Medicare Announces Targeted Shift from Fee-for-Service

February 4, 2015

On January 26, 2015, Health and Human Services (“HHS”) Secretary Sylvia Burwell announced to a group of healthcare industry and business leaders – for the first time – specific goals and timelines to move the Medicare payment structure away from the traditional fee-for-service model and toward paying providers based on quality metrics. Secretary Burwell dubbed this initiative as “Better Care, Smarter Spending, Healthier People.”

Specifically, HHS has set a goal of shifting 30% of traditional payments to quality or value through alternative payment models (such as Accountable Care Organizations or bundled payment arrangements) by the end of 2016, and to 50% by the end of 2018. It has set similar goals of tying 85% of all Medicare payments to quality or value by the end of 2016, and to 90% by the end of 2018.

In 2011, almost no Medicare payments were made through alternative models. Today, that amount is approximately 20%.

HHS has adopted a four-category framework for characterizing healthcare payments:

  • Category 1 is the traditional fee-for-service.
  • Category 2 is a modified fee-for-service with a link to payment for meeting quality metrics (such as reduced hospital readmissions or reduced incidence of acquired conditions).
  • Category 3 is built around the alternative payment model based on the fee-for-service architecture where payment is still triggered by delivery of service, but amounts are determined against population metrics.
  • Category 4 does not rely on service delivery directly, but providers are paid based on care delivered to beneficiaries over long-term (e.g. greater than one year) outcomes.

Categories 3 and 4 comprise the alternative payment model targeted at 30% and 50%; categories 2 through 4 comprise the broader quality standards targeted at 85% and 90%.

The outcome-based structure is designed to disincentivize duplicative or unnecessary testing, and to create positive financial incentives for providers to efficiently coordinate care among a team. Through these incentives, HHS hopes to control costs and improve the delivery of care.

While Medicare makes up a huge portion of the healthcare market, private insurers must follow in order to facilitate change in the industry and effectuate the broader societal goals intended by this move. To this end, HHS also established the Health Care Payment Learning and Action Network. The Network is the collaboration among HHS, private payers, large employers, providers, consumers, and state governments.

As healthcare touches virtually all aspects of society, so, too, will these changes. At this point in time, there are few details, but there are predictable consequences, such as integration of provider facilities, increased reliance on primary and mid-level care, and eventual private pay adoption of Medicare metrics. These changes are sure to affect health care providers, insurers and consumers. If you would like to discuss how these proposals may affect you or your industry, please call Attorney Guy DuBeau at 608.283.6704.

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