Thousands of comments were filed last week on the proposed regulations to implement the provisions of the Medicare Access and CHIP Reauthorization Act (MACRA) related to the Merit-Based Incentive Payment System (MIPS) and Alternative Payment Models (APMs). One of the most important decisions CMS will need to make in finalizing the regulations is how to revise the proposed criteria for APMs.
In MACRA, Congress clearly intended to encourage the development and implementation of Alternative Payment Models. It created significant incentives for physicians who participate in APMs at a minimum level, including:
These incentives are in addition to the benefits of participating in the APM itself.
Congress also clearly intended to encourage the development and implementation of APMs by establishing a very small number of very basic requirements for the APMs that would qualify for these incentives:
Unfortunately, in the proposed regulations, CMS went far beyond what Congress proposed, labeling the APMs to which the incentives would apply as “advanced” APMs and defining the Congressional criteria in very burdensome and restrictive ways. If the proposed regulations were implemented, they would serve as a serious barrier to progress in designing, implementing, and encouraging physician participation in Alternative Payment Models, which is completely counter to what Congress intended.
Congress did not use the term “advanced” to describe alternative payment models, nor did it in any fashion indicate that physicians should only be rewarded for participating in a narrowly defined subset of “advanced” Alternative Payment Models. The final regulations need to be significantly revised so they do what was envisioned by Congress – accelerate the implementation of successful Alternative Payment Models.
MACRA requires that in order for a physician to be exempt from MIPS and to qualify for the bonus payments and higher updates authorized by Congress, the alternative payment entity (i.e., the organizational entity that is actually receiving payments under the alternative payment model) must bear “financial risk for monetary losses under … [an] … alternative payment model that are in excess of a nominal amount.” The term “financial risk for monetary losses” in MACRA clearly refers to losses in the operations of the alternative payment entity, not to losses or increased spending in the Medicare program. However, in the proposed regulations, CMS defined risk for all but small primary care practices in terms of Medicare spending.
It is inappropriate to measure the amount of risk accepted by a physician practice or other provider in terms of the percentage change in total Medicare spending on the practice’s patients because (a) even a small percentage of Medicare spending can exceed the total revenues of a physician practice, and (b) the ratio of Medicare spending to physician practice revenues varies dramatically from specialty to specialty.
Under the proposed regulations, for most types of physician practices and APMs, CMS would require that an alternative payment entity be at risk for at least 4% of total Medicare spending in order for the participating physicians to qualify for the Congressional incentives. Since payments to physicians currently represent about 19% of total Medicare Part A and Part B spending, requiring them to pay CMS for up to 4% of Medicare spending would represent, on average, a payment of more than 20% of the physician practice’s revenue. Causing a physician practice to lose 20% of its revenue is clearly far “more than nominal” risk – it is significant financial risk.
Although payments to physician represent 19% of Medicare spending on average, for many physician practices, their revenues represent a much smaller percentage of total Medicare spending on their patients. In many cases, a physician practice’s revenues may represent less than 5% of total Medicare spending on their patients. For these practices, a 4% change in Medicare spending could represent 100% or more of the practice’s revenues. A physician practice could be forced out of business if it is held responsible for paying for even a very small percentage change in the total Medicare spending for the practice’s patients. Moreover, the fact that 4% of Medicare spending represents a higher amount relative to physician practice revenues for different specialties would mean that physicians in different specialties would face different levels of risk to participate in APMs, and there is no indication that Congress intended that.
It seems quite clear that in using the term “more than nominal financial risk,” Congress did not mean “significant” financial risk or it would have used that term in the law. In is inappropriate for CMS to issue regulations that are so clearly at odds with Congressional intent.
However, CMS has defined the solution to this problem in the proposed regulations. The proposed regulations created a separate definition of risk for small primary care practices participating in medical home programs that is based on a percentage of their revenues, not a percentage of Medicare spending. There is no reason to limit this approach just to small primary care practices or medical home programs. All physician practices should have their risk defined in terms of the amount of their revenues they could lose, rather than the percentage of Medicare spending they would be required to pay.
