At the Helm

Medicare commits to payment transformation

Earlier this week, HHS Secretary Sylvia Mathews Burwell announced a landmark plan to accelerate the transition to value-based payment models. Writing in the New England Journal of Medicine, Secretary Burwell explains:

"This is the first time in the history of the program that explicit goals for alternative payment models and value-based payments have been set for Medicare."

The announcement established ambitious goals, aiming to tie 30% of Medicare payments to alternative payment models—such as accountable care organizations (ACOs) and bundled payments—by the end of 2016, and then 50% by the end of 2018. Currently, approximately 20% of Medicare payments are made through alternative payment models.

For the remaining fee-for-service payments, the plan proposes to make 85% of payments through models tied to quality, such as the Hospital Value-Based Payment Program and Hospital Readmission Reductions Program, by the end of 2016 and then 90% by the end of 2018.

As I review the details of the proposal and reflect on my daily conversations with senior-most hospital and health system leaders, I see three major implications for the provider industry.

1. Any lingering uncertainty about the transition to risk-based payment is over

Secretary Burwell’s announcement gave a definitive sign that the nation’s largest payer is moving aggressively to value-based purchasing models. The proposal didn’t call for another demonstration project or pilot, but for system-wide transformation structured around a concrete schedule of goals.

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As a next step in meeting these aggressive goals, CMS will need to continue working with providers to create a permanent path to alternative payment models. That said, providers can now invest in population health and care transformation with more certainty than ever before.

2. Payment transformation must become a multi-payer effort

Beyond setting ambitious targets for Medicare payment transformation, Secretary Burwell’s announcement also highlighted the role that private payers, employers, and states play in transforming our payment system.

As many providers adopting alternative payment models have learned, operating with two sets of incentives and two business models is untenable at best. This week’s announcement should also motivate private payer, employers, and states to accelerate their transitions to alternative payment models, giving providers the consistent incentives they need to fully embrace population health.

Some private sector payers have already signaled their commitment to adopting new payment models. In follow up to Secretary Burwell’s announcement, the Health Care Transformation Task Force, which includes 16 large health systems, four health insurers, and several large employers, announced their commitment to transitioning 75% of their business to value-based payment models by the end of the decade. We expect more private payers and employer to follow suit.

3. Payment transformation must be balanced with care transformation—and neither is easy

Adopting a sustainable population health business model requires that providers transform both their payment models and care models, ideally in a synchronized manner. At this point, work is underway to improve on both fronts.

Medicare recently released a proposed rule to update the Medicare Shared Savings Program (MSSP), seeking to improve the program and encourage new providers to apply. And the mixed results from the first two years of the MSSP remind us all that care transformation is a gradual process as providers invest in infrastructure, redesign care models, and manage cultural change. These are each significant challenges that providers will need to address head on.

Our industry is in the midst of major transformation. At the same time that purchasers accelerate the transition to alternative payment models, the new retail insurance industry is forcing providers to compete on both the unit price and total cost of care. Population health management remains central to responding to both pressures. It remains a privilege to support you and your organizations during these times of rapid change. As always, please feel free to call or email if there is anything we can do to help.

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