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Payment and Delivery System Reform in Medicare: A Primer on Medical Homes, Accountable Care Organizations, and Bundled Payments

Policymakers, health care providers, and policy analysts continue to call for “delivery system reform”—changes to the way health care is provided and paid for in the United States—to address concerns about rising costs, quality of care, and inefficient spending.  The Affordable Care Act (ACA) established several initiatives to identify and test new health care payment models that focus on these issues.  Many of these ACA programs apply specifically to Medicare, the social insurance program that provides coverage to 57 million Americans age 65 and older and younger adults with permanent disabilities.

This Primer describes the framework and concepts of three payment models that CMS is currently testing and implementing within traditional Medicare—medical homes, ACOs, and bundled payments.  Combined, these three models account for care provided to over 10 million Medicare beneficiaries and are frequently cited by media, researchers, and policymakers as current examples of ongoing delivery system reforms.  Within each of these three broad models, the Centers for Medicare and Medicaid Services (CMS) is testing a variety of individual payment approaches and program structures.  This Primer reviews each of the models, including their goals, financial incentives, size (number of participating providers and beneficiaries affected), and potential beneficiary implications.  It also summarizes early results with respect to Medicare savings and quality.

Preliminary results from these models are somewhat mixed at this point, with some models showing more promise than others.  This might be expected given their early stages, the diverse number of approaches being implemented, and methodological challenges associated with calculating savings.  Many of the models are meeting quality targets and showing improvements in quality of care, but to date, overall net savings to Medicare are relatively modest, with large variation between models as well as among the individual programs running within them.  More results are expected to be released in the future, and new models launched in 2016—several of which are designed to address issues raised by stakeholders with respect to the initial model designs.

Looking ahead, as more results become available, a key question is how Medicare patients fare in these delivery system reform models, especially those with the greatest health care needs.  The answer, along with performance on overall spending and quality, will help policymakers identify which models to pursue or discard, which to alter, and what might be needed to disseminate successful models more broadly.

Executive Summary

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Filling the need for trusted information on national health issues, the Kaiser Family Foundation is a nonprofit organization based in Menlo Park, California.