Managing the Transition to Transformation: Quality and Payment Reform: Who Is Asking for What and Why? - McDermott Will & Emery

Managing the Transition to Transformation: Quality and Payment Reform: Who Is Asking for What and Why?


McDermott’s Managing the Transition to Transformation series is designed to help health systems and other health care industry leaders address the many challenges presented by the transformation in payment and care delivery models. The goal of this series is to help organizations prepare so that they are not only competitive, but can also thrive under alternative payment models (APMs) and quality-based reimbursement models (QBRs). This article discusses the key stakeholder groups and perspectives involved in quality and payment reform.

In Depth

Linking payment for health care services to quality, value and outcomes rather than the mere provision of the services themselves has been a feature of health reform proposals in one form or another for decades. However, only now has the link been forged with an alliance of purpose among payors—federal health care programs, private insurers and consumers—and providers whose participation in such programs holds the promise of sharing in incentive programs designed to reward high quality over high volume.

Federal Health Care Programs

Over 55 million Americans are Medicare beneficiaries. National spending on Medicare grew 5.5 percent to $618.7 billion in 2014, while Medicaid spending grew 11 percent to $495.8 billion in the same time period. Health spending over the next ten years is projected to grow at an average rate of 5.8 percent per year, which will outpace the growth in the Gross Domestic Product (GDP) by 1.3 percentage points. The costs for health care attributable to Medicare, Medicaid and other federal health care programs, and the volume of beneficiaries, have put these programs front and center in the shift to predicating payment on achieving quality and outcomes measures.

The largest of the federal health care programs, Medicare has implemented and continues to pilot numerous quality-focused payment reform programs that move payment ever further from fee-for-service (FFS) models. Among those programs specifically targeting hospital payments, the Hospital Readmissions Reduction Program, the Hospital VBP (value-based purchasing) Program and the Hospital-Acquired Condition (HAC) Reduction Program are designed to improve the quality of care, promote improved clinical outcomes and enhance patient safety. The mechanism for improvement is essentially negative reinforcement, as each program functions to reduce reimbursement to hospitals that fail to meet certain performance and quality metrics and reporting requirements. As these programs have been rolled out more fully, hospitals have debated whether they adequately factor in regional differences and variability in patient populations, the impact of which are said to unfairly penalize hospitals, or if the metrics at issue adequately measure quality. While there may eventually be modifications to the programs to account for such factors, the trend in linking reimbursement to achieving quality and clinical outcomes goals is anticipated to grow.

In addition to programs targeted at hospitals, the link between quality and payment is also being forged in relation to physician payments. The Medicare Access and CHIP Reauthorization Act (MACRA) legislation will repeal the Sustainable Growth Rate that directly impacts physician payments and instead link physician payments to quality and value for services, rather than volume of services provided. MACRA will also consolidate existing value-based payment initiatives, including the Physician Quality Reporting System (PQRS) into a single program called the Merit-Based Incentive Payment System (MIPS). MIPS is designed to factor elements like quality of care, improvements in clinical care and use of resources into the payment formula.

Likewise, in the post-acute care space, the Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 2014 endeavors to improve care for Medicare beneficiaries through the implementation of quality metrics and resource utilization tracking by post-acute care providers, bringing these quality-based principles to the continuum of care.

Private Insurers

Private insurers have also forged ahead with efforts to tie quality to payment. While risk-based contracts are still less common, some of the largest companies have formed working groups and task forces with regional health care systems to help plan for the insurance companies to meet with goal of shifting 75 percent of their business by 2020 to contract types that incentivize providers to meet quality and cost metrics. Private insurers have also increased efforts to partner with health care systems and hospitals to coordinate care with the aim of delivering higher quality at lower costs. For example, private insurers have worked with health systems to develop programs to more fully engage patients with chronic conditions or complex diagnoses in their health care, allowing physicians and other health care providers to more closely monitor treatment, help them manage their condition and prevent further complications. Such programs bring together the interests—and can yield positive results—for private insurers, providers and patients.

