The Obama administration wants 30% of payments for traditional Medicare benefits to be tied to alternative payment models such as accountable care organizations by the end of 2016. The administration also has set a goal of hitting 50% by the end of 2018.The administration wants even larger portions of hospital payments to be tied to quality- or value-based payment models. HHS indicated that it wants 85% of Medicare's hospital payments made through programs such as the Hospital Value-Based Purchasing Program or the Hospital Readmissions Reduction Program by the end of 2016. That threshold kicks up to 90% two years later.

It is the first time that the federal agency has set specific goals for overhauling the payment system for standard Medicare beneficiaries, which has traditionally relied on a fee-for-service model. That system has long been criticized for providing economic incentives for providers to offer a greater volume of care regardless of outcomes. Currently, 20% of Medicare payments for traditional beneficiaries are made through alternative payments models, which also include bundled payment arrangements, according to HHS.

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"We believe these goals can drive transformative change, help us manage and track progress and create accountability for measurable improvement," HHS Secretary Sylvia Mathews Burwell said in a statement announcing the targets.

HHS also announced the creation of the Health Care Payment Learning and Action Network, which is intended to spread value-based payment models to other segments of the health insurance market, including employer-based coverage and state Medicaid programs. The network will hold its first meeting in March.

The federal agency announced the new goals after a meeting in Washington between Burwell and key healthcare industry officials. They included Karen Ignagni, CEO of America's Health Insurance Plans; Richard Gilfillan, CEO of Trinity Health; and Dr. Douglas Henley, CEO of the American Academy of Family Physicians.

"We're on board, and we're committed to changing how we pay for and deliver care to achieve better health," Henley said in a statement.

HHS estimates that the ACO program has reduced Medicare spending by $417 million since it began in 2011. In addition, the federal agency estimates that alternative-payment methods helped reduce hospital readmissions by 8% in 2012 and 2013, resulting in 150,000 fewer hospitalizations.

Roughly 70% of Medicare beneficiaries are currently enrolled in the traditional coverage program. The rest are enrolled in private plans through the Medicare Advantage program.

Follow Paul Demko on Twitter: @MHpdemko