Healthcare Services:Thoughts on HHS Value Based Payment Targets -ALERT

On Monday HHS unveiled an ambitious goal to shift 30% of total Medicare payments into alternative payment and delivery models such as ACOs, bundledpayment arrangements, medical homes and demonstration projects for dual eligibles by 2016 and 50% by 2018. Furthermore, the administration plans to tie 85% of all FFS payments to quality metrics by 2016 and 90% by 2018. Despite a lack of specific plans, this is the first time that HHS has set explicit goals for value-based payment model reform for the Medicare program. We note that while HHS is somewhat limited as to how much it can do administratively without Congressional changes, this data point is yet another reminder of the likely inevitable transition toward value-based reimbursement. And while we believe this shift is inevitable, the 2-3 year targets for Medicare payment transition seems optimistic at best in our mind given most payment models are “opt-in” from a hospital/provider standpoint such as ACOs and bundled payment programs, which leaves the transition up to hospitals to a great extent without any further legislation. This leaves new models as unlikely to have a meaningful economic impact over the typical 1 to 3 year investment horizon. Of course over a 5-10 year period we expect a combination of further government push toward innovative models coupled with increased managed care penetration and the push from the Cadillac tax for commercial plans to get to greater value will make the shift away from FFS reimbursement inevitable – putting hospitals (as well as MCOs) in the position of needing to be part of the solution around lower HC costs via increased efficiency and sacrificing lower pricing for increased market share as smaller players are unlikely to be effective in a new paradigm.

    50% goal for FFS spending in value-based models by 2018. HHS set a target to shift 30% of all Medicare fee-for-service payments to alternative value-based payment models such as ACOs and bundled payment programs by the end of 2016 and 50% by the end of 2018, compared to 20% at present (FFS spending, which excludes Medicare Advantage and Part D, totaled $362B in 2014). There are currently about 425 Medicare ACOs (which give providers a portion of any savings they generate in comparison to a spending benchmark for each patient over the course of a year) serving 7.8m, or ~20%, of Medicare FFS beneficiaries, and thousands of providers are participating in the bundled payment pilot (which provides a single payment for all services provided within a single episode of care). Furthermore, HHS is seeking to have 85% of all Medicare FFS payments “tied to quality or value” by 2016 and 90% by 2018.

    HHS also plans to develop and test new payment models for specialty care, beginning with oncology care and will implement payments to providers for care coordination for beneficiaries with chronic conditions.

    Plans to invest up to $800m to improve care delivery through the Transforming Clinical Practice Initiative, which will provide support to 150k physicians and clinicians for developing skills and tools needed to improve care delivery and transition to alternative payment models.