Big change: Feds to tie more Medicare payments to 'value'

Health and Human Services Secretary Sylvia Mathews Burwell testifies before the Senate Appropriations Committee Capitol Hill in Washington.
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Health and Human Services Secretary Sylvia Mathews Burwell testifies before the Senate Appropriations Committee Capitol Hill in Washington.

The federal government plans to significantly change the way it reimburses Medicare providers in coming years, moving to pay less based on the volume of specific services given to patients, and more for the quality of care those people receive under that massive government-run health coverage program.

The Obama administration revealed details of that big shift from the current traditional Medicare payment structure to a more outcome-based model in an announcement Monday.

The U.S. Health and Human Services Department said it was increasing the percentage of traditional Medicare dollars currently paid out to "alternative payment models" that emphasize patient outcomes over getting paid for individual medical services, and also moving to have even more of all traditional Medicare payments tied to value instead of services.

"This is the first time in in the history of the Medicare programs that HHS has set explicit goals for alternative payment models and value-based payments," the department said in a press release detailing the changes.

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Medicare is the second-largest U.S. budget item, and accounts for nearly $600 billion of spending. About 70 percent of the 54 million Medicare beneficiaries are on traditional Medicare, where the government directly pays hospitals and doctors for caring for the covered people. The Medicare Advantage program, under which the government pays insurers to coordinate payments for beneficiaries, accounts for the balance of covered people.

Most Medicare beneficiaries are people age 65 and older. Nine million of the program's beneficiaries are people younger than 65 with disabilities.

The plan announced Monday reflects the increased desire in the health-care system to tie payments to patients' outcomes and not to the medical services provided to people.

The so-called fee-for-service model that has long prevailed in the U.S. health-care system has been blamed for medical costs that have continually outpaced normal inflation and on worse health outcomes for Americans compared to their counterparts in other industrialized countries.

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HHS Secretary Sylvia Burwell said, "Whether you are a patient, a provider, a business, a health plan, or a taxpayer, it is in our common interest to build a health-care system that delivers better care, spends health-care dollars more wisely and results in healthier people."

"Today's announcement is about improving the quality of care we receive when we are sick, while at the same time spending out health-care dollars more wisely," Burwell said. "We believe these goals can drive transformative change, help us manage and track progress and create accountability for measurable improvement."

Under the plan, HHS said it has has set of goal of tying 30 percent of "traditional, or fee-for-service Medicare payments to quality or value through alternative payment models, such as Accountable Care Organizations (ACOs) or bundled payment arrangements by the end of 2016," according to the press release.

Both models are based on the idea of giving lump sums to providers for taking care of patients, as opposed to making payments for individual services.

By 2018, HHS wants to tie 50 percent of traditional fee-for-service Medicare payments to such alternative payment models.

Currently, about 20 percent of the $362 billion in Medicare fee-for-service payments are made through alternative payment models, according to HHS, which noted that Medicare had "made almost no" such payments as recently as 2011. Under the plan announced Monday, there would be a 50 percent increase in that level by the end of 2016.

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"HHS also set a goal of tying 85 percent of all traditional Medicare payments to quality or value by 2016 and 90 percent by 2018 through programs such as the Hospital Value Based Purchasing and the Hospital Readmissions Reduction programs," the release said.

Those targets are less ambitious than the ones tied to payment models. A senior HHS official, speaking on background, said that currently less than 20 percent of such Medicare payments don't have a link to quality or value.

Burwell said that her department is creating the "Health Care Payment Learning and Action Network" to help private payers, employers, consumers, providers, states, Medicaid partners and others involved in the Medicare program "expand alternative payment models into their programs."

"HHS will intensify its work with states and private payers to support adoption of alternative payments models through their own aligned work, sometimes even exceeding the goals set for Medicare," the department said.

Kaiser Family Foundation Senior Vice President Tricia Neuman, who directs that health-care research group's Medicare policy program, called the announcement "a big deal."

"This is the first time they've set [targets] for traditional Medicare to fundamentally change the way it pays for care," Neuman said. "The concern about traditional Medicare, on the fee-for-service side, has been that there is insufficient incentives to reduce unnecessary services because of the incentives to providers to do more to get paid."

"The idea here is to change the incentives to providers so that they share in the risk and the benefits of providing better care at lower costs," she said.

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Dr. Douglas Henley, executive vice president and chief executive officer of the American Academy of Family Physicians said: "We're all partners in this effort focused on a shared goal. Ultimately, this is about improving the health of each person by making the best use of our resources for patient good. We're on board, and we're committed to changing how we pay for and deliver care to achieve better health."

Karen Ignagni, president of industry group America's Health Insurance Plans said: "Advancing a patient-centered health system requires a fundamental transformation in how we pay for and deliver care. Today's announcement by Secretary Burwell is a major step forward in achieving that goal."

"Health plans have been on the forefront of implementing payment reforms in Medicare Advantage, Medicaid Managed Care and in the commercial marketplace. We are excited to bring these experiences and innovations to this new collaboration," Ignagni said.