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Tectonic shift in US reimbursement is coming

April 30, 2015

Medicare, the largest healthcare payer in the United States, is aggressively moving from quantity to quality in its payment mechanism. The Hospital Value-based Purchasing (VBP) initiative was introduced by the Centers for Medicare and Medicaid Services (CMS) as part of the 2010 Affordable Care Act (ACA).1 Its intention is to reimburse acute care hospitals based on quality of care, shifting the in-patient environment away from pure fee-for-service payments.

Value-based payment has increased each year since it began in 2013. The system now includes three domains of care: clinical processes, patient experience and outcomes. This third domain comprises: acute myocardial infarction (AMI) 30-day mortality rate, heart failure 30-day mortality rate, pneumonia 30-day mortality rate, complications/patient safety and incidence of central-line associated blood stream infections. Hospitals that fail to perform against these outcome measures face decreased reimbursement. This year, a total of $1.4 billion in reimbursements is at stake across the country. Based on data collected last year, 45% of US hospitals will see their reimbursement decrease by an average 0.3% in 2015, while 55% will receive an upward adjustment.

Beginning this year, value-based payments also apply to the physician fee schedule for physician groups of 100 or more. Within two years it will apply to all physicians groups, regardless of practice size.2

The future of value-based purchasing

As of the end of 2014, 20% of all Medicare payments were flowing through some sort of value-based purchasing initiative. In January, the US Department of Health and Human Services announced that by 2018 90% of all Medicare fee-for-service payments will be tied to quality.3

Recognizing that it is difficult for providers to adapt to Medicare’s new payment model while continuing to do business as usual with private payers, CMS has created the Health Care Payment Learning and Action Network. Its objective is to engage private payers and large employers with its quality initiative and foster a total change to reimbursement mechanisms in the United States. There is interest, and it is likely that other US payers will begin linking reimbursements to quality in the near future.

Potential rewards for manufacturers

The change from volume-based to value-based reimbursement aligns nicely with the strategy of many manufacturers seeking to have the value of their innovations rewarded in the marketplace. Whereas the traditional fee-for-service system was an incentive for providers to use low-cost products, a value-based reimbursement system, based on quality and outcomes, will ultimately reward the use of products which deliver real value to hospitals and patients.

But the change has come rapidly. And hospitals are struggling to address the value-based purchasing program while also pushing through electronic medical records (EMR) systems (another change induced by the ACA) and adapting to ICD-10. Hospitals and doctors are not set up to manage to these value-based metrics. Reducing 30-day AMI mortality rates is a complex process and difficult to attribute to any one product or intervention. While value analysis committees (VACs) at US hospitals are intended to function something like a mini health technology assessment for hospital products, in truth, their primary focus remains price overvalue. That is likely to change in the next few years as EMR systems become more commonplace and hospitals become more proficient at extracting and interpreting relevant data.

That CMS will align 90% of its payments to quality within three years is a given; how well providers and facilities will adapt is uncertain.5 In the meantime, manufacturers that sell products directly to hospitals and providers should begin laying the foundation for framing the value of their products with a focus on outcomes. This will involve revisiting the overall value strategy, as well as helping healthcare providers develop frameworks for assessing the value of innovative products in terms that align with their new financial reality.

For further information, please contact Susan Garfield at


[1] Centers for Medicare & Medicaid Services. Hospital value-based purchasing. Accessed March 2015.

[2] Centers for Medicare & Medicaid Services. Value-based payment modifier, Accessed March 2015.

[3] Payment/PhysicianFeedbackProgram/ValueBasedPaymentModifier.html. Accessed March 2015.

[4] US Department of Health & Human Services. Better, Smarter, Healthier: In historic announcement, HHS sets clear goals and timeline for shifting Medicare reimbursements from volume to value. January 26, 2015.

[5] Centers for Medicare & Medicaid Services. Hospital value-based purchasing. Accessed March

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