Fact Sheets

Better Care. Smarter Spending. Healthier People: Improving Quality and Paying for What Works

Better Care. Smarter Spending. Healthier People: Improving Quality and Paying for What Works

In January 2015, the Administration announced its goals to help drive Medicare and the health care system at large towards rewarding the quality of care as opposed to the quantity of care provided to beneficiaries. The goals include tying 30 percent of traditional, or fee-for-service, Medicare payments to quality or value through alternative payment models, such as Accountable Care Organizations (ACOs) or bundled payment arrangements, by the end of 2016 and tying 50 percent of payments to these models by the end of 2018.  

Today, the Administration is announcing that it estimates it has already hit its first target – 11 months ahead of schedule: an estimated 30 percent of Medicare payments are tied to alternative payment models as of January 2016. This milestone was met when 121 new Accountable Care Organizations (ACOs) joined the Medicare program on top of new participants in models such as the Bundled Payments for Care Improvement Initiative and Comprehensive Primary Care Initiative. Ultimately, this shift towards quality and value will help patients receive, and doctors and other clinicians provide, the best care possible.

Why This Matters

When it comes to improving the way providers are paid, we aim to reward value and care coordination – rather than volume and care duplication. Historically, providers received a payment for each individual service, such as a physician visit, surgery, or blood test, and it does not matter whether these services help (or harm) the patient. And, providers were not generally not paid to keep their patients healthy before diseases like diabetes develop or worsen. In other words, providers were often paid based on the volume of care provided rather than the value of care provided.

Alternative payment models, such as bundles payments or Accountable Care Organizations, make doctors and hospitals attentive to the total costs of treating a patient at a high level of quality over time. This focus makes care more accessible to patients, including after-hours availability, quicker follow up, more seamless transitions from one doctor or clinician to another, fewer repeated or duplicative tests, and keeping patients healthier overall.

How Far We’ve Come

In 2011, Medicare had limited payments in alternative payment models.  By setting ambitious, but achievable goals for the adoption of these new payment models, we hoped that health care providers would be able to move with greater certainty towards these approaches, with benefits for patients and families, physicians and employers, and taxpayers and the economy. In fact, since our announcement, the share of Medicare payments flowing through alternative payment models has grown from 20 percent in 2014 to 30 percent as of January 2016, and the number of physicians and other clinicians in these payment models has grown.

We are also seeing accelerating innovation by state Medicaid programs and private payers, including those who partner with HHS through the Health Care Payment Learning and Action Network. Additionally, Congress enacted major bipartisan legislation, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), that will encourage more providers to participate in alternative payment models going forward. And, we are starting to see innovation pay off, as promising initial results show that alternative payment models are reducing costs while improving quality.  

Alternative Payment Models: Building a Track Record of Success

While many models are still in the early stages of testing, we are optimistic about the progress to date:

• In 2014 alone, Medicare ACOs improved quality and patient experience markedly over previous years and saved over $411 million for the program.
• In just one year, the Independence at Home Demonstration improved quality of care (one elderly diabetic who had 19 hospitalizations previously had only one after enrolling) and saved $3,000 per Medicare beneficiary on average.
• In our bundled payment models, participation is growing, with thousands of providers taking accountability for cost and quality of care, many for the first time.

And beyond the specific models, we are seeing national trends in health care improvements that are promising and likely a combined result of our efforts:

• There has been a 17 percent reduction from 2010 to 2014 in the number of hospital acquired conditions, such as ulcers, infections, and avoidable traumas, representing over 87,000 lives saved and $20 billion in cost savings.
• Between April 2010 and May 2015, an estimated 565,000 readmissions were prevented across all conditions, compared to the readmission rate in the year prior to the passage of the Affordable Care Act (April 2009 to March 2010). That’s 565,000 times that a patient didn’t have to experience an extra hospital stay.
• Per-enrollee health care spending in Medicare has grown at historically slow rates since 2010, and these low growth rates have translated into substantial reductions in government spending on healthcare.  For instance, Medicare spent $315.9 billion less on personal healthcare expenditures between 2009 and 2013 than what would have been spent if the 2000-2008 average growth rate had continued through 2013.  

Partnership Across the System: Where We’re Going Together

We know that we cannot do it alone, which is why we created the Health Care Payment Learning and Action Network (Learning and Action Network) in March of 2015 to help align the important work being done across the private, public, and non-profit sectors. Much of these results are accelerated by the work of partners across the health care system who are stepping up in this transformation and leading the way towards alternative payment models.

Dozens of insurance companies, health systems, employers, and organizations have set their own goals around moving to alternative payment models, and the Network now has nearly 5000 active participants from across public and private sectors.

The Learning and Action Network has already begun accelerating the transition to more advanced payment models by fostering collaboration between Department of Health and Human Services (HHS), private payers, large employers, providers, consumers, and state and federal partners. Working together, Learning and Action Network partners have:

• Served as a convening body to facilitate joint implementation and expansion of new models of payment and care delivery
• Identified areas of agreement around movement toward alternative payment models
• Collaborated to generate evidence, share approaches, and remove barriers
• Developed common approaches to core issues relevant to alternative payment models such as beneficiary attribution, financial models, benchmarking, and risk adjustment
• Engaged in planning to apply the above activities to create implementation guides for payers and purchasers

Alignment between HHS, private sector payers, employers, providers, and consumers will help health care payments transition more quickly from pure fee-for-service payments to alternative payment models – a critical step toward better care, smarter spending, and healthier people.

Our announcement today of reaching the goal of 30 percent of Medicare fee-for-service payments in alternative payment models represents a major milestone in the continued effort towards focusing on quality and care coordination in the way we pay for care.

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