New incentives in Medicare’s payment systems link payment directly to the quality, rather than quantity, of services.
Fee-for-service payment systems contain incentives that encourage physicians and hospitals to provide more services than may be necessary.
Using such terms as “pay-for-performance” or “value-based payment,” CMS has introduced a wide range of initiatives in its payment systems for hospitals, physicians, home health agencies, and other providers that tie payment levels to the value and quality of care provided.
Hospital-Acquired Conditions: Medicare no longer pays hospitals for the additional costs of treating 14 conditions/injuries that patients acquire while they are in the hospital. In addition, Medicare cuts payments by 1% if hospitals are among the 25% worst-performing hospitals nationwide in reducing hospital-acquired conditions.
Value-Based Purchasing: Medicare bases a portion of its payment to hospitals, physicians, and home health agencies on how well they meet a variety quality and cost standards. Excellent performance means a bonus; poor performance means a penalty. To fund the program for hospitals, CMS held back 1.75% of all DRG payments in Fiscal Year 2016 and will increase that to 2% in FY 2017. All of this money is used for bonuses.
Readmissions: Medicare reduces payment for hospitals with high rates of readmissions for patients with certain conditions. These include heart failure, pneumonia, heart attack, chronic obstructive pulmonary disease, elective hip and knee replacement, and coronary artery bypass graft (starting in Fiscal Year 2017). The maximum penalty = 3% of hospital’s base DRG claims. These reductions apply to ALL Medicare cases, not just those readmitted.
New Physician Payment System: CMS has proposed a new method of updating Medicare payment rates for physicians, thus replacing the old Sustainable Growth Rate, or SGR, formula. (See Issue Brief) The proposed system offers physicians two options:
- Merit-Based Incentive Payment System (MIPS): This system would consolidate and streamline the current Medicare quality and value-based payment programs for physicians, including value-based purchasing and the Medicare Electronic Health Record Incentive program. It would allow physicians to select from a variety of quality and performance measures they believe are most appropriate for the type of care they provide. Using these measures, CMS would then judge performance in four overall categories: cost, quality, clinical practice improvement, and use of EHR technology. Physicians would receive positive, negative, or neutral adjustments in their payment levels. In the first year, the adjustments would be limited to 4%, either up or down. In later years, this would grow to 9%. CMS would begin measuring physician performance in 2017, with payment adjustments beginning in 2019.
- Advanced Alternative Payment Models (APMs): Instead of participating in MIPS, physicians can choose to participate in Advanced Alternative Payment models and qualify for a 5% annual incentive payment, which would begin in 2019. These models include patient-centered medical homes that have been expanded under Medicare, including the recently proposed Comprehensive Primary Care Plus (CPC+) program. They also include those Medicare accountable care organizations that accept both financial risk and reward for providing coordinated, high-quality, and efficient care. These include the Track 2 and Track 3 Shared Savings ACOs and Next Generation ACOs.
Learn more about Medicare bundled payments through this Philips Issue Brief
Most of these programs went into effect as a result of the Affordable Care Act of 2010. The proposed changes in physician payment would begin to go into effect in 2017, but payment adjustments would not begin until 2019.
A wide range of health care providers are feeling first-hand the effects of Medicare’s drive toward value-based payment.