John Fryer, Senior Vice President and Head of Market
Paul Keckley, Managing Editor of The Keckley Report and industry expert*
Rising Healthcare Costs and the Shift to Value
In healthcare, no topic has drawn more attention among providers, payers and policymakers than health spending. In 2019, total health spending reached a staggering $3.8 trillion. The Congressional Budget Office projects spending will increase 5.4% annually through 2028 to $6.0 trillion representing 19.7% of gross domestic product by the end of the period. Notably, price growth for medical goods and services is projected to accelerate 2.4%/year while Medicare spending will increase 7.6 %/year due to enrollment growth. In the same period, the insured share of the population is expected to fall from 90.6% in 2018 to 89.4%.
To reduce the rate of annual health spending, policymakers have recognized and begun to make changes to the flawed incentives that currently exist in provider reimbursement: largely that fee-for-service reimbursement lends to unnecessary utilization and costs. This effort has led to an increased use of value-based payments which, by contrast, reward desired results—better outcomes at lower costs. This concept of changing incentives for providers has become a major focus in health policy, especially in the Medicare population which insures 62.4 million seniors (53.9 million) and disabled adults (8.5 million) at a cost of more than $800 billion. Accordingly, two laws were passed to accelerate this ongoing transition and incentive alignment from volume to value:
- In 2010, the Patient Protection and Affordable Care Act (ACA) authorized the creation of the Center for Medicare and Medicaid Innovation (CMMI) within CMS (Section 3021) which has since developed more than 50 alternative payment pilot programs that restructure the incentives and reimbursement to align more closely to value-based care. The law specified these:
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- 3022. Medicare shared savings program (aka accountable care organizations)
- 3023. National pilot program on payment bundling
- 3024. Independence at home demonstration program
- 3025. Hospital readmissions reduction program
- 3026. Community-Based Care Transitions Program
- 3027. Extension of gainsharing demonstration
- In addition to the key programs highlighted above, in 2015 the Medicare Access and CHIP Reauthorization Act (MACRA) instituted the Quality Payment Program (QPP), which led to significant changes for how CMS can penalize or reward providers for how well they deliver high value/high quality patient care. In essence, MACRA linked individual physician participation in alternative payment models with their obligations to adhere to federal standards for quality, safety and efficiency in their day-to-day patient care activity. The Center for Medicare and Medicaid Services (CMS) was required by law to oversee the QPP.
Current Status of APMs
More than 50 Alternative Payment Models (APMs) and Advanced APMs are ongoing under the oversight of CMMI. The newest APMs are scheduled to start in January, 2021: the Primary Care First Model, which will launch in January 2021 in 26 geographic regions, and the Direct Contracting Model (see tables below).
The Future for APMs
According to CMS, provider participation in APMs has been high but net savings to Medicare disappointing. At its October 2, 2020 meeting, the Medicare Payment Advisory Commission characterized APMs as a “limited success,” urging CMS to simplify the programs and financial risk sharing incentives with providers.
APMs vary in design, but all seek to restructure payments to providers in a way that financially incents low-cost, high-value care. The adoption of APMs has progressed well beyond their origins in Medicare: In 2019, 41% of Medicare payments, 30% of commercial payments, 53% of Medicare Advantage payments, and 23% of Medicaid payments were tied to APMs according to the Health Care Payment Learning & Action Network. Adoption of APMs across the spectrum of payers—Medicare, Medicaid, private health insurers, and large employers—will continue to increase.
Nonetheless, changes to APMs are likely to occur in the following areas:
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- Simplicity: fewer models with standardized performance measures for quality, patient experience monitoring, and cost savings
- Financial risk: increased financial risk sharing with participants
- Regulation: Reduction of Stark Kickback restrictions
- Participation: mandatory participation in certain models
In addition, it is expected that APM utilization will expand to other government health programs such as Medicaid, Veterans Health, Marketplace Plans, as well as to privately insured populations.
