A Primer on Medicare: Key Facts About the Medicare Program and the People it Covers

What is Medicare's role in delivery system reform?

Delivery system reforms are new payment approaches for health care designed to change the way providers organize and deliver care.

The overarching goals of delivery system reforms in Medicare are to lower per capita spending while simultaneously fostering improved patient care. The Affordable Care Act directed CMS, primarily through a new Innovation Center, to launch a number of Medicare-wide programs and pilot projects to test new payment models across various types of providers. Evaluations of these programs are in their early stages and showing mixed results. While the overarching goals for most of these models are similar—improving care quality and lowering costs—the more specific aims within each model vary and represent a range of potential opportunities and challenges.

Current delivery system reform efforts differ from traditional Medicare’s status quo in terms of provider organization and payment approaches.

For the most part, traditional Medicare currently reimburses individual providers separately for the services they deliver to beneficiaries. This “siloed” payment approach carries inherent incentives for providers to furnish more care (or more expensive care) than may be necessary while also lacking incentives to coordinate patient care across health care settings. In contrast, new payment models that incorporate delivery system reforms typically include financial incentives that are designed to encourage collaboration and care coordination among different providers, reduce unnecessary service use, and reward providers for furnishing higher quality patient care.

The ACA included a number of delivery system reforms in Medicare.

In addition to large-scale programs implemented within Medicare, many new models are being tested as pilots and demonstration projects through the Innovation Center. Below are some examples of the types of delivery system reforms currently underway.

  • Accountable Care Organizations (ACOs): ACOs are groups of providers (such as physician practices and hospitals) that collectively accept responsibility for the overall care of Medicare beneficiaries assigned to them, and share in financial savings if they meet aggregate spending and quality targets. In general, the ACO concept is designed to reward providers financially for working together, sharing information, and coordinating care, especially for high-risk and high-cost chronically ill patients.

    Medicare has two main ACO programs: the Pioneer ACO program and the Medicare Shared Savings Program (MSSP) (Figure 21). Pioneer ACOs are generally larger entities that serve more beneficiaries and have experience with accepting financial risk for care, compared with ACOs in the MSSP. In addition to sharing in any savings, Pioneer ACOs are also required to repay Medicare a portion of any shared losses, if spending exceeds their target. In contrast, most ACOs in the MSSP do not currently take on this double-sided financial risk, but will be required to do so in future years.
Figure 21: Accountable Care Organizations (ACOs) in Medicare, 2015

Figure 21: Accountable Care Organizations (ACOs) in Medicare, 2015

  • Bundled payments: Also known as episode-of-care payments, bundled payments reimburse for all services provided to a patient for a defined course of treatment, rather than paying each provider and site separately. For example, a single bundled payment for a patient undergoing knee replacement could encompass: the surgeon’s fee, the anesthesiologist charges, the hospital’s charges and those of hospital based physicians, post-surgical rehabilitation, such as physical therapy, and any medical complications that occur within a specified period of time in the episode of care. Under the bundled payment approach, the participating providers share in any savings that they generate or losses if total spending exceeds payment. The CMS Innovation center is currently managing a large-scale demonstration called the Bundled Payment for Care Improvement pilot, which is testing four bundled payment approaches for 48 different clinical conditions that started with a hospitalization.
  • Medical homes: The medical home, also called an “advanced primary care practice,” is a team-based approach to care that focuses on providing and coordinating all of a patient’s ongoing care from within a primary care medical practice. Medical home models commonly receive a monthly payment for each patient, which is intended to offset the costs of activities that occur outside of face-to-face physician visits (e.g., phone call or email follow-up with other specialists, electronic health record activities, after-hours access to clinical staff). The CMS Innovation Center is currently testing medical home models within Medicare through several programs, including the Comprehensive Primary Care Initiative, the Multi-Payer Advance Primary Care Practice program, and a medical home model within over 400 Federally Qualified Health Centers.
  • Hospital readmission reduction initiatives: Efforts to decrease the number of patient readmissions to hospitals carries benefits to both Medicare patients as well as the Medicare program. Reducing preventable readmissions could indicate that Medicare beneficiaries are receiving better care both during and after the initial hospitalization, and may translate to lower spending in Medicare. Incentives to decrease the number of preventable hospital readmissions among Medicare patients is part of many delivery system reforms in Medicare. For example, the Hospital Readmission Reduction Program financially penalizes hospitals that have relatively higher rates of Medicare readmissions following initial hospitalizations for certain conditions (heart attack, pneumonia, hip replacement). On the whole, CMS has reported declines in national readmission rates among Medicare beneficiaries, starting in 2012 and continuing into 2013 (Figure 22).
Figure 22: Medicare Hospital Readmission Rates, 2005-2013

Figure 22: Medicare Hospital Readmission Rates, 2005-2013

How does Medicare pay providers in traditional Medicare? How much does Medicare spend, and how does current spending compare to past trends and the future outlook?

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