In what is being called an historic announcement, Department of Health and Human Services Secretary Sylvia Mathews Burwell announced on Monday the setting of clear goals and timeframes for moving Medicare from volume to value payments.  The stated goals are to tie 30% of all Medicare provider payments to quality and cost of care by 2016, moving to 50% by 2018.   Nearly all fee-for-service payments will be aligned with quality and value – 85% by 2016 and 90% in 2018.  This transformation will be achieved by the expansion of mechanisms already in use – Accountable Care Organizations, Patient Centered Medical Homes, and Bundled Payments.  Like the Affordable Care Act itself, HHS believes that its initiative will unleash an even stronger movement in the private sector towards alternative payment methodologies, and is establishing the “Health Care Payment Learning & Action Network” to promote this public-private partnership, to be kicked-off in March.

While some reports regarding these approaches have shown mixed results, Secretary Burwell cited data showing savings of $116 billion from previous trends, and anticipates even further inroads into the cost curve with Monday’s announcement.  Various national provider associations were supportive of the initiative. Others noted, however, that physicians need flexibility in the way payments are administered and that continued reductions in payments to hospitals could impair their ability to invest in delivery reforms.  Some urged HHS to recognize the value of new treatment and pharmacological advances in the developing payment methodologies.

Whatever the outcome of these initiatives, this announcement signals that government payment policies will continue to strongly influence the transformation of the American health care system for the foreseeable future. Indeed, almost immediately, several large hospital systems and payors likewise announced significant goals for quality and cost incentives in their contracts.