In short, APMs will continue to change—and be more important to slowing health spending.
What Providers Need to Consider Next
For provider organizations—physicians, hospitals and post-acute providers—participation in APM programs is necessary for long-term positioning and sustainability . Strategically, these activities should be viewed as the institutional bridge from fee-for-service reimbursement to value-based payments. How fast, and in what forms payers encourage/require shared risk participation will vary by market, but it is clear that the federal government (which is the largest payer by share of overall health system revenue) will be the accelerator as it faces head-on significant long-term solvency pressure.
For many provider organizations, a provider-sponsored Medicare Advantage Plan may be the destination beyond APM programs, affording a clinically-integrated network of providers the opportunity to control the full premium dollar and manage the care and costs for the senior population. Operating a health plan also offers provider organizations the ability to strengthen their relationship with patients, providing a fully integrated experience from member benefits to care delivery.
Navigating the journey from fee-for-service to value is not optional: transitioning successfully will require focused investments and new operating expertise.
We believe APMs enable integrated provider organizations to improve value for the communities they serve: better care at a lower cost.
We believe APMs will require more financial risk among participants.
We believe APMs are here to stay.
Advanced Payment Models (APMs) for 2020
2020 Merit-based Payment System (MIPS) APMs
Eligibility: For eligible clinicians who receive more than $90,000 in Medicare covered services/care for more than 200 Medicare patients. Participation is mandatory.
Performance Measures: Quality: 50%, Improvement Activities: 20%, Promoting Interoperability: 30%, Cost: 0%
| MIPS APM | Overview |
|---|---|
| Bundled Payments for Care Improvement Advanced Model (BPCI Advanced) | The Bundled Payments for Care Improvement (BPCI) initiative is comprised of 4 broadly defined models of care, which link payments for the multiple services beneficiaries receive during an episode of care. |
| Comprehensive ESRD Care Model (Large Dialysis Organization [LDO] arrangement) | The Comprehensive ESRD Care (CEC) Model is designed to identify, test, and evaluate new ways to improve care for Medicare beneficiaries with End-Stage Renal Disease (ESRD). |
| Comprehensive ESRD Care Model (non-LDO two-sided risk arrangement) | The Comprehensive ESRD Care (CEC) Model is designed to identify, test, and evaluate new ways to improve care for Medicare beneficiaries with End-Stage Renal Disease (ESRD). |
| Comprehensive ESRD Care Model (non-LDO one-sided risk arrangement) | The Comprehensive ESRD Care (CEC) Model is designed to identify, test, and evaluate new ways to improve care for Medicare beneficiaries with End-Stage Renal Disease (ESRD). |
| Comprehensive Primary Care Plus (CPC+) Model | Comprehensive Primary Care Plus (CPC+) is a national advanced primary care medical home model that aims to strengthen primary care through regionally-based multi-payer payment reform and care delivery transformation. |
