Incremental Cost Estimates for the Patient-Centered Medical Home

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Over the past several years, there has been wide and growing interest in organizing primary care practices into “medical homes” (MHs), which provide care coordination, patient education, and related services in addition to primary medical care. Several prominent medical societies collaborated to articulate the “Joint Principles of the Patient-Centered Medical Home,” core concepts that have been incorporated into the National Committee for Quality Assurance’s (NCQA’s) Physician Practice Connections–Patient-Centered Medical Homes (PPC-PCMH) recognition tool. But despite the attention being paid to the medical home approach, little is known about the costs associated with this practice model; the focus of most available studies is in establishing payment rates or value (by means of savings through reduced use of other services), not in providing clear cost estimates.

This project aimed to fill that gap by estimating the incremental costs of a practice that serves as an MH for its patients. It used data from some three-dozen practices to analyze the relationship, if any, between costs and medical home activities. The cost data came from the Medical Group Management Association (MGMA) Cost Survey and the American College of Physicians (ACP) Practice Management Check-up Tool for 2006; the medical home data were from NCQA’s PPC-PCMH recognition tool. By collecting both cost and MH data from the same practices, we could measure any relationship as it actually occurred—in contrast with other studies, which have simply made assumptions about the inputs that practices would use to provide MH services.

Based on data from the 35 practices in the final analysis sample, we found no evidence of additional costs associated with higher levels of MH activity; our estimates suggested that there was less than a $1-per-month difference in patient costs between the third of study practices with the highest PPC-PCMH scores (which measure MH intensity) and those in the middle and lower thirds. The average total cost per full-time-equivalent (FTE) physician was $517,000 for all 35 practices. Although the mean total cost per FTE physician increased slightly across the three score categories, the Low and High means were within one standard error of one another, meaning that the differences were not statistically significant. Support staff costs exhibited a similar pattern.

The one exception was information technology (IT) costs, which showed a modest but statistically significant correlation with PPC-PCMH scores. The average practice spent about $8,000 per FTE physician on IT. However, practices scoring low on the NCQA tool spent only $5,000 per FTE physician, while those scoring in the high category spent more than twice as much ($11,000).

This analysis has two potentially important implications. First, if one accepts the finding of a weak relationship between costs and PCMH levels, then becoming a PCMH may only require adjustments to how practice inputs are used, as opposed to incurring significant additional expenditures. Second, it may be that the PPC-PCMH recognition tool emphasizes certain dimensions of practice redesign (e.g., use of information technology) and, as a result, masks the relationship between costs and other elements of practice redesign that may be more important to improving patient-centeredness, such as expenditures of physician time.

Finally, what it costs—or does not cost—to be a medical home is distinctly different from how much payers may be willing to pay for MH-provided care. To the extent that the care model reduces spending on emergency room visits, hospital stays, or other types of services, payers may want to encourage physicians to adopt this practice model through payments that exceed any expenses associated with the model.

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