Association for Public Policy Analysis & Management

Medicare accounts for more than one-fifth of total national health care spending and even greater shares of hospital, physician, home health and other services covered by the program.  Medicare decisions on how to pay for care thus have an impact on providers across the country with the potential to spur delivery system reform to improve outcomes while lowering costs of care. Past innovations in the way Medicare pays physicians and hospitals have spread to private insurers. Recently the Affordable Care Act expanded Medicare’s authority to experiment including sharing savings programs through Accountable Care Organizations. The ACA also instituted new Medicare value-based payment incentives, including penalties for excessive hospital readmissions rates.  In part due to ACA and earlier actions, growth in Medicare spending per person slowed dramatically from 2009 to 2013, while improving health care outcomes. However, Medicare continues to use fee-for-service as the primary way to pay for care and even hospital “bundles” do not include all care provided during a hospital stay. Looking forward, there are opportunities to build on and spread payment policy innovations in ways that provide strong incentives to eliminate duplicative or ineffective care, give preference to lower-cost treatment alternatives, and improve care coordination. Importantly, the ACA created an Innovation  Center with funding over 10 years to test innovative models of payment and service delivery that show promise of improving outcomes, patient experiences of care, or lowering cost. This paper will examine options to build on and extend innovative policies, including expanding partnerships with private and Medicaid payers to ensure coherent multi-payer action.