The Center for Medicare and Medicaid Services (CMS) recently, and for the first time, set a timetable for accelerating its payment reforms. It announced that by 2018, half of its Medicare reimbursement will shift away from fee-for-service (FFS) to alternative payment models. These alternative payment models can be found in new care practices such as accountable care organizations (ACO) and Patient-Centered Medical Homes (PCMH).
What surprised me a little is that CMS also shares that by the end of 2014, “value-based payments [already] represented approximately 20 percent of Medicare fee-for-service payments to providers.” Using Medicare benefit payment data in 2013 (the year when the latest data are available), I calculate that the 20 percent equals to about $56 billion. This figure appears high, and I interpret this data as inclusive of any payment that has performance-based payment components, i.e, the whole amount under FFS is counted, even only 5 percent of that total payment is conditional upon meeting certain performance goals.
I am actually more interested in the percentage of spending on alternative payment models as listed in CMS’ categories 3 & 4--for these care models, Medicare holds care providers financially accountable for the outcome of an episodic care, or for the care quality of a patient population under a care provider’s management. CMS did not break them out and my best guess is under 10 percent in 2014. CMS projects that this percentage will rise to 30 percent by end of 2016 and 50 percent by 2018.
Despite fuzzy math behind these goals, it is still laudable that CMS sets and publishes them. By doing so, it sends a clear message to the care provider community that fee-for-service will be phased out. This timetable is an ultimatum to care provider organizations who are still holdouts for changes.
Because of these goals, I project that the adoption of alternative care models will accelerate, especially among small- and medium-sized provider groups. It could also fuel more mergers and acquisitions in the care provider market since smaller organizations may not have the scale and resources to implement these new care models. In my view, these changes will particularly benefit healthcare organizations that have the vision to invest in population health management solutions and adopt information and communications technologies to increase the efficiency and effectiveness of their care delivery.
At this year’s CES, I met Marcus Grindstaff, vice president of U.S. sales and global market development at Care Innovations, a joint venture between GE Healthcare and Intel Corporation. Care Innovations has successfully transitioned itself from a health monitoring technology vendor to a care management solution provider. It was not an easy journey, but well worth it, and a very timely move in my view as the adoption of the accountable care models is accelerating.
Marcus told me that his business has gained momentum; ACOs and PCMHs have increasingly turned to turnkey solution providers like Care Innovations to enable robust yet flexible care management services for targeted populations with chronic illnesses. Parks Associates estimates that technology-enabled chronic care management services will rake in $5.4 billion in solution sales and service fees by 2019, a five-year CAGR of 41%. A majority of this revenue opportunity will come from ACOs/health system-led care management/population health programs.
Separately, a telehealth draft bill from the House caught my attention. The bill, titled “Advancing Telehealth Opportunities in Medicare,” is backed by eight members from the House Energy and Commerce Committee. Several influential trade groups, including American Hospital Association, American Telemedicine Association, Health IT Now and HIMSS have weighed in on the languages of the bill. I read them all, and it is clear that the industry side—from care provider groups to health IT vendors—has come to the consensus that telehealth solutions should receive more generous reimbursement policies given the evidence, consumer expectation and technology capabilities today.
However, all of them show a certain level of mistrust of CMS as the agency to formulate reimbursement policies. Instead, these groups would like Congress to step in, set reimbursement rules, and mandate that CMS execute accordingly. Last but not least, all of these trade groups recommend that telehealth be reimbursable under alternative payment models.
The last recommendation is critical, in my opinion, to the long-term success of telehealth solution providers. As CMS shifts spending to alternative payment models, telehealth can’t be limited to services paid via FFS arrangements. I argue that telehealth will be among the tools that population health management service providers can use to serve better end user needs in a variety of use cases, including virtual care, preventive medicine, and hospital discharge follow-up.
2015 is poised to be an exciting year for telehealth solutions and population health management programs. I expect that many such solution and service providers will attend the upcoming HIMSS conference in Chicago (April/2015). If this telehealth bill incorporates feedback from these trade groups and eventually finds its way to become law in 2015, it would offer a near-term catalyst to the telehealth solution market.
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