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Signs That Payment Reform is Here to Stay

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There was a significant announcement out of HHS on Monday, January 26th, about payment reform. Here is an excerpt from an industry article:

“The new goal is that by the end of 2016, 30 percent of fee-for-service Medicare payments will become value-based payments through alternative payment models like Accountable Care Organizations (ACOs) or bundled payment arrangements. This will increase to 50 percent of payments by the end of 2018.

HHS has also set a goal of 85 percent of all traditional Medicare payments shifting to quality-based by 2016 and 90 percent by 2018. This will happen through programs like Hospital Value Based Purchasing and the Hospital Readmissions Reduction programs.”

In the early days before CIVHC was conceived, changes to the payment system were theoretical. We talked in terms of what might happen if we changed how we pay for care. What this announcement tells me is that we are beyond the theoretical in payment reform now. We’re transitioning into a phase where people ask “why” less, and ask “how” more.

The how isn’t greatly specified in the announcement, but here’s what I think we’re talking about that’s feasible within that timeframe:

  • You’ll note there are two different percentages for each year noted, 2016 and 2018. One is for the value-based payment target, and the other is for the quality-based target. While these terms are not defined in the announcement, the examples given (bundled payments and ACOs) imply that the value-based targets are those payments in which there is some bundling, up to and including capitation.
  • Quality based targets sound like payments that are after-the-fact modifications of payments based on quality. For example the readmissions program exacts penalties if your readmission percentages exceed a threshold. Similarly the Value Based Purchasing program either rewards or penalizes a facility based on its relative scoring on clinical and patient satisfaction measures.

So what, you might ask? I blogged the last time about how the readmissions penalties were really small, worrying that they might not be big enough to garner attention from hospitals. But I think this announcement has significance by sending a strong market signal that the federal government isn’t backing away from advancing payment reform to more quality, value, and population-based forms; if anything, they’re doubling down. And the fact that it was picked up by a site focused on revenue cycle optimization tells me that the industry is listening.

This was followed closely by an announcement from an industry group, the Health Care Transformation Task Force, of very similar commitment to value-based payment as reported by the New York Times. Some of the largest payers and providers in the nation jointly committed to paying and being paid to produce value instead of just activity. Because of these two announcements, I think we may be passing a tipping point here in early 2015. It may be the moment that people stop doubting value-based payment, and whether they favor it or not, and start to include it as an assumption in their strategic planning.

About the Author: Dr. Jay Want is CIVHC's Chief Medical Officer. Contact him at

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