The fragmentation of the U.S. healthcare ecosystem is often cited as a cause of many evils: high prices, conflicting incentives, lack of transparency and a bias toward the status quo. Anyone wanting to affect large-scale change in the system is confronted with a massive collective action problem, where no one benefits enough from solving it to warrant the blood, sweat and tears to make it happen. Widespread change requires an external catalyst that forces various stakeholders to align on incentives.


That’s where the Centers for Medicare & Medicaid Services (CMS) comes in. As the issuer of payment codes, CMS can bring about change more broadly and drive efficiency of care. Money talks, so to speak. While larger institutions may be slower to respond, you need look no further than Silicon Valley’s digital health ecosystem to see the impact of CMS and its payment codes. Here are two examples:

  1. Comprehensive care for joint replacement and HealthLoop’s diversification: Five years ago, the hot topic in the healthcare payments/alternative business model space was bundled payments. CMS kicked off a voluntary bundled payments for care improvement initiative in 2013 with the intent of testing the model before it became permanent in some specific therapy areas. In 2016, mandatory bundled payments went into effect for hip and knee replacements in a number of local markets under the comprehensive care for joint replacement (CJR) model.

    A number of startups sprung up to help provider systems handle the change management issues involved in moving from a fee-for-service model to a bundled payment model. One of them was HealthLoop, whose technology platform improves communication between physicians and patients following surgery by tracking physical therapy and home health visit data. The ultimate goal is to improve outcomes and reduce admissions, an attractive value proposition to hospitals that were part of the CJR program.

    With the rollback of bundled care in 2017, companies such as HealthLoop needed to diversify and in some cases dramatically change their business model. HealthLoop specifically began considering broader applications of its technology for chronic diseases such as COPD, congestive heart failure and diabetes. 

    While the sudden rollback of bundled care caused turmoil for a number of Silicon Valley companies, the brief foray into bundled payment schemes showed considerable promise. As a 2018 JAMA article noted, the program fostered “greater collaboration and engagement among hospitals, physicians and post-acute facilities; innovative care redesign and significant cost savings….Mandatory bundled payments provided the impetus for institutions to examine their own internal care processes and refocus on reducing complications, reducing readmissions and avoiding unnecessary institutional post-acute care.”
  2. Substance abuse treatment expansion: The next area that’s likely poised for CMS-induced business model innovation is substance abuse disorders. To combat the opioid crisis, CMS has introduced a number of payment codes. For instance, beginning January 1, 2020, reimbursement will be available for remote substance abuse counseling.

    With a number of start-ups already successfully combatting substance use disorders, the changing CMS policies will create new business models for digital health companies, which will help them get financing to implement and scale substance abuse solutions to reach a broader patient population. This will parallel the uptick in venture funding for digital health solutions that use CMS’s new remote patient monitoring codes.

Regardless of how tumultuous the journey has been to date, CMS’s role in setting payment terms has helped (and will continue to help) make our healthcare system more efficient. The proliferation of digital health tools and technologies in Silicon Valley and beyond that streamline care with new payment codes is proof that it’s working.