Jan, 27, 2015

The New Focus on Value-Based Payment Models

Dan Meuse

This week, Secretary of Health and Human Services Sylvia Burwell announced an initiative that mirrors efforts underway in many states – changing the way government pays for health care in order to focus on health and value.  The Obama administration’s new plan for Medicare has three parts:

  1. Offering incentives for providers and provider organizations to engage in alternative payment methodologies, including ACOs, bundled payments and advanced primary care medical-homes;
  2. Improving the care delivery system through greater integration and coordination and an enhanced focus on population health; and
  3. Leveraging the investment in IT capacity in the health care sector to guide decision-making and enable better coordination.

Secretary Burwell writes that HHS has a goal of 85% of all Medicare fee-for-service payments tied to some measure of quality within 24 months. Additionally, Burwell has set a goal of 30% of all Medicare payments through alternative payment methodologies in that same timeframe. The announcement represents the most fundamental shift in Medicare payment since the advent of Diagnosis Related Groups (DRGs) in the mid-1980s.

For the states that are participating in the State Innovation Model (SIM) program through the Center for Medicare and Medicaid Innovation, this three-prong strategy will sound very familiar. SIM seeks to leverage state regulatory and purchasing authorities to implement a similar strategy across the states. To that end, the SIM program has awarded over $876 million to 17 states to implement strategies to reach goals very similar to what the administration announced today.  The symmetry is no accident.

Given the payer mix in most states, especially at the hospital level, Medicare participation in the drive toward a value-based payment system is essential. The most recently available data shows that Medicare makes up 47% of a hospital’s payments. A strong partnership with Medicare to drive payment and delivery system reform will enhance the ability of states to gain the necessary traction to reach the goals of SIM.

Until now, one of the biggest complaints of SIM states is Medicare’s lack of participation in state-based initiatives. Whether it is a state-defined and -driven move toward accountable care or commonly-defined bundled payments, Medicare is a critical partner for states in making value-based payment a reality. In order for the administration to reach the goals that it announced today and for states to reach the goal of the SIM program, reform efforts must go hand-in-hand, working toward common goals, supporting common initiatives and coordinating efforts.