Targets to Move Medicare Away From Fee-for-Service

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Sylvia Burwell, secretary of Health and Human Services (HHS), set official goals this week for transforming the Medicare payment system from being based on quantity (fee-for-service) to being based on quality.

The goal is to have 85 percent of payments tied to quality or value measurements by 2016, and 90 percent by 2018.

A key change: “Alternative payment models” will use a variety of organizing strategies to reward providers when patients cost less than they would otherwise but have better health outcomes.

HHS has set a goal to increase payments through these models from 20 percent today to 50 percent by 2018. This is up from basically zero prior to the Affordable Care Act.

This goal-setting is important because with health inflation currently low, many policy-makers — out of complacency and political hesitancy — ignore the need for further reforms. We should actually be doubling down on payment reform now, before providers see it in their financial interest to lobby for a return to fee-for-service — as they might if inflation and service demand start picking up again.

Medicare is the largest payer in the country. So if its new payment model succeeds in delivering higher quality at lower costs, it will likely influence the rest of the health care system to make similar moves.

External links:
Setting Value-Based Payment Goals — HHS Efforts to Improve U.S. Health Care (New England Journal of Medicine)
Fact Sheet on Medicare Payment Changes (CMS)
The Cost-Cutting Power of Medicare (Bloomberg View)

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