Prevent Trips to the Hospital with Medical Homes

Emergency room visits often represent failure in health care. Medicare patients could avoid three of every five trips to the ER if they simply got better routine care. Numerous patients in the ER with an asthma attack, pneumonia, or back pain, for example, could have likely avoided costly and invasive treatment if they kept up with regular care. By improving routine care, through a “medical home” and the right financial incentives, we estimate Medicare could save $25 billion over ten years simply because patients would be getting more appropriate care. 

Current behavior: Patients go to the emergency room for an avoidable health crisis.

New behavior: Patients see physicians for routine care.

How to change behavior: Pay physicians to create a medical home.

What’s The Problem?

In a properly functioning medical system, patients have access to care that properly manages health problems like infections and chronic diseases. The reason: problems that are simple to treat in a physician’s office can spiral out of control without proper care and assistance for patients. Patients with diabetes can end up blind or have a foot amputated without routine care and support. Children with asthma can end up in the ER unless they have, and know how to use, medications that prevent asthma attacks. Both examples are clearly bad for the patients, and they are also costly to the taxpayer.

Often, patients only need quick access to health care through a phone call or email that does not involve several hours of going to see a physician. They also need health care that does not wait for something to go wrong when a standard check-in would prevent it. Just as today’s cars have built-in reminders for preventive maintenance, there is no reason that health care professionals shouldn’t be flashing signals to patients that it is time to check in. 

But today, physicians are not paid for taking patients’ phone calls or responding to emails. They get paid when they see a patient in their office. In other words, in the modern communications age, physicians only get paid for face-to-face visits. In fact, state laws sometimes limit or prohibit online health care visits with physicians. Physicians also currently don’t get paid for coordinating the care of patients with chronic and serious illnesses. Even though gaps in care can be deadly and expensive, making sure they don’t occur is given no monetary value. 

The lack of attention to basic care adds up to unnecessary costs and suffering. In fact, nearly 60% of emergency room visits among Medicare patients are potentially preventable.1

What Can Fix It?

Experts have a new name for the old idea of a physician who looks out for you. It is called a patient-centered medical home, but think of it like a cocoon. It is a warm and supportive team of health professionals led by a physician who watches over your health using modern communications and information technology. 

Creation of medical homes would change the way health professionals are paid. Specifically, it would boost payments to primary care professionals in three ways. First, it would provide a lump sum payment for services that cover modern communications and care coordination. Second, primary care physicians would receive an additional payment boost when their patients do not end up going to the ER or the hospital for predictable problems.2 Third, primary care physicians would also receive a bonus payment when their patients get better or chronic diseases remain stable. These payment changes would reward health professionals for improving the health of their patients, not for performing a series of isolated tasks. 

Medicare and all other federal health care programs should offer medical homes to beneficiaries through their physicians. In Medicare, for example, physicians would have two choices about how to participate. They could: (1) accept Medicare payments directly for the extra services that have proven to save money; or (2) use an administrator such as a hospital or a physician organization that would handle the costs and payments under a contract with Medicare. Initially, physicians could choose whether to participate, but after five years, physicians in primary care fields would face declining reimbursements if they did not offer a medical home.3

Medical homes should not be limited to the traditional fields of primary care which includes family medicine, internal medicine, and pediatrics. Other patients, for example those with mental health problems or those newly diagnosed with cancer, would benefit from the same kind of communication and care coordination available through specialists who offer medical homes. In addition, other health professionals such as pharmacists and nurse practitioners have key roles to play in a successful medical home. They often have more time and possess specialized skills to support patients in a holistic way, from following through on drug regimens to managing chronic diseases.

Medicare has several promising experiments underway to expand the scope of medical homes.4 Congress should authorize this expansion in anticipation of success with the experiments. Congress should also ensure that federal and state rules don’t block the development of online health care, which is also known as tele-health.5

Where Is It Working?

Health plans in a number of states have successfully experimented with new ways to pay for regular care using the savings from preventing emergency care and other avoidable procedures. For example, WellPoint operating in Colorado, New Hampshire, New York, and elsewhere offers monthly lump sum payments to physicians that cover email and telephone communication with patients and coordination of a patient’s care with multiple physicians.6 The health plan then tracks how well the physicians’ patients do against 35 measures of success. If the patients maintain good health at lower costs, then the physicians receive a reward of up to 30% of the savings. 