The cumulative effect of these actions by federal health care programs and private insurers is that almost all providers will be subject to, and need to keep pace with, the varying demands of such programs in addition to the burden of existing regulatory requirements.


Patients have historically been the most forgotten part of the health care equation. Indeed, they are not referred to as consumers as they are in other industries; rather, health care is something that happens to patients. However, there has been a growing trend over the past several years to make patients the focus of the health care encounter. Patient-centered care is one of the primary goals of CMS and, when it passed MACRA, CMS explained that it created both the Alternative Payment Model (APM) requirement and MIPS to drive patient-centered healthcare and continue the development of patient engagement as a fundamental component of health care.

Patients have long desired greater transparency in health care settings. Imagine walking into a store, being told that a particular item is what you must take, and then leaving the store with the clerk saying, ‘We will figure out what that costs for you in particular and bill you later.’ This is precisely what happens any time a patient without a fixed co-pay insurance product (as more and more Americans are opting for) visits a hospital in the fee-for-service model. Unlike other industries, patients rarely know what they will pay for services until after they have received them. Given the immediacy with which a consumer can price almost any product or service, it is critical that the medical industry begin viewing patients as consumers and treating them accordingly.

In addition to transparency on costs, patients would of course like the actual costs to be lower. In 2016, the health care costs for an average American family of four covered by an employer sponsored preferred provider plan rings up at $25,826, triple what it cost in 2001 according to the Milliman Medical Index.

From a patient perspective, payment reform tied to quality metrics would link lower costs with higher quality services and better outcomes, giving patients more of a voice and ability to act like consumers in any other industry segment.


The shift from a fee-for-service model to a quality- and value-based model is being driven by forces far beyond the control of the average physician. Physicians appear to be caught in the machinations of this shift and are seemingly unprepared for the vast impact that MACRA will have on them. Indeed, a recent national survey of 523 primary care and specialty physicians found the following:

  • Fifty (50) percent of surveyed physicians have never heard of MACRA and 32 percent recognize it by name but are not familiar with its requirements;
  • Eight-in-ten of surveyed physicians say they prefer traditional FFS or salary-based compensation as opposed to value-based payment models, some of which qualify under MACRA’s APM track; and
  • Seventy-four (74) percent of surveyed physicians believe that performance reporting is burdensome and 79 percent do not support tying compensation to quality, both requirements under MACRA.

Despite the preferences of physicians, MACRA will directly affect how CMS pays physicians for services provided to Medicare beneficiaries by substantially linking such payments to performance metrics and incentivizing physicians to reduce hospital utilization and to participate in alternative payment models that bear substantial financial risk. MACRA will undoubtedly create incentives that reshape how physician services are provided, including encouraging physicians to consolidate into larger groups, entering into arrangements with physician specialty management companies, or, most likely, becoming employed by or otherwise contractually aligned with health systems in order to have access to the information technology and other care management infrastructure that they will need to achieve the MACRA metrics.

The key question to consider is whether physicians will ultimately prefer the new system to the fee-for-service model. Under the fee-for service model, physicians are constantly overtaxed and have limited time to spend with each patient. Indeed, 40 percent of patients feel rushed during their actual visit with the average office visit lasting only twelve minutes. Much of the allure of practicing medicine probably quickly dissipated for most new doctors upon graduation once they realized the sheer volume of patients they would need to see on a daily basis.

Part of the promise of MACRA is that both physicians and patients will receive a benefit. Ideally, physicians will get a significant benefit by being able to practice medicine in the thoughtful way they originally sought to, with the quality of their work determining their pay instead of the sheer number of patients seen. From the patient perspective, if MACRA is properly implemented, it can promote more flexible care that is tailored to the needs of patients.


Federal health care programs and legislative changes are leading the paradigm shift toward quality-focused payment reform. By tying payments to quality metrics, federal health care programs (through legislation such as MACRA), aim to create the necessary incentives to realize their goal of making patient-centered care the new standard in the health industry. Involvement of and collaboration by private insurers, physicians and consumers will continue, and together these constituencies will help further the transition to transformation of health care.