Editor's note: This piece was written in response to John McDonough's article in the American Journal of Public Health titled "Shorter lives and poorer health on the campaign trail." Read McDonough's article here. 

McDonough is right about two very important things. First, that in America we have quite dismal outcomes for the enormous amount we spend on health care. And second, that there is a real opportunity for a new political dialog between left and right to take root—though perhaps one that is more of a quiet agreement than a high-profile grand bargain. 

McDonough wisely draws attention in Figure 3 of his editorial to the sharp distinction between the United States and other Organisation for Economic Cooperation and Development countries in the relative proportions of gross domestic product spent on health services and social services. The United States is a lonely outlier because we overmedicalize our approach to health conditions and community health. Generally a blend of social, housing, public health, and other preventive strategies would yield better health results than calling an ambulance—and at a fraction of the cost. Even our higher survival rates after age 75 years is a mixed blessing, as Gawande points out, because expensive and frequent medical interventions may extend age but often not the quality of life.¹ 

The good news, both substantively and politically in this election year, is the growing recognition that addressing the social determinants of health is a key—perhaps the key—to improving health outcomes while slowing the growth in health spending as a proportion of gross domestic product and public spending. McDonough and I agree on that, despite his affection for Bernie Sanders’ utopian Medicare-for-all, which likely would do little to address the underlying cost and outcomes problem. 

So how could a new conversation develop, of the kind both we both would like to see? I think on several fronts. 

First, building on existing collaboration, serious analysts and policymakers on both sides of the political spectrum should explain more extensively how resources currently restricted to either health care or social services and housing should and could be more routinely braided together. Despite some interesting experiments and demonstrations that allow certain health and housing money to be mixed and used creatively, budget restrictions and payment systems generally make this dif- ficult. We could seek to agree on a mixture of legislative action on payments and budgets, and using Medicaid (Section 1115) waivers, to permit money currently available only for medical services to be used instead for housing and social services where that could be shown to improve the health of individuals in a community. 

Second, we could agree on bipartisan steps to allow states to experiment with more creative approaches to alter the blend of strategies they have available to achieve improved health outcomes. Section 1332 of the Affordable Care Act (Pub L No. 111–148) is a start, since it will allow states to propose alternatives to some Affordable Care Act provisions to improve coverage and outcomes without increasing federal costs. McDonough and I agree on using 1332 waivers in this way. But a further step would be legislation to allow states to seek even broader waivers to shift money between health and social service programs. For that to happen, conservatives would have to accept increases in total spending on some social service programs. Progressives would have to accept reductions in health programs and reduce their reluctance to granting states more flexibility. Both would have to accept rigorous evaluation to determine what works and what does not. 

And third, there is an opportunity for agreement on empowering intermediary institutions² in neighborhoods, including charter and community schools, as well as health systems,³ to serve as hubs for integrated approaches to achieving health communities. That approach combines the conservative emphasis on the importance of nongovernmental institutions with the progressive emphasis on community action. Again, systematic evaluation is needed. 

Hopefully there can be cross-party congressional support agreement on these themes, as McDonough notes has occurred in alternative sentencing. But it is unlikely in the election season that such themes will be seized upon by presidential candidates. In my view, that is probably good, because presidential elections are about differences, not path-breaking agreements. Better, during this election cycle, to foster positive conversations that cause such themes to be taken out of the election debates, so that they will have broad support for enactment after the Election Day dust has settled. 

1. Gawande A. Being Mortal. New York, NY: Metropolitan Books; 2015. 

2. Singh P, Butler SM. Intermediaries in Integrated Approaches to Health and Economic Mobility. Washington, DC: The Brookings Institution; 2015. 

3. Butler SM, Grabinsky J, Masi D. Hospitals as Hubs to Create Healthy Communities: Lessons From Washington Adventist Hospital. Washington, DC: The Brookings Institution; 2015.

Editor's note: This piece originally appeared in the American Journal of Public Health. 

Fee-for-service payments encourage high-volume services rather than high-quality care. Alternative payment models (APMs) aim to realign financing to support high-value services.

The 2 main components of gastroenterologic care, procedures and chronic care management, call for a range of APMs. The first step for gastroenterologists is to identify the most important conditions and opportunities to improve care and reduce waste that do not require financial support.