Another strategy to expand medical homes comes from Carefirst in Maryland. It assigns a nurse to each physician to support the extra time needed to communicate with patients and coordinate their care.7 That has helped get the program up and running with physicians who don’t have the time or resources to hire additional staff. Such pilot programs have lowered ER visits by 37%.

A third strategy has been put to the test in Indianapolis by Wishard Health Services, which is affiliated with the Indiana University School of Medicine. The GRACE program (for Geriatric Resources for Assessment and Care of Elders) study provided a rich set of services including (1) physicians trained in geriatric medicine; (2) in-home assessment and care management provided by a social worker and nurse practitioner team; and (3) coordination of many kinds of care ranging from pharmacy to mental health and from home health to inpatient geriatric care services. It reduced hospitalization rates by 44% among patients who otherwise would have likely been admitted to the hospital.8

Potential Savings?

Third Way estimates that providing medical homes to high-risk patients as a start would save Medicare $25 billion over 10 years.9 This estimate assumes that only 5% of eligible patients would participate in the first year of implementation and the participation rate would steadily grow to 50% over 10 years.

Expanding medical homes to all Medicare patients would make a sizable cut in the $38 billion currently spent on emergency department overuse.10 They would also help patients avoid having to be admitted to the hospital for preventable conditions, which could save Medicare as much as $30.8 billion each year.11 

Yet, while the potential savings are substantial, it will take time and resources to chip away at avoidable hospital costs. For example, the cost of the extra services in the GRACE study was over $1,000 per year per patient.12 This upfront investment pays off because fewer patients go the ER or need hospital care. 

The GRACE study provides a foundation for an estimate of net savings because it was done as a scientific study with two groups of randomly selected patients. The control group received the usual care, and a test group received extra services through a medical home model. The total cost of care for the test group of patients who were at high risk of needing hospitalization was $17,713 versus $18,776 for the control group; the net savings of $1,063 over two years.13 Patients were identified as high risk through a survey that asked if they were having problems such as taking care of themselves.14

Our estimate assumes that the savings would be less than under the GRACE study mainly because its patients had incomes of less than 200% of poverty.15 Lower income elderly populations generally have higher rates of hospitalization and worse health, limiting the potential for savings compared to higher-income patients.

Questions & Responses

Are medical homes voluntary for patients?

Yes, patients would be free to choose whether or not to use the services offered under a medical home.

Do medical homes control patients’ access to specialists? 

No, a patient-centered medical home would not prevent access to specialists.Because of the enhanced care that medical homes provide, however, they will likely reduce some of the overall specialty care that a patient may have otherwise required. For example, by helping patients with diabetes control their disease, a medical home keeps patients from needing specialized care for a failed kidney that diabetes could have caused. It also helps make sure patients with diabetes get access to specialists like an ophthalmologist who can prevent and treat blindness that diabetes can also cause when left untreated. When a patient needs specialized care, a physician providing a medical home will help coordinate the care.

Do patients need to switch physicians to have a medical home?

Any physician who leads a patient’s care would be able to offer a medical home. These physicians would receive reimbursements for the upfront cost of additional services provided under a medical home and for identifying patients with the greatest needs. Although it would take several years for all physicians to develop the capacity to offer a medical home to their patents, all physicians would have a strong incentive to do so eventually.

Do physicians have to join a big group practice to offer a medical home? 

No, both small and large medical practices can offer medical homes. While larger groups may have some economies of scale in terms of lower fixed costs for big ticket items (e.g., electronic medical records), smaller practices can be supported with such infrastructure arranged through a health plan. 

What resources are available to develop the idea of medical home? 

The Patient-Centered Primary Care Collaborative is one of the major groups pushing for adoption of medical homes in the public and private sectors.16 Its membership represents more than 1,000 stakeholder organizations and 50 million health care consumers. It has extensive information about the variety of medical homes being developed throughout the U.S.

