April 2015

By Miranda Crowell

Every so often, an industry will undergo a core-shaking and fundamental transformation; an absolute overhaul. The transformation can permeate throughout the industry. As you know, the healthcare industry has been riding a roller-coaster since the announcement of the Affordable Care Act. But the ride is far from over, and the Department of Health and Human Services (HHS) has built yet another addition to the coaster’s track.

Before the healthcare market was pulled kicking and screaming into compliance with massive Affordable Care Act (ACA) legislation, it was generally accepted that the United States had one of the most expensive health care systems in the world. And this lofty price tag did not exactly correlate with health outcomes: consumers paid more for healthcare that was arguably inferior to the services that could be obtained in other countries for less cost. (For a 2014 study on the matter, check out The Commonwealth Fund’s Study here.) This problem needed to be addressed. Boiling down the hundreds of pages of the Affordable Care Act, there are three goals at the heart of the ACA: (1) Coverage: to expand access to health insurance, (2) Costs: to protect consumers from the arbitrary actions of insurance providers, and (3) Care: to reduce costs of care and to protect the autonomy of consumer choices. In early 2015, HHS announced goals and timelines to change payment models for Medicare from quantity-based to quality-based payments. This announcement fits nicely within the goals of the Affordable Care Act. As Secretary of HHS Sylvia Burwell said in a press release on the matter, “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.” Value-based payments strive to provide healthcare providers with a financial incentive to coordinate care for their patients and to move away from delivering care in chunks of tests and waives of treatments.

The Announcement

According to the HHS announcement, this shift is the first time that “HHS has set explicit goals for alternative payment models and value-based payments” in the history of the Medicare program. By the end of 2016, HHS intends to tie 30% of Medicare payments to quality or value through alternative payment models, such as Affordable Care Organizations or bundled payment arrangements, and plans to increase this number to 50% by the end of 2018. Additionally, HHS intends to tie 85% of all traditional Medicare payments to quality or value by 2016, and 90% by 2018, through programs such as the Hospital Readmissions Reductions Programs and Hospital Value Based Purchasing.

“What does all that mean,” you ask?

Don’t worry, we will walk you through it.

The Explanation

Many of the value-based payment puzzle pieces were envisioned in the ACA, and this announcement promulgates a timeline for implementation. As mentioned, an important piece of the HHS announcement is the healthcare provider’s participation in an Accountable Care Organization (ACO). According to the Centers for Medicare and Medicaid Services, ACOs are “groups of doctors, hospitals, and other health care providers, who come together voluntarily and give coordinated high quality care to their Medicare patients.” The main perk of participating in an ACO is that the participants share in the savings achieved for the Medicare program when the ACO is successful in lowering costs and giving high-quality care simultaneously. There are a few types of ACO programs. First, the Medicare Shared Savings Program helps Fee-for-Service providers become an ACO. Second, the Advance Payment ACO Model is an additional incentive program for select participants participating in the Shared Savings Program. Lastly, there is the Pioneer ACO Model; however, if you are not already enrolled in this model, you have missed the boat, as this program was designed for early adopters and is no longer accepting applications.

The Hospital Readmissions Reductions Program is, at the very least, well-named. In short, parts of the ACA amended the Social Security Act to establish this program. It requires CMS to reduce payments to certain hospitals that have excess readmission. Those certain hospitals use what is called an inpatient prospective payment system; a system whereby hospitals treating inpatient Medicare Part A patients are paid based on the weight assigned to a specific diagnosis-related group. It sounds complicated, but the short of it is, certain hospitals will be receiving reduced payments from CMS when excessive readmissions occur. Additionally, Congress authorized Hospital Value-Based Purchasing via the ACA. Hospitals participating in hospital value-based purchasing are paid for the inpatient acute-care services they provide based on the quality, not the quantity, of the services they provide. This program takes advantage of the hospital quality data-reporting infrastructure developed for the Hospital Inpatient Quality Reporting Program.

The HHS announcement specifically set measurable goals pertaining to the Medicare program, but HHS does not intend to limit the shift to just Medicare payments. In order to encourage and assist the entire market to jump on the value-based-payment bandwagon, Secretary Burwell also announced the creation of the Health Care Payment Learning and Action Network. This network was “established to provide a forum for public-private partnerships to help the U.S. health care payment system meet or exceed recently established Medicare goals for value-based payments and alternative payment models.” (For more information on the network, click here.) This network is an open-invite style party for all “payers, providers, employers, purchasers, states, consumer groups, individual consumers, and others.” Other tools are also available. For example,  Health Care Transformation Task Force is an industry consortium that brings together private and public sector efforts to align with HHS’s value-based payment goals. This task force has many players ranging from patients to payers and strives to achieve 75% of their businesses operating under value-based payment arrangements by 2020.

Undoubtedly, the shift in Medicare payment styles will set the tone for the rest of the industry. This brief explanation of HHS’s plan to convert Medicare payments to a value-based system is Part 1 of a three-part series aimed at dispelling (or at the very least, diluting) the shroud of complexity surrounding the HHS announcement. In Part 2, we will explore various opinions about the shift in Medicare payment styles, and outline the obstacles that must be overcome in order to comply with HHS’s plan. And finally, Part 3 will discuss how the announcement will impact persons working with, but not necessarily within, the healthcare industry. Be sure to check out https://fibroblast.com/blog/ for the series as it is released.