The Obama administration has announced a major change to the way the federal government pays doctors and hospitals under Medicare. Its an historic attempt to shift away from the traditional, costly fee-for-service model and quell the ballooning costs of health care.

Heres the plan: Starting next year, the federal government will begin paying Medicare providers based on their performance, rather than on the number of surgeries, check-ups or CT-scans they perform. Under the proposal, 30 percent of Medicares $362 billion in annual payments will be tied to performance. Health officials expect that will increase to 50 percent by 2018.

Sylvia Mathews Burwell, secretary of Health and Human Services, said the goals are meant to drive transformative change.

Proponents of the pay-for-performance initiative say it is an effective way to slow health spending while improving the quality of care. It has the support of major industry trade groups and leaders, including the American Medical Association (AMA) and Americas Health Insurance Plans.

"Today's announcement by the U.S. Department of Health and Human Services aligns with the American Medical Association's commitment to work toward innovative care delivery reform that will promote high-quality and efficient care for our nation's seniors who count on Medicare, while reducing the administrative and regulatory burdens physicians face today. Robert M. Wah, M.D., president of the AMA, said in a statement.

Patient advocate groups also threw their support behind the announcement.

Robyn Beck/AFP/Getty Images A retiree carries a bag of educational pamplets from L.A. Care, the largest public health plan in the US, at a Senior Information & Resource Fair in South Gate, California September 10, 2013 . The event included a discussion of how the Affordable Care Act, also called "Obamacare" will impact senior citizens and what insurance plans will be available to them. With just weeks until a centerpiece of the health care reform law launches, the task of spreading the word about new health insurance marketplaces will fall to local navigators and counselors employed locally but funded by federal grant money.

The transition away from fee-for-service is an important next step towards better care and lower costs in the Medicare program, Joe Ditr, Families USAs director of enterprise and innovation, said in a statement. Since private insurers often follow Medicares lead, the announcement is likely to have a profound and positive impact.

The plan focuses on patient outcomes. If patients fare well, their doctors are paid more; if the results are poor, doctors are paid less. The administration says about 20 percent of traditional Medicare payments are already going through similar programs that emphasize care, such as accountable care organizations and bundled payments. They hope to expand that reach significantly.

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Major Changes to Medicare Coming for Senior Health Care