While Medicare’s path toward pay for performance (P4P) has evolved over time, 2015 is proving to be a landmark year. July marked the 50th anniversary of the Medicare program. And in self-described “historic announcements” earlier this year, the U.S. Department of Health and Human Services (HHS) disclosed ambitious and explicit goals for shifting Medicare fee-for-service (FFS) reimbursement to alternative payment models and linking an increasing percentage of reimbursement to quality and value over the next few years.

How did we get here?

From the inception of the Medicare program, providers were reimbursed on a retrospective FFS basis that incentivized quantity. Recognizing the growing costs associated with FFS reimbursement, Medicare shifted toward prospective payment for certain services, beginning with the hospital Inpatient Prospective Payment System (IPPS) in 1983. Prospective payment incentivizes efficiency but still rewards quantity. Twenty years later, the Centers for Medicare and Medicaid Services (CMS) implemented the Hospital Inpatient Quality Reporting (IQR) program, the pay for reporting concept that later, in connection with the current Hospital Value-Based Purchasing (VBP) program, resulted in a move toward P4P based on IQR defined measures.

The 2010 Affordable Care Act (ACA) jump-started the paradigm shift to P4P by rewarding quality over quantity, and facilitating Medicare’s transformation from a “passive payer of services into an active purchaser of higher quality, affordable care.” The ACA created a number of P4P programs designed to reward quality and efficiency, including the VBP, the Hospital Readmissions Reduction Program, and the Hospital-Acquired Conditions (HAC) Reduction Program.

The ACA’s quality and value mandate is not limited to IPPS hospitals. Similar programs are being piloted and evaluated across the continuum of care. Examples include:

  • The Physician Quality Reporting System
  • The Medicare Electronic Prescribing Incentive Program
  • The Nursing Home Quality Initiative
  • The Home Health Quality Reporting Program
  • The Long-Term Care Hospital Quality Reporting Program

To facilitate the shift to P4P and provide transparency on measures to consumers, CMS established the QualityNet secure website that provides healthcare quality improvement news, resources, and data reporting tools and applications used by healthcare providers and others and launched various tools for comparing and rating hospitals and other providers, such as the consumer-oriented websites Hospital ComparePhysician Compare, and Nursing Home Compare.

The ACA also introduced numerous alternative payment and delivery models, emphasizing the shift from FFS to P4P. CMS is administering these programs through the Center for Medicare and Medicaid Innovation (CMMI), which is well funded at a rate of $10 billion every 10 years. CMMI is essentially a laboratory for innovative models that include the following seven broad categories being tested on both the state and federal levels:

  • Accountable care
  • Episode-based payment initiatives
  • Primary care transformation initiatives and demonstrations
  • Medicaid and CHIP focused initiatives
  • Dual eligible focused initiatives
  • Initiatives to accelerate the development and testing of new payment and service delivery models
  • Initiatives to speed the adoption of best practices (e.g., the Million Hearts program, which is focused on preventing one million heart attacks and strokes over five years)

Where are we headed?

HHS wants to tie 30 percent of Medicare payments to quality or value through alternative payment models, such as accountable care organizations or bundled payments, by the end of 2016 and increase this amount to 50 percent by the end of 2018. Additionally, HHS wants to tie 85 percent of traditional FFS Medicare payments to quality or value by 2016 and 90 percent by 2018. HHS is also working with private payors, employers, consumers, providers, states and state Medicaid programs, and other partners to expand alternative payment models beyond Medicare. This next paradigm shift underscores the importance of coordinated care, implementing best practices and measuring outcomes, and achieving value and efficiency.

What does this mean for providers? What’s coming next?

Over the past few years, physicians, hospitals, and post-acute providers have begun to adapt to reporting on quality and outcome measures, and are working to improve their performance on these measures to avoid reductions in reimbursement. We are also seeing the maturation of the P4P programs. CMS is looking to align measures across its P4P programs to minimize the reporting burden. CMS is also refining the measures under its P4P programs, for example, shifting away from payment for implementing defined processes toward outcomes measures that reward efficiency and quality of care.

HHS continues to position providers to accept risk for a defined population or episode of care. Through CMMI, HHS has been testing numerous bundled payment initiatives. Building on the success of its bundled payment models, in July, CMS announced a newComprehensive Care for Joint Replacement payment model that bundles payment for hip and knee reimbursements in an effort to improve outcomes and reduce costs. This program marks a significant milestone in the shift to P4P in that it will be mandatory for 75 randomly selected MSAs January 1, 2016.

The April 2015 passage of the Medicare Access and CHIP Reauthorization Act (MACRA) marks another key step in this transition. MACRA creates a Merit Based Incentive Payment System (MIPS), which consolidates incentives from three current Medicare programs: EHR Meaningful Use Incentive Program, Physician Quality Reporting System, and Value Based Payment Modifier. The MIPS ties four percent of Medicare Physician Fee Schedule (MPFS) payments to quality effective 2019, and nine percent of MPFS payments to quality effective 2022. Notably, physicians participating in alternative payment models are exempt from the MIPS. CMS recently issued a Request for Information that will guide the MIPS rulemaking.

What can providers do to prepare?

So what priorities should providers focus on to help navigate the changing payment environment?

  • Data. Providers are collecting data, reporting data, and using data to gauge their progress on P4P measures. The next step for providers is to utilize data to coordinate care, manage episodes of care, and ultimately manage population health.
  • Alignment. Providers should look for opportunities to align with others in the care continuum. HHS is steering providers toward alternative payment models, which naturally incentivizes strategic alignment between physicians, and acute and post-acute providers.
  • Buy-in. Providers need their management teams and clinical staff all working together to achieve success under P4P and alternative payment models. As the healthcare system continues to transition from reimbursing for quantity to reimbursing for quality, it will become increasingly important for providers to ensure that workforce and medical staff are committed to these goals.
  • Private Pay Contracts. As providers begin to achieve value and efficiency, they may evaluate whether modifying the traditional FFS reimbursement terms of commercial payor contracts makes economic sense. Private payors, including self-funded employer plans, are also looking at ways to decrease costs and improve outcomes. And providers will want to avoid decreased FFS payments if they are able to reduce the volume and cost of services.
  • Stay Tuned. The shift toward P4P is picking up momentum. New programs and rules are on the horizon.