Ken PerezIn a recent poll of 55 healthcare industry CEOs, 78 percent agreed that healthcare payment should be predominantly value-based, with fee for service playing a declining and secondary role. Those surveyed were almost evenly split regarding the speed at which the United States is moving toward value-based pay—with about half describing the pace as rapid and the other half viewing it as slow—but there is general agreement that the shift will definitely take place.a

Payer and provider organizations are preparing for this transformation in different ways. Health plans are saying they want to have a bigger role in managing care, while providers want to manage risk. In other words, their respective interests and activities are starting to overlap and converge. Then again, it should be pointed out that there already is a prominent example of payer-provider convergence: Medicare Advantage (MA).

The MA program (formerly called the Medicare + Choice program) was established in 1997 with the signing of the Balanced Budget Amendment. The program’s plans represented a new format for the Medicare health maintenance organizations and other private plans available to beneficiaries. It gave—and continues to give— participants the opportunity to get prescription drug coverage and other services not included in traditional Medicare. It also introduced new plan options for beneficiaries, including provider-sponsored organizations, preferred provider organizations, and private fee-for-service plans.

The Medicare Modernization Act of 2003 renamed the program “Medicare Advantage.” MA plans receive funds from the federal Medicare program to provide Medicare-covered benefits to enrollees. Today, about 30 percent of Medicare beneficiaries—more than 17 million Americans—are in MA plans.

MA plans are subject to a five-star quality rating system administered by the Centers for Medicare & Medicaid Services (CMS). MA plans with four or more stars get a 5 percent quality bonus payment (QBP). In 2015, 40 percent of MA plans received four or more stars. Obviously, at 5 percent, the QBP is very significant to an MA plan. Furthermore, MA plans that receive a QBP usually pass along a portion of the bonus to physician groups based on negotiated contract terms (with large groups) or at the discretion of the plan (with small groups). Increasingly, physician groups are negotiating the amount of the portion to be passed along to them.

On the downside, plans that receive 2.5 stars or less for multiple years run the real risk of being dropped from the MA program by CMS, an outcome that would hurt participating providers as well. In addition, MA plans can drop physicians for poor performance. For example, in 2013, UnitedHealthcare, the largest MA insurer in the nation, terminated contracts with thousands of physicians across 10 states, citing a need to meet rising quality standards as one of the reasons.b

Thus, with some level of goal alignment, shared upside potential, and shared downside risk, the MA program showcases a form of payer-provider convergence. Moreover, with CMS’s May 26 proposal to impose on Medicaid managed care plans a quality reporting system similar to that of MA and private plans—along with financial incentives for plans that meet quality measures—this type of payer-provider convergence will impact another 50 million beneficiaries and become even more significant in the calculus of managing healthcare quality in America.c

Ken Perez is vice president of healthcare policy, Omnicell, Inc., Mountain View, Calif., and a member of HFMA’s Northern California Chapter.


a. Conn, J., and Sandler, M., “CEO Power Panel Poll Shows Broad Support for Value Pay,” Modern Healthcare, May 4, 2015.

b. Jaff, S., “UnitedHealthcare Dropping Hundreds Of Doctors From Medicare Advantage Plans,” Kaiser Health News, Dec. 1, 2013.

c. Firth, S., “Medicaid Plans Get New Quality and Performance Measures,” Medpage Today, May 27, 2015.

Publication Date: Friday, June 12, 2015