Basing risk on a practice’s revenues only solves part of the problem with the regulations, however. The financial risk incurred by an alternative payment entity is a function of the costs that the alternative payment entity incurs to implement the alternative payment model as well as the revenues it receives under the model. If the alternative payment entity hires or pays for new staff to deliver services to patients under the alternative payment model, if it acquires new or different equipment to deliver services, or if it incurs other kinds of expenses to implement the alternative payment model, and if those expenses are not automatically or directly reimbursed by Medicare, then the alternative payment entity is accepting financial risk for monetary losses.
One of the reasons for creating APMs is that Medicare does not currently pay physicians for many services that would benefit patients and help reduce avoidable spending. For example, there is generally no payment or inadequate payment for:
If an alternative payment entity implemented these kinds of services under an alternative payment model in order to help improve outcomes for its patients and reduce Medicare spending, it could easily incur monetary losses even Medicare has achieved savings. For example, even under an “upside only” shared savings model, a physician practice or other provider incurs financial risk if it incurs costs to deliver services to beneficiaries that are designed to reduce Medicare spending, since the provider could fail to qualify for the shared savings payment it needs to pay for those costs even when Medicare spending has been reduced.
Consequently, financial risk cannot be defined simply in terms of the potential reduction in revenues the alternative payment entity could receive from Medicare. An alternative payment entity’s “financial risk for monetary losses” under an alternative payment model should be defined as the potential difference between the amount of costs the entity incurs or is obligated to pay as part of the alternative payment model and the amount of revenues that it could receive under the APM. The greater the costs it incurs or the lower the revenue it could potentially receive, the greater the financial risk it will face under the APM.
Although many people seem to think that “financial risk” is only associated with alternative payment models, there is financial risk involved in any payment system other than one which reimburses physicians or other providers for their actual costs. Today, physician practices incur financial risk for monetary losses under the fee-for-service payment system because the costs they incur for office space, equipment, and staff are not directly reimbursed by Medicare, and if the practice does not deliver enough services to generate fee-for-service payment revenues in excess of those costs, it could be forced to declare bankruptcy. The measure of a good alternative payment model should not be how much it increases financial risk for physician practices and other providers, but rather how effectively it realigns their financial risk so that financial losses result from delivering lower quality care rather than from delivering fewer services.
In MACRA, Congress has placed all physicians’ payments “at risk” under the Merit-Based Incentive Payment System (MIPS). In the initial year of the program (2019), physician payments could be reduced by 4%, and the maximum reduction increases to 9% in 2022. These amounts are presumably “more than nominal” if Congress expected them to influence physician performance on the measures defined in MIPS, which includes resource measures.
Consequently, “more than nominal” risk for APMs could be defined using the maximum reduction amounts that are used in MIPS. In 2019, since a physician’s payments could be reduced by 4% under MIPS even with no change in the physician’s costs, an alternative payment entity should be viewed as being at “more than nominal financial risk” if the amount of costs that it incurs under an alternative payment model could exceed the amount of revenue it receives under the model by at least 4%.
In addition to requiring minimum levels of financial risk, MACRA requires that an APM “provide for payment for covered professional services based on quality measures.” It does not require that the amounts of payment be a “factor” in determining the amount of payment, as CMS has proposed in the regulations. This excessively narrow interpretation of the MACRA requirements in the proposed regulations led CMS to declare that one of its most widely used and potentially successful programs – the Bundled Payments for Care Improvement (BPCI) program – would not qualify as an APM under MACRA.
If a payment model is designed to achieve savings, the Affordable Care Act requires only that the payment model do so “without reducing the quality of care.” Consequently, an APM should be considered a qualified alternative payment model if it (1) measures quality and (2) requires a minimum standard of quality to be met in order for physicians to continue to participate in the APM. This would allow a much broader range of current and future APMs to qualify.