| Medicare Shared Savings Program – Track 1, BASIC Level A, BASIC Level B, BASIC Level C, BASIC Level D, Track 1+ ACO Model, Track 2, Track 3, BASIC Level E and, the ENHANCED Track | The Shared Savings Program (SSP) is a voluntary program that encourages groups of doctors, hospitals, and other health care providers to come together as an ACO to provide coordinated, high-quality care to their Medicare patients. All SSP tracks are MIPS APMs. Some SSP tracks are Advanced APMs (Track 1+, Track 2, Track 3, BASIC Level E, and ENHANCED Track). Participants in the Advanced APMs are eligible to become Qualified Alternative Payment Model Participants (QPs) if they meet or exceed the QP threshold. ACOs participating in Track 1+, Track 2, Track 3, Level E of the BASIC track, and the ENHANCED track may share in savings or repay Medicare losses depending on performance. These ACOs may share in a greater portion of savings than ACOs participating in Track 1 or Levels A, B, C, or D of the BASIC tracks. ACOs in the ENHANCED track take on the greatest amount of risk but may share in the greatest portion of savings if successful. |
| Next Generation ACO Model | Building upon experience from the Pioneer ACO Model and the Shared Savings Program, the Next Generation ACO Model offers a new opportunity in accountable care—one that sets predictable financial targets, enables providers and beneficiaries greater opportunities to coordinate care, and aims to attain the highest quality standards of care. |
| Oncology Care Model (OCM) (one-sided risk arrangement) | Under the Oncology Care Model (OCM), physician practices have entered into payment arrangements that include financial and performance accountability for episodes of care surrounding chemotherapy administration to cancer patients. |
| Oncology Care Model (OCM) (two-sided risk arrangement) | Under the Oncology Care Model (OCM), physician practices have entered into payment arrangements that include financial and performance accountability for episodes of care surrounding chemotherapy administration to cancer patients. |
| Vermont Medicare ACO Initiative (as part of the Vermont All-Payer ACO Model) | The Vermont All-Payer Accountable Care Organization (ACO) Model is the Centers for Medicare & Medicaid Services’ (CMS) new test of an alternative payment model in which the most significant payers throughout the entire state – Medicare, Medicaid, and commercial health care payers – incentivize health care value and quality, with a focus on health outcomes, under the same payment structure for the majority of providers throughout the state’s care delivery system and transform health care for the entire state and its population. |
| Maryland Primary Care Program | The Centers for Medicare & Medicaid Services (CMS) and the state of Maryland are partnering to test the Maryland Total Cost of Care (TCOC) Model, which sets a per capita limit on Medicare total cost of care in Maryland. The TCOC Model is the first Center for Medicare and Medicaid Innovation (Innovation Center) model to hold a state fully at risk for the total cost of care for Medicare beneficiaries. The TCOC Model builds upon the Innovation Center’s current Maryland All-Payer Model, which had set a limit on per capita hospital expenditures in the State. |
| Independence at Home Demonstration | The Independence at Home Demonstration provides chronically ill patients with a complete range of primary care services in the home setting. This focus on timely and appropriate care is designed to improve overall quality of care and quality of life for patients served, while lowering health care costs by forestalling the need for care in institutional settings. |
2020 Advanced Alternative Payment Models (APMs)
Eligibility: voluntary participation for clinicians who use certified electronic health record (her) technology in their practices and agree to significant financial risk in consideration of a 5% incentive payment. To become a Qualified Provider (QP), a clinician must receive at least 50% of Medicare Part B payments or see at least 35% of Medicare patients through an Advanced APM entity at one of the determination periods. To become a Partial QP, a clinician must receive at least 40% of Medicare Part B payments or see at least 25% of Medicare patients through an Advanced APM entity at one of the determination periods.
