Study: Federal health payment program must reward innovation, as well as efficiency

As the U.S. healthcare industry moves toward value-based payments, it must create appropriate incentives for innovation as well as efficiency, according to an article at Health Affairs that examines hospital add-on payments for innovative technology.

The research compares U.S. practices with those in Germany, France and Japan. Since the Medicare add-on-payments program began in 2001, it has approved far fewer payments for innovative technologies than those other nations, the authors note.

Between 2001 and 2015, the Centers for Medicare & Medicaid Services approved 19 of 53 applications to the payment program. The program paid out $201.7 million between 2002 and 2013, less than half the level Congress had anticipated and only 34 percent of the amount CMS had projected.

"Compared to its peers, Medicare's program has adopted a narrow approach to paying for new technologies, with a high cost bar for eligibility, a payment rate lower than the full cost of the technology, and short defined payment duration," the authors say. "Other nations have adopted broader approaches, albeit with lower base payment rates to hospitals and increased payer flexibility to use discretion for specific technologies."

They add: "The direct financial incentive created by emerging value-based payments is for providers to avoid or delay the adoption of cost-increasing devices, diagnostics, and drugs, regardless of long-term savings or improved clinical outcomes."

That makes it even more vital for explicit value-based payment adjustments for innovation, they say.

The U.S. Department of Health and Human Services (HHS) announced last week that by 2018, it will tie 50 percent of fee-for-service payments to providers to quality initiatives through alternative payment models, particularly accountable care organizations and bundled payments.

HHS Secretary Sylvia Mathews Burwell said that for the first time, the agency is "setting clear goals--and establishing a clear timeline--for moving from volume to value in Medicare payments."

HHS, in December, announced grants of more than $665 million to be split among 28 states, three territories and the District of Columbia as part of its State Innovation Models Initiative. Recipients will "design or test innovative healthcare payment and service delivery models," according to HHS, with an ultimate goal of reducing costs for Medicare, Medicaid and the Children's Health Insurance Program, while improving the overall quality of care.

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