U.S. government unveils goal to move Medicare away from fee-for-service

[January 27, 2015]  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 percent 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 an historically low 3.6 percent in 2013 to a projected 6.6 percent in 2020.

The administration announced its goals after Burwell met with private and public sector stakeholders including insurers, consumer and provider groups and employers Boeing Co and Verizon Communications Inc.

Wall Street analysts said for-profit hospitals and private insurers would be well positioned to benefit from a new shift toward lower-cost care delivery.

Groups representing doctors and hospitals said the move could mean greater flexibility for their members in determining care delivery, while consumer representatives said the unprecedented goals could boost the quality of care.

About 20 percent of traditional Medicare payments, a sum worth $72 billion, 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 goals would be phased in by first increasing the participation of alternative care models to 30 percent of Medicare payments by the end of 2016.

Officials described the 50 percent goal for 2018 as a "tipping point" that could help make payment reform mainstream across the U.S. health system.

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

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

(Reporting by David Morgan; Editing by James Dalgleish and Cynthia Osterman)

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