We describe examples of delivery reforms and emerging APMs to accomplish these care improvements. A bundled payment for an episode of care, in which a provider is given a lump sum payment to cover the cost of services provided during the defined episode, can support better care for a discrete procedure such as a colonoscopy. Improved management of chronic conditions can be supported through a per-member, per-month (PMPM) payment to offer extended services and care coordination.

For complex chronic conditions such as inflammatory bowel disease, in which the gastroenterologist is the principal care coordinator, the PMPM payment could be given to a gastroenterology medical home. For conditions in which the gastroenterologist acts primarily as a consultant for primary care, such as noncomplex gastroesophageal reflux or hepatitis C, a PMPM payment can support effective care coordination in a medical neighborhood delivery model. Each APM can be supplemented with a shared savings component.

Gastroenterologists must engage with and be early leaders of these redesign discussions to be prepared for a time when APMs may be more prevalent and no longer voluntary.

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According to an August 2015 survey, 72 percent of Americans find drug costs unreasonable, with 83 percent believing that the federal government should be able to negotiate prices for Medicare. Recently, Acting Administrator of the Centers for Medicare and Medicaid Services (CMS) Andy Slavitt commented that spending on medicines increased 13 percent in 2014 while health care spending growth overall was only 5 percent, the highest rate of drug spending growth since 2001.

Some of the most expensive drugs are covered under Medicare’s medical benefit, Part B, because they are administered by a physician. They are often administered in hospital outpatient departments and physician offices, and most commonly used to treat conditions like cancer, rheumatoid arthritis, and macular degeneration. Between 2005 and 2014, spending on Part B drugs has increased annually by 7.7 percent, with the top 20 drugs by total amount of Medicare payments accounting for 57 percent of total Part B drug costs. While overall Part B drug spending is a small portion of Medicare drug spending, the high growth rate is a concern, especially as new expensive breakthrough cancer drugs enter the market and have a negative effect on consumers’ pockets.

Unlike Part D, the prescription drug benefit, there are fewer incentives built in to Part B for providers to consider lower cost treatments for patients even if the lower cost drug may be clinically equivalent to the more expensive drug, because prior to budget sequestration, providers received 6 percent on top of the Average Sales Price (ASP) of the drug. Larger providers and hospitals often receive discounts on these drugs as well, increasing the amount they receive directly on top of the out-of-pocket cost of the drug.

This leads to more out-of-pocket costs for the consumer, as patients usually pay 20 percent of Part B services. The Government Accountability Office (GAO) estimated that in 2013, among new drugs covered under Part B, nearly two-thirds had per beneficiary costs of over $9,000 per year, leading to out-of-pocket costs for consumers of amounts between $1,900 and $107,000 over the year. On top of these high costs, this can lead to problems with medication adherence, even for serious conditions such as cancer.

A New Payment Model

To help change these incentives and control costs, CMS has proposed a new demonstration program, which offers a few different reimbursement methods for Part B drugs. The program includes a geographically stratified design methodology to test and evaluate the different methods. One of the methods garnering a lot of attention is a proposal to lower the administration add-on payment to providers, from current 6 percent of ASP, to 2.5 percent plus a flat fee of $16.80 per administration day.

Policymakers, physician organizations, and patient advocacy organizations have voiced major concerns raising the alarm that this initiative will negatively affect patient access to vital drugs and therefore produce poorer patient outcomes. The sequester will also have a significant impact on the percentage add on, reducing it to closer to an estimated .86 percent plus the flat fee. But we believe the goals of the program and its potential to reduce costs represent an important step in the right direction. We hope the details can be further shaped by the important communities of providers and patients who will deliver and receive medical care.

Geographic Variation

Last year, we wrote a Health Affairs Blog that highlighted some of the uses and limitations of publicly available Part B physician payment data. One major use was to show the geographic variation in practice patterns and drug administration, and we particularly looked at the difference across states in Lucentis v. Avastin usage. As seen in Exhibit 1, variation in administration is wide among states, even though both are drugs used to treat the same condition, age-related macular degeneration, and were proven to have clinically similar outcomes, but the cost of Lucentis was $2,000 per dose, while Avastin was only $50 per dose.

