On July 30, 1965, President Lyndon B. Johnson signed into law what we now know as the Medicare and Medicaid programs.  They came into being after a long political gestation period that can be traced back to President Theodore Roosevelt's proposals for a national health insurance system in 1912 and President Harry Truman's 1948 bid for a universal, single-payer system.  This birth came just at the end of the 77 million strong baby boomer bubble that ran from 1946 to 1964.  The first of those baby boomers started entering Medicare 4 years ago and we still have 14 years to go.  CMS's website, newspapers and health care periodicals are chock full of "then and now" statistics and comparisons, such as: 

  • THEN - nine individuals under 65 for each one over; NOW - five individuals under age 65 for each one over (headed to 3.5 before too long).
  • THEN - 19 million enrolled in Medicare; NOW - more than 54 million enrolled in Medicare, and Medicaid has grown to nearly 70 million.

As Medicare headed into its 20-something years in the mid-1980s, it began the shift to prospective payment systems by implementing the hospital inpatient DRG system.  This launched the elimination of the cost and charge based methods that Medicare had started with.  The PPS wave took about 20 years to make its way through Medicare's various payment systems: O/P; PFS; ASC; SNF; HHA; rehab; psych; LTAC; etc.  The changes that the PPS wave forced on health care providers were monumental, driving implementation of new operational and strategic initiatives, creating new compliance risks, requiring new legal structures and creating new legal issues. 

By the time Medicare entered its 40s, that transition was largely complete and the next wave of change had begun.  The Medicare Modernization Act of 2003 mandated the creation of a hospital inpatient quality/results reporting program that started a few years later.  That program was subsequently expanded to include value-based purchasing concepts, where payment is driven in part by results, not just reporting results.  As with PPS, but more rapidly this time, both quality reporting and VBP concepts spread from hospital inpatient to Medicare's many other payment systems.  VBP only shifts a few percentage points of revenue between providers.  But in an industry where margins are only a few percentage points and Medicare is the largest payer, the effect of rewards on the bottom line can be enormous and the reductions catastrophic.

Although the full impact of the quality reporting/VBP wave on the provider industry is still being realized, the next wave is beginning to rise, and it may well be the biggest of all.  The ACA brought us ACOs.  As Medicare moves into its 50s and toward that milestone 60th year, all predictions are that this wave will accelerate toward bundling risk, imposing it upon providers and effectively mandating that providers undertake population health initiatives.  Today's health care leadership knows well the changes wrought by the PPS wave first launched in the 1980s.  The move toward risk and population health will also bring significant changes to the provider industry, and they will come faster than either of the first two waves of Medicare change.