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Costs and productivity in patient-centered medical homes: A simulation

Citation

Cromwell, J., & Greenwald, L. (2016). Costs and productivity in patient-centered medical homes: A simulation. (RTI Press Occasional Paper No. OP-0028-1607). Research Triangle Park, NC: RTI Press. DOI: 10.3768/rtipress.2016.op.0028.1607

Abstract

To address the fragmentation and discontinuities in health care, patient-centered medical homes (PCMHs) provide additional care coordination services for an extra management fee with the goal of saving private and public insurers money while improving the quality of care. Because empirical evidence showing PCMH financial success is unavailable, we use claims data from 312 PCMHs and a matched set of comparison practices to simulate the required reductions in hospital admissions, readmissions, and other services necessary to achieve statistically detectable savings thresholds. We also determine staff coordination time and productivity levels necessary to result in detectable savings. Our results indicate that PCMHs will have to generate annual savings between 3 percent and 30 percent depending upon the underlying cost variation per beneficiary, number of demonstration practices, and the extent of beneficiary clustering within practices. Eliminating all readmissions or most non-hospital services alone will not achieve required savings, even in larger initiatives. In order to be cost-effective, additional physician and nurse time coordinating care will have to be quite productive in reducing costly health services. If so, this likely will result in substantial profits for highly productive PCMHs.

Author Details

Jerry Cromwell

Jerry Cromwell, PhD, has more than 35 years of experience conducting federally funded technical and evaluation projects in health economics. Major fields include Medicare hospital and physician payment systems and productivity gains, disease management evaluations, federal-state Medicaid public finance, physician participation in publicly funded health programs, reimbursement of anesthesia services, and disparities in access to complex health technologies. His technical expertise includes actuarial estimation of hospital inpatient and outpatient payment rates, quasi-experimental design of payment reform demonstrations, quantification of breadth and depth of state Medicaid insurance coverage and physician work effort, and econometric analysis of business cycle effects on Medicaid eligibility. He has sat on AHCPR, VA, and OTA health care study sections and testified before Congress on Medicare and Medicaid payment reforms. He is the founder and past president of Health Economics Research, which was acquired by RTI in 2002.

Leslie Greenwald

Leslie M. Greenwald, PhD, is a principal scientist at RTI International. Her research interests include Medicare program policy, health care costs and payment, managed care, and health care reform. Dr. Greenwald received a BA from Dartmouth College and an MPA and PhD from the University of Virginia.