Measurable goals and a timeline to move the Medicare program towards a value versus volume reimbursement model is being called a “transformative shift” that could redefine how care should be provided, measured and rewarded.

In its January 26 announcement, the U.S. Department of Health and Human Services (HHS) outlined a plan to tie 30% of traditional, or fee-for-service, Medicare payments to quality or value through alternative payment models such as Accountable Care Organizations (ACOs)and bundled payment arrangements by the end of 2016.

In addition, HHS plans to tie 50% of payments to these models by the end of 2018.

The federal agency also set a goal of tying 85% of all traditional Medicare payments to quality or value by 2016 and 90% by 2018 through programs such as the Hospital Value-Based Purchasing and the Hospital Readmissions Reduction programs.

The announcement marks the first time in the history of the Medicare program that HHS has set explicit goals for alternative payment models and value-based payments.

HHS has already seen promising results on cost savings with alternative payment models, with combined total program savings of $417 million to Medicare due to existing ACO programs, and it said it expects those models to continue to contribute to a the recent slowdown in healthcare spending.

Moreover, initiatives like the Partnership for Patients, ACOs, Quality Improvement Organizations, and others have helped reduce hospital readmissions in Medicare by nearly 8%, translating into 150,000 fewer readmissions between January 2012 and December 2013. Quality improvements, according to preliminary estimates, have resulted in saving 50,000 lives and $12 billion in health spending from 2010 to 2013.

“HHS should be commended for this unprecedented, and much needed, shift in focus as it relates to Medicare reimbursement,” says Managed Healthcare Executive Advisor David Calabrese RPh, MHP, vice president and chief pharmacy officer, Catamaran.

“This provides a much needed strategic framework to guide Medicare progress to value-based payment,” says Kip Piper, MA, FACHE, advisor with Sellers Dorsey, a Medicaid consultancy in Washington, D.C.

“In recent years, Medicare has been busy rolling out a dizzying array of new performance measures and payment methods. In most cases, these have been tests or demonstrations. [This] initiative offers an actionable structure to take public and private innovations large-scale, nationwide,” says Piper, a former state and CMS official who advises states, health systems, and health plans.

“In order to thrive in this rapidly changing market, providers, payers and health systems alike must be willing to embrace this new dynamic and adjust business practices to promote a more quality-driven, patient-centric approach to care delivery and reimbursement,” Calabrese says.

F. Randy Vogenberg, PhD, RPh, cofounder of Access Market Intelligence and HBI Institute, believes that healthcare IT will have to be a higher priority “or risk losing more Medicare dollars due to quality failures or low performance,” he said.

“CMS needs to drive the market along despite the fact health information technology—EMR, EHR adoption has not met expectations,” says Vogenberg.

For health plans, changes at the HHS level like this will frequently serve as a key catalyst for similar change at the payer level, according to Calabrese. In this case however, he believes that the MCO community is to be credited.

“Through innovative reimbursement initiatives such as pay-for-performance incentives and penalties, as well as public reporting of key performance metrics amongst contracting providers, the managed care community has been leading the way in demonstrating the value of such quality-based reimbursement reform for some time,” he said. “HHS’ commitments here however will serve to further reinforce this value and provide further impetus for others who may be late to this party, and for the provider community, to step up quality and cost-efficiency efforts in a similar fashion.”

This move also may “put pressure on different coverage plans to assure that unintended or intended adverse patient impacts on coverage do not affect outcomes of care; 2016 begins another benefit design year and elimination of risk corridors that had incented plans to be generous in their coverage despite underwriting concerns in premium setting,” says Vogenberg.

Payment must be aligned with value to improve patient outcomes and the clinical and economic performance of care delivery, according to Piper. “While Medicare is a major player, to really drive change all the largest purchasers–state Medicaid programs, self-insured employers, and health plans–must work together to leverage their buying power and align it with outcomes-based expectations.

“CMS can greatly benefit from the expertise and experience of the other purchasers and plans. Other buyers, notably innovative state Medicaid agencies, large employers, and health plans, are more experienced in payment reform than Medicare, Piper adds.

Medicare is often sharply confined by politics and bureaucracy, according to Piper. “States too find it difficult to reform payment and delivery on their own and experience push-back. Partnering and collaborating with other public and private sector healthcare purchasers will give CMS political cover. This is invaluable.”

Collaboration is also likely to help standardize payment reform methods and performance measures, so providers can focus on fewer or even a single set of expectations rather than trying to deal with a maze of conflicting or inconsistent measures, Piper says. To make this all happen, considerable collaborate and technical assistance will be needed.

“To the marketplace, both providers and other large purchasers such as state Medicaid agencies, employers, and health plans, [HHS] is signaling Medicare is throwing its imposing weight behind ending traditional fee-for-service payment and doing so on a fast track,” Piper says. “This is very much in sync with the goals of most other buyers, particularly state Medicaid agencies, Fortune 500 employers, and innovative health plans in the Medicare, Medicaid, and commercial markets. They are all eager to end transitional fee-for-service and align provider payments with value. For providers, it sends a clear message to adapt and help minimize uncertainty. Those providers who have been sitting back or taking a more cautious approach to innovation now have a clearer vision of the future of payment.”

It’s important that Medicare learns from other purchasers and plans, focuses tightly on outcomes and not process measures, avoids overly complex or bureaucratic mechanisms, allows providers maximum flexibility and support, genuinely partners with states and the private payers, listens to the best performing providers, uses this as an opportunity to streamline micro-managing regulations, builds the infrastructure to closely monitor the impact, and increasingly moves the portion of care financing from quantity-based to value-based reimbursement, according to Piper.

To make these goals scalable beyond Medicare, a Health Care Payment Learning and Action Network will be created. Through the Learning and Action Network, HHS will work with private payers, employers, consumers, providers, states and state Medicaid programs, and other partners to expand alternative payment models into their programs.

HHS will intensify its work with states and private payers to support adoption of alternative payments models through their own aligned work, sometimes even exceeding the goals set for Medicare. The Network will hold its first meeting in March 2015, and more details will be announced.

From Managed Healthcare Executive, by Tracey Walker, January 28, 2015