Medicare Payment Change is A-Comin’

The Centers for Medicare and Medicaid Services (“CMS”) made a major announcement on Monday, January 26th about payment models under Medicare.  For the first time and in a very aggressive manner, CMS set a firm timeframe for implementation of alternative payment methodologies.  The new timeframe furthers the goals of the Affordable Care Act in changing the manner in which healthcare is delivered and paid for in the country.

As announced by CMS, it intends for 30% of all Medicare provider payments to be under an alternative payment methodology by 2016 and increasing that target to 50% by 2018.  Further, CMS also wants 85% of all fee-for-service Medicare payments to be tied to quality and value by 2016 and increasing that target to 90% by 2018.  The ultimate goal is to improve efficiency and quality within the healthcare delivery system while tying payments more closely to such goals with the anticipated end result of lowering costs as well.

What is an alternative payment though?  An alternative payment can refer to any number of payment options, but as a baseline the payments are based upon quality and efficiency.  Payments will not be tied to the quantity of services, which is the basis for the fee-for-service methodology.  If payments are not tied to the number of services performed, then the belief goes that providers will focus upon efficient delivery because that will result in better payments.

In shifting to alternative payment methodologies, CMS will focus upon three key areas.  The three areas identified by CMS are: (i) improving the way providers are paid, (ii) improving and innovating care delivery, and (iii) sharing information more broadly to providers, consumers, and others to support better decisions (with the understanding that privacy will also be preserved).  In changing the way providers are paid, CMS wants to reward value and care coordination, which goals are in line with the accountable care and bundled payment pilots currently being run by CMS.  For care delivery, CMS will support and encourage providers and others to find new ways to coordinate and integrate care.  This means breaking out of old care models and trying to find novel means of delivering care.  Lastly, information sharing will focus on expanding transparency around cost and quality of care in addition to overall expansions in access to healthcare information.  As the brief description of CMS’s goals shows, the plans are ambitious and will require a number of different actors to work together to be successful.

As others have mentioned, it is a daring move by CMS to set a clear timeframe for the transition to alternative payment methodologies.  The government does not typically set such hard and fast deadlines because it is very hard to get an entire, entrenched system to move quickly.  However, the changes announced by CMS are not a start from scratch affair.  Changes have been coming over the past few years, with efforts accelerated by the Affordable Care Act.

What does all of this mean for providers and the healthcare industry?  It means that change is here to stay and the system as a whole will be going in a fundamentally new direction.  If Medicare changes the way that the game is played, then it essentially forces everyone to play by the new rules.  If the largest payor in town (and one that many look to for guidance) comes out with new rules, then all will need to step up to the same plate.  The goals will also create more turmoil and change in healthcare, but hopefully will produce a higher quality and more nimble system in the end.  Ultimately, only time will tell what new initiatives will stick and what will need to be changed.  One safe bet is that the days of fee-for-service are clearly numbered.

About Matt Fisher

Matt is the chair of Mirick O'Connell's Health Law Group and a partner in the firm's Business Group. Matt focuses his practice on health law and all areas of corporate transactions. Matt's health law practice includes advising clients with regulatory, fraud, abuse, and compliance issues. With regard to regulatory matters, Matt advises clients to ensure that contracts, agreements and other business arrangements meet both federal and state statutory and regulatory requirements. Matt's regulatory advice focuses on complying with requirements of the Stark Law, Anti-Kickback Statute, fraud and abuse regulations, licensing requirements and HIPAA. Matt also advises clients on compliance policies to develop appropriate monitoring and oversight of operations.
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