Medicare is Overhauling Payments to Doctors and Hospitals


Medicare, covering about 50 million elderly and disabled Americans, paid approximately $362 billion to healthcare providers in 2014, following a "fee-for-service" model. Beginning next year, Medicare will base 30% of payments on the quality of care. The plan is to have 50% of payments under this system by 2018. This new payment system will be based on how well patients do, rather than how much work a physician or hospital does.

About 20% of Medicare spending is now paid for programs in which health-care providers assume some financial risk for their performance or report measures of their quality. CEO of Avalere Health, Dan Mendelson, stated, "It's increasingly likely the physician or the hospital is going to make more money if they provide less care." The Obama administration has created a number of plans that are working to end fee-for-service payments; for example, the law penalizes hospitals with high rates of readmission of Medicare patients within 30 days of discharging them. The health department estimates that the new programs have saved over 50,000 lives and reduced spending by $12 billion.

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