The Obama administration on Monday announced plans to change the way Medicare pays doctors and hospitals, moving away from a system that encourages excessive medical treatment and services with little accountability to one that rewards quality of care and value.
The Department of Health and Human Services will try to tie 30 percent of traditional Medicare fee-for-service payments to alternative, performance-based pay models by the end of 2016. The goal is for 50 percent of traditional Medicare payments to fall under the new formula by the end of 2018.
In Medicare’s Hospital Value Based Purchasing program and its Hospital Readmissions Reduction Programs, HHS will try to provide 85 percent of traditional program payments through the new payment model by the end of 2016. The goal is to increase that to 90 percent by the end of 2018.
Medicare, the national health insurance plan for 50 million seniors and disabled Americans, is the nation’s largest purchaser of medical services. In 2014, the program paid caregivers $362 billion. But Medicare has been plagued in recent years by runaway costs, waste and fraud.
Part of the problem: caregivers who treat Medicare patients are paid - based on volume - for each service they provide. That encourages medical personnel to provide more care and medical services whether it’s needed or not.
The Affordable Care Act sought to address the problem by creating new alternative payment models like accountable care organizations, primary care medical homes and “bundled” provider payments. Each are designed to reward care delivery and best practices that improve health outcomes in a more cost-conscious manner.
In 2011, Medicare made almost no alternative payments to providers. But today, roughly 20 percent of traditional Medicare payments are made through these new care delivery models The goals announced today would increase that amount by 50 percent in 2016.
“Today’s announcement is about improving the quality of care we receive when we are sick, while at the same time spending our health care dollars more wisely,” said HHS Secretary Sylvia Mathews Burwell. “We believe these goals can drive transformative change, help us manage and track progress, and create accountability for measurable improvement.”
The new HHS payment goals are “ambitious, but realistic,” said Josh Seidman, vice president at Avalere Health, a D.C. health care consulting firm.
That’s because they continue a trend that’s already taken hold in the health care industry - linking payments to quality and holding providers accountable for the health of the populations they serve.
“They will need to perform well on quality metrics in order to have favorable compensation,” Seidman said. Instead of treating the sick when they seek help, providers will be increasingly asked to manage their patients’ health in a way that prevents acute needs for care, Seidman added.
He said the new payment plan gives providers a business case to embrace other HHS initiatives like the expansion of electronic health records and providing team-based care for patients with multiple needs.
After meeting with business leaders, consumer advocates, insurers and providers on Monday, Burwell also announced plans to nudge the entire U.S. health care system in the same direction.
Through the creation of a new Health Care Payment Learning and Action Network, HHS will try to expand the alternative payment plan to include private insurers, employers, consumers, state Medicaid programs and other partners. The network will hold its first meeting in March and more details about their efforts will soon be announced.
While the new effort offers a bit of culture shock for caregivers used to handling patients with little outside influence, a host of stakeholders expressed support for the plan.
"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," said Douglas E. Henley, Chief Executive Officer of the American Academy of Family Physicians.
Rick Pollack, executive vice president of the American Hospital Association, said his organization also supported the plan.
But he added “we need to phase in changes in a thoughtful manner that is tailored to the specific needs of individual communities. We look forward to learning more from HHS on the details and metrics of this program,” Pollack said in a statement.