First the good news … providers are generally excited about the idea of moving to more holistic, integrated care with a focus on prevention, quality and outcomes. Now the not-so-good news … we have to figure out how to pay for it.
“Providers are on board for the potential benefits from changes to the way we provide care, which is different from the way we pay for care,” noted Dion P. Sheidy, a partner in KPMG’s Health Care Advisory Practice. “This is a little bit of the elephant in the room.”
Nashville-based Sheidy said the Centers for Medicare and Medicaid Services have stated their plans to significantly increase value-based payments to providers over the next few years. In a fact sheet released in late January, CMS noted improving quality and affordability of healthcare was as much a pillar of the Affordable Care Act as expanding access. The goal, the memo continued, is to reward value (measured by quality of outcomes) and care coordination and efficiency rather than volume and duplication. To that end, the Department of Health and Human Services has adopted a framework of four categories of payment:
category 1: fee-for-service with no link of payment to quality,
category 2: fee-for-service with a link of payment to quality,
category 3: alternative payment models built on fee-for-service architecture, and
category 4: population-based payment.
Value-based purchasing includes payments in categories two through four. The stated goal is to have 30 percent of Medicare payments in alternative payment models (categories three and four) by the end of 2016 and 50 percent by the end of 2018. Additionally, HHS hopes to have 85 percent of Medicare fee-for-service payments in categories two through four by the end of 2016 and 90 percent by 2018.
“Although they have put that out there, they have yet to put out guidance about how they expect to achieve it,” noted Sheidy. “These are huge jumps. We’re going to go from less than 10 percent in fiscal year 2015 to 90 percent with some link to quality in fiscal year 2018.”
Sheidy added there is some ambiguity as to what CMS calls ‘alternative fee arrangements’ and that at this point there are a lot more questions than answers. While he doubts normal market forces would push payment reform fast enough to hit the HHS targets in the next three years, he said regulatory changes could be the driver to hasten the transition to value-based payment.
“There are elements of the Affordable Care Act that have some pretty significant unknowns attached such as the Cadillac tax,” he continued. The chief unknown, he continued, is “Does the Cadillac plan tax survive and get implemented as it stands today?” That question, he added, probably won’t be answered until after the presidential election.
The 40 percent excise tax, which is currently scheduled to go into effect in 2018, is levied on healthcare benefits that exceed certain pre-set limits. Despite the name of the tax, Sheidy said its impact would be felt far beyond affluent circles. In fact, the thought is that a significant number of employers could wind up incurring the tax. “This cuts across political parties when it comes to the impact of this,” he said, noting teachers, labor unions and public officials often have strong healthcare benefit packages. “You’re talking about having an excise tax that indirectly impacts a significant amount of the population through employer-provided benefits.”
He continued, “If this Cadillac tax survives, employers are going to be faced with having to change benefits, maintain benefit levels under a different cost structure, or pay the tax.” Sheidy added that since there doesn’t seem to be much enthusiasm for paying the tax, employers are going to look at how to bend plan design or the cost curve and will be more willing to consider value-based network designs.
“The government … through statements around the move to the 80 percent (value-based purchasing) along with the continuing lingering effects of the Affordable Care Act … has really set the industry up for the opportunity for some significant impact on payment reform over a fairly short time frame,” he noted. “On the payer side, CMS is looking to change the payment mechanism. On the commercial side, we’re looking at the Cadillac tax and how to get costs under control. And all of those things share the potential to come into play over the next several years. It’s almost like the perfect storm.”
It’s not that the industry hasn’t taken any steps to prepare for a move to a different type of payment mechanism. Sheidy said the industry is already involved in demonstration projects, quality reporting and capturing data points. However, he pointed out, the true impact on payment of all that collection and monitoring is still pretty narrow.
“People confuse population health with risk and payment,” he said. Now, we’re at the intersection of how to more effectively, efficiently manage the health of a population while simultaneously figuring out how to link payment to these new practice models.
While the industry has floated along with a foot in both the fee-for-service and value-based worlds for quite a while, Sheidy said the drivers are now in place, barring any changes, to force the movement to a more outcomes-based payment methodology in a very short window of time.
RELATED LINKS:
CMS Value-based Payment Outline