| Advanced APM | Overview |
|---|---|
| Bundled Payments for Care Improvement (BPCI) Advanced | The Bundled Payments for Care Improvement (BPCI) initiative is a model of care, which links payments for the multiple services beneficiaries receive during a clinical episode of care. |
| Comprehensive Primary Care Plus (CPC+) | Comprehensive Primary Care Plus (CPC+) is a national advanced primary care medical home model that aims to strengthen primary care through regionally-based multi-payer payment reform and care delivery transformation. |
| Medicare Accountable Care Organization (ACO) Track 1+ Model | The Medicare ACO Track 1+ is a time-limited model for Track 1 Medicare Shared Savings Program (Shared Savings Program) ACOs. The Shared Savings Program is a voluntary program that encourages groups of doctors, hospitals, and other health care providers to come together as an ACO to provide coordinated, high-quality care to their Medicare patients. Track 1+ Model ACOs assume limited downside risk (less than Track 2 or Track 3). |
| Medicare Shared Savings Program – Track 2, Track 3, Level E of the BASIC track, the ENHANCED track | The Shared Savings Program is a voluntary program that encourages groups of doctors, hospitals, and other health care providers to come together as an ACO to provide coordinated, high-quality care to their Medicare patients. ACOs participating in Track 2, Track 3, Level E of the BASIC track, and the ENHANCED track may share in savings or repay Medicare losses depending on performance. These ACOs may share in a greater portion of savings than ACOs participating in Track 1 or Levels A, B, C, or D of the BASIC track. ACOs in the ENHANCED track take on the greatest amount of risk but may share in the greatest portion of savings if successful. |
| Next Generation ACO Model | Building upon experience from the Pioneer ACO Model and the Shared Savings Program, the Next Generation ACO Model offers a new opportunity in accountable care—one that sets predictable financial targets, enables providers and beneficiaries greater opportunities to coordinate care, and aims to attain the highest quality standards of care. |
| Oncology Care Model (OCM) – Two-Sided Risk | Under the Oncology Care Model (OCM), physician practices have entered into payment arrangements that include financial and performance accountability for episodes of care surrounding chemotherapy administration to cancer patients |
| Comprehensive Care for Joint Replacement (CJR) Payment Model (Track 1-CEHRT) | The Comprehensive Care for Joint Replacement (CJR) model aims to support better and more efficient care for beneficiaries undergoing the most common inpatient surgeries for Medicare beneficiaries: hip and knee replacements (also called lower extremity joint replacements or LEJR). |
| Vermont Medicare ACO Initiative (as part of the Vermont All-Payer ACO Model) | The Vermont All-Payer Accountable Care Organization (ACO) Model is the Centers for Medicare & Medicaid Services’ (CMS) new test of an alternative payment model in which the most significant payers throughout the entire state – Medicare, Medicaid, and commercial health care payers – incentivize health care value and quality, with a focus on health outcomes, under the same payment structure for the majority of providers throughout the state’s care delivery system and transform health care for the entire state and its population. |
| Comprehensive ESRD Care Model (LDO arrangement and Non-LDO two-sided risk arrangement) | The Comprehensive ESRD Care (CEC) Model is designed to identify, test, and evaluate new ways to improve care for Medicare beneficiaries with End-Stage Renal Disease (ESRD). Through the CEC Model, CMS partners with health care providers and suppliers to test the effectiveness of a new payment and service delivery model in providing beneficiaries with person-centered, high-quality care. |
| Maryland Total Cost of Care Model (Care Redesign Program and Primary Care Program) | The Care Redesign Program (CRP) is a voluntary program within the Maryland All-Payer Model that advances efforts to redesign and better coordinate care in Maryland. The CRP provides hospitals participating in the Maryland All-Payer Model the opportunity to partner with and provide incentives and resources to certain providers. In exchange, suppliers offer activities and processes that aim to improve quality of care and reduce the growth in total cost of care for Maryland Medicare beneficiaries. The Primary Care Program (PCP) is an advanced primary care medical home model that aims to strengthen primary care through multi-payer payment reform and care delivery transformation. |
Resources:
National Health Expenditures CMS.gov www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NHE-Fact-Sheet
Keehan et al “National Health Expenditure Projections, 2019–28: Expected Rebound In Prices Drives Rising Spending Growth” Health Affairs March 24, 2020 www.healthaffairs.org
CMS Quality Payment Program https://qpp.cms.gov/apms/overview
CMS Innovation Models https://innovation.cms.gov/innovation-models
Health Care Payment Learning & Action Network https://hcp-lan.org
Michael E. Chernew “The Role of Market Forces in U.S. Health Care” New England Journal of Medicine October 8, 2020 N Engl J Med 2020; 383:1401-1404 www.nejm.org DOI: 10.1056/NEJMp200609
*Paul H. Keckley is Managing Editor of The Keckley Report and a well-known healthcare policy analyst and industry expert. In The Keckley Report, Paul provides weekly insights around key health policy and industry trends. For more information, visit https://www.paulkeckley.com/.
