By 2018, half of Medicare spending outside of managed care will be paid under contracts with incentives to manage quality and costs, federal officials said Monday. The goal was broadly greeted with enthusiasm but also with warnings that the effort will be wasted if the new models are too weak or tied to flawed measures.
The Obama administration's new targets for payment reform are a first for Medicare and would rapidly accelerate federal use of accountable care, bundled payments and other ways to pay hospitals and doctors besides how most Medicare bills are now paid: per test, procedure and clinic visit, known as fee-for-service. That system has long been criticized for providing economic incentives for providers to offer a greater volume of care regardless of outcomes.
“They want to move from volume to value, but it's not always clear how to define value,” said Michael Chernew, a Harvard University health policy professor and former vice chairman of the Medicare Payment Advisory Commission. Ongoing efforts are seeking to improve, refine and advance quality measures, he said. “We have made immense strides; I think we have a long way to go in improving the way we think about quality and value.”
To understand the massive shift envisioned, look to Medicare's $362 billion fee-for-service budget last year. The transition has already been happening rapidly. In 2014, Medicare spent roughly 20% of that sum under alternative contracts such as accountable care. That's up from nothing before the Patient Protection and Affordable Care Act, which gave Medicare the authority to introduce and expand accountable care and other alternative payment models.
But that rapid adoption of the models has come with some criticism—from advocates of payment reform as well as from providers who are penalized under the programs. And the results, to the extent they've been published, are uneven.
“We look forward to learning more from HHS on how these new goals will be phased in,” the American Hospital Association said in a statement Monday. “At the same time, we encourage the administration to fully evaluate and improve on the delivery system reforms currently in place to ensure that we are learning from the pilot and demonstration projects to best meet patient needs.”
Last month, the CMS Innovation Center told Congress it had no results for its tests of bundled payments. Meanwhile, just 3% of the hospitals, medical groups, nursing homes and other entities that were approved to participate and began to prepare for bundled payments—220 of roughly 6,690 organizations—went ahead with the new payments.
Participants in Medicare's accountable care contracts have shown some quality improvement but widely varying abilities to save Medicare money. Medicare saved $417 million from its first 220 accountable care contracts in their first year—well under 1% of the program's fee-for-service budget.
Federal officials, though, estimate that alternative-payment methods helped reduce hospital readmissions by 8% in 2012 and 2013, resulting in 150,000 fewer hospitalizations.
Efforts to promote more widespread use of the incentive-based programs will have to overcome frustration from hospitals, doctors and policy experts over contract terms and concerns that the quality measures undergirding the programs are inadequate.
The National Quality Forum, a not-for-profit organization that develops quality measures, said in a statement Monday that the “healthcare community needs better measures faster” for value-based payment to work.
Medicare's Shared Savings Program for accountable care organizations has grown quickly since its 2012 launch. Early participants, however, have threatened to exit the program without changes, which the CMS sought to address in proposed rules released last month.
“I think we can all agree that moving away from fee-for-service and moving toward more value-based payment is a really good idea,” said Dr. Ashish Jha, a health policy professor at Harvard University who studies healthcare quality. “The challenge is, how do you measure value? If you don't do that well, then these models can end up being not only not all that helpful, but even hurtful.”
Jha and other experts in health policy and quality outside Medicare praised the announced target as an important goal, but one that will require exhaustive work in order to win converts and demonstrate results that matter to patients.
Too little has been invested in development of critical measures of healthcare quality, Jha said. Patients lack measures that tell them what matters most to them: For example, how quickly they will recover from illness or injury to return to their homes, jobs or daily activities.
HHS Secretary Sylvia Mathews Burwell and other senior HHS officials touted the 50% target and others goals announced Monday as clear indicators of the agency's commitment to reform.
The administration will seek to tie 30% of payments for traditional Medicare benefits to alternative contracts by 2016. Also by next year, HHS wants 85% of hospital payments to be subject to programs such as the Hospital Value-Based Purchasing Program and the Hospital Readmissions Reduction Program. That threshold—the share is 80% now—would increase to 90% two years later.
Officials declined to provide an estimate Monday of what savings could be achieved by meeting the targets.
“We believe these goals can drive transformative change, help us manage and track progress, and create accountability for measurable improvement,” Burwell said in a statement announcing the targets.
But in addition to expressing concerns about quality measures, policy experts have raised doubts that incentives under alternative contracts are strong enough to compel hospitals and doctors to change their business model and how they care for patients. With weak incentives, Medicare's shift to alternative contracts could amount to little actual change, said Mark Pauly, an economist and health policy professor at the University of Pennsylvania. “It's not a sledgehammer. If the penalty or reward is relatively modest, then a cynic could say what's the big deal?”
The Shared Savings Program allows hospitals and doctors to earn bonuses but avoid penalties for poor performance for three years, and the CMS proposed in December to extend that to six years.
On Monday HHS also announced the creation of the Health Care Payment Learning and Action Network, which is intended to spread value-based payment models to other segments of the health insurance market, including employer-based coverage and state Medicaid programs. The network will hold its first meeting in March.
Dr. Elliott Fisher, a proponent of accountable care and director of the Dartmouth Institute for Health Policy & Clinical Practice, said the learning network will support necessary work across the private sector as well as for Medicare and Medicaid to coordinate efforts toward developing new payment models.
HHS announced the new goals after Burwell and key healthcare industry officials met in Washington. The officials included Karen Ignagni, CEO of America's Health Insurance Plans; Dr. Richard Gilfillan, CEO of Trinity Health; and Dr. Douglas Henley, CEO of the American Academy of Family Physicians.
“We're on board, and we're committed to changing how we pay for and deliver care to achieve better health,” Henley said in a statement.
The effort also won praise from employer Intel Corp. “As an employer, Intel is working with healthcare delivery systems to redesign payment models and leverage technology in ways that maintain our employees' coverage while improving their health through a connected care experience” similar to accountable care, said Alice Borrelli, director of healthcare policy for Intel, in a written statement. “We look forward to working with the department to share our experiences in building the foundation for integrated care.”
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