Medicare’s recent announcement of new goals to pay health care providers for the quality of care provided rather than the quantity of services rendered marks a clear change in direction for the industry’s future, health executives say, but it’s a path they say most are familiar with already.

Historically, Medicare has paid for patient care under a fee-for-service model through which providers are paid per procedure or visit. With the envisioned shift, physicians, hospitals, and other providers are to be compensated through alternative payment models based on outcomes and other quality measures.

Dr. Jeff Collins, chief medical officer at Spokane-based Providence Health Care, says that while this is a large step in a new direction, many large health care organizations already have developed quality metrics and are being paid for services—by private insurers and through some Medicare programs—through alternative payment models and quality assessments. 

“Does it (the Medicare shift) change the way we do business?” Collins says. “No, but the direction is clear. We have to now be prepared to demonstrate quality.”

In an announcement late last month, the U.S. Department of Health and Human Services says it has set a goal of tying 30 percent of traditional, or fee-for-service, Medicare payments to alternative payment models by the end of 2016. By the end of 2018, HHS wants to tie half of traditional payments to such compensation methods. 

One alternative payment model is accountable-care organizations, which are groups of health care providers that work together to coordinate care and share responsibility for the quality of that care. Another is bundled payment arrangements, through which Medicare pays a lump sum for an “episode of care,” rather than paying for each individual procedure or consultation. 

Beyond alternative payment methods, HHS set the goal of linking 85 percent of payments to quality or value programs by the end of 2016 and 90 percent of payments to such programs two years later. Those programs might include hospital value-based purchasing, though which Medicare provides incentive pay for meeting certain quality measures, and a hospital readmission reduction program. 

Madeline Grant, Group Health Cooperative’s Seattle-based director of federal government relations, says that while the direction is clear, what remains to be seen is precisely how Medicare makes the transition and what programs it rolls out to convert fee-for-service providers to a new model. 

Grant says most of  the value-based programs currently in place focus on the incentives rather than penalties, and she expects that to continue to be the case.

“It’s much more the carrot and much less the stick,” she says. 

Dr. Michael Patmas, CEO of Rockwood Clinic, says that while it’s true that most programs are incentive based, health care providers must adapt to the new payment methods in order to maximize revenue. 

“If you don’t change your system, you’re going to see that income wither away,” Patmas says.

He says that through value-based programs with private insurance companies, about 30 percent of Rockwood’s revenue is tied to quality metrics currently. 

Providence’s Collins says about 20 percent of the overall payments the organization currently receives are tied to some sort of quality metric. Some aspects of care that currently are tied to compensation include readmissions, frequency of hospital-acquired conditions, and surgical-site infections, among others. 

Collins says that Providence consistently meets its benchmarks, but if it failed to do so, that failure would result in a 1 percent to 3 percent reduction in its reimbursement rate, depending on the metric involved and how poorly the organization performed.

Dr. Gregory Carter, medical director at St. Luke’s Rehabilitation Institute, says that as a specialty hospital, a higher percentage of its revenue—about 40 percent — comes from Med-icare reimbursements than is the case at a general hospital. He contends, however, that St. Luke’s is in a good position to adapt to the envisioned shift because rehabilitation medicine already requires a multidisciplinary approach. Also, he says, the process involves measuring improvement in physical performance, with patients expected to leave the facility with a greater level of independence. 

“St. Luke’s has a track record of the kinds of positive outcomes that are expected more and more of hospitals across the board,” he says. “We are, for the most part, evaluated on performance.”

Carter argues that while a large-scale shift is coming, the health care industry first showed signs of trending toward a value-based reimbursements—and away from a fee-for-service approach—in the early 1990s, when managed care emerged. He says the current models are different from those that surfaced 20 to 25 years ago, but some of the principals behind them are similar. 

“These changes are inevitable, and in the long run, it will improve the quality of care,” he says. 

Patmas says that while the managed care of the 1990s didn’t last, it was the only approach that’s been effective in slowing the growth of health care costs.

“Managed care was successful, but it was very heavy handed,” he says. “People didn’t like it.”

While Patmas describes a move away from a fee-for-service model as necessary to curb costs and improve health care quality, he says it’s a major change for health care providers to make. 

“I think, personally, folks would like to make this transition,” he says. “In reality, I have to see volume coming through my door to pay the light bill right now.”

He adds, “We’re eager to see this transition—the sooner, the better for me.”