Medicare Advantage Leads the Way on Value-based Payments

Secretary Burwell’s announcement of a major initiative aimed at driving health care providers in Medicare fee-for-service (FFS) to adopt value-based care models is welcome news for beneficiaries, providers and the overall health care system. The initiative focuses on several areas: incentives to promote value-based payment systems, encouraging integration and coordination of clinical services among all of a patient’s providers, improving population health, and creating transparency on cost and quality. All of these reforms are intended to ensure that seniors receive high-quality care at a lower cost. The Secretary has set the ambitious goal that half of all fee-for-service payments should be made within alternative payment models by the end of 2018.

This important new Medicare FFS initiative follows what Medicare Advantage has been doing all along: innovating to provide high-value, high-quality care within a payment model that rewards value rather than volume.

There is a growing, bipartisan consensus in health policy that real, sustained improvements in health outcomes, reductions in cost growth, and innovations in service delivery cannot be realized when payment is simply based on the number of services provided. Instead, we should accelerate efforts to emphasize value by removing incentives for redundant and inappropriate care. Within Medicare Advantage, there are no such unintended incentives. Medicare Advantage also offers many innovations and improvements in care that can be a further example for Medicare FFS to emulate.

Medicare Advantage plans are required to offer at least the same benefits as Medicare FFS, which cover inpatient and outpatient services. Medicare Advantage plans can provide additional benefits, including prescription drug coverage, dental and vision coverage, as well as reduced cost-sharing. Payments are determined by benchmarks that reflect per-beneficiary spending in Medicare FFS, but the key is that they are capitated—meaning doctors receive a set amount for each beneficiary. That means health care providers are incented to provide appropriate care rather than more care. Quality is measured and publicly reported through the Star Ratings program, so there is no incentive to reduce appropriate care to save money.

For many years, Medicare Advantage plans have been working to close gaps in patient care, covering preventive services, and partnering with providers on value-based contracts. This approach has delivered real value for seniors. Studies have shown that patients enrolled in Medicare Advantage plans had a lower incidence of preventable hospitalizations than those enrolled in Medicare FFS. [1] Overall, Medicare Advantage beneficiaries used fewer hospital resources than those in Medicare FFS by averaging a shorter length of stay and a lower total cost per hospitalization.[2] As for chronic disease, a comparative analysis in 2012 found that people with diabetes in Medicare Advantage chronic condition special-needs plans—particularly nonwhite beneficiaries—had lower rates of hospitalization and readmission than their peers in Medicare FFS.[3]

The experience in Medicare Advantage demonstrates how value-based payment models can improve patient care. As a coalition of Medicare Advantage providers, plans, beneficiaries and advocates who know these models work, the Better Medicare Alliance is committed to further advancing the critically important goals set by the Secretary.

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[1] Enrollment in Medicare Advantage managed care plans reduces racial/ethnic disparities in primary care quality in some States: Research Activities, December 2011, No. 376. December 2011. Agency for Healthcare Research and Quality, Rockville, MD. http://archive.ahrq.gov/news/newsletters/research-activities/dec11/1211RA21.html

[2] Bernard Friedman, Ph.D., H. Joanna Jiang, Ph.D., and C. Allison Russo, M.P.H Medicare Hospital Stays: Comparisons between the Fee-for-Service Plan and Alternative Plans, 2006, HCUP Statistical Brief #66, January 2009

[3] Robb Cohen, Jeff Lemieux, Jeff Schoenborn, Teresa Mulligan, “Medicare Advantage Chronic Special Needs Plan Boosted Primary Care, Reduced Hospital Use Among Diabetes Patients,” Health Aff January 2012 vol. 31 no. 1 110-119