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Transition to Alternative Payment Method Challenging for Practices

SANTA MONICA, CA – Alternative payment models are being touted as a way to improve quality and reduce costs, but physician practices are struggling to meet the challenges without help in managing the onslaught of data and the requirements of different payers.

That’s according to a new joint study by the RAND Corporation and the American Medical Association.

One way that physician practices are responding is by partnering or merging with other medical practices or hospitals in order to better support the investments necessary to succeed in new payment models, such as in care managers and information technology.

“We found that changing the payment system probably isn't enough to ensure that patient care will improve,” said Mark W. Friedberg, MD, MPP, the study's lead author and a senior natural scientist at RAND, a nonprofit research organization. “For alternative payment methods to work best, medical practices also need support and guidance. It's the support that accompanies a new payment model, plus how well the model aligns with all of a practice's other incentives, that could determine whether it succeeds.”

For the research on how alternative healthcare payment models are affecting physicians and medical practices in the United States, researchers conducted case studies of 34 physician practices in six diverse geographic markets – Little Rock, AR; Orange County, CA; Miami; Boston; Lansing, MI; and Greenville, SC. Researchers also spoke to the leaders of 10 payer organizations, nine hospitals or hospital systems, seven local medical societies and five Medical Group Management Association chapters.

The payment models included:

  • episode-based and bundled payments
  • shared savings
  • pay-for-performance
  • capitation
  • retainer-based practices

Also reviewed were how practices fared with accountable care organizations and medical homes, two new organizational models.

Physicians generally agreed that transition to alternative payment models increased patients’ access to care. While practice leadership were optimistic about alternative payment models, however, other physicians often expressed some apprehension, especially about new documents requirements, according to the report.

None of the practices reported financial hardship because of their transition to an alternative payment system, with the most difficult issues being operational, such as the inability to offset costs of pricey information systems because crucial data is missing. In addition, the variety of performance measures and requirements by a large numbers of payers can overwhelm practices, the report states.

How physicians are compensated also is an issue, the researchers point out. In alternative payment models, physician practices generally are paid more for improved performance, yet practices often use nonmonetary incentives to encourage physicians to change their decision making.

“Despite the pressure to contain costs, practice leaders are trying to avoid creating situations where doctors are paid more when patients do not get the services they need,” Friedberg explained.