MACRA the Medicare physician payment system continues to evolve

Legislation repealing the sustainable growth rate (SGR) consolidates physician quality reporting programs and increases incentives for physician group practices to participate in what the Centers for Medicare & Medicaid Services (CMS) refers to as alternative payment models (APMs).

On April 16,2015, President Obama signed the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) into law. Beyond creating some predictability in payment updates for the physician fee schedule, MACRA attempts to consolidate the myriad physician incentive programs into one pay-for-performance program. It also encourages physicians and other eligible professionals to participate in APMs that would hold these participants accountable for cost and the quality of care.3

The incentives to participate in APMs could be transformational, but CMS has yet to resolve a number of questions that will determine the extent to which physicians will be willing to engage in these models. Physicians will need to follow the regulatory process closely. As new APMs are developed, organizations should quickly evaluate whether participating in them would be in keeping with their capabilities and strategic and financial interests.

Stable Payments

MACRA should bring some predictability to physician fee schedule updates for the foreseeable future. It repealed the SGR, with its ritual "patching," thereby preventing significant cuts to Medicare physician payments. Instead, physicians will receive annual updates of 0,5 percent from 2016 through 2019, with no update from 2020 through 2025. After 2025, a physician's payment updates will be determined by the payment model the physician chooses. Physicians who choose the pay-for-performance Merit-Based Incentive Payment System (MIPS) will receive updates of 0.25 percent in 2026 and thereafter, while those who choose a qualifying APM will receive updates of 0.75 percent.

MIPS participation. Starting in 2019, the MIPS program will consolidate the current patchwork of physician pay-for-reporting and pay-forperformance programs-i.e., the electronic health record (EHR) meaningful use penalty, the Physician Quality Reporting System, and the Value-Based Payment Modifier-into one composite system.

The MIPS program initially will apply to the payments of all physicians and physician extenders who are not full participants in a qualifying APM.b Payment adjustments under the program are on a sliding scale based on a physician practice's performance relative to its peers across four categories described in the exhibit below. As shown in the exhibit on page 34, the maximum amount of Medicare physician payment that depends on outcomes in the MIPS program grows over time. Although only 4 percent of a physician's Medicare revenue is exposed in 2019, in 2022 and subsequent years, that figure grows to 9 percent.

Unlike the approach it uses under the current value-modifier program, CMS will communicate the MIPS target thresholds in advance. Practices that are at or above the threshold will receive no payment adjustment or an increase; those below the performance threshold will receive a negative payment adjustment, with the maximum negative adjustment imposed on practices for which the score is 25 percent or less of the performance threshold. The adjustments will be applied on a budget-neutral basis. However, CMS has discretion to apply a scaling factor to ensure that the increase in charges for eligible professionals who are above the threshold is equal to the decrease for those below.

APMs. Through MACRA, Congress offers two financial incentives for qualifying professionals to participate in APMs. In addition to the 0.5 percent annual update differential that begins in 2026, qualifying providers participating in an eligible APM will receive a 5 percent annual bonus payment from 2019 through 2024. The bonus payment will be calculated based on the prior year's eligible billing.

Qualifying APMs are limited to models developed by the Center for Medicare and Medicaid Innovation (CMMI), the Medicare Shared Savings Program, or other demonstrations. Further, qualifying models must:

* Require the use of certified EHR technology

* Link payment to quality measures similar to those in the MIPS category

* Require participants in the APM to bear "more than nominal financial risk" if actual expenditures exceed expected expenditures or to be a medical home expanded under a CMMI program

Beyond merely participating in an APM, physicians must meet volume criteria to qualify for the financial incentives. As shown in the exhibit on page 35, in 2019 and 2020, 25 percent of a practice's Medicare physician fee schedule revenue must be attributed to services provided under an APM.c After 2020, MACRA will allow total patient revenue to be included in the calculation, thereby helping practices meet the legislation's aggressive goal for transitioning payments from fee-for-service to APMs.

