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Medicare moves in the right direction by linking reimbursements to outcomes

The future of medicine is in compensation by outcome, not by procedure and, last week, the future came knocking on Medicare’s door. Using authority provided by the Affordable Care Act, the Obama administration says it will issue rules to change the system of compensation for two common procedures.

The rules would require hospitals in 75 metropolitan areas, including Buffalo, to accept a flat fee for the costs associated with a hip or knee replacement. That would include the costs of surgery, medications and rehabilitation. What is more, if the quality of care is found to be insufficient, Medicare will claw back some of the money.

Another program is also in the administration’s sights: Home health agencies in nine states – one in each of the country’s nine regions – would see their reimbursements raised or lowered, depending on their performances on certain quality measurements.

This kind of change is already underway in the country, but the administration’s action counts as a sea change, nonetheless. Health care professionals treating patients covered by Medicare will be compensated for the quality of care they provide, rather than for the number of procedures they perform.

Some version of that reimbursement system has already been implemented in Western New York by private insurers in a limited fashion, and it will, no doubt, expand. But Medicare has tremendous influence simply by virtue of its size. It was important, and inevitable, that it begin adopting a system that rewards performance.

Before the Affordable Care Act, aka Obamacare, the Department of Health and Human Services needed congressional approval to change the way it paid for certain medical services, but that changed with passage of the law in 2010. The legislation called for creation of a new office, the Center for Medicare and Medicaid Innovation, with a mission of testing new ways to pay for medical care that would improve quality while lowering costs.

Since then, the center has begun dozens of voluntary pilot programs. As those programs are shown to be successful, the law allows the changes to become permanent.

There is a legitimate question as to whether it was appropriate for Congress to give away authority over a significant way the government bills for expensive services. Given the opposition that remains to the law, these changes seem certain to land in court.

But the question of how a change is implemented is different from the question of whether the change is a smart one. Assuming this system is implemented following a period of public comment, Americans will be able to evaluate how well this approach performs. Generally speaking, however, there can be little doubt that it will be better in the long run, financially and medically, to pay for quality rather than quantity.

Under that system, providers will be incentivized to ensure that they are delivering the best care they can to ensure they receive maximum payment. Just one way that will save tax dollars is by decreasing the number of hospital readmissions following a procedure. It could also help to decrease the incidence of hospital-acquired infections.

This, appropriately, is just the beginning of this kind of change. The Obama administration has pledged to create medical payment systems based on value for a majority of medical payments. Americans who are concerned about restraining the growth in the costs of medical care – and that presumably includes all Americans – should be encouraged by this development.