Using the same price estimates from our previous research, which are from 2012, we found that physician reimbursement under the proposed demonstration would potentially change from $120 to $66.80 for Lucentis, and increase from $3 to $18.05 for Avastin. Under the first payment model, providers were receiving 40 times as much to administer Lucentis instead of Avastin, while under the new proposed payment model, they would only receive 3.7 times as much.

While still a formidable gap, this new policy would have decreased financial reimbursement for providers to administer Lucentis, a costly, clinically similar drug to the much cheaper Avastin. As seen in Exhibit 1, a majority of physicians prescribe Avastin, thus this policy will allow for increased reimbursement in those cases, but in states where Lucentis is prescribed in higher proportions, prescribing patterns might start to change as a result of the proposed demonstration.

Source: Author’s estimates using 2012 CMS Cost Data and Sequestration Estimates from DrugAbacus.org

The proposed demonstration program includes much more than the ASP modifications in its second phase, including:

• discounting or eliminating beneficiary copays,
• indication-based pricing that would vary payments based on the clinical effectiveness,
• reference pricing for similar drugs,
• risk-sharing agreements with drug manufacturers based on clinical outcomes of the drug, and
• creating clinical decision tools for providers to help develop best practices.

This is all at the same time that a new model in oncology care (OCM) is being launched, which could help to draw attention to total cost of care. It is important that CMS try to address rising drug costs, but also be sure to consider all relevant considerations during the comment period to fine-tune the proposal to avoid negative effects on beneficiaries’ care.

We believe CMS should consider offering a waiver for organizations already participating in Center for Medicare & Medicaid Innovation (CMMI) models like the OCM, because financial benchmarks are based on past performance and any savings recognized in the future could be artificial, attributable to this demonstration rather than to better care coordination and some of the other practice requirements that are part of the proposed OCM. Furthermore, because this demonstration sets a new research precedent and because it is mandatory in the selected study areas rather than voluntary, CMS must try to anticipate and avoid unintended consequences related to geographic stratification.

For example, it is possible to imagine organizations with multiple locations directing patients to optimal sites for their business. Also, without a control group, some findings may be unreliable. The proposed rule currently lacks much detail, and there does not seem to be enough time for organizations to evaluate the impact of the proposed rule on their operations. Having said that, it will be important for stakeholders of all types to submit comments to the proposed rule in an effort to improve the final rule prior to implementation.

The critical question for the policymakers and stakeholders is whether this model can align with the multitude of other payment model reforms — unintended consequences could mitigate all the positive outcomes that a CMMI model offers to beneficiaries. Helping beneficiaries is and should be CMS’ ultimate obligation.

Editor’s Note: This analysis is part of The Leonard D. Schaeffer Initiative for Innovation in Health Policy, which is a partnership between the Center for Health Policy at Brookings and the USC Schaeffer Center for Health Policy and Economics. The Initiative aims to inform the national health care debate with rigorous, evidence-based analysis leading to practical recommendations using the collaborative strengths of USC and Brookings.

The passage of the Medicare Access and CHIP Reauthorization Act (MACRA) just over a year ago signaled a strong and unique bipartisan agreement to move towards value-based care, but until recently, many of the details surrounding how it would be implemented remained unknown. But last week, the Centers for Medicare and Medicaid Studies (CMS) released roughly 1,000 pages that shed more light on how physician payment will hopefully dramatically change for the better.

Some Historical Context

Prior to MACRA, how doctors were paid for providing care to Medicare patients was subject to a reimbursement formula known as the Sustainable Growth Rate (SGR). Established in 1997 to control the rate of increase in spending on physician services, the SGR pegged total spending among all Medicare-participating physicians to an overall budget target. Yet in this “tragedy of the commons,” no one physician benefitted from her good stewardship of health care resources. Total physician spending often exceeded the overall budget target, triggering reimbursement rate cuts. However, lawmakers chose to push them off into the future through what were called “doc fixes,” deferring the rate cuts temporarily. The pending cut rose to over 21 percent before MACRA’s passage as a result of compounding doc fixes.

