Editor’s note: When we read Sharon Long and colleagues’ retrospective on Massachusetts health reform at 10 years in the September issue of Health Affairs we were reminded just what a busy year 2006 was for health policy writ large (in addition to wondering ‘Has it been that long already?’). Now a decade later, we think there’s something to be gained from looking back on the impact and reach of some of the most significant policies implemented that year. With that in mind, Health Affairs Blog invited a handful of policy makers and researchers to reflect on some of these major milestones, share lessons learned, and discuss how our world has changed since then. Visit the Blog for more posts in this occasional series.

Ten years ago, the Institute of Medicine (now the National Academy of Medicine) released a report “Rewarding Provider Performance: Aligning Incentives in Medicare” reflecting the work of an IOM subcommittee that Robert Reischauer and I co-chaired. When the subcommittee was organized, various professional groups had already recognized Medicare incentives’ lack of alignment between clinicians and institutions and the lack of focus on individual outcomes. What was still relatively new and as yet untested was the development of payment strategies that would focus on outcomes and performance rather than on inputs. It was also clear that the country would need to develop new metrics that could be used to support payment reform.

Ten years later, the country is further along this path, but we are still relatively early in the process. Many of the principles articulated in 2006 remain our focus for change in 2016: encouraging rapid performance improvement, supporting innovative change, promoting better outcomes, fostering care coordination, and rewarding both provider improvement as well as provider achievement.

Persistent Challenges

A lot of work has been undertaken to transform the system from an input-based reimbursement system that encourages volume to an outcomes-based reimbursement system that rewards value. Yet many of the challenges identified 10 years ago remain unresolved today.

To be sure, some of the basics have improved. A decade ago, the committee advocated offering incentives to providers to collect and submit data. That strategy has been successfully used to encourage physician reporting as part of the Physician Quality Reporting System (PQRS) and will continue to be used as the Medicare Access and CHIP Reauthorization Act’s rules—part of which subsumes the PQRS—take effect in 2017. Under the final rule released this fall, physicians providing at least some data as part of the law’s Merit-based Payment Incentive System will be protected from a reduction in fees in 2019.

CMS has also adopted a number of value-based programs, many of which were part of the Affordable Care Act (ACA) legislation. Four were part of an initial set: the hospital value-based purchasing program, hospital readmission reduction program, the physician value-based modifier, and the hospital-acquired condition program. In addition, the Centers for Medicare and Medicaid Services (CMS) has added an end-stage renal disease quality initiative, a skilled nursing facility value-based program, and a home health value-based program.

The challenge for all of these value-based programs is whether they can change behavior when the base payment still dominates the total payment. For example, under the hospital value-based purchasing program, which was structured to be revenue-neutral and was originally implemented in 2013, hospitals will be receiving payment in fiscal year 2016 based on performance from 2014. What is more, the maximum penalty is limited to 1.75 percent of Medicare payments and bonuses will be limited to a maximum of approximately 3 percent. Some 3,000 hospitals are receiving penalties or bonuses for 2016 and according to a Government Accountability Office (GAO) report, they amount to less than 0.5 percent of applicable Medicare payment. Not surprisingly, interviews from hospital officials indicated that the program reinforced ongoing quality improvement efforts but didn’t result in any major changes in focus.

The Center for Medicare and Medicaid Innovation has also been encouraging the adoption of various value-based strategies such as patient-centered medical homes, bundled payments, and various accountable care organization (ACO) models. Many of these pilot projects are still relatively early in their implementation but to date the results have been mixed at best — which is probably not that surprising. Changing institutional and individual behavior is challenging, especially in the face of uncertainty about the permanency of any of the demonstration projects and given the large number that have been launched and the relatively small risks and rewards at stake.

Physician Payment

The last major area of Medicare to move toward value-based payment has been physician payment. Given that physicians are the “captains of the health care team” as we know it, it has always seemed odd that they were the group that was left out of payment reform in the ACA. While physicians are included in ACOs and the bundled payment pilot projects, their primary method of payment under Medicare has remained the resource-based relative value scale — which pays on the basis of 8,000+ Current Procedural Terminology (CPT) codes. Combined with the threat of Sustainable Growth Rate reductions to individual physician reimbursement based on aggregate spending, this approach meant there was no linkage between what individual clinicians or their practices did and their subsequent reimbursement — collective guilt of the worst kind. Concern about whether access to physicians would be adversely affected led Congress to intervene when reductions were scheduled, making the system ineffective as well as inequitable.

With the passage of MACRA, physicians are now on a path to be reimbursed under a value-based system. They will have two choices: to be reimbursed under the MIPS mentioned earlier or to be part of an “alternative payment system” in which they can take on risk to share both gains and losses. The emphasis on value-based payments is far greater now than it was a decade ago. Not surprisingly, many of the issues that were vexing the committee a decade ago remain unresolved. What are the appropriate metrics to use in defining value? How do we reward both the achievement of high-value care and to encourage improvement, especially among those groups that begin from a relatively low level of value? How do we adjust for the effects of poverty and other social determinants of health in a way that doesn’t excuse poor care but also doesn’t unfairly punish institutions and clinicians who provide care to more challenging populations?

There is still much that needs to be done to transform Medicare payments into a value-based system but the changes that are being made or tried are at least directionally correct. A decade from now we should be able to look back at how far we’ve come in adopting a value-based health care system.