Management Challenge 8: Reforming Delivery and Payment in Health Care Programs

Why This Is a Challenge

A stethoscope on top of a stack of money

As recently as 2011, almost none of the $558 billion spent on traditional Medicare was paid through alternative payment models (APM). Instead, CMS paid the majority of claims through the fee-for-service (FFS) system. The incentives created by the fee-for-service (FFS) system—which pays for health care on the basis of the volume of items or services furnished—have been linked to wasteful spending in health care, including unnecessary utilization and fragmented, poor quality care.

In January 2015, Secretary Burwell announced goals to foster better care, smarter spending, and healthier people and propel a transition to new models in Medicare. The ambitious goals are twofold. First, HHS aspires to tie 30 percent of traditional Medicare payments to APMs by the end of 2016, including bundled payment arrangements, and 50 percent of payments by the end of 2018. Second, HHS set a broader goal of tying 85 percent of traditional Medicare payments to quality or value —including not only APMs but also quality-based adjustments to fee-for-service payments—by 2016 and 90 percent by 2018. HHS is working with state Medicaid programs and private payers, including Medicare Advantage plans and others, to make comparable reforms for their providers and beneficiaries.

Reforms under Affordable Care Act, MACRA, and other statutes are embedding multiple new payment and delivery models into Medicare, requiring concurrent, sustained, and multifaceted efforts at planning and implementation. New models touch on virtually every aspect of the Medicare program — including, for example, hospital, physician, home health, dialysis, and post-acute care payment — and experiment with a variety of payment structures, including shared savings, episode-based payments, population-based payments, and capitation. In addition, CMS must implement a new market-driven payment system for laboratory services beginning in 2017.

CMS must establish policy, infrastructure, data systems, and oversight mechanisms to successfully implement these substantial changes. The Center for Medicare and Medicaid Innovation (CMMI) has a 10-year budget of $10 billion dollars; the Department must ensure that Medicare realizes a return on the government's substantial investment in designing, testing, and implementing new models. Perhaps equally challenging is ensuring that models are viable in light of providers' substantial investments in infrastructure and care redesign.

Payment and delivery reforms are not exclusive to fee-for-service Medicare. The Department is promoting new models for Medicare Advantage (Part C). Medicare Advantage is a growing program with potential for increased efficiency and quality through better coordinated care, aligned incentives, and performance measurement. OIG work has identified challenges in the Medicare Advantage program with respect to use of data, payment accuracy, and program integrity, including addressing vulnerabilities at both the plan and provider levels. Ensuring a sound Medicare Advantage program is essential to enabling this program to meet its intended cost and quality goals. (For more information on improving the effectiveness of Medicaid managed care, please see Management Challenge 1.)

Progress in Addressing the Challenge

The Department reports that an estimated 20 percent of Medicare fee-for-service payments had shifted to APMs by the end of 2014. On its Web site, CMS is compiling a steady stream of early results from and evaluations of new programs and models. Recently, for example, CMS reported that Medicare accountable care organization (ACO) programs generated total program savings of more than $411 million for Medicare in 2014 and that ACOs qualified for shared savings payments of more than $422 million. CMS further reported that nine of 17 participants in the Independence at Home (medical home) Demonstration met the requirements for practice incentive payments in the model's first performance year.

CMS reported in its second biannual report to Congress that it had undertaken 22 models, including accountable care and bundled payment models, with more in development. CMS is also testing initiatives to speed adoption of best practices, accelerate development and testing of new models, and reform Medicaid and CHIP. These include large collaborations with private stakeholders, including the Million Hearts Program to advance heart health and the Partnership for Patients to improve hospital safety. The Department initiated the Health Care Payment Learning and Action Network to collaborate on aligning reforms across health care sectors.

Through its Medicaid Innovation Accelerator Program, CMS is providing technical support to state Medicaid agencies pursuing delivery system reform related to reducing substance use disorders; improving care for Medicaid beneficiaries with complex care needs and high costs; promoting community integration for beneficiaries using long-term services and supports; and physical and mental health integration.

CMS continues to issue a range of guidance to participants in new models and has begun the regulatory process for the new physician and laboratory payment systems. Additionally, CMS has taken steps to include in new models program integrity safeguards, including transparency of data and monitoring for indicators of abuse or gaming.

What Needs to Be Done

Much must be accomplished to meet the statutory and Department's reform goals and the promise of better quality of care at lower costs. CMS must manage a broad portfolio of complex models and reforms. CMS must continue to develop clear guidance for providers on program requirements; administer (or contract for) financial, beneficiary alignment, and other systems necessary for effective operations; and test, evaluate, and verify model progress and outcomes. The Department should carefully monitor for successes and benefits that can be scaled and replicated, as well as for potential problems—including inefficiencies and misaligned incentives. Further, CMS must clearly define actionable and meaningful quality measures and ensure that they, in fact, measure what CMS intends them to measure to achieve desired quality goals.

New models rely significantly on data, EHRs, and technology. CMS must ensure that data collected and provided for new payment models is timely, accurate, complete, and secure. Data from providers and others must be integrated and shared across models, as appropriate. (For more information on the challenges associated with electronic information and health IT, see Management Challenge 3.) To the extent that cost and quality performance are measured on the basis of Parts A and B claims data, CMS must ensure the soundness and reliability of such data. (For more information on fraud and abuse in Medicare Parts A and B, see Management Challenge 2).

CMS must monitor for program integrity risks in new models, incorporate safeguards tailored to specific risks in particular models, and assess the effectiveness of the safeguards it employs. Detected program integrity problems should be remediated promptly and safeguards strengthened to prevent program and patient abuse or gaming. Sharp attention to program integrity is especially important for models that introduce new payment incentives, which might lead to new fraud schemes, or for which waivers of payment or fraud and abuse laws may have been issued under sections 1899(f) or 1115A of the Social Security Act. As a critical element of program integrity, CMS must maintain accurate historical and real-time information identifying providers and beneficiaries in new models.

Finally, CMS must strengthen Medicare Advantage to ensure that benefits are provided only to eligible beneficiaries, that data from providers and the plans are available for fraud detection and prevention, and that plans have programs to address fraud and abuse. Ensuring the accuracy of risk- adjustment data used to establish payment rates is also critical to protect against gaming or abuse. CMS must also improve its use of data to review Medicare Advantage organizations' performance.