Moving Forward with MACRA

When it was signed into law on April 16, 2015, MACRA ended the SGR, its cuts, and many previous payment incentive programs. In their place, MACRA established two overarching payment incentive schemes for providers to choose from:

1. the Merit-Based Incentive Payment System (MIPS) program, which supplants three previous payment incentives and makes positive or negative adjustments to a physician’s payment based on her performance; or


2. the Alternative Payment Model (APM) program, which awards a 5 percent bonus through 2024—with higher annual payment updates thereafter—for having a minimum percentage of Medicare and/or all-payer revenue through eligible APMs. Base physician fee rates for all Medicare providers would be updated 0.5 percent for each of the first four years, followed by no increases until 2026, when base fees would increase at different rates depending on the payment incentive program in which a physician participates.

MIPS addresses providers’ longstanding complaints that reporting that reporting under the existing programs—the Physician Quality Reporting System, the Value-Based Modifier, and Meaningful Use — is duplicative and cumbersome. Under the new MIPS program, physicians report to the government payer directly (CMS) and receive a bonus or penalty based on performance on measures of quality, resource use, meaningful use of electronic health records, and clinical practice improvement activities. The bonus or penalty physicians may see starts at 4 percent of the fee schedule in 2019 (based on their performance two years prior—in this case 2017) and increases successively to 5 percent in 2020, 7 percent in 2021, and 9 percent from 2022 onward. From 2026 onward, MIPS providers would receive an annual increase of 0.25 percent on their base fee schedules rates.

In contrast, the APM incentive program awards qualifying physicians a fixed, annual bonus of 5 percent of their reimbursement from 2019- – 2024, and provides that their fee schedule rates grow 0.5 percentage points faster than those of MIPS in 2026 and beyond, in recognition of the risk they assume in these contracts.

Yet, according to MACRA, not all APMs are created equal. APMs eligible for this track must use quality measures similar to those of MIPS, ensure electronic health records are used, and either be an approved patient-centered medical home (PCMH) or require that the participating entity “bears more than nominal financial risk” for excessive costs. Then, in order to receive the APM track bonus, physicians must have a minimum of 25 percent of their revenue from Medicare come through eligible APMs in 2019, with the minimum increasing through 2023 up to 75 percent. In 2021, a new all-payer Advanced APM option becomes available, allowing providers in APM contracts with other payers to participate in the Advanced APM incentive. To do so, they must meet the same minimum thresholds—50 percent in 2021, 75 percent in 2023—but through all provider contracts, not solely Medicare revenue, while still meeting a significantly lower Medicare-specific threshold. By creating an all-payer option, CMS hopes to enable greater provider participation by allowing all payer revenue to count toward the same minimum threshold. Under the all-payer model in 2021, for example, providers must have no less than 25 percent of Medicare revenue through Advanced APMs and 50 percent of all revenue through Advanced APMs.

MACRA Implementation Details Revealed

The newly released proposed rule provides answers to significant questions that had been left unanswered in the law surrounding the specifics of implementation of MIPS and the APM incentives. At long last, providers are gleaning insight into how CMS intends to implement MIPS and the APM track. Given the fast-approaching MIPS performance period in January 2017, here are three key highlights providers need to know:

1. Qualifying for the APM incentive track—and getting out of MIPS—will be difficult. In order to qualify for the bonus-awarding Advanced APM designation, APMs must meet the “nominal financial risk” criteria, which will be measured in three ways: an APM’s marginal rate sharing for losses, minimum loss ratio (the threshold above which providers would begin sharing in losses), and total potential risk as a percent of expected costs. Clinicians must further have a minimum share of revenue that comes in through the designated APMs.


2. Providers will have fewer opportunities to see and improve their performance on MIPS. Despite calls from provider groups for more frequent reporting and feedback periods, MIPS reporting periods will be annual, not quarterly. This is true for performance feedback from CMS, as well, though they may explore more frequent feedback cycles in the future. Quarterly reporting and feedback periods could have made the incentive programs more “actionable” for providers, alerting them to their performance closer to the time the services were rendered and providing more opportunities to improve performance.


3. MIPS allows greater flexibility than previous programs. Put simply, MIPS is the performance incentive program clinicians will participate in if not on the Advanced APM track. While compelling participation, the proposed MIPS implementation also responds to stakeholder concerns that earlier performance incentive programs were onerous and sometimes irrelevant—MIPS reduces the number of measures required in some categories and allows physicians to select from a set of measures to report on based on relevancy to their practice.