In addition to the provisions regarding financial risk and quality, MACRA requires that participants in an alternative payment model “use” certified EHR technology. After several years of HHS trying to define “meaningful use” of EHRs, there is widespread agreement that detailed requirements regarding how clinicians should use EHRs have increased costs and harmed quality rather than improving it. Since MACRA simply requires “use” of the EHR, regulations regarding use of EHRs in APMs should only require that clinical data about the patients receiving care as part of the alternative payment model be stored in a certified electronic health record system. It is impossible to prescribe how a physician or other provider should “use” the technology beyond this without potentially interfering with the provider’s flexibility to deliver services in the most effective way or imposing unnecessary costs and administrative burdens on the provider. A physician practice participating in the APM will have a strong incentive to use the EHR if the EHR has capabilities that will improve the practice’s success, regardless of any specific requirements imposed by HHS. Any specific requirements for “use” of EHRs that are imposed in regulations should be treated as a cost that increases the financial risk for a physician practice to participate in the APM if the cost is not explicitly supported by the APM itself.
The final regulations should not label APMs that meet the Congressional criteria as “advanced” APMs, they should define “more than nominal risk” based on a reasonable percentage of a practice’s costs and revenues, and they should establish more reasonable and flexible requirements for quality measures and EHR use. To do this, the final regulations could be revised to read as follows:
414.1415 Qualified APM criteria
(a) Use of certified electronic health record technology. The following constitutes use of CEHRT:
(2) Required use of certified EHR technology. To be a Qualified APM, an APM Entity must store clinical data in CEHRT regarding the care delivered to patients with financial support from the APM.
(b) Payment based on quality measures.
(1) To be a Qualified APM, an APM must ensure that the quality of care for patients receiving services under the APM is maintained or improved.
(c) Financial risk. To be a Qualified APM, an APM must either meet both the financial risk standard and nominal risk standard described in this section or be an expanded Medical Home Model as described in paragraph (c)(5) of this section.
(1) Financial risk standard. To be a Qualified APM, an APM must, based on whether an APM Entity’s actual expenditures for which the APM Entity is responsible under the APM exceed expected expenditures during a specified performance period, do one or more of the following:
(i) Withhold payment for services to the APM Entity or the APM Entity’s eligible clinicians;
(ii) Reduce payment rates to the APM Entity or the APM Entity’s eligible clinicians;
(iii) Require the APM Entity to owe payment(s) to CMS; or
(iv) Cause the APM Entity to lose the right to all or part of an otherwise guaranteed payment or payments.
(2) Nominal amount standard. To be a Qualified APM, either:
(i) the minimum total annual amount that an APM Entity must potentially owe or forego under the APM must be at least 4 percent of the APM Entity’s total Medicare Parts A and B revenue, or
(ii) the APM entity must document that (a) it is using its own resources to deliver new or expanded services to beneficiaries that are not directly paid for by Medicare and (b) the amount of those resources are equal to or greater than 4% of the APM Entity’s total Medicare Parts A and B revenues.
(3) Expected expenditures. For the purposes of this section, expected expenditures is defined as either:
(i) the payment to the APM entity, if the APM entity will be responsible for paying for all of the services to be delivered under the APM, or
(ii) the spending target established under the APM for the total spending on all of the services to which the APM applies.
(4) Capitation. A full capitation arrangement meets this Qualified APM criterion. For purposes of this subpart, a capitation arrangement means a payment arrangement in which a per capita or otherwise predetermined payment is made to an APM Entity for all items and services furnished to a population of beneficiaries, and no settlement is performed to reconcile or share losses incurred or savings earned by the APM Entity. Arrangements made between CMS and Medicare Advantage Organizations under the Medicare Advantage program (42 U.S.C. section 422) are not considered capitation arrangements for purposes of this paragraph (c)(4).
(5) Medical Home Model Expanded under section 1115A(c) of the Act. A Medical Home Model that has been expanded under section 1115A(c) of the Act meets the financial risk criterion under this section.
Additional recommendations for changes in the proposed MACRA regulations are included in the Center for Healthcare Quality and Payment Reform’s formal comment letter to CMS on the proposed MACRA regulations, which can be downloaded here.
These changes to the regulations are necessary but not sufficient to accelerate the development and implementation of APMs. CMS also needs to significantly change the current process it uses to implement APMs, which is far too slow and burdensome. Recommendations for this are included in CHQPR’s comment letter to CMS and will be described in a future message.
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