How will the Medicare $3 trillion overhaul work?


The federal government of the United States has announced changes to the way in which it will spend the $2.9 trillion annual healthcare bill. The idea is to pay for quality of care rather than quantity. So instead of paying doctors and hospitals by the number of tests and treatments they perform or the number of cases they see – regardless of the patient’s outcome –, the administration would link payments to how well healthcare providers take care of patients. Since the Affordable Care Act – both endearingly and derisively known as Obamacare – was passed in 2010 the administration has aimed to transition from the fee-for-service system to new forms of payment, including Accountable Care Organizations (ACOs) and bundle payments.

Bundled payments consist of Medicare giving hospitals a specific sum for each patient, covering initial treatment as well as follow-up care. ACOs are experimental programs under the Affordable Care Act that would allow encourage healthcare to decrease general costs for their Medicare patients, minimizing unnecessary care and emphasizing quality and frugality, all the while getting a share of the savings themselves. Since 2011, the number of Medicare beneficiaries who get their care through such an arrangement has reached 7.8 million (about 14% of all 55 million enrollees), and 20% ($72 billion) of traditional Medicare spending went to ACOs and other systems last year. However, the government wants these pilot programs to grow larger and faster to the point where they absorb 30% ($113 billion) of Medicare spending by 2016, and 50% ($215 billion) by 2018, according to Health and Human Services (HHS) Secretary Sylvia Burwell. Currently there are 424 ACOs, while 105 hospitals and healthcare groups accept bundled payments.

Additional programs pay doctors extra to arrange patient care among specialists and make sure Medicare works more in sync with Medicaid. Moreover, the administration is planning to have 90% of all Medicare payments include a series of incentives by late 2018, including some that are already in place like bonuses and fines for hospitals with high rates of readmission – which is actually more of a reverse incentive but can nevertheless persuade providers to offer better care, even if they are being pain in the traditional fee-for-service model. Indeed, even hospitals that participate in Medicare’s new programs continue to be paid in the same old manner by commercial insurers. As a result, most of that $2.9 trillion still flows through fee-for-service payments. Contradictions such as that are among the reasons that keep hospitals from making major changes in order to provide improved care.

To counter that, “for the first time we're actually going to set clear goals and establish a clear timeline for moving from volume to value in the Medicare system,” Burwell said during the announcement. “So today what we want to do is measure our progress and we want to hold ourselves in the federal government accountable.” The HHS secretary did not mention any new policies or funding, but she hopes that setting a clear goal will be enough to reassure doctors and hospitals that the move to new payment models is for real, so that more of them will be encouraged to join in. Private-sector buyers of healthcare are also welcomed, such as a council of executives from the insurance and medical industries and large companies like Boeing and Verizon, all of which will give alternative payments a shot. 

Most economists and medical providers concur that replacing the fee-for-service system is necessary to cut healthcare spending, but strong evidence of whether or not the alternative methods proposed thus far will improve patients’ health and save money at the same time is not available yet. “We still have very little evidence about which payment methods are going to be successful in getting the results we want, which are better quality care and more affordable care,” executive director of Californian non-profit Catalyst For Payment Reform Suzanne Delbanco said. “We're just wanting to avoid a situation where a few years from now, where we've completely gotten rid of fee-for-service. We don't want to wake up and say, 'Oh my gosh, we did it and we're no better off.'”

For that and other reasons, not everybody is sold on the idea. “ACOs are quite expensive to set up,” program officer at the Robert Wood Johnson Foundation Andrea Ducas said. “There's a significant upfront investment and if you're not sure you're going to make it back, there's a pause.” In the 2013 Medicare Shared Savings Program ACO experiment, 53 ACOs saved enough to qualify for government bonuses, but 41 not only did not save money but actually overspent. And while they did not have to pay any money back, Medicare is fully intent on requirement reimbursements from ACOs that fall short in the future. 

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