HHS aims to pay 30% of Medicare dollars through alternate models by 2016

And 50% of payments would be made through such models by 2018

HHS on Monday announced ambitious goals for reforming Medicare payments for hospitals and physicians that would make 30% of payments through alternate payment models like ACOs and bundled payments by 2016.

Medicare—which paid $362 billion to providers caring for more than 50 million U.S. residents in 2014—began to tie payments to performance as part of the Affordable Care Act (ACA). Currently, about 20% of payments made by the insurance program are made through alternate payment models.

Details of the goals

Writing in NEJM on Monday, HHS Secretary Sylvia Mathews Burwell outlined two major goals for the Medicare system:

  • Shifting away from fee-for-service. 30% of Medicare payments would be made through alternate payment models—such as ACOs and bundled payments—by the end of 2016. That percentage would increase to 50% by the end of 2018.
  • Linking remaining fee-for-service payments to quality and value. 85% of Medicare hospital fee-for-service payments would be tied to quality or value—through programs like the Hospital Value-Based Purchasing Program or the Hospital Readmissions Reduction Program—by the end of 2016. That percentage would increase to 90% by the end of 2018.

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"This is the first time in in the history of the Medicare programs that HHS has set explicit goals for alternative payment models and value-based payments," according to a HHS news release. A spokesperson for HHS said that a "majority" of fee-for-service payments are already linked to quality and value, but did not disclose a precise percentage.

To facilitate the transition away from fee-for-service care, Burwell announced the formation of a Health Care Payment Learning and Action Network.

Through the network, HHS will collaborate with private payers, consumers, employers, providers, Medicaid programs, and other partners to expand alternate payment models into non-Medicare programs.  "Whether you are a patient, a provider, a business, a health plan, or a taxpayer, it is in our common interest to build a health care system that delivers better care, spends health care dollars more wisely and results in healthier people," Burwell said (CMS release, 1/26).

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According to Bloomberg, the new goals would present a "major shift" for providers and more than double the reach of alternate payment models that federal health officials say have saved millions so far.

However, some experts say it remains unclear whether the new payment models will succeed in efforts to reduce cost and improve care. A RAND Corporation study funded by HHS last year found that "[w]e still know very little about how best to design and implement [value-based payment] programs to achieve stated goals and what constitutes a successful program."

Industry response

A spokesperson for the American Hospital Association said the group supports the new goals. Similarly, American Medical Association President Robert Wah says doctors are "encouraged" by the effort to transform care delivery.


Meanwhile, National Partnership for Women and Families President Debra Ness noted that alternate payment models will push providers to improve and coordinate care. "We're not just talking about payment that lowers costs," she said, adding, "The payment changes are designed to change the way that we deliver care in ways that will make that care work better for patients and families" (Radnofsky/Beck, Wall Street Journal, 1/26; CMS release, 1/26; Demko, Modern Healthcare, 1/26 [subscription required]; Wayne, Bloomberg, 1/26; O'Donnell, USA Today, 1/26; Millman, "Wonkblog," Washington Post, 1/26; Mangan, CNBC, 1/26).

The takeaway: The new goals outlined by HHS Secretary Sylvia Mathews Burwell represent an ambitious push to transition away from fee-for-service care and link payments to quality and value.

Get the big picture on Medicare payment innovation


The Affordable Care Act brought many types of changes to hospital payments.

This infographic presents an overview and assessment of the major Medicare programs accelerating the transition to population health, including the Shared Savings Program and Pioneer ACO Model.


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