A few days ago I touched on the importance of building and maintaining payer relationships in a market that is shifting from fee-for-service (FFS) with no ties to performance, to one based on value and population (see Navigating The Path To Better Payer Relationships). While this movement from “pay for volume” to “pay for value” in health care contracting has been happening for years, it’s been more of a trickle – but this year, I think the torrent has started. Last week, the federal Department of Health and Human Services (HHS) announced that it had adopted a framework and a timeline for shifting half of Medicare FFS provider organization reimbursements from volume-based models, to value-based alternative payment models by the end of December 2018 (see Medicare Preparing To Shift 50% Of FFS Reimbursement From Volume To Value By December 2018).
What does this mean for Medicare? In 2014, about 20% of Medicare FFS payments were linked to value-based alternative payment models. HHS has defined “value-based purchasing” as payments that are: FFS with a link of payment to quality; alternative payment models, such as accountable care organizations (ACO) and bundled payments; and population-based payments (see Setting Value-Based Payment Goals — HHS Efforts to Improve U.S. Health Care). Within this framework, HHS’ goal is to have 90% of Medicare FFS payments linked to quality measures, and at least 50% of Medicare payments linked to alternative payment models by 2018 (see Better Care. Smarter Spending. Healthier People: Paying Providers for Value, Not Volume).
How will the Feds reach these goals in just a three-year period? Soon after the January 2015 announcement, Secretary of Health and Human Services, Sylvia Mathews Burwell, wrote a very descriptive piece on this initiative in The New England Journal of Medicine , Setting Value-Based Payment Goals — HHS Efforts to Improve U.S. Health Care. Secretary Burwell stated that to drive progress, HHS is focusing on three strategies.
- Financial incentives to reward hospitals, physicians, and other provider organizations for delivering high-quality health care – HHS has plans to both expand existing alternative payment models, (ACOs, primary care medical home models, bundled payment initiatives, and dual eligible demonstration projects) and to develop new value-based payment models for specialty care, starting with oncology. Secretary Burwell also discussed plans for making payments to provider organizations for care coordination of patients with chronic health conditions.
- Policies to encourage greater integration within practice sites, greater coordination among provider organizations, and greater attention to population health – In an effort to promote greater care coordination, HHS has developed several new programs, including: the Partnership for Patients, a national program designed to reduce 30-day hospital readmission rates through improved transitional care and coordination with ambulatory care provider organizations. And the Transforming Clinical Practice Initiative, an $800 million investment by HHS to help 150,000 physicians and clinical professionals develop skills needed to improve care delivery and transition to alternative payment models. In addition to these programs, HHS intends to continue to support care coordination for the dual eligible population through Medicaid health homes, patient centered medical homes, and other programs.
- Greater access to information to guide decision making via health information technology (IT), interoperability and data sharing, and release of Medicare cost data for inpatient, outpatient, and physician services – To promote greater transparency and access to data, the Patient-Centered Outcomes Research Institute (PCORI) and the Agency for Healthcare Research and Quality are planning to release findings about the effectiveness of clinical practices and treatment protocols. And to increase interoperability, HHS plans to focus on aligning Medicare health IT standards and practices with payment policies that make patient records available at the point of care.
So that’s the plan. What does it mean for specialist provider organizations? Medicare is one of the last payers that is primary based on FFS payments. With this shift in strategy, I see this torrent of value-based payment arrangements quickly becoming a flood – and making non-FFS value-based payment arrangements the norm for all payers. The question is whether specialist organizations have the organizational infrastructure and management competencies to manage these arrangements – longitudinal case rates or capitation for primary care and chronic disease management, bundled payments for episodic acute care, and capitation for larger populations. While these arrangements have been the exception rather than the rule, and organizations have managed these types of financing arrangements as such, this change in Federal policy will likely change that landscape.
For more, check out some of the resources from the OPEN MINDS Industry Library:
- Follow The Money: The Golden Rule Of Health & Human Services
- Goodbye FFS, Hello Risk: How To Successfully Operate Under A Managed Care Contract
- Under The Bundled Umbrella: The New Financing Models Shaping Health Care
- Consumer Preferences, Performance Requirements & New Risks: A Managed Care Survival Doctrine For Service Provider Organizations
- Ready to Move Beyond Fee-For-Service?
Critics and skeptics of last week’s CMS announcement doubt whether this shift in financing is here to stay (see Herzlinger Predicts ACOs, PCMHs Will Fail and Why ACOs Will Fail—But How Delivery Reform Can Succeed). But the force of Medicare funding and more interest by the provider community (see 89 ACOs Join Medicare Shared Savings Program In January 2015) may overwhelm the skeptics as well. We’ll keep you posted.