How do medical homes fit with legislation that would reform physician payments in general?

Medical homes are one part of a larger set of reforms to change physician payments under Medicare. For example, Reps. Allyson Schwartz (D-PA) and Joe Heck (R-NV) have proposed replacing the current fee-for-service payment system with other payment systems like medical homes, accountable care organizations, or bundled payments.17 After four years of development and refinement of new payment models, physicians would have to be reimbursed through a new payment system or face declining payments for fee-for-service reimbursements.

  • Medicare/Medicaid53
  • Health Care Costs51


  1. Sara Sadownik and Nancy Ray, “Population-based measures of ambulatory care quality: Potentially preventable admissions and emergency department visits,” PowerPoint, Medicare Payment Advisory Commission, October 5, 2012. Accessed October 11, 2012. Available at:

  2. Predictable problems means ER visits and other kinds of problems that are greater than expected.

  3. United States, Congress, House of Representatives, “H.R. 5707- The Medicare Physician Payment Innovation Act of 2012,” 112th Congress, 2nd Session, May 9, 2012. Accessed November 15, 2012. Available at:

  4. “Health Care Innovation Award Project Profiles,” Centers for Medicare & Medicaid Services, July 30, 2012. Accessed November 15, 2012. Available at:

  5. United States, Congress, House of Representatives, “H.R. 6719—Telehealth Promotion Act of 2012,” 112th Congress, 2nd Session, December 30, 2012. Accessed January 18, 2013. Available at:

  6. Raskasm, et al., “Early Results Show WellPoint’s Patient-Centered Medical Home Pilots Have Met Some Goals For Costs, Utilization, And Quality,” Health Affairs (subscription), September 2012, vol. 31, no.9. Accessed November 15, 2012. Available at:

  7. Dina Overland, “Fierce Q&A: CareFirst CEO dishes on medical home success,” FierceHealthPayer, October 9, 2012. Accessed November 15, 2012. Available at:

  8. Christina Bielaszka-DuVernay, “The ‘GRACE’ Model: In-Home Assessments Lead to Better Care for Dual Eligibles.” Health Affairs (subscription), March 2011, p. 434. Accessed June 1,2013. Available at:

  9. Author’s calculations based on Steven R. Counsell, et al., “Cost Analysis of the Geriatric Resources for Assessment and Care of Elders Care Management Intervention,” Journal of American Geriatric Society, August 2009, p. 1424. Print.

  10. “A Matter of Urgency: Reducing Emergency Department Overuse,” Issue Brief, New England Healthcare Institute, March 1, 2010. Accessed November 15, 2012. Available at:

  11. Joanna Jiang, Allison Russo, and Marguerite Barrett, “Nationwide Frequency and Costs of Potentially Preventable Hospitalizations, 2006,” Healthcare Cost and Utilization Project, February 2011. Accessed October 11, 2012. Available at:

  12. Steven R. Counsell, et al., “Cost Analysis of the Geriatric Resources for Assessment and Care of Elders Care Management Intervention,” Journal of American Geriatric Society, August 2009, p. 1424. Print.

  13. Steven R. Counsell, et al., “Cost Analysis of the Geriatric Resources for Assessment and Care of Elders Care Management Intervention,” Journal of American Geriatric Society, August 2009, p. 1424. Print.

  14. It is important to note that medical home services under the GRACE for patients with a low-risk of hospitalization increased total costs from $9,654 to $13,307 over two years. Adjustments in the level of services to low-risk patients could make medical homes a budget neutral proposition for low-risk patients.

  15. In order to estimate the potential savings for Medicare, the GRACE study results require adjustments for the kind of Medicare beneficiaries who were not included in the study. All of the study participants had incomes of under 200% of poverty. Higher income Medicare beneficiaries have lower hospitalization rates and need less outpatient care because they are healthier.

  16. Patient-Centered Primary Care Collaborative, Accessed June 5, 2013. Available at:

  17. Unites States, Congress, House of Representatives, “H.R. 474 -- Medicare Physician Payment Innovation Act of 2013,” 113th Congress, 1st Session, February 26, 2013. Accessed April 27, 2013. Available at: