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Health and Human Services (HHS) Secretary Sylvia Mathews Burwell on Monday announced an ambitious new effort to reward quality medical care and phase out payments based solely on the volume of services provided in the Medicare program.

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For the first time, the agency is setting an explicit timetable for transitioning Medicare away from its dominant fee-for-service model.

The department is aiming to tie 30 percent of traditional Medicare payments to care quality through Accountable Care Organizations (ACOs) or bundled payment arrangements by the end of 2016. Fifty percent would be tied to care quality by the end of 2018.



Altogether, the targets represent a 50-percent increase in value-based payments by 2016, HHS said.

In addition, Burwell announced the creation of a new Health Care Payment Learning and Action Network, which will work with stakeholders across the healthcare world to increase the use of alternative payment models.

"Whether you are a patient, a provider, a business, a health plan, or a taxpayer, it is in our common interest to build a healthcare system that delivers better care, spends health care dollars more wisely and results in healthier people," Burwell said in a statement Monday. "Today’s announcement is about improving the quality of care we receive when we are sick, while at the same time spending our health care dollars more wisely."

The move was roundly praised by industry leaders, medical executives and consumer advocates who met with Burwell Monday to discuss the new policy.

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Health insurance companies' lead advocate in Washington, D.C., Karen Ignagni, called the announcement a "major step forward" in encouraging wiser spending and better outcomes in the U.S. healthcare system.

"Advancing a patient-centered health system requires a fundamental transformation in how we pay for and deliver care," said Ignagni, president and CEO of America's Health Insurance Plans, in a statement. "Health plans have been on the forefront of implementing payment reforms in Medicare Advantage, Medicaid Managed Care, and in the commercial marketplace," she said. "We are excited to bring these experiences and innovations to this new collaboration."

The timetable for quality-based payments will become part of Burwell's legacy at HHS. Apart from focusing on the successful implementation of ObamaCare, the former White House budget director has called phasing out fee-for-service payments a major priority of her tenure.

The fee-for-service model works by reimbursing medical providers for each office visit, test, procedure or other service rendered. Critics say this approach is flawed because it incentivizes higher volumes of care than might be necessary, resulting in excess healthcare costs.

Alternative payment models aim to fix this problem by tying payments to the quality of care provided. In an ACO, for example, doctors, hospitals and other healthcare providers are responsible for coordinating a patient's care, and the quality of their efforts factors into the payments they receive.

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Medicare will aim to tie 85 percent of all traditional payments to quality or value in some form by 2016 and 90 percent by 2018, HHS said Monday. Senior healthcare officials said the new initiative will help "lead and support ... robust interest" in alternative payment models within the healthcare industry.

"We really believe that this is the direction the marketplace is headed," said one senior HHS official on a call with reporters.

"[Stakeholders] want a clear message from HHS and CMS around our goals and where the system is moving."



Though the department generally won praise for its efforts to phase out fee-for-service, not all policy experts were convinced of their methods.

Douglas Holtz-Eakin, a former Congressional Budget Office director and president of the right-leaning American Action Forum, was skeptical that HHS can actually meet the goals that it announced.

"The first step towards recovery is admitting there is a problem ... The second step, however, is choosing the right therapy," Holtz-Eakin said in a statement. "In its desire to trump Congress with executive action, [Medicare] has set ambitious goals with no evidence that these particular alternatives will be effective at reducing costs or improving care."

Holtz-Eakin specifically singled out the Medicare Shared Savings Program, calling it "largely a failure."



HHS responded that ACOs have been shown to lower costs and improve patients' experience, and that new models can help further decelerate the growth in health spending.

This story was updated at 2:36 p.m.