With last week’s release of the proposed rule, the Leonard D. Schaeffer Initiative for Innovation in Health Policy is kicking off a series of work products that will focus dually on further MACRA implementation issues and on translating complex policy into providers’ experience. In the blogs and publications to follow, we will dive into greater detail and discussion of the pieces of MACRA implementation highlighted here, as well as many other emerging physician payment reform issues, as the law’s implementation unfolds.

The Center for Medicare and Medicaid Innovation (CMMI, or “the Innovation Center”) recently announced an initiative called Comprehensive Primary Care Plus (CPC+). It evolved from the Comprehensive Primary Care (CPC) initiative, which began in 2012 and runs through the end of this year. Both initiatives are designed to promote and support primary care physicians in organizing their practices to deliver comprehensive primary care services. Comprehensive Primary Care Plus has some very promising components, but also misses some compelling opportunities to further advance payment for primary care services.

The earlier initiative, CPC, paid qualified primary care practices a monthly fee per Medicare beneficiary to support practices in making changes in the way they deliver care, centered on five comprehensive primary care functions: (1) access and continuity; (2) care management; (3) comprehensiveness and coordination; (4) patient and caregiver engagement; and, (5) planned care and population health. For all other care, regular fee-for-service (FFS) payment continued. The initiative was limited to seven regions where CMMI could reach agreements with key private insurers and the Medicaid program to pursue a parallel approach. The evaluation funded by CMMI found quality improvements and expenditure reductions, but savings did not cover the extra payments to practices.

Comprehensive Primary Care Plus uses the same strategy of conducting the experiment in regions where key payers are pursuing parallel efforts. In these regions, qualifying primary care practices can choose one of two tracks. Track 1 is very similar to CPC. The monthly care management fee per beneficiary remains the same, but an extra $2.50 is paid in advance, subject to refund to the government if a practice does not meet quality and utilization performance thresholds.

The Promise Of CPC+

Track 2, the more interesting part of the initiative, is for practices that are already capable of carrying out the primary care functions and are ready to increase their comprehensiveness. In addition to a higher monthly care management fee ($28), practices receive Comprehensive Primary Care Payments. These include a portion of the expected reimbursements for Evaluation and Management services, paid in advance, and reduced regular fee-for-service payments. Track 2 also includes larger rewards than does Track 1 for meeting performance thresholds.

The combination of larger per beneficiary monthly payments and lower payments for services is the most important part of the initiative. By blending capitation (monthly payments not tied to service volume) and FFS, this approach might achieve the best of both worlds.

Even when FFS payment rates are calibrated correctly (discussed below), the rates are pegged to the average costs across practices. But since a large part of practice cost is fixed, it means that the marginal cost of providing additional services is lower than the average cost, leading to incentives to increase volume under FFS. The lower payments reduce or eliminate these incentives. Fixed costs, which must also be covered, are addressed through the Comprehensive Primary Care Payments. By involving multiple payers, practices are put in a better position to pursue these changes.

An advantage of any program that increases payments to primary care practices is that it can partially compensate for a flaw in the relative value scale behind the Medicare physician fee schedule. This flaw leads to underpayment for primary care services. Although the initial relative value scale implemented in 1992 led to substantial redistribution in favor of evaluation and management services and to physicians who provide the bulk of them, a flawed update process has eroded these gains over the years to a substantial degree.

In response to legislation, the Centers for Medicare and Medicaid Services are working correct these problems, but progress is likely to come slowly. Higher payments for primary care practices through the CPC+ can help slow the degree to which physicians are leaving primary care until more fundamental fixes are made to the fee schedule. Indeed, years of interviews with private insurance executives have convinced us that concern about loss of the primary care physician workforce has been a key motivation for offering higher payment to primary care physicians in practices certified as patient centered medical homes.

Two Downsides

But there are two downsides to the CPC+.

One concerns the lack of incentives for primary care physicians to take steps to reduce costs for services beyond those delivered by their practices. These include referring their patients to efficient specialists and hospitals, as well as limiting hospital admissions. There are rewards in CPC+ for lower overall utilization by attributed beneficiaries and higher quality, but they are very small.

