US Government Unveils Goal to Move Medicare Away from Fee-for-Service

By David Morgan

WASHINGTON (Reuters) - The Obama administration on Monday unveiled an ambitious plan to control health costs by moving the $2.9 trillion U.S. health systems away from costly fee-for-service medicine, beginning with the Medicare program for the elderly and disabled.

By the end of 2018, Health and Human Services Secretary Sylvia Burwell told reporters that 50% of traditional Medicare's $362 billion in annual payments would go to doctors, hospitals and other providers that participate in alternative payment models which emphasize cost containment and quality of care.

Officials, who hope to see the initiative matched by private insurers, employers and state Medicaid programs for the poor, said the move was intended to head off a resurgence in healthcare cost growth from historically low rates seen since the recession.

About 20% of traditional Medicare payments currently go to providers with cost-saving business models. The remainder are based on fee-for-service payments that reward providers for the volume of care they provide. Fee-for-service has been blamed by policymakers for promoting higher costs, mediocre care and unnecessary procedures.

The administration's aim is to move healthcare toward payment models that link provider payments to effective and responsible management of cases.

Within four years, the administration expects all but 10% of traditional Medicare to be linked to new quality and efficiency standards, including most of the remaining fee-for- service providers.

Burwell also announced the creation of a Health Care Payment Learning and Action Network to work toward expanding the effort in the private sector and among states.

Payment reform has already taken hold in some segments of the private healthcare sector. Under the Affordable Care Act, the government has also been experimenting with payment models that officials say have generated $417 million in savings to Medicare.

But the effort could face long odds in containing annual healthcare spending growth, which is expected to accelerate from 3.6% in 2013 to 4.9% this year and 6.6% in 2020.

New care models have shown limited progress in controlling costs and little evidence of being able to sustain cost savings over time.

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