CMS--engaging multiple payers in payment reform.

The Affordable Care Act created the Center for Medicare and Medicaid Innovation (Innovation Center) to test innovative payment and service delivery models to reduce program expenditures under Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP) and to enhance the quality of care that Centers for Medicare & Medicaid Services (CMS) beneficiaries receive. CMS is testing more than 20 models under this authority that create new incentives for clinicians and organizations that deliver medical care through CMS programs to deliver better care at lower cost. CMS is also supporting a variety of state efforts to create new incentives for these clinicians and organizations through the Medicaid and CHIP programs. All of these models share a common pathway for success: they hinge on getting clinicians and health care organizations to manage the health of populations and to act as good stewards of health care resources. Data from the first performance year of the Pioneer accountable care organization (ACO) model suggest that the Pioneer ACOs generated gross savings of $147 million and better quality results for 15 of 15 measures with published national benchmarks. However, for these models to succeed in the long term, “value-based payment and patient incentives to reward clinicians and health care organizations that offer more real value to patients must spread rapidly to other payers. ”1 Long-term success will require clinicians and organizations to make fundamental changes in their day-to-day operations—and, for any individual clinician or organization, making operational changes will be attractive only if the financial incentives are large enough. The financial incentives, in turn, will be large enough only if a critical mass of payers, in addition to CMS, support payment reform.2 For CMS, engaging multiple payers in new payment models is a foundational principle. Medicare, Medicaid, and CHIP constitute only a share of any clinician’s or health care organization’s revenue. Therefore, signals from CMS will be strongest if they are aligned with signals from other payers. Efforts to improve quality and reduce cost are more likely to be successful if multiple payers adopt these models. The Innovation Center’s statute supports this principle. The Affordable Care Act directs the secretary of Health and Human Services to consider, in selecting which models to choose for testing, “whether the model demonstrates effective linkage with other public sector or private sector payers. ”3 The purpose of this Viewpoint is 2-fold: (1) to describe a framework for understanding payment reform that classifies payment models according to how clinicians and health care organizations are paid and creates a common vocabulary for describing the progression of payment reform and (2) to describe what CMS is doing to lead multipayer participation in payment reform. CMS has a long history of both testing and implementing innovative new payment and delivery models for Medicare and Medicaid. But historically, CMS has not actively sought the participation of other payers in new payment models. If new payment models deployed by CMS have improved quality and reduced cost, other payers have followed—but CMS has not typically actively engaged private payers. One widely studied example of this approach is Medicare’s implementation of the inpatient prospective payment system in 1983. Before the introduction of this system, Medicare paid for hospital services based on costs reported by hospitals, subject to limitations in later years. This provided little incentive for hospitals to operate efficiently. In 1983, the inpatient prospective payment system instituted prospectively set rates based on diagnosis. In the years following the implementation of this system, Medicare costs for hospital services declined and hospital length of stay decreased.4 At the same time, there was no measurable decline in the quality of hospital care. Observing this success, many commercial payers soon followed and adopted inpatient prospective payment systems of their own. The eTable in the Supplement presents a framework for describing health care payment through the stages of transition from pure fee-for-service to alternative payment methods. This framework classifies payment models according to how clinicians and organizations are paid into 4 categories: category 1—fee-for-service with no link of payment to quality; category 2—fee-for-service with a link of payment to quality; category 3—alternative payment models built on fee-for-service architecture; and category 4—population-based payment. Some Medicare and Medicaid managed care plans still make fee-for-service payments to clinicians and organizations that have no link to quality—these payments would fall into category 1, not category 4. In general, 2 features mark the shift across these categories: (1) clinicians and organizations are increasingly accountable for both quality and total cost of care and (2) there is a greater focus on population health management as opposed to payment for specific services (eTable in the Supplement). A primary driver of delivery system reform is to move payment systems, both for CMS and for commercial payers, toward alternative payment models and population-based payments and, at the same time, minimize fee-for-service payments that are not linked to quality or value. That is, CMS aims to move an increasingly large share of total payments to clinicians and organizations from fee-for-service with no link to quality to models that reward quality and efficiency in care delivery and to continue to learn how best to incentivize better health outcomes and lower costs. VIEWPOINT