Moment of Truth Project Releases Policy Paper on Medicare Delivery and Payment System Reforms

The current volume-based reimbursement that pervades America’s health care system encourages more, not better, care and is driving up spending at an unsustainable rate. National health expenditures continue to outpace the growth of the overall economy and are projected to grow from $2.9 trillion in 2013 to $4.72 trillion by 2021.  Federal health spending will grow from 4.9 percent of Gross Domestic Product (GDP) in 2013 to 6.3 percent by 2023. Unaddressed, these rising costs will put increasing pressure on other priorities of households, businesses and governments. Yet, despite high and rising spending, quality of care in the U.S. is uneven and often uncoordinated and inefficient. To address these mounting challenges, there is a strong need for delivery system and payment reforms in Medicare and across the health system overall. These reforms must look beyond one-time reductions in spending and cost-shifts to a fundamental realignment of incentives aimed at better care and lower cost growth.

Today, CRFB's Moment of Truth Project and the National Coalition on Health Care released a paper taking a closer look at some of these proposed reforms, many of which have bipartisan support.

What Sort of Reforms Have Been Proposed?

Health care stakeholders, thought leaders and policymakers on both sides of the aisle have united around the notion that more can be done to place health care spending on a sustainable path. This new, emerging consensus embraces three key principal strategies: 1) reward value of health care services over volume; 2) promote care coordination; and 3) inject more competition into our health care system.

Rewarding Value, Not Volume

• Physician Payment Reform: Replacing Medicare’s Sustainable Growth Rate (SGR) formula with payment reforms that move providers away from volume-based fee-for-service reimbursement to payment models that encourage care coordination and enhanced quality
• Value-Based Purchasing (VBP): Basing a portion of a provider’s payment on measures of care quality or value
• Value-Based Insurance Design: Implementing value-based insurance design (VBID), an approach which adjusts cost-sharing to incentivize beneficiaries to seek higher value, more coordinated providers and treatments
• Shared Savings: Allowing providers to share in savings if certain budget and quality targets are achieved, through expansion of existing programs like the Medicare Shared Savings Programs or new value-based payment withhold proposals, and enabling state governments to share in the savings if they lower health care spending rates without compromising quality or access
• Reducing Rates of Readmissions: Expanding and increasing current penalties for avoidable hospital readmissions
• Cracking Down on Healthcare-Acquired Conditions:  Increasing penalties for high-rates of avoidable complications and expanding the penalties to a broader set of providers
• Reforming the Medical Malpractice System: Reforming the medical malpractice system to reduce the cost of defensive medicine and promote safe, evidence based medicine

Improving Care Coordination

• Episodic Bundled Payments: Expanding bundled payment arrangements whereby providers are paid with a fixed amount for a bundle of services, including some combination of acute, post-acute and physician care
• Improve Care Coordination for Dually Eligible Beneficiaries: Improving care coordination for beneficiaries enrolled in Medicare and Medicaid, especially those with high costs and complex care needs
• Implementing Alternative Benefit Packages: Creating an alternative benefit package that moves away from fee-for-service Medicare and encourages care coordination

Encouraging Competition

• Competitive Bidding: Expanding competitive bidding for durable medical equipment and other services
• Prescription Drug Policy:  Remove barriers to generic competition in Medicare Part D's Low-Income Subsidy program

Achieving Budgetary Savings from Delivery System Reform

Improved quality and better value for Americans’ health care dollars are worthy goals in and of themselves, but finding budgetary savings remains a vitally important consideration.  

The Congressional Budget Office has found that reforms such as policies to prevent readmissions, expand competitive bidding and encourage generic drug utilization can produce “scoreable” budgetary savings. Other reforms such as care coordination, improved integration of care for dually eligible beneficiaries and value-based purchasing may not produce “scoreable savings” today, but are worth pursuing and testing because of the potential for savings in the future.

Policymakers could consider coupling delivery system reforms with well-designed enforcement mechanisms that can both spur the transformation of health care delivery and provide some assurance of budgetary savings. One such mechanism is to build targeted, scoreable payment reductions into a delivery or payment reform proposal, thereby sharpening the incentives for providers to deliver higher-value, more coordinated care. A “value-based withhold” could also serve to guarantee savings from delivery system reforms.

While other proposed reforms to federal health care programs have proven politically challenging, a broad, bipartisan consensus is building around delivery and payment reforms, and that consensus could make them viable, realistic solutions in coming months. For policymakers who want to place our health system on a sustainable path while promoting the best care for patients, these policies are a great place to start.

Click here to read the full report.