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Medicare faces historic overhaul

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(Bloomberg) — The Obama administration plans to make historic changes in how Medicare pays enrollees’ medical bills.

Starting next year, Medicare, which covers about 50 million elderly and disabled Americans, intends to base 30 percent of payments on how well health providers care for patients.

The goal is to put half of the payments under the new system by 2018.

“We believe these goals can drive transformative change,” Sylvia Mathews Burwell, secretary of the U.S. Department of Health and Human Services (HHS), said in a statement.

See also: Democrats praise GOP doc fix effort.

For doctors and health facilities, the system could eventually tie hundreds of billions of dollars in payments to how their patients fare, rather than how much work a doctor or hospital does. The shift would end Medicare’s current fee-for-service reimbursement system, which involves paying providers for each scan, test and surgery.

See also: House, Senate talk Medicare physician pay.

Medicare paid about $362 billion to care providers in 2014, HHS said. That makes Medicare the single biggest buyer of health care services in the United States.

HHS has organized many Medicare reimbursement pilot programs over the years. The Patient Protection and Affordable Care Act of 2010 (PPACA) started several major programs. Today, about 20 percent of Medicare spending goes through programs that tie providers’ pay to quality measures, or require providers to assume some financial risk.

Those programs have saved government health programs $417 million, HHS officials said.

But today’s announcement marks the first effort by HHS to set specific goals for steering the nation away from fee-for-service provider payments.

Some private insurers already use similar value-based reimbursement strategies and bundled reimbursement strategies. If the Medicare reimbursement shift is successful, that could push private carriers to accelerate their own move away from fee-for-service reimbursement arrangements.

See also: How should plans pay doctors?

The shift could help consumers and employers save money, but it might interfere with patients’ ability to get what doctors, hospitals and health plans see as low-value care.

At risk

“The people who are delivering care are increasingly at financial risk for the services that are being rendered,” Dan Mendelson, chief executive officer of Avalere Health, a consulting firm, said in an interview. “It’s increasingly likely the physician or the hospital is going to make more money if they provide less care.”

The country’s main lobbying groups for doctors and hospitals said they were on board, at least with the broad idea behind the overhaul. “We support secretary Burwell’s goals and plans,” said Maureen Swick, a representative of the American Hospital Association.

Robert Wah, president of the American Medical Association, said physicians are worried about additional bureaucracy. “This idea that we’re talking about delivery reform and setting up a system of delivery reform, we’re very supportive of that,” Wah said in an interview in Washington. “The details will be important to see.”

Burwell met with about two dozen health industry officials this morning to brief them on the administration’s plan. Participants included executives of Verizon Communications Inc., Boeing Co., UnitedHealth Group Inc., Anthem Inc. and representatives of large hospital chains and physician organizations.

Karen Ignagni, president of America’s Health Insurance Plans (AHIP), said in a statement that health plans have been on the forefront of implementing new reimbursement strategies.

“We are excited to bring these experiences and innovations to this new collaboration,” Ignagni said.

In the coming week, AHIP will be highlighting health plans innovative health care payment and delivery initiatives, Ignagni said.