We had hoped that CMMI might have been inspired by the promising initiatives of CareFirst Blue Cross Blue Shield and the Arkansas Health Care Improvement initiative, which includes the Arkansas Medicaid program and Arkansas Blue Cross Blue Shield. Under those programs, primary care physicians are offered substantial bonuses for keeping spending for all services under trend for their panel of patients; there is no downside risk, which is understandable given the small percentage of spending accounted for by primary care. The private and public payers also support the primary care practices with care managers and with data on all of the services used by their patients and on the efficiency of providers they might refer to. These programs appear to be popular with physicians and have had promising early results.

The second downside concerns the inability of physicians participating in CPC+ to participate in accountable care organizations (ACOs). One of CMMI’s challenges in pursuing a wide variety of payment innovations is apportioning responsibility across the programs for beneficiaries who are attributed to multiple payment reforms. As an example, if a beneficiary attributed to an ACO has a knee replacement under one of Medicare’s a bundled payment initiatives, to avoid overpayment of shared savings, gains or losses are credited to the providers involved in the bundled payment and not to the ACO. As a result, ACOs are no longer rewarded for using certain tools to address overall spending, such as steering attributed beneficiaries to efficient providers for an episode of care or encouraging primary care physicians to increase the comprehensiveness of the care they deliver.

Keeping the physician participants in CPC+ out of ACOs altogether seems to be another step to undermine the potential of ACOs in favor of other payment approaches. This is not wise. The Innovation Center has appropriately not established a priority ranking for its various initiatives, but some of its actions have implicitly put ACOs at the bottom of the rankings. Recently, Mostashari, Kocher, and McClellan proposed addressing this issue by adding a CPC+ACO option to this initiative.

In an update to its FAQ published May 27, 2016 (after out blog was put into final form), CMMI eased its restriction somewhat by allowing up to 1,500 of the 5000 practices expected to participate in CPC+ to also participate in Medicare Shared Savings Program (MSSP) ACOs. But the prohibition continues to apply to Next Gen ACOs, the model that has created the most enthusiasm in the field. If demand for these positions in MSSP ACOs exceeds 1,500, a lottery will be held. This change is welcome but does not really address the issue of disadvantaging ACOs in situations where a beneficiary is attributed to two or more payment reform models. CMMI is sending a signal that CPC+, notwithstanding its lack of incentives concerning spending outside of primary care, is a powerful enough reform that diverting practices away from ACOs is not a problem. ACOs are completely dependent on primary care physician membership to function, meaning that any physician practices beyond 1,500 that enroll in CPC+ will reduce the size and the impact of the ACO program. CMMI has never published a priority ranking of reform models, but its actions keep indicating that ACOs are at the bottom.

The Innovation Center should be lauded for continuing to support improved payment models for primary care. Its blending of substantial monthly payments with lower payments per service is promising. But the highest potential rewards come from broadening primary care physicians’ incentives to include the cost and quality of services by other providers. CMMI should pursue this approach.

Editor's note: This piece originally appeared in Health Affairs Blog.

The Medicare Access and CHIP Reauthorization Act of 2015, referred to most often as “MACRA,” set in motion a new approach to Medicare physician payment and replaced the oft-criticized Sustainable Growth Rate with two new payment schemes. In late April, the Centers for Medicare and Medicaid Services (CMS) released many proposed details surrounding the law’s implementation; however, it is important to keep in mind that the final rule is still forthcoming and may incorporate significant changes in response to public comments made on the proposed rule.

While there are many stakeholders trying to understand the implications of this significant legislation, physicians and other providers—whose response is critical to the success of MACRA—must prepare quickly and almost immediately make decisions about which incentive program to pursue and what steps will increase prospects for success. Starting January 1, 2017, physicians’ and other providers’ performance will determine their payment rate updates. Because of the time required to gather and evaluate performance data, spending and other performance measures in calendar year 2017 will provide the basis for physician payments in 2019.

In this piece, we offer a glimpse into the potential financial changes in physician payment based on the proposed rule. Due to the complexity of the MACRA provisions and their significant effects on payment, policymakers, physicians, and other providers alike must better understand the various dimensions of MACRA. We focus on the financial flow of dollars to help physicians and other providers assess which path within MACRA to take and how best to forecast the impact on their payments, as well as to provide an overview for policymakers on the financial implications of different options physicians are actively weighing now as a result of MACRA.

