Medical Team Meeting Medicare FFS Payments

If you haven’t begun the transition to alternative payment models, your organization may be unprepared for operating in the health care industry of the very near future.

Navigating health reform

Value-Based Reimbursement: Health and Human Services Sets Timeline for Transition

  • Rob Schile
  • 2/19/2015

Since the passage of the Affordable Care Act (ACA), the notion of “value” or “value-based health care” has been at the forefront of discussions about health care. At that time, and for many today, delivering health care in a system where reimbursement is based almost entirely on the value of care seemed to be a vision that was so far in the future we didn’t need to pay much attention.

On January 26, 2015, the Department of Health and Human Services (HHS) released its assessment of the current state of reimbursement, along with a timeline to fully transition to a “value-based” system.

Seeing the actual timeline and the details of the transition makes this all a reality. The bottom line for providers is if you haven’t taken this seriously and begun your transition, your organization risks missing out on opportunities and being unprepared for operating in the health care industry of the very near future.

The reimbursement framework

As part of developing the framework, HHS divided the reimbursement system into four different categories:

  • Category one: fee-for-service (FFS) with no link of payment to quality
  • Category two: fee-for-service with a link of payment to quality
  • Category three: alternative payment models built on fee-for-service architecture
  • Category four: population-based payment

The graphic below depicts HHS’s four different categories and the various payment models associated with each.

Payment Taxonomy Framework
Category One
Fee-for-Service No Link to Quality Payment
Category Two
Fee-for-Service With Link to Quality
Category Three
Alternative Payment Models Built on Fee-for-Service Architecture
Category Four
Population-Based Payment
Payments are based on volume of services and not linked to quality or efficiency.
At least a portion of payments vary based on the quality or efficiency of health care delivery.
Some payment is linked to effective management of a population or an episode of care. Payments still triggered by delivery of triggered by delivery of services, but opportunities for shared savings or two-sided risk.
Payment is not directly triggered by service delivery so volume is not linked to payment. Clinicians and organizations are paid and responsible for the care of a beneficiary for a long period.
Medicare FFS:
  • Limited in Medicare fee-for-service
  • Majority of Medicare payments now are linked to quality
Medicare FFS:
  • Hospital value-based purchasing
  • Physician value-based modifier
  • Readmissions/Hospital Acquired Condition Reduction Program
Medicare FFS:
  • Accountable care organizations (ACOs)
  • Medical homes
  • Bundled payments
  • Comprehensive primary care initiative
  • Comprehensive End-Stage Renal Disease Initialtive
  • Medicare-Medicaid Financial Alignment Initiative Fee-for-service (FFS) model
Medicare FFS:
  • Eligible Pioneer ACOs in years 3 – 5

According to HHS, “value-based” reimbursement is any type of reimbursement in categories two through four, wherein quality of care is, in some fashion, connected to reimbursement. The reimbursement structures in these categories begin to reward providers for moving away from the straight reimbursement for volume that was historically the structure under category one. HHS estimates that, as of 2014, about 20 percent of Medicare reimbursement has shifted to categories three and four. This transformation has been primarily driven by the passage of the ACA which created the framework to construct these alternative payment models. While the 20 percent transition may come as a surprise, HHS is planning on moving forward.

Timeline for transition

HHS has published the following timeline for transitioning to a more robust value-based payment system:

  • End of 2016: 85 percent of Medicare payments in categories two through four; 30 percent in categories three and four.
  • End of 2018: 90 percent of Medicare payments in categories two through four, with 50 percent in categories three and four.

The alternative payment models with which HHS expects to produce the above results are already being used or being tested. The alternative models are:

  1. Accountable care organizations (ACOs)
  2. Advanced primary care medical homes
  3. Bundled payments or episodic payments
  4. Integrated care demonstrations for dual eligible beneficiaries (i.e., beneficiaries eligible for both Medicare and Medicaid)

The graphic below depicts HHS’s vision of how alternative payment models will be widely adopted by 2016, and virtually replace the current fee-for-service payment methodology by 2018.

Medicare FFS Payments Schile

The path to 2018

HHS recognizes true payment reform can’t be accomplished by just Medicare alone. Achieving the goals for 2018 will require the adoption of alternative payment models by a critical mass of payers. To date, the lack of critical mass has been a significant concern from a financial standpoint. In an environment where only a limited number of payers are moving in that direction, providers stand little incentive to move away from fee-for-service due to the negative financial impacts from lost revenue.

To assist with the transition and reach across public and private sectors, HHS has created “The Health Care Payment Learning and Action Network” (HCPLAN). The purpose of HCPLAN is to advance alternative payment models by driving greater collaboration between private payers, providers, large employers, consumers, and state and federal partners.

HHS has outlined HCPLAN’s role as it relates to new payment models and care delivery:

  1. Serve as a convening body to facilitate joint implementation and expansion
  2. Identify areas of agreement around the transition and provide definitions as to how best to report on new payment activities
  3. Collaborate to share evidence, share information, and break down barriers
  4. Develop common approaches to beneficiary attribution, financial models, benchmarking, and risk adjustment
  5. Create guides for implementation for payers and purchasers of health care services

The transition begins now

This release from HHS should make it crystal clear: Reimbursement is moving away from providing incentives for volume to providing incentives for value. For organizations that have not yet begun their transition and for those in the midst of it, this timeline is unambiguous. Transitioning operations, dispensing with historical mindsets around care delivery, and the cultural transformations that are necessary do not happen overnight — you have fewer than four years to position the organization you lead for success.

How we can help

CLA has extensive experience analyzing the financial transitions required for alternative payment models. We also have the operational insights and expertise to help you prepare for the changes in the health care industry in 2018 and beyond. We assist clients in developing action plans and evaluating their next steps. An outside perspective with deep industry experience can provide valuable resources for your future. As the health care landscape shifts, you can keep up do date on the changes by using our CLA resources in our health care reform services for providers.