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, Medicare holds back 2% of all DRG payments annually. This percentage reduction applies to all DRG payments--not just those related to the conditions covered by the quality and cost measures. Medicare then uses the money for the incentive payments, which total $1.9 billion in Fiscal Year 2018.
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 is implementing a new value-based program for updating its payment rates for physicians. Called the Quality Payment Program, it determines annual payment changes based on how well physicians perform on outcomes, quality, and cost measures. Physicians must choose one of two payment tracks:
1. Merit-Based Incentive Payment System (MIPS): This track adjusts payments based on how well physicians perform in four areas: quality, cost, clinical practice improvement, and use of electronic health records. Payments can be adjusted by as much as plus-or-minus 4% in 2019, increasing to plus-or-minus 9% in 2022.
2. Advanced Alternative Payment Model (AAPM): This track adjusts payments based on whether physicians participate sufficiently in AAPMs (coordinated care models) which share financial risk for possible losses. Among the models CMS has approved as AAPMs are Next Generation ACOs, certain Shared Savings ACOs, and Bundled Payments for Care Improvement Advanced Model
Learn more about Medicare's pay-for-value programs through this Philips Issue Brief.
Most of these programs went into effect as a result of the Affordable Care Act of 2010. The new Quality Payment Program began in 2017.
A wide range of health care providers are feeling first-hand the effects of Medicare’s drive toward value-based payment.