Half of Medicare Payments to Be Based on Quality by 2018


PPS to Lobby Congress in February.

By Jerome Connolly, PT, CAE
March 3, 2015

This month Medicare providers are facing another familiar deadline, as once again, Congress must act to avoid delivering a 20.4 percent cut in payments to therapists, physicians, and others who choose to treat Medicare patients. If you have not yet contacted your representative and your senators—or even if you have—please do so and encourage them to pass legislation that reforms the dysfunctional formula mislabeled as the sustainable growth rate (SGR). While you are at it, tell them how important it is for Medicare beneficiaries that Congress repeals and replaces the arbitrary and discriminatory per-beneficiary Medicare therapy caps. If the above action is not taken by March 31, our nation’s seniors in need of physical therapy will be significantly disadvantaged and even harmed.

We know that the White House and many in Congress are interested in reforming the way providers are paid under Medicare. Such reform will not be accomplished this month, which is why we need the Congress to act. For nearly a decade, it has been widely held that the fee-for-service system provides perverse incentives for clinicians; in other words, the more providers do for a Medicare patient, the more the government pays. This fact was one of the driving principles behind the Medicare Shared Savings Program, which spawned Accountable Care Organizations (ACOs) in the legislation now universally known as Obamacare.1

Recently, the Obama administration and supporters of the Affordable Care Act (ACA) were emboldened by a report from the nonpartisan Congressional Budget Office (CBO), which found the number of uninsured Americans to be at a record low and that the government subsidization of the ACA health coverage is costing the treasury less than originally projected.

From 2015 to 2024, the federal budget deficit is projected to be $175 billion less than what CBO anticipated last August. A further slowdown in health care spending growth is a big part of the reason why, according to Douglas W. Elmendorf, the director of the CBO.2

The same CBO report concluded that 19 million more Americans are insured, and expanded coverage under the ACA will cut the number of uninsured Americans nearly in half by 2023, from 45 million to 23 million.3

Moreover, projections of Medicaid spending per beneficiary in the Medicaid expansion states are lower than expected, with spending set to fall by $60 billion over 10 years. An estimated 25 million individuals will purchase coverage by 2017; about three-fourths are expected to receive federal funding to pay for their plans. Of course, that assumes the Supreme Court does not strike down the subsidies.4

On the basis of an Institute of Medicine estimate that $210 billion is spent each year on unnecessary care,5 and emboldened by this news that certain programs codified in the ACA may be working, the Obama administration has announced the start of an ambitious new plan to reform Medicare payments. The initiative aims to move Medicare’s payment system away from paying for discrete services and toward paying for outcomes. Because it affects such a large chunk of federal spending (Medicare paid health care providers more than $360 billion last year), it is doubtless that this could be significant.6

The central aim of the initiative, announced by Health and Human Services Secretary Sylvia Mathews Burwell in the New England Journal of Medicine, is to “have 85 percent of all Medicare fee-for-service payments tied to quality or value by 2016, and 90 percent by 2018” and to shift 50 percent of Medicare payments to quality or value-related “alternative payment models” by the end of 2018, with an interim goal of 30 percent by next year.7

The HHS announcement states that the goal is for payments to be “tied to” quality or value, but it does not identify the quality metrics that will be used to calculate this value. Moreover, the specific alternative payment models are pretty vague. As The Wall Street Journal noted, HHS “didn’t set out specific plans for how it would increase the number of providers under a pay-for-performance (P4P) system.” It just says it intends to kick-start exploration of P4P.8

So, this is not so much of a plan as it is a plan to develop a plan in hopes of meeting a nebulously defined target.6 As such, this move to pay-for-outcomes may be a challenge for those private practice business owners who tend to be concrete thinkers, while the innovators among us may look at the flux created as more of an opportunity.

Just as the effects of the ACA reached beyond Medicare, so does this move toward value-based purchasing as is evidenced by a group of private sector organizations embracing the concept.

