Fee-for-service’s share of healthcare payments is shrinking

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In a report released by the Health Care Payment Learning and Action Network (LAN), 43 percent of payments to health systems came from traditional fee-for-service (FFS) payment models in 2016, down from 62 percent the year before, while alternative payment models’ (APMs) share increased from 23 percent to 29 percent.

While falling short of LAN’s goal to have models like shared savings and bundled payments make up 30 percent of healthcare payments by 2016, the group said it “represents a significant advancement” in the transition to value-based care, as total APM spending rose to $354.5 billion in 2016.

"As health care expenditures and capabilities have continued to rise, it's vital that we find ways to significantly reduce the cost burden for both consumers and the health care system," Mark McClellan, co-chair of the LAN Guiding Committee, director of Duke University’s Robert J. Margolis Center for Health Policy and former CMS administrator said in a statement.

The report used data from 78 health plans, fee-for-service Medicare and 3 managed fee-for-service Medicaid states, representing more than 245 million covered lives. They reported payments in three categories: fee-for-service, pay-for-performance or care coordination and APM both based on FFS architecture or population-based payments.

Here’s how the payments were split between the three categories:

  • FFS: 62 percent of payments in 2015, 43 percent in 2016
  • Pay-for-performance/care coordination: 15 percent in 2015, 28 percent in 2016
  • APMs: 23 percent in 2015, 29 percent in 2016

The driver in the moving away from FFS payments was Medicare. If FFS Medicare data is excluded, FFS payments would only fall to 58 percent. APMs’ share would only go down by a percentage point. The big difference would be in the pay-for-performance category, which would make up only 14 percent of payments if FFS Medicare was excluded, a 14 percentage point difference. The report credits this growth to FFS Medicare programs like Hospital Value-Based Purchasing.

The growth in APMs, the report said, could be attributed to the “increasing prevalence” of accountable care organization (ACO) models, including the launch of Next Generation ACO and new organizations joining the Medicare Shared Savings Program. The beginning of the new Advanced APM track as part of the Medicare Access and CHIP Reauthorization Act (MACRA) may have also been a contributor.

Accelerated growth would be needed to reach LAN’s goal of 50 percent of payments going through APMs by 2018, but its partners in the insurance industry said they were “encouraged” by the progress shown in the report.

"These findings underscore the importance of the public and private sectors working in concert supporting providers towards APM adoption,” Trent Haywood, MD, chief medical officer for the Blue Cross and Blue Shield Association, said in a statement. “We know that providers need information and support from health plans to take on risk. This Measurement Effort helps develop the rationale for continued payment reform, and we as health plans must continue to share information, clinical support and data on spending and quality to determine to encourage further progress."