Rather than pay more money to Medicare doctors and hospitals simply for every procedure they perform, the government will evaluate whether patients are healthier, among other measures. The goal is for half of all Medicare payments to be handled this way by 2018.
The announcement marks the administration's biggest effort to shape how doctors are compensated across the health care system. As the country's largest payer of health care services, Medicare influences medical care generally, meaning the changes being initiated by the administration likely will be felt in doctor's offices and hospitals across the country.
There's widespread agreement among policymakers that the health care system needs to move away from rewarding doctors and hospitals for volume and focus more on the value of the care being offered. Doctors get paid set fees for every procedure they perform, regardless of whether patients get better.
“It's great. It's what we need to do. We're 100 percent supportive of connecting payments to quality and outcomes,” said Tami Minnier, UPMC's chief quality officer.
Officials at Allegheny Health Network said they recognize value is the future of medicine.
“We are building a health care system based on quality outcomes, patient experience, appropriateness of care and cost that is not only positioning us to succeed in this new era, but to be a national leader,” said spokesman Dan Laurent.
The government hopes to cut wasteful spending.
Medicare's payment system, known as fee-for-service, cost taxpayers $362 billion last year, between the program's hospital insurance and medical insurance programs, according to the federal Centers for Medicare and Medicaid Services. Critics say the traditional payment scheme fails to discourage overuse of health care services, without holding providers accountable for whether patients get healthier.
Medicare has been experimenting with payment models for more than a decade, and the 2010 Affordable Care Act provided a broad expansion of payment models rewarding providers based on value. The programs include lump sum (or “bundled”) payments for treating a patient throughout an episode of care, like a knee replacement surgery. The most high-profile effort has been with accountable care organizations (ACOs), which are groups of providers who share in the savings - or losses - for managing patients on a budget.
Medicare has set separate goals for more traditional payments to be tied to some kind of quality program. By 2016, the agency wants 85 percent of these payments tied to programs that, for example, penalize hospitals for excessive readmissions or reward them for hitting quality metrics.
“Not everyone is going to be able to move at the speed that we would like,” said Health and Human Services Secretary Sylvia Mathews Burwell.
The agency said alternative payment structures represent about 20 percent of Medicare payments, and that will rise to 30 percent by 2016 under goals set by the Obama administration Monday. CMS said this marks the first time that Medicare has set specific goals for expanding the scope of alternative payment systems in the program.
“Those models will depend on how well providers care for their patients, instead of how much care they provide,” Burwell said.
Debra Ness, president of the National Partnership for Women & Families, a consumer advocacy organization, said these payment models will force health care providers to better coordinate care.
“We're not just talking about payment that lowers costs,” she said. “The payment changes are designed to change the way that we deliver care in ways that will make that care work better for patients and families.”
This shift to value-based payments had been taking place in the private sector before the Affordable Care Act. About 20 percent of provider payments by Blue Cross insurers are through contracts that try to prioritize quality over quantity, their trade association reported last summer. Aetna says 28 percent of its reimbursements are in value-based contracts, and it expects that rate to jump to 75 percent by 2020.
Many have viewed this broader shift as long overdue, as health care spending has grown to about one-sixth of the economy. But it's uncertain how well these payment approaches work.
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