt, taxpayers play the role of equity investors, bearing the risk that revenues might be less than the payments that have been promised on the debt. A comprehensive measure of financing costs takes into account the cost of such equity financing, even when it is provided indirectly by taxpayers. That cost is equivalent to the return that a private investor would require to finance such a project.

Do such partnerships build roads more quickly or at a lower cost?

Evidence from a small number of studies indicates that public-private partnerships have built highways slightly less expensively and slightly more quickly, compared with the traditional public-sector approach. Those results, however, are highly uncertain.

Only a few studies have focused on the private provision of a highway project—that is, on design and construction as well as on operations and maintenance. The studies typically estimated that the cost of building roads through design-build partnerships was a few percentage points lower than it would have been for comparable roads provided in the traditional way. Moreover, private provision was relatively more effective in reducing cost and the time required to complete the road for larger projects than for smaller projects.

In some cases, the time required to design and build the road declined—in part because the public-private partnership bundled the design and construction contracts and so eliminated a second, separate bidding process for the additional tasks. Information about using public-private partnerships to operate and maintain roads is more limited; there is some evidence of reductions in operations and maintenance costs under private control.

This study was prepared by Alan van der Hilst of CBO’s Microeconomic Studies Division.
 

This entry was posted on Monday, January 9th, 2012 at 2:03 pm and is filed underInfrastructure and capital, Microeconomic Analysis.