The models of care with the strongest evidence base often expand the range of services provided to older patients, for example, with the addition of social services, caregiver education and support, and preventive home visits. Yet, Medicare typically does not cover these additional services, even if evaluations indicate that they reduce costly hospitalizations or nursing-home use in the long run. This lack of coverage contributes to the failure of many models to gain widespread traction. This section reviews the way in which Medicare services are currently paid for and presents several alternatives that could be used to foster the development and implementation of new models of care.

Fee-for-Service Medicare

One major problem is that brief visits are a poor way of managing chronic conditions even though care for chronic conditions is the most common reason that Medicare patients seek physician care (Hing et al., 2006; McGlynn et al., 2003; Scherger, 2005). Furthermore, under the FFS system, more visits lead to higher physician and hospital revenues regardless of the quality or efficacy of the services being delivered (MedPAC, 2006). Payment is directed to individual physicians and emphasizes treatment for in-person care, which serves as a barrier to care coordination. This disincentive is particularly significant since most Medicare patients seek care from multiple providers (MedPAC, 2006). Furthermore, such a payment mechanism provides no financial incentive for health care providers to deliver services that extend beyond the typical office visit, such as ongoing patient education to teach older adults how to better manage their chronic conditions between visits (Brown et al., 2007).

Medicare is required by statute to apply its rules uniformly to all providers, limiting its ability to reward exemplary performance (Berenson and Horvath, 2003). CMS cannot provide additional payment or greater flexibility to organizations that offer additional services to patients, even if they are targeting frail older adults or some other particularly needy group of older adults. Overall, the traditional FFS system limits innovation in care delivery.

Shifting the focus of care delivery away from acute care is difficult in part because of the rather complicated process that CMS must follow in order to add coverage for newer services, such as preventive home visits or care coordination. CMS must determine that the service fits into a statutorily established benefit category and that it is “reasonable and necessary” in order to diagnose or treat an illness, and then it must assign the service an appropriate payment code. Many services that are critical components

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