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A Signal Moment in Healthcare Reimbursement: The Feds Send a Clear Signal on Payment Reform

January 27, 2015
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The set of announcements around Medicare payment reform released by HHS makes the core direction of federal reimbursement absolutely clear

The bundle of announcements that came out of the U.S. Department of Health and Human Services (HHS) around payment reform on Jan. 26 was extremely important, and anyone in the U.S. healthcare system who would even think about ignoring or dismissing the impact of those announcements would have to be considered foolish or shortsighted.

As this publication reported on Monday afternoon, officials at HHS announced that the agency wants 30 percent of traditional Medicare fee-for-service payments to be tied to a quality-driven, alternative payment model, such as an accountable care organization (ACO), by the end of the year. Further, HHS has set a goal of 50 percent of traditional fee-for-service (FFS) Medicare payments to be tied to quality-driven, value-based reimbursement models. The agency wants 85 percent of Medicare FFS payments tied to quality or value by 2016, and 90 percent by 2018, by leveraging the Hospital Value-Based Purchasing Program and Hospital Readmissions Reduction Program.

Yes, that’s right, 90 percent of Medicare fee-for-service reimbursement, linked either to value-based purchasing or to some sort of quality measure. And, no question about it, that’s big. Really big.

What’s more, I’m not the only one noting the scale of this ambition. Farzad Mostashari, M.D., the former National Coordinator for Health IT, has just blogged on this very topic. As he said Monday, “Earlier today, Health and Human Services (HHS) Secretary Sylvia Mathews Burwell announced that HHS is doubling down on the historic shift taking place across the healthcare industry towards value-based care, and is setting a target of having 50 percent of Medicare payments under value-based care arrangements by 2018. This would mean,” Dr. Mostashari noted, “that in less than three years, around a quarter of a trillion dollars of healthcare spending would be made to providers who are being compensated not for ordering more tests and more procedures, but for delivering better outcomes… This shift will address a central problem of the U.S. healthcare system,” he added, one that lawmakers and policy experts on all sides of the issue agree is a key contributor to runaway medical inflation…” In other words, as he amplified in his blog, he believes that this reimbursement shift will address the essential truth of the incentive towards volume-based production that is inherent in a fee-for-service payment system.

Most importantly, Dr. Mostashari  asserted in his blog, entitled “A Courageous First Step,” his belief that the goal announced today by HHS will motivate “widespread, real change across both the public and private healthcare sphere.” But he quickly added that, “In addition to tracking all dollars paid out under value-based system… HHS should also separately count how much money was actually awarded or taken away as part of value-based contracts. The headline number,” he said, “will give a picture of how many providers are participating in value-based care programs; the second number will give a clearer policy goal of increasing the number of providers that are actually succeeding in these arrangements.”

I have no doubt that what Dr. Mostashari has said about motivating “widespread, real change across both the public and private healthcare sphere” is true—that this set of programmatic goals will force change on the industry.

The only question—or rather, set of questions—is, how fast will the industry “flip” into value-based reimbursement-based operations management, and how difficult will the transition be for everyone? Because there’s no question that it will be hard.

Even the leaders of those patient care organizations on the leading edge of change—integrated health systems aggressively pursuing population health management, ACO, bundled-payment, patient-centered medical home, and other strategies—are reporting that the current landscape is a challenging one for them. Of course it is: moving from operations based on volume to operations based on value is a fundamental shift. And until recently, nearly every incentive in healthcare encouraged core volume-based effort and activity.

Furthermore, data and information will absolutely be at the core of any successful efforts going forward. The old adage, “what can’t be measured can’t be managed,” absolutely comes to mind here. Does this mean that healthcare IT leaders, most particularly clinical informaticists, will be absolute nexus people in all this? Yes, without a doubt.

So it’s time for anyone in the industry who still doubts the essential federal policy and reimbursement direction to see the light here and get with the program, basically. Because if ever there were a signal to healthcare providers about policy direction, this is it. We at Healthcare Informatics will continue to follow and report on all these developments going forward, of course—but if anyone was looking for a seminal moment in the reimbursement history of our healthcare system—this would be as good a moment as any.