The Department of Health and Human Services (HHS) announced concrete goals and a specific timeline to tie an increasing proportion of Medicare fee-for-service (FFS) payments to quality or value across the next four years. By the end of 2016, HHS plans to make 30 percent of FFS payments through APMs, such as accountable care organizations (ACOs) and bundled payments, and tie 85 percent of all FFS payments to quality or value. By the end of 2018, HHS intends to pay 50 percent of FFS payments through APMs, and tie 90 percent of FFS payments to quality or value. In addition, 30 percent of Medicare beneficiaries are already enrolled in health plans through Medicare Advantage – where payment is fixed except for bonuses related to clinical quality and patient experience – so the 2018 goal actually accounts for nearly two out of every three Medicare beneficiaries.

Although Secretary Burwell’s announcement doesn’t represent a dramatic shift, it does signify clear resolve on the part of the federal government to transition away from turnstile medicine that rewards providers for the volume of patients they can churn through the system. Since the passage of the Affordable Care Act in 2010, HHS has been moving toward value-based care and population health through programs such as the Medicare Shared Savings Program, Bundled Payment for Care Improvement, Hospital Readmission Reduction Program, and Hospital Value-Based Purchasing. In fact, currently 20 percent of FFS payments are paid through APMs and 6.25 percent of FFS payments in 2015 will be at-risk through penalty programs. Given the groundwork that HHS has already laid for value-based payment, the Secretary’s newly stated goals are ambitious, yet realistic. Notably, HHS’ goals would affect approximately $318 billion and $351.9 billion of Medicare spending in 2016 and 2018, respectively.

The news here is the specificity of targets-the specific percentages and the clear timelines-and how HHS plans to achieve them. Providers already have been motivated to make changes, for example initiatives that have contributed to reductions in readmissions and hospital-acquired infections. However, the clearly stated expectation regarding movement to APMs represents a clear stake in the ground. To some extent, the bold articulation of that objective will likely drive further movement to value-based care in both the public and private sectors, especially with the support of the new Health Care Payment Learning and Action Network, which will facilitate collaborations between HHS, state Medicaid programs, private payers, employers, consumers, and providers to expand APMs nationwide.

In particular, the movement to ACOs-and any other payment model that promotes a focus on provider accountability for population health-requires a fundamental shift in how providers approach care delivery. Providers will have to transition from a reactive approach-treating sick people when they seek help-to a proactive approach-trying to help people manage their health to prevent acute needs. That requires a cultural shift for providers and a new infrastructure to support it.

In order to achieve its goal of having half of all payments made through APMs by 2018, HHS must ensure that its APMs are attractive, sustainable, and aligned. Beyond that, HHS still may need to consider deploying additional levers to reach its ambitious goal over the next four years. That raises a critical question: To what extent, and in what way, will HHS exercise its authority (under Section 3021 of the Affordable Care Act) to convert its demonstration programs and other payment models being tested via its innovation award portfolio into more universal Medicare payment rules?

For more information about the implications of this announcement and the evolution of innovative payment and delivery models, contact Joshua Seidman at JSeidman@avalere.com.