On January 26, 2015, the Centers for Medicare & Medicaid Services (CMS) issued a news release reporting Health & Human Services (HHS) Secretary Sylvia Burwell’s announcement earlier in the day of measurable goals and a timeline for shifting Medicare from its traditional fee-for-service system to one that pays on the basis of quality of care and outcomes — what CMS often calls a “value-based” payment system.
Secretary Burwell called for a specific, year-by-year increase in the percentage of Medicare payments that are value-based. According to the schedule, by the end of 2016 at least 30 percent of traditional, or fee-for-service, Medicare payments will be tied to quality or value through alternative payment models such as Accountable Care Organizations (ACOs) or bundled payment arrangements. By the end of 2018, that percentage will be 50 percent. The goals also include tying 85 percent of all traditional Medicare payments to quality or value by 2016 and 90 percent by the end of 2018, through programs like the Hospital Value-Based Purchase and Hospital Readmissions Reduction Programs.
To put this schedule in historical perspective, as recently as 2011 Medicare made almost no payments through alternative payment models, while at present such payments account for about 20 percent of total Medicare payments. As for a perspective on the dollar amounts represented by these percentages, in 2014 Medicare made about $362 billion in fee-for-service payments.
The Secretary frankly acknowledged that HHS hopes and intends that this shift from the old fee-for-service system to a value-based system will become the norm throughout the country — and not limited to Medicare. To that end, she announced the creation of a Health Care Payment Learning and Action Network. Through it, HHS will work with commercial payers, employers, consumers, states, Medicaid programs and others to expand value-based payment models while moving away from fee-for-service.
As always, the devil will be in the detail as the shift from fee-for-service to value-based payment takes place. Everyone agrees that it makes more sense to pay for the quality of health care than for the quantity. But so far, measuring quality hasn’t always proved easy — or even possible. As one troublesome example, readmission rates — patients who have to return to the hospital after discharge — are consistently higher for hospitals serving a high percentage of indigent patients. That strongly suggests that readmission may be as much a function of poverty as of the quality of hospital care.