HHS faces daunting challenge in moving away from fee-for-service payment

Joseph Burns

About Joseph Burns

Joseph Burns (@jburns18), a Massachusetts-based independent journalist, is AHCJ’s topic leader on health insurance. He welcomes questions and suggestions on insurance resources and tip sheets at joseph@healthjournalism.org.

Image by 401(K) 2012 via Flickr

Image by 401(K) 2012 via Flickr

Finally, we may be seeing the beginning of the end of fee-for-service payment.

In an announcement Monday, the federal Department of Health and Human Services set two goals for changing how Medicare will pay for care, making the most significant change in payment in its 50-year history. First, HHS Secretary Sylvia Mathews Burwell said that next year, 30 percent of all payment to Medicare providers would be in alternative payment programs that reward hospitals and physicians for how well they care for patients rather than how much care they provide.

By 2018, 50 percent of payments would go into alternative payment programs, such as accountable care organizations, patient-centered medical homes and bundled payments, she wrote.

“In alternative payment models, providers are accountable for the quality and cost of care for the people and populations they serve, moving away from the old way of doing things, which amounted to, ‘the more you do, the more you get paid,’” Burwell added.

ACOs, PCMHs and bundled payment programs are already in place across the country and so getting to 30 percent next year and 50 percent by 2018 is possible, although to date HHS has not had great success with these new payment models.

The second goal is more challenging. “Our second goal is for virtually all Medicare fee-for-service payments to be tied to quality and value; at least 85% in 2016 and 90% in 2018,” Burwell wrote.

“Most providers will be tying at least some of their payments to quality and value  – even those who are not yet ready to fully transition. Our goal here is to move away from the old way of doing things, which amounted to, ‘the more you do, the more you get paid’ by linking nearly all payment to quality and value in some way to see that we are spending smarter.”

In her announcement, Burwell provided no detail on how HHS would accomplish this transition. It could be that she understands even health plans have struggled to move away from fee for service. When health plans develop complex systems that reward hospitals and physicians for delivering high quality care, they pay claims based on fee for service during the year and then have a reconciliation at yearend.

Here’s what happens: When hospitals and physicians participate in payment programs that reward them for delivering high-value care, they get a bonus for hitting certain quality and spending targets. If they hit all or most of their quality targets and if they have spend less than health plans budget annually, then health plans pay the providers a bonus at yearend. If they don’t hit their quality targets and spend more than health plans budget, they pay a penalty to the health plans at yearend. In either case, payment is built on a fee for service system. The only part of the payment program that differs from plain-vanilla fee for service is the yearend reconciliation.

One reason health plans have struggled to make the shift to value is fee-for-service payment is linked closely to the nation’s Current Procedural Terminology (CPT) coding system, and changing the CPT system will not be easy.

Nevertheless, HHS is attempting a bold, historic, and necessary shift in payment. Health policy experts have long recognized that fee for service is needlessly costly and inefficient because it pays providers to offer a greater volume of care regardless of outcomes, as Paul Demko explained in Modern Healthcare.

Now, as it shifts from volume to value, Medicare must define value. “The challenge is, how do you measure value? Demko wrote, quoting Ashish K. Jha, M.D., M.P.H., a health policy professor at Harvard. “If you don’t do that well, then these models can end up being not only not all that helpful, but even hurtful.”

Joyce Frieden at MedPage Today raised a similar issue, saying HHS needs to define how to measure outcomes. She quoted Jane Orient, M.D., executive director of the Association of American Physicians and Surgeons, who asked, “How do you define outcomes, and how do you cope with the fact that only about 10 percent of the outcome has anything to do with what the doctor does, and the rest has to do with how sick the patient is and how well the patient follows advice?”

Orient also suggested that with value-based payment, physicians may not want to care for patients who are very ill or who have complex health conditions because they fear they won’t be paid, Frieden wrote.

Indeed, hospitals and physicians earn a lot of money from fee for service, as Alex Wayne reported in his article for Bloomberg Business: “Too much money has been made from fee-for-service for its execution to proceed without a peep of protest.”

Another challenge HHS faces is that Medicare’s track record in developing value-based payment methods has been mixed, as Jason Millman reported in The Washington Post. “Two high-profile ACA programs encouraging health-care providers to work as accountable care organizations have resulted in modest savings to the Medicare program so far, about $877 million. But at least 13 of the 32 organizations that participated in the most ambitious of these efforts – the Pioneer ACO program – have dropped out of the program in the past two years. Most of these groups left to join programs with less financial risk,” Millman wrote.

Overall, however, the movement to shift from volume to value is significant because Medicare is the nation’s largest health care payer. “If this works, the White House hopes it will do two things,” wrote Sarah Kliff at Vox. “The first is improve the quality of health care in the United States by paying doctors the most when they provide the best care possible. Second, and perhaps more importantly, the Obama administration sees this new plan as a way to cut health care spending by dis-incentivizing unnecessary medicine.”

For health care journalists, the key to covering the transition from paying for volume to value is to monitor how much and how well these new forms of payment work, as Rene Letourneau has done at HealthLeaders. Health plans have had some modest success paying for value, but even their efforts are only a few years old. Medicare is a much larger system and so far it has not produced much in terms of successful new payment systems.

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