Two days after Burwell’s announcement, a coalition of some of the nation’s largest health care systems and insurers vowed to change the way hospitals and doctors are paid—placing less emphasis on the sheer amount of care being delivered and more on improving quality and lowering costs.9

The coalition, named the Health Care Transformation Task Force (HCTTF), said it was committed to finding a way to change the financial incentives, moving the bulk of payments to so-called value-based arrangements by 2020, in which cost and quality would be part of the equation. Many health care systems and insurers are already experimenting with such arrangements.

The HCTTF includes, among others, Partners HealthCare, the powerful Boston health system that oversees Brigham and Women’s and Massachusetts General hospitals; Ascension, the nation’s largest Catholic and nonprofit health system; Aetna, a national for-profit insurer; and Health Care Service Corporation, which operates five state Blue Cross plans. Despite the size and influence of this organization, the members acknowledged that changing the financial structure of the $3 trillion health care industry is a monumental task that involves carefully assessing costs and defining quality.9

It hopes to help find some kind of consensus on payment models so doctors and hospitals do not have to negotiate multiple arrangements with Medicare and each private insurer.

Blue Cross Blue Shield of Massachusetts, for example, says it now pays doctors and hospitals more whenever its quality targets are met.

Aetna cites its partnership with Inova Health, a health system in Northern Virginia, that it said led to sharply lower hospital stays and readmissions. The insurer estimates that 28 percent of its claims are now paid under the new arrangements.

And the efforts are not limited to the coalition. UnitedHealth Group, which operates one of the nation’s largest health insurers, said in January that it planned to increase the amount it paid under value-based reimbursements by 20 percent during 2015.9

Many health systems are already experimenting with ACOs (both within and outside of Medicare), in which providers are responsible for the overall cost and quality of care for a group of patients. Others are looking at bundled payments that, for example, include the cost of care for an entire medical episode like a knee replacement or heart bypass surgery, rather than piecemeal payments for tests and procedures related to the episode.9

However, some experts say it remains unclear whether the new payment models will succeed in efforts to reduce cost and improve care. A RAND Corporation study funded by HHS last year concluded that “[w]e still know very little about how best to design and implement [value-based payment] programs to achieve stated goals and what constitutes a successful program.” 10

The number of ways that quality is measured is vast. One estimate has 33 different care programs within Medicare using a total of 1,676 reporting measures last year, while a 2013 study of 23 commercial health plans found 546 distinct quality measures, with very little overlap with reporting requirements in federal programs.11

And the Medicare Payment Advisory Commission, despite studying the bundling concept for more than two years, has yet to be able to accurately and acceptably describe the “episode of care” and the specific services associated with a distinct bundle.

In the “department of unintended consequences,” Scott Gottlieb, a physician and resident fellow at the Washington, D.C., conservative think tank the American Enterprise Institute, criticizes such payment methods claiming they favor integrated delivery systems and hospital ownership of medical practices. Payment reforms that create incentives for the coordinated delivery of medical care (like ACOs and bundled payment) “all turn on arrangements where a single institution owns the doctors. They are biased against less centralized engagements where independent doctors enter into contractual relationships among themselves.”

Gottlieb goes on to say:
“These ObamaCare payment reforms are fashioned after 1990s-style health maintenance organizations, or HMOs, in which entities like hospitals would get a lump sum of money from Medicare (or now, ObamaCare) for taking on the risk of caring for a large pool of patients. But right now all of these payment schemes are tilted far in favor of having hospitals pool that risk, and not looser networks of doctors.” 12

He says that to implement real reform, Congress must give independent, private practices an equal footing. One legislative proposal, he says, would let a new class of “independent risk managers” act as third parties to help individual doctors analyze and share the risk of caring for these patient pools. This action would make it possible for independent medical offices to band together and bid against hospitals for a pool of patients.