MACRA's incorporation of revenue from Medicaid and commercial health plans to determine eligibility for APM participation incentives aligns with the January 2015 announcement by the U.S. Department of Health and Human Services that it plans to collaborate with other healthcare purchasers in the development of APMs.d The legislation specifically directs CMMI to consider models that are aligned with private payers, Medicaid, and other state-based initiatives. Also in recognition that many of the current qualifying APMs may not be a good fit for all specialties or allow participation by smaller groups (15 professionals or less), MACRA encourages development of models targeted to these groups. To better solicit ideas for APMs from stakeholders, the legislation creates an 11 - member technical advisory committee to review proposals for new physician-focused models. As a result, providers can anticipate a proliferation of models similar to the Oncology Care Model, which will start in 2016.e

MACRA Implications

CMS has made it clear it would like to aggressively move more providers into payment models bearing downside risk in the future. MACRA provides the legislative framework to do just that. The phrase "the Secretaiy shall" appears more than 100 times in MACRA, leaving providers with a number of uncertainties and affording the agency significant discretion in how the law is implemented. In this environment, providers should take the following steps.

Monitor the regulatory process related to MACRA closely. It will be important to follow CM Mi's development of qualifying APMs closely to understand how such models will shift risk to physicians and attempt to align with other payers. This information can inform a practice's development of similar models with Medicaid and private payers so it can have sufficient revenue flowing through an APM to qualify for the incentives, should it elect to pursue that option.

Beyond the design of various models, some basic questions need to be clarified. For example, where the MACRA legislation states "... such payments are made under arrangements in which.. .the eligible professional participates in an entity that bears more than nominal risk... ," the way CMS defines participates could affect alignment opportunities for physicians and health systems. Regardless of how this question is resolved, health systems will need to continue to assess options for improving physician engagement and alignment.

Develop a strategic and financial framework for evaluating whether to default to the MIPS program or immediately seek to participate in an eligible APM. Although CMMI doesn't have a long track record of offering APMs, experience to date has shown that the decision-making window afforded providers is relatively narrow. That may be acceptable for models that involve a relatively small portion of a provider's overall revenue. However, pursuing the APM incentives likely commits physicians to exposing a material percentage of their revenue to downside risk in a matter of years.

As part of this work, physicians will need to understand the gaps in their longitudinal care management capabilities (and the up-front and ongoing costs related to filling those gaps), the potential impact on revenue from all payers, and the longitudinal cost of providing care for episodes or populations for which they will likely take risk. With those key pieces of information available, management teams will be better able to quickly assess whether participating in a proposed APM model fits with the practice's strategic plan and capabilities and meets financial targets.

Begin or continue experimenting with payments that transfer some degree of risk to providers. If a physician practice opts to pursue the APM incentives, the experience gained managing risk will help identify missing capabilities. It will provide invaluable experience with modeling and managing the financial results. Should the practice decide not to pursue the APM incentives, partially qualifying for an APM is scored favorably under the "Clinical Practice Improvement" component of the MIPS program under MACRA.

A TOOLKIT FOR ASSESSING HOW TO IMPROVE PHYSICIAN ALIGNMENT

Based on its Value Project research, HFMA has developed a toolkit that examines the issues of physician engagement and alignment from two perspectives: that of the physician group and that of a health system or hospital that is engaging with the group. To access the toolkit, go to hfma.org/ valuephysiciantoolkit.

INFORMATION ON PREPARING FOR RISK-BASED PAYMENT

HFMA's Value Project report Building Value-Driving Capabilities: Contract and Risk Management offers a framework for understanding the various types of risk a physician practice will be exposed to. It also offers strategies for developing risk-based payment models with employers that are aligned with a practice's capabilities and an employer's needs. The report is available at hfma.org/ValueProject/ Phase!.

a. Hereafter all references to physicians encompasses all other eligible professionals unless otherwise noted.

b. Physician extenders include physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse anesthetists. CMS may expand the MIPS to other professionals in 2021.

c. CMS allows for an alternative calculation that is based on the volume of patients and requires providers to meet the same thresholds.

d. HHS, "Better, Smarter, Healthier: In Historic Announcement, HHS Sets Clear Goals and Timeline for Shifting Medicare Reimbursements from Volume to Value," News release, Jan. 26,2015.

e. See Mulvany, C., "CMMI's Oncology Care Model: New Model, New Twist," Eye on Washington, hfm, June 2015.

Chad Mulvany, FHFMA, is technical director, reimbursement and regulatory issues, in HFMA's Washington, D.C., office and a member of HFMA's Virginia-Washington, D.C., Chapter ([email protected]).