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February 14, 2018

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Targets Set for Tying Medicare Dollars to Value, Not Volume

February 19, 2015:

In January, the Department of Health and Human Services announced specific goals for shifting the basis for Medicare payment from quantity to quality. For the first time ever, HHS Secretary Sylvia M. Burwell articulated a timeline for reaching specific percentages of payment that would be tied to alternative payment models and value of care.

The secretary states that 30 percent of traditional fee-for-service Medicare payments, rather than the current 20 percent, will be tied to quality or value through alternative payment models by the end of 2016. By the end of 2018, 50 percent of such payments will be tied to these models. Examples of alternative payment models include accountable care organizations (ACO) and bundled payments for episodes of care.

These are aggressive targets, considering that 0 percent of Medicare payments were through alternative payment models in 2011. Recent drops in the growth of spending and improvements in the quality of care Medicare patients receive indicate that the goals are reachable, however. The annual growth in per Medicare beneficiary spending has fallen over the last three years from an average of 6 percent in the 2000s to 0 percent, according to the Medicare Payment Assessment Commission (MedPAC), which advises Congress. HHS credits alternative payment models with saving the Medicare program $417 million over the past few years and helping to trigger the recent slowdown in health care spending. It also notes that hospital readmissions fell by almost 8 percent between January 2012 and December 2013 and that quality improvements saved an estimated 50,000 lives and $12 billion from 2010, when the Affordable Care Act was enacted, to 2013.

About 15 percent of Medicare beneficiaries—almost 8 million people—are enrolled in ACOs currently, according to the Centers for Medicare and Medicaid Services. The organizations include groups of physicians, hospitals, and other providers that work together to coordinate care to boost quality and reduce unnecessary services. ACOs can share in any savings they generate as long as they meet certain quality criteria.

There are various models of bundled payment arrangements, but the basic idea is for Medicare to pay a set amount for an entire episode of care. The theory is that this limit will motivate providers to work together to rein in costs and eliminate waste while ensuring high-quality care so as to avoid readmissions.

To help reach its target numbers, HHS is creating something called the Health Care Payment Learning and Action Network, which will help providers, private payers, consumers, employers, and others to incorporate alternative payment models into their programs. The network’s first meeting will be in March 2015.


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