Private companies specializing in analyzing and pricing medical risk could serve as brokers and help the doctors know what they’re getting into. However, Gottlieb says ObamaCare deliberately crowds out this sort of market innovation in favor of hospitals and their existing networks.12 Never mind that Gottlieb misses the fact that under the ACA, physicians can form ACOs without hospitals. Nothing prevents doctors from using risk managers, actuaries, or third party administrators in the way he describes. More pertinent to our plight, he does not mention how nonphysician private practitioners would be “integrated” into the model he proposes.

It has been four years since ObamaCare was signed into law. It has withstood over fifty separate votes by the House of Representatives to repeal it and it has been upheld repeatedly by the nation’s courts, including the U.S. Supreme Court. That is not to say that the current challenge on the legality of the subsidies may not be successful. Nor is it to imply that a striking down of these tax credits would result in the full demise of the ACA. Needless to say, dealing in the resultant “ACA limbo” is difficult. But it does appear that the above-described health system flux has staying power, including the trend toward value-based purchasing. It, in fact, appears to be the payment method of the not-too-distant future.

Meanwhile, the predominance of our physical therapy services reimbursed by Medicare is done on the basis of fee-for-service with the payment rate being determined by the SGR. So, while we must have one eye on the developments around us, we must also be doing everything we can to improve the current (FFS) reimbursement system for as long as it is with us. This means, frequently urging your senators and your representative to fix the broken SGR and repeal the therapy caps. The March 31 deadline could be the first of several we face in the next two years, and it requires our immediate legislative and advocacy attention. Contact your federal legislators today.


1. 111th United States Congress. Patient Protection and Affordable Care Act Pub. L. 111-148. Washington, DC. 2010. Accessed February 2015.

2. Leonhardt D, The Health-Cost Slowdown Isn’t Just About the Economy, New York Times, Posted December 5, 2014. Accessed January 2015.

3. Lawler J, Obamacare to reduce uninsured by 19 million through 2015: CBO, Washington Times, January 26, 2015. Accessed February 2015.

4. The Budget and Economic Outlook: 2015 to 2025, Congressional Budget Office, January 2015, www.cbo.gov/publication/49892 Accessed February 2015.

5. Yong PL, Saunders RS, and Olsen L (editors), The Healthcare Imperative: Lowering Costs and Improving Outcomes, Institute of Medicine, Posted February 24, 2011, www.resources.iom.edu/widgets/vsrt/healthcare-waste.html Accessed February 2015.

6. Suderman P, White House Aims to Reshape Doctors Pay, Washington Post, January 26, 2015.

7. Burwell SM, Setting Value-Based Payment Goals — HHS Efforts to Improve U.S. Health Care, New England Journal of Medicine, Posted January 26, 2015. Accessed February 2015.

8. Radnofsky L and Beck M, Medicare to Rework Billions in Payments, Wall Street Journal, Posted January 26, 2015. Accessed February 2015.

9. Abelson R, Industry Group to Back Results-Focused Care, New York Times, Posted January 28, 2015. Accessed February 2015.

10. Damberg C, Sorbero M, et. al., Measuring Success in Health Care Value-Based Purchasing Programs Findings from an Environmental Scan, Literature Review, and Expert Panel Discussions, RAND Corporation, 2014. www.rand.org/content/dam/rand/pubs/research_reports/RR300/RR306/RAND_RR306.pdf Accessed February 2015.

11. Higgins A, Veselovskiy G, McKown L, Provider performance measures in private and public programs: achieving meaningful alignment with flexibility to innovate, Health Affairs. Posted August 2013, www.ncbi.nlm.nih.gov/pubmed/23918491. Accessed February 2015

12. Gottlieb S, ObamaCare’s Threat to Private Practice, Wall Street Journal, December 8, 2014. Accessed February 2015.



Jerome Connolly, PT, CAE, is a registered federal lobbyist whose firm, Connolly Strategies & Initiatives, has been retained by PPS. A physical therapist by training, he is a former private practitioner who throughout his career has served in leadership roles of PPS and APTA. Connolly also served as APTA’s Senior Vice President for Health Policy from 1995–2001.

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