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HHS Secretary Burwell Unveils Assertive Push toward Medicare Payment Reform

U.S. Health and Human Services (HHS) Secretary Sylvia Mathews Burwell announced yesterday that the Medicare has set new ambitious goals for reforming the way it pays health care providers. First, Burwell said that Medicare would aim to have 30 percent of its provider payments delivered through Accountable Care Organizations (ACOs) or bundled payments by 2016, with the proportion rising to 50 percent by 2018. Additionally, she said that Medicare plans to tie 85 percent of payments to value in some form (e.g., pay for performance–see below for a short description) by 2016, with the share climbing to 90 percent by 2018.

So, there are the big headline statistics from HHS. At this point in the blog, you might be asking, “What does this announcement really mean, and why is it important?” First, it’s important to point out that Medicare mostly pays providers through fee-for-service payments. Basically, for each measurable service, the provider gets a payment. As you might suspect, this system encourages providers to maximize payments by just doing more, instead of providing the most appropriate care. Not so good. Consequently, HHS is signaling that its wants to move away from this payment model very soon. We at ITUP think that this a very positive move, considering that our health care spending had been ballooning until only a few years ago.

The push toward “value-based” payments seeks to reward high-quality health care services, not just doing more stuff. ACOs reach this goal by bringing providers together into a system with spending targets (to control spending) and quality standards (to improve care) for a defined group of patients for whom the ACO is responsible. Bundled payments define an episode of care and offer one fee for the full set of services for that episode (e.g., a heart attack). Also, pay-for-performance provides a bonus payment to the provider for delivering the right care at the right time, or improving health outcomes.

Another interesting piece of this announcement is the formation of the “Health Care Payment Learning and Action Network.” This collaborative group of health care stakeholders would serve as an HHS clearinghouse for expertise and ideas to advance payment reform. Diverse stakeholders would participate with the aim of educating each other about successes and findings from efforts around the country.

We were glad to see HHS demonstrate continued leadership to steer the U.S. health care system toward value. In the spirit of Vice President Biden, we argue that this new initiative is a big deal. Medicare is the country’s largest purchaser of health care, and many of its payment reforms align with those that are expanding in commercial insurance plans and Medicaid programs. Greater alignment across payers should have a stronger effect on spending and improving service quality because providers would get consistent incentives from many large purchasers.

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