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Shifting Medicare Payment from Quantity to Quality

In a historic announcement issued by the Department of Health and Human Services (HHS) on January 26, 2015, the agency outlines its vision and goals for the next several years.

The new goals are as follows:

  • Tie 30% of 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
  • Tie 50% of payments to these models by the end of 2018.
  • Tie 85% of all traditional Medicare payments to quality or value by 2016 and 90% by 2018 through programs such as the Hospital Value Based Purchasing and the Hospital Readmissions Reduction Programs.

Health care, including for Medicare patients, have traditionally used the “fee-for-service” model that pays providers for each individual treatment rather than for the overall treatment of a patient or group of patients. In 2014, Medicare paid about $362 billion to providers in fee-for-service payments. The announcement is the first time the government has ever set specific goals to steer the nation away from fee-for-service payments. That is, providers will be paid for making people better; not just for trying.

Starting next year Medicare, which covers about 50 million elderly and disabled Americans, will base 30 percent of payments on how well health providers’ care for patients, some of which will put them at financial risk based on the quality that they deliver. By 2018, the goal is to put half of payments under the new system.

In 2011, Medicare made almost no payments to providers through alternative payment models, but today such payments represent approximately 20 percent of Medicare payments. The goals announced will represent a 50 percent increase by 2016.

HHS has already seen promising results on cost savings with alternative payment models, with combined total program savings of $417 million to Medicare due to existing Accountable Care Organizations (ACO) programs. Moreover, initiatives like the Partnership for Patients, ACOs, Quality Improvement Organizations, and others have helped reduce hospital readmissions in Medicare by nearly 8 percent, translating into about 150,000 fewer readmissions and saving $12 billion in health spending between January 2012 and December 2013.

To make these goals scalable beyond Medicare, HHS also announced the creation of a Health Care Payment Learning and Action Network. Through this Learning and Action Network, HHS will work with private payers, employers, consumers, providers, states and state Medicaid programs, and other partners to 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 Network will hold its first meeting in March 2015, and more details will be announced in the near future.

Hospitals, health facilities and physicians will have to speed up changes in how well they treat Medicare patients or face lower payments under the alternative payment models. Payment toward providers will be based on quality, rather than quantity. Historically this is the first time HHS has set explicit goals for alternative payment models and value-based payments.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

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