Hospitals assuming downside financial risk under value-based care models is the key to lowering healthcare costs and improving quality, CMS believes.
CMS Administrator Seema Verma urged hospitals on Tuesday to accept new value-based care models and price transparency requirements or face greater administrative burden, less competition, and lower reimbursement rates under Medicare for All.
“Our choices are clear, we can choose Medicare for All or a public option, doubling down on government and a one-size-fits-all, socialist approach, with government price setting…threatening our world-class system of innovation and top-notch care, and replacing it with long lines and rationing,” the CMS leader said at the American Hospital Association Regional Policy Board Meeting. “Or we can choose to put patients first by moving to a system of competition and value, giving patients the choice and control they want, the affordability they need, and the quality they deserve.”
The Trump Administration is leaning toward the latter option, “upending the status quo to empower patients to be informed consumers or healthcare” and “seeking out high-value providers that deliver the highest quality care at the lowest price,” Verma explained.
“That means transparency, value-based payments, and burden reduction,” she emphasized.
Hospitals will be a major target for the reforms. Verma reported that hospital care accounted for one-third of all healthcare expenditures in 2017, representing the largest portion of healthcare spending that year.
Hospital prices are also on the rise. Hospital prices for inpatient care increased by 19 percent from 2013 to 2017, outpacing growth in physician prices for the same services, which increased by just ten percent during the period, UnitedHealth Group recently reported.
In order to drive down total healthcare costs, CMS will be creating and implementing reforms that go after hospital spend and those reforms will focus on increasing value, Verma said.
“Make no mistake – if your business model is focused merely on increasing volume rather than improving health outcomes, coordinating care and cutting waste, you will not succeed under the new paradigm,” the head of CMS cautioned hospital leaders.
CMS has already taken steps to reform hospital care by promoting price and quality transparency and doubling down on value-based payment incentives. For example, the federal agency recently started to require hospitals to publish their chargemasters online in a consumer-friendly format and the agency plans to mandate the disclosure of negotiated prices in the near the future.
Almost a year ago, the agency also revamped the Medicare Shared Savings Program, the largest value-based payment program with 561 accountable care organizations (ACOs) treating 10.5 million beneficiaries as of January 2018. New program rules require ACOs to assume downside risk sooner in exchange for more billing and reporting flexibilities.
“This means that the ACOs in the program will have a better chance of producing positive results for patients. CMS is on track to generate $2.9 billion in savings over ten years from the program redesign,” Verma said in her speech to hospital leaders.
CMS plans to take a similar approach to other value-based payment programs, she added.
“CMS’s focus over the next year will be to consider how we can provide even more flexibility to providers taking on risk with new waivers,” she said. The agency intends for the waivers to encourage greater participation in risk-heavy models.
Participation in value-based care models with downside financial risk is lagging. Only a third of ACO contracts included downside risk provisions by 2018, a recent Dartmouth analysis found. Another study of hospital finance executives also found that risk-based contracts are still one to three years away for most organizations.
Hospitals should expect more value-based care models with downside financial risk across all types of payers and expect those models soon, Verma warned hospital leaders. CMS is already developing new value-based payment models for Medicaid, which now covers more individuals than Medicaid, and multi-payer arrangements that align value-based payment incentives across public and private payers, the CMS leader explained.
Through new value-based care models that hold providers financially accountable for care delivered, the agency anticipates the healthcare market to shift to a place in which value-based care is a standard payment policy. In that market, competition, price transparency, and value will bring down hospital spending while protecting the bottom line.
“Value-based payment under the Trump administration is the future, and our Administration is doing everything we can to accelerate the implementation of financial incentives to drive costs down and improve quality,” Verma said.