More Medicare payments to be tied to quality and cost reduction

Health and Human Services Secretary Sylvia M. Burwell announced today a new strategy to transform the health delivery system, with a stated emphasis on quality and cost reduction.

The most significant change to come with the Secretary’s announcement will be a new goal for 30% of Medicare payments to be made via “alternative” payment models by the end of 2016, and for the portion to increase to 50% by 2018. Additionally, HHS will set a target for 85% of Medicare payments to be tied to quality or value by 2016, increasing to 90% by 2018. Each of the targets announced today only apply to traditional Medicare (not Medicare Advantage).

“This is the first time in the history of the program that explicit goals for alternative payment models and value-based payments have been set for Medicare.”

HHS Secretary Sylvia M. Burwell in the New England Journal of Medicine

Under the new strategy, payments to Medicare providers will be grouped into four buckets:

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  1. Pure fee-for-service payments
  2. Fee-for-service payments with quality adjustments
  3. Alternative payment models built on fee-for-service (e.g. ACOs, medical homes, bundling)
  4. Population-based payment models that are not fee-for-service based (e.g. capitation, salary)

Categories 2, 3, and 4 will count toward the target for 85% of payments to be “value-based” by 2016. Only Categories 3 and 4 will count toward the 2016 target for 30% of payments to be made through “alternative” models.

Private health plans and Medicaid programs will not be included in the target, but will be encouraged to adopt similar goals. A new learning forum comprised of providers, insurers, and purchasers will help shape implementation and the scaling up of demos.

“To make these goals scalable beyond Medicare, Secretary Burwell also announced the creation of a Health Care Payment Learning and Action Network.  Through the 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.“

HHS January 26, 2015 News Release

In addition to changes in provider payments, the announcement includes two other focus areas: integrating care delivery and making quality data more accessible for patients and providers (for example, through electronic health records and consumer-oriented quality and cost measures).

The Peterson Center on Healthcare and KFF are partnering to monitor how well the U.S. healthcare system is performing in terms of quality and cost.

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