Blog Post February 11, 2015 HHS Promises Big Changes – And Raises More Questions Authors Jim Donohue Recently the U.S. Department of Health & Human Services (HHS) outlined ambitious goals to significantly increase the percentage of Medicare payments that are tied to quality and cost effectiveness over the next several years. The proposal, announced by HHS Secretary Sylvia M. Burwell at a press conference on January 26, 2015, would move Medicare away from the fee-for-service (FFS) system, calling for 30% of Medicare payments to be tied to quality-based alternative payment arrangements by the end of 2016 and 50% by the end of 2018.HHS proclaimed its announcement “historic,” and there’s some truth to that. It’s the first time the department has ever set explicit goals for alternative payment models and value-based payments, and it represents the most significant indication yet that HHS and the Obama administration will move aggressively away from FFS payments. By funneling more Medicare dollars into alternative payment models, HHS is clearly intent on establishing a provider reimbursement system based on value and patient outcomes.While HHS’s message, timeline, and goals are clear, the plans for achieving these objectives are not. “We look forward to hearing more details behind the percentages HHS put forward as well as their plans to reach these percentage targets,” the American Medical Association (AMA) noted in its response to HHS’s announcement. The American Hospital Association (AHA) implored HHS and the Obama administration to “fully evaluate and improve on the delivery system reforms currently in place to ensure that we are learning from the pilot and demonstration projects to best meet patient needs.”The responses from the AMA and AHA are likely reflective of an industry-wide sentiment: Yes, we need to move away from the FFS model; where is the proof that we can successfully do that?One of the key concerns in the aftermath of HHS’s announcement is the absence of clear evidence that providers can improve quality and reduce cost within the existing Medicare value-based payment models. Measuring performance and modifying operations to meet the models’ goals requires significant investment in administrative systems and technology.In the Pioneer Accountable Care Organization (ACO) program, 13 of the original 32 participants have exited the program rather than face the prospect of losses. Many deem the program requirements to be unworkable. Of the 220 participating ACOs in the Medicare Shared Savings Program, only 53 earned shared savings in 2013. And although CMS has touted that 1,700 hospitals qualified for bonuses in 2014–2015 through the Hospital Value-Based Purchasing (VBP) Program, fewer than 800 hospitals will ever see bonus payments. Penalties incurred in two other value-based programs (Hospital-Acquired Condition Program, Readmissions Reduction Program) wiped out the VBP bonus amounts.Because each of these programs has different measurement standards with little overlap, providers are struggling to decide where to devote their funds and resources to avoid penalties. This is leading some observers to deem the approach a failure and others to caution that the programs need more time to demonstrate their validity.Given the urgency expressed in HHS’s recent announcement, and the amount of money in play, one thing is clear – providers cannot afford to stand still. HHS’s plan is sparse on details, but the announcement reaffirms the department’s intention to reconcile healthcare costs with quality. It’s what happens next that determines how historic this announcement truly is.