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Government Unveils Goal to Move Medicare Away From Fee-for-Service

Half of annual payments would go to health care providers by end of 2018

The Obama administration on January 26 unveiled a plan to control health costs by moving the $2.9 trillion U.S. health systems away from costly fee-for-service medicine, beginning with the Medicare program for the elderly and disabled.

By the end of 2018, Department of Health and Human Services (HHS) Secretary Sylvia Burwell told reporters that 50% of traditional Medicare’s $362 billion in annual payments would go to doctors, hospitals, and other providers that participate in alternative-payment models, which emphasize cost containment and quality of care.

Writing in the New England Journal of Medicine, Burwell said that the HHS now intends to focus its energies on augmenting reform in three ways: 1) by using incentives to motivate higher-value care, by increasingly tying payment to value through alternative payment models; 2) by changing the way care is delivered through greater teamwork and integration, more effective coordination of providers across settings, and greater attention by providers to population health; and 3) by harnessing the power of information to improve care for patients.

“A major thrust of our efforts is to create an environment in which hospitals, physicians, and other providers are rewarded for delivering high-quality health care and have the resources and flexibility they need to do so,” Burwell writes.

She notes that the Patient Protection and Affordable Care Act created several new institutions and payment arrangements intended to drive the health care system in this direction. These initiatives include alternative payment models, such as accountable care organizations (ACOs), advanced primary-care medical-home models, new models of bundling payments for episodes of care, and demonstration projects in integrated care for beneficiaries dually eligible for Medicare and Medicaid.

The HHS plans to develop and test new payment models for specialty care, starting with oncology care, and to institute payments to providers for care coordination for patients with chronic conditions.

Second, improving the way care is delivered is central to the government’s reform efforts, Burwell writes. Through the Partnership for Patients, the HHS has engaged U.S. hospitals in learning networks to focus on high-priority risks to patient safety. In addition, there is now a national program to reduce hospital readmissions within 30 days after discharge, which encourages hospitals to improve transitional care and to coordinate more effectively with ambulatory care providers.

Third, the HHS plans to accelerate the availability of information to guide decision making. In that regard, Burwell writes, the Obama administration has led “a major initiative in health information technology,” focusing on the adoption of electronic health records (EHRs) and their use as a central avenue for transforming care. The proportion of U.S. physicians using EHRs increased from 18% to 78% between 2001 and 2013, and 94% of hospitals now report the use of certified EHRs, according to Burwell.

Groups representing doctors and hospitals said the government’s actions could mean greater flexibility for their members in determining care delivery, while consumer representatives said the unprecedented goals could boost the quality of care.

Approximately 20% of traditional Medicare payments –– approximately $72 billion –– currently goes to providers with cost-saving business models. The remainder is based on fee-for-service payments that reward providers for the volume of care they provide. Fee-for-service has been blamed by policymakers for promoting higher costs, mediocre care, and unnecessary procedures.

Sources: NEJM; January 26, 2015; and Reuters; January 26, 2015.


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