'Historic' Timeline Set for Basing Medicare Pay on 'Value'

January 26, 2015

The Obama administration wants half of all Medicare payments to physicians and hospitals in 2018 to be made through alternative payment models such as medical homes and accountable care organizations (ACOs) as part of a "historic" timetable for basing reimbursement on value, not volume, the government announced today.

In addition, the Department of Health and Human Services (HHS) has set a goal of tying 85% of all fee-for-service (FFS) payments to quality and cost measures by 2016, and 90% by 2018.

"Today's announcement is about improving the quality of care we receive when we are sick, while at the same time spending our healthcare dollars more wisely," said HHS Secretary Sylvia Burwell in a news release. "We believe our goals can drive transformative change, help us manage and track progress, and create accountability for measurable improvement."

Shifting from FFS reimbursement in Medicare to a pay-for-performance model has been a longstanding goal in HHS. However, the plan revealed today is the first ever for setting explicit goals for alternative payment models and value-based payments, according to the department. It builds on many of the initiatives found in the Affordable Care Act, relies heavily on interoperable electronic health record (EHR) systems, and moves physicians and hospitals toward population-based care and payment.

Burwell also announced the creation of a Health Care Payment and Learning and Action Network that would work with private health insurers, providers, employers, and state Medicaid programs to hasten the spread of alternative payment models outside Medicare.

Burwell set out her ambitious plan in a meeting with representatives of the healthcare industry, who voiced their support. The group included leaders of the American Medical Association (AMA) and the American Academy of Family Physicians (AAFP).

"We're on board, and we're committed to changing how we pay for and deliver care to achieve better health," said Douglas Henley, MD, the AAFP's executive vice president and chief executive officer, in the HHS news release.

In a separate news release, AMA President Robert Wah, MD, said that the HHS plan "aligns with the [AMA's] commitment to work toward innovative care delivery reform that will promote high-quality and efficient care for our nation's seniors who count on Medicare, while reducing the administrative and regulatory burdens physicians face today." The AMA, Dr Wah added, "look[s] forward to hearing more details behind the percentages HHS put forward [and] their plans to reach these percentage targets."

More Performance Metrics on the Way? Not Quite, Says HHS

The movement to alternative payment models, which also include bundled payments and the Medicare Shared Savings Program, has been rapid. In 2011, these models accounted for hardly any of the Medicare reimbursement that providers received, a senior official in the Centers for Medicare and Medicaid Services (CMS) said in a news briefing today. By 2014, they represented about 20% of payments. Just one of those models — ACOs — already has saved Medicare some $417 million.

The CMS official, who spoke on background and therefore could not be identified, suggested that achieving 30% of reimbursement through alternative payment models by 2016, and 50% by 2018, would happen without much government prodding, given that providers are adopting these models voluntarily. 

"The healthcare marketplace is moving in this direction," he said. "I think by setting clear goals and working with the private sector, we can achieve [them]."

Medicare is further along when it comes to linking FFS reimbursement to quality and value measures like those found in the EHR incentive program and the Physician Quality Reporting System. The CMS official said that more than 80% of payments are already adjusted up or down by how well physicians and hospitals perform on various metrics. The department wants to boost that percentage to 90% by 2018.

This goal could raise hackles on some physicians who resent reporting their performance on quality and value metrics to Medicare, in part because of the sheer volume of yardsticks brandished by multiple incentive programs. A January 5 letter from the independent Medicare Payment Advisory Commission to CMS reiterated this point.

"Medicare's current quality measurement approach is becoming 'overbuilt' and is relying on too many clinical process measures that are, at best, weakly correlated to patient outcomes," wrote MedPAC Chairman Glenn Hackbarth.

Process measures look at how physicians perform their work, and particularly if they comply with widely accepted clinical guidelines. The percentage of patients with diabetes who have received an annual eye exam is one example of a process measure.

"Depending on a large number of process measures reinforces undesirable payment incentives in FFS Medicare to increase the volume of services and is overly burdensome on providers to report, while yielding limited information to support clinical improvement or beneficiary choice," wrote Hackbarth. Instead, MedPAC wants CMS to focus on a smaller number of population-level outcome measures.

An example of an outcome measure is the percentage of patients with diabetes who have their blood glucose under control.

When asked about MedPAC's recommendation in today's news briefing, the CMS senior official said that his department is indeed shifting to more outcome-oriented measures "and a smaller set of measures that are meaningful to patients."

More information about today’s announcement is available on the HHS website.

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