Medicare innovation can spur the next round of payment reform
The economic imperative for better health care at a lower cost has never been more urgent. Changing the way that health care providers are paid is at the core of solving the problem. Bipartisan support has formed around the idea of flexibility and innovation in how care is delivered in conjunction with more accountability for results. 

The economic imperative for better health care at a lower cost has never been more urgent. Changing the way that health care providers are paid is at the core of solving the problem. Bipartisan support has formed around the idea of flexibility and innovation in how care is delivered in conjunction with more accountability for results. But the journey toward implementing these new models of care and payment is a difficult one.

Success in these reforms means moving away from relying only or primarily on fee-for-service payments. The Centers for Medicare and Medicaid Services and, by extension, private payers rely on a highly complex system of fee-for-service prices. More than 47,000 different prices are listed for covered health care services, while many services and interventions that could lower costs and improve care — such as team-based approaches to care, telemedicine, and digital health services, personalized services based on new diagnostics and big-data capabilities, or spending time with a patient to develop a care plan that reflects their preferences — aren’t covered much or at all. Medicare prices are determined by thousands of pages of regulation and legislation.

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Since its creation in the Affordable Care Act, the Center for Medicare and Medicaid Innovation has led efforts at CMS to advance alternatives to fee-for-service. Working with CMS, and with states and employers, Medicare Advantage plans, Medicaid managed care plans, and commercial insurance plans are implementing new payment models that in many cases represent more fundamental reforms than Medicare has yet undertaken. But most payment reforms are still at relatively early stages, and private-sector innovators cannot make the shift without the government’s commitment to shift from volume- to value-based payments.

With so much at stake, the actions of the Department of Health and Human Services are closely watched. The recent revisions in a set of mandatory payment reform pilots caused some to worry about continued HHS commitment to payment reform. Recently, CMS provided more visibility into their intentions by publishing a request for information based on a set of principles and new areas of emphasis in payment reform.

The CMS information request makes two things clear. First, the current administration does intend to continue pursuing payment reform. Second, HHS leadership believes there is a way to go before we get it right.

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Both are welcome sentiments. Reform of a system that has existed for decades takes time and will require iterative improvement and learning. For example, some large consolidated hospital systems have only undertaken modest “shared savings” reforms, and continue to be paid largely on a volume basis while amassing considerable market power. Many providers have criticized extensive participation and reporting requirements that they believe divert effort from steps that could really improve outcomes that matter to patients. The CMS request signals new directions in payment reform that could address these and other challenges.

The announcement emphasizes greater patient and consumer involvement in reform efforts. Medicare Part D, in which consumers choose plans that enable them to save much more than in a traditional benefit structure, have resulted in large increases in the use of generic drugs and more price competition among similar brand-name drugs. Yet only a couple of the many provider-focused payment reform initiatives to date from Medicare’s innovation center let consumers pay significantly less by choosing providers and care models that are less expensive and meet their needs.

For competition on value to succeed, consumers will need help moving beyond the complex price system used by Medicare and private insurers. It is impossible for consumers to sort through thousands of specific prices, even if they were all publicly reported, to figure out the actual ballpark of their costs for a knee replacement procedure or cancer care. Payment reform is needed to drive transparency, consumer empowerment, and competition in all areas of health care.

Currently, shared savings in payment reforms are designed to go mainly to health care providers. What if future rounds of Medicare payment reform expanded opportunities to share savings with consumers and patients? They could use the quality and cost information that can go along with the payment reforms to choose high-quality and efficient provider groups for their overall care or for specialized care needs, say for cancer treatment, and can get savings that are not possible in Medicare today.

As with Medicare Part D, it is important to include steps like risk adjustment to encourage competition to improve care and lower cost for the sickest beneficiaries. Along with risk adjustment, Medicare support for broader reporting on a limited number of meaningful performance measures and regulatory flexibility to share savings with consumers could be powerful forces for driving change in health care.

The CMS request for information provides an opportunity to consider payment reforms that are administratively simpler. For example, performance measurement is not only essential for competition and consumer empowerment but is also a promising area in which CMS can reduce burdens on clinicians. Health care providers and patient advocates alike have criticized existing performance measures as not sufficiently meaningful or practically relevant to patient care. Private payers and employers are also interested in supporting more meaningful, comparable performance measures, such as important clinical outcomes, as well as patient-reported measures of how well they are functioning with a disease. Through public-private collaboration, CMS could lead efforts to make key, consistent measures widely available.

It is clear that we can expect emphasis on needed payment reforms in areas of specialized care that account for substantial disease burdens and costs, such as degenerative joint diseases, complex cardiovascular diseases, chronic gastrointestinal diseases, and cancer. Many specialty-care providers have limited options to participate in Medicare’s existing major payment reforms. Payment models that exist for some surgical procedures and cancer care could be expanded to more chronic disease management and additional types of specialized care.

The CMS announcement rightly emphasizes the inclusion of drugs and other innovative medical products in payment reform efforts. Current fee-for-service payments for drugs and devices are often not transparent to consumers or providers and do not align with provider efforts to shift from volume-based to value-based care. Some product manufacturers have begun implementing outcome-based payments and other value-based payment reforms with private insurers and health care organizations. HHS support for such efforts is very timely.

CMS could provide more support for state-led payment reform efforts that include public and private payers. Many states, such as Arkansas, Tennessee, and Ohio, are in the process of implementing such models. Building on some existing multi-payer reforms, CMS could take a big step toward helping these reforms succeed by providing more clarity about how Medicare can align its measures and payments with those used by a preponderance of the private- and state-based insurance plans. Such reforms could be particularly helpful in Medicaid, supporting care for complex patients and those with behavioral or social factors influencing their costs.

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Finally, CMS could accelerate progress by supporting clinicians and private payers in sharing insights about how health care providers can implement new approaches to delivering care. Public-private and multi-stakeholder collaborations can share the tools and best practices to help them succeed.

Continued momentum is important. While CMS gathers input on these potentially valuable next steps, payment reform needs to continue. The alternative to progress on payment reform is rising pressure to try to control costs through more complex and tightly regulated fee-for-service prices, which encourages providers and patients to focus on the volume of services rather than on developing innovative approaches to staying well, heading off disease complications, and incorporating new biomedical breakthroughs at a more sustainable overall cost.

CMS needs to lean forward by providing a clear and predictable path for expanding the most promising measures, including making reforms mandatory after a period of successful voluntary participation. By turning its recent request for information into clear steps for promoting competition to improve outcomes and lower costs — instead of further reliance on complex fee-for-service price regulation — CMS can use its unique influence to enable health care innovations needed to meet our nation’s health and economic challenges.

Mark McClellan, M.D., is director of the Robert J. Margolis, MD, Center for Health Policy at Duke University. He served as FDA commissioner from 2002 to 2004. Mike Leavitt is founder of Leavitt Partners. He served as the secretary of the United States Department of Health and Human Services from 2005 to 2009 and is a former three-term governor of Utah.