On Jan. 26, 2015, Secretary Sylvia M. Burwell announced the goals and a timeline of the U. S. Department of Health & Human Services (“HHS”) to move the Medicare program, and the healthcare system at large, toward paying providers based on quality, rather than quantity, of care they give to patients.

Specifically, Secretary Burwell stated HHS’ goal was to have 85 percent of all Medicare fee-for-service payments tied to quality or value by 2016 and 90 percent by 2018. In addition, 30 percent of Medicare payments would be tied to quality or value through alternative payment models by the end of 2016 and 50 percent by the end of 2016. Secretary Burwell stated that alternative payment models include accountable care organizations and bundled payment arrangements under which healthcare providers are accountable for the quality and cost of care they deliver to patients.

HHS stated, in its press release, that “[m]any healthcare providers today receive a payment for each individual service, such as a physician visit, surgery, or blood test, and it does not matter whether these services help – or harm – the patient. In other words, providers are paid based on volume of care, rather than the value of care provided to patients. Today’s announcement would continue a shift toward paying providers for what works – whether it is something as complex as preventing or treating disease, or something as straightforward as making sure a patient has time to ask questions.”

HHS also cited  statistics showing that in 2011, Medicare made almost no payments to providers through alternative payment models, but today such payments represent approximately 20 percent of Medicare payments. The goals announced by Secretary Burwell represent a 50 percent increase by 2016. To put this into perspective, in 2014, Medicare fee-for-service payments were $362 billion.

Questions remain as to how exactly HHS intends to measure and link payments to quality and value. Undoubtedly, HHS will have to implement changes to the existing program, but the specifics of such potential change were not provided. In addition, although HHS described a category of “alternative payment models built on fee-for-service architecture” as one of the alternative payment models, specifics regarding this presumed hybrid model were not provided.

Notwithstanding the uncertainties set forth above, one thing is for certain. Medicare’s move to emphasize quality of care will change the way private payers structure their payments.  In fact, HHS announced the creation of a Health Care Payment Learning and Action Network. Through the Learning and Action Network, HHS intends to work with private payers, employers, consumers, providers, states and state Medicaid programs, and other partners to expand alternative payment models into their programs. HHS stated it will intensify its work with states and private payers to support adoption of alternative payment models through their own aligned work, sometimes even exceeding the goals set for Medicare.

In addition, on Jan. 29, 2015, a group of 28 of some of the largest healthcare systems and insurers in the U.S. announced a commitment to moving away from fee-for-service payments and transitioning instead to value-based agreements. The private coalition will be known as the Health Care Transformation Task Force (“Task Force”), and its goal is to move 75 percent of its contracts into alternative payment models by 2020. According to the announcement, the Task Force will develop timely and actionable policy and program design recommendations, not only for the private sector, but for the Centers for Medicare & Medicaid Services and Congress. More information about the Task Force can be found here.

Although specifics are lacking with respect to how HHS intends to achieve these goals, healthcare providers should begin considering making changes to their current compensation models to align closely with HHS’ goals in order to maximize future reimbursement, not just from Medicare and Medicaid, but from private payers as well. If healthcare providers do not start planning for this change, they could end up in a situation where they are paying based on a fee-for-service model (e.g., rate/WRVU) but being reimbursed based on quality of care. In addition, integration and formation of healthcare providers will become critical in order to secure eligible providers who can deliver the quality of care HHS deems essential.

If you have any questions, please contact one of our healthcare attorneys.