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New Medicare Targets Seen as Big Step in Restructuring How We Pay for Healthcare

Half of reimbursements for medical services will be based on successful patient outcomes by 2018

sylvia matthews burwell
Sylvia Matthews Burwell, U.S. Secretary of Health and Human Services

The shift to paying healthcare providers based on how successfully they keep their patients healthy – rather than simply for the quantity of services they provide -- is sure to gain even more impetus following an announcement about quality-of-care targets that federal officials have given themselves for reimbursing Medicare providers.

Half of Medicare payments to providers in 2018 will be through accountable care organizations (ACOs) and other alternative payment models that are based on holding providers accountable for the value of the services they provide, according to targets announced by U.S. Secretary of Health and Human Services Sylvia M. Burwell.

New Jersey provider groups and healthcare policy experts welcomed the announcement, saying that it makes it more certain that healthcare will continue to move away from paying doctors and hospitals a fee for each service they provide.

ACOs are groups of providers -- frequently centered on a hospital --who agree to be held accountable for the cost and quality of care they provide to a group of patients by having a portion of their payments depend on how they meet a variety of measurements.

Other alternative payment models promoted by federal officials include bundled payments -- in which providers agree to a single payment to treat a condition from start to finish, known as an “episode of care” -- and primary care medical homes, which are similar to ACOs but are centered on medical practices rather than hospitals.

Many of these new models rely on nurses who coordinate the care of patients with chronic and expensive conditions, helping them set appointments and properly use their medicines.

Burwell also announced a concurrent effort to expand the new models to payments outside of Medicare, including private insurance and Medicaid, to be called the Health Care Payment Learning and Action Network. This network will bring together insurance, employer, patient and provider groups, as well as state Medicaid programs, to discuss ways that they can change their payments.

Linda Schwimmer, vice president of the nonprofit New Jersey Health Care Quality Institute, said having numerical targets for transforming Medicare is significant.

The U.S. Centers for Medicare and Medicaid Services (CMS) “really does set the pace for this type of change,” Schwimmer said. “Up until now, it was a bit of a mystery when HHS could turn this program on full blast.”

Schwimmer said she’s hopeful that the state Medicaid program will be working with federal officials on a similar change. While the state is launching a Medicaid ACO program, it lacks the additional payments for care coordination that can make these programs more effective, Schwimmer said.

“Now that Health and Human Services is putting a timeline forward, hopefully it will be an impetus for New Jersey leaders to line up our Medicaid program with that timeline as well,” she said.

Rutgers Center for State Health Policy Director Joel Cantor noted that the fee-for-service nature of most healthcare payments has been cited as a cause for the high costs of U.S. healthcare.

The announcement is the latest step in a transformation that began with the promotion of ACOs and other value-based payment models in the 2010 Affordable Care Act, said Cantor, an NJ Spotlight columnist.

“They’re trying to signal that this is the future of payment, so if providers want to thrive they have to move in this direction,” Cantor said.

He added that there are positive early signs that some of programs used to base hospital payments on health outcomes – including a penalty for hospitals that readmit patients for the same condition for which the hospital treated them – are having an effect on costs.

But Cantor cautioned that the potential for savings from alternative payment models might become more limited as their share of payments grows.

He agreed with Schwimmer that some aspects of the federal Medicare approach could be incorporated into state plans for Medicaid ACOs.

“It’s not too early to start thinking about ACO 2.0 for New Jersey as 1.0 starts to get some experience under its belt” this year, Cantor said. “It won’t be identical to Medicare – but it will be the same philosophy of rewarding value instead of purely rewarding volume.”

Representatives of both primary-care doctors and hospitals said the HHS announcement dovetails with providers’ interest in new payment models.

“We would applaud CMS for their forward thinking,” said Raymond J. Saputelli, executive vice president and CEO for the New Jersey Academy of Family Physicians.

He pointed to positive results from a recent federal program, known as Comprehensive Primary Care Management, that funded care coordination at more than 70 practices in New Jersey and three other states. In its first year, hospital admissions fell by 2 percent and emergency department visits dropped by 3 percent.

“We see that outcomes improve, costs go down, unnecessary treatments aren’t done, and we reduce unnecessary hospitalizations – basically, we see people stay healthier,” Saputelli said.

But Saputelli added that federal funding is needed to help medical practices make the transition to value-based payments, including investments in information technology.

“Hopefully the government will keep its eye on what the true costs are,” he said.

New Jersey Hospital Association spokeswoman Kerry McKean Kelly noted New Jersey’s hospitals have been an early participants in value-based payments, through the state’s gainsharing demonstration project, which become the basis for one of the federal bundled-payments initiatives.

“The devil will be in the details of how these initiatives are designed and implemented,” she said, citing hospitals’ criticism of federal penalties for h readmissions and for the number of patients who acquire infections and other conditions in hospitals. She noted that hospitals continue to be penalized for hospital-acquired conditions even when they have made significant progress in cutting these cases. She also said it’s important for the federal government to consider socioeconomic backgrounds of patients that hospitals serve in designing payment reforms.

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