MACRA overview

As established in the law, MACRA creates two primary payment schemes that physicians accepting Medicare can choose to be judged under:

1. The Merit-Based Incentive Payment System (MIPS), which administers bonuses or penalties based on how well physicians perform relative to other physicians on a set of quality and value measures (detailed later); or
2. The Advanced Alternative Payment Model (APM), which initially offers bonuses and then provides higher annual fee updates than MIPS when physicians earn a sufficient amount of their revenue (or see a sufficient percentage of their patients) through qualifying Medicare or approved private payer payment models that require accepting financial risk if spending exceeds targets.

At least initially, the large majority of physicians and other providers likely will be judged under MIPS, with CMS projecting in the proposed rule that only 4 to 11 percent of Medicare providers will qualify for the Advanced APM payment approach in its first year because of the relatively strict standards to qualify. Unlike the expectations expressed during congressional debate over MACRA, which mainly focused on encouraging physicians to form or contract with APMs, the rules proposed by CMS will lead many to remain in MIPS for the foreseeable future. Indeed, we understand that many physician specialty societies are advising their members to remain in MIPS. In a comment letter to CMS, we suggested ways to better support the pipeline of physicians and other providers into APMs.

The graph below illustrates the potential scenarios for the flow of funds under the proposed rule. In MIPS, payment is based upon physician performance relative to all other physicians in the program, with bonuses and penalties centered around the base fee-for-service (FFS) payment rates and annual payment updates. MACRA explicitly requires bonuses or penalties in MIPS—not including exceptional performance bonuses—to be budget neutral.

Unlike MIPS, the Advanced APM program dictates that physicians receive a fixed 5 percent bonus for each of the first six years and higher base payment rate updates than MIPS from 2026 onward, in addition to additional bonuses or penalties based on quality and cost performance under their respective Advanced APM contracts. Adding to the contrast with MIPS, bonuses in the Advanced APM program, as well as contractually specified bonuses or penalties, have no requirement to be budget neutral.

The graph below illustrates that consistently high performers in MIPS can actually financially outperform physicians in APMs for many years. In theory, therefore, physicians in an APM—for instance, a Next Generation Accountable Care Organization (ACO)—who are confident that they would score well on relevant quality and value metrics might actually prefer to be judged as a group under MIPS.

In assessing their options, though, it is important to recognize that performance under MIPS as an individual physician or small group may be less predictable than as a part of an APM, because performance in MIPS is relative to the performance of other physicians. This unpredictability occurs because, as explained above, MACRA requires MIPS incentive payments to be budget neutral, which makes performance among MIPS providers a zero-sum-game—one physician’s increase in performance threatens the payment of another, such that bonuses and penalties offset each other overall.

The Merit-Based Incentive Payment System (MIPS)

MIPS consolidates three existing programs that dictate physician bonuses or penalties for Medicare physicians and other providers (the physician quality reporting system, a meaningful use incentive program for electronic health record use, and the value-based payment modifier) into a new system that creates a composite score based on:

• The quality of care provided (30 percent in 2021 and beyond), as measured under current law;
• Resource use (30 percent in 2021 and beyond), which consists of the “measures of resource use established for the value-based modifier under current law and, to the extent feasible, accounting for the cost of Part D Drugs”;
• Meaningful use of electronic health records (EHRs) (25 percent), established under current law to determine whether a provider is meaningfully using EHRs; and
• Clinical practice improvement activities (15 percent), a broad subsection decided on by the Secretary.

Physicians and other providers’ weighted scores in each of these categories for a year are aggregated into an overarching Composite Performance Score (CPS) for each practice. The CPS values are ranked from highest to lowest, and the relative ranking of each score determines how provider payments are adjusted, dictating whether a bonus or penalty results as well as its size. Each year, the Secretary will select either the mean or the median of CPSs for that year to serve as the performance threshold above and below which physicians and other providers will receive bonuses or penalties, respectively.

Initially in 2019, 4 percent of a medical professional’s revenue generated through Medicare fee-for-service payments will be redistributed under MIPS, growing to 9 percent by 2022 and remaining at that level indefinitely. By comparison, under the three previous reporting programs, physicians in small practices were subject to combined penalties as high as 6 percent or bonuses up to 2 percent; larger practices (with 8 or more physicians) were subject to maximum penalties and bonuses of 8 percent and 4 percent, respectively.

Maintaining budget neutrality requires that CMS pay the same amount in bonuses as it receives in penalties. To assure that penalties offset bonuses, the MIPS bonus percentages described above are potentially subject to a scaling factor of up to three-times to maintain budget neutrality. For example, having the Secretary adopt the median CPS would mean half of all physician practices would rank above that value and half would rank below. However, because practices can differ in both number of physicians and the extent of their Medicare billing, there is no guarantee that the Medicare payments—and associated bonuses—earned by practices above the midpoint would exactly equal the penalties owed by practices below the midpoint. CMS would compute and apply an appropriate scaling factor to assure total bonuses equal total penalties and achieve budget neutrality.

Outside of the budget neutrality requirement, the law provided $500 million each year from 2019 to 2024 to award “exceptional performance” bonuses to MIPS providers with the highest composite performance scores. The bonuses would be awarded on a sliding scale up to as high as 10 percent added to the base MIPS bonus.

Advanced Alternative Payment Models (Advanced APMs)

The other pathway under MACRA involves alternative payment models that meet the criteria established by CMS to be designated “advanced.” Advanced APMs are defined as (i) measuring physicians and other providers according to metrics similar to those of MIPS, (ii) requiring providers’ use of certified EHRs, and (iii) holding providers accountable for at least “nominal financial risk.” In the proposed rule, CMS outlines which of its current APMs measure up to this “Advanced” threshold, including:

• Medicare Shared Savings Program ACOs, Tracks 2 and 3;
• Medicare Next Generation ACOs;
• Comprehensive Primary Care Plus (CPC+) Model;
• Oncology Care Model (two-sided risk); and
• Comprehensive End-Stage Renal Disease Care Model (Large Dialysis Organization arrangement).

Notably absent from this list of proposed approved Advanced APMs are Track 1 MSSP ACOs and various bundled payment models.

By earning a sufficient percentage of their revenue through an Advanced APM, physicians can qualify for a bonus payment equal to 5 percent of their annual fee-for-service revenue in years 2019-2024 and a 0.5 percentage-point higher annual fee rate increase than physicians and other providers in MIPS each year starting in 2026 (0.75 percent vs. 0.25 percent). Alternatively, as a new feature under this rule, physicians can also qualify by seeing a sufficient percentage of their patients through an Advanced APM; notably, the patient percentage thresholds are lower than the revenue percentage thresholds.

Specifically, for physicians participating in Advanced APMs, there are four ways to qualify for the bonuses and higher payment updates of the Advanced APM track. Across all, the thresholds increase in the initial years and remain constant from 2023 onward. However, the thresholds are distinct in whether they are based on revenue or patient volume, as well as whether they are based on Medicare alone or on all payers. The four categories for qualification are:

1. Earn a minimum percentage of their Medicare Part B revenue through an Advanced APM;

2. Starting in 2021, earn a lower minimum percentage of their Medicare Part B revenue AND a minimum percentage of their revenue from all payers through an Advanced APM;

3. See a minimum percentage of their Medicare patients through an Advanced APM; or

4. Starting in 2021, see a lower minimum percentage of their Medicare patients AND a minimum percentage of their patients from all payers through an Advanced APM.

Importantly, if physicians and other providers fall short of these minimums, they would not qualify under the Advanced APM track. However, physicians and other providers participating in APMs who meet the lower “Partial Qualifying Provider” percentage thresholds for either revenue or patients can choose to opt out of MIPS reporting altogether, guaranteeing that they will receive neither a penalty nor bonus for the year. Further, the providers participating in APMs that were not designated Advanced may still qualify as MIPS APMs and receive some automatic credit under the Clinical Practice Improvement Activities (CPIA) category.

Potential for low specialist participation in the Advanced APM program

Over time, MACRA is likely to continue to evolve and the All-Payer Combination Advanced APM option will become available, making payment models developed by private insurers increasingly available and allowing more payment models to gain “advanced” recognition.

Notably, however, the “advanced” list does not include any of the current bundled payment models established by CMMI. This omission will be particularly critical to specialists, as bundled payments represent a significant share of their participation in APMs and many of the proposed “advanced” APM qualifiers have more effectively engaged primary care physicians and other providers than specialists to-date.

To this end, in their proposed rule, CMS’ requested comment on how to offer an option based on bundled payments, a model that has garnered comparatively greater specialist participation. Bundled payments as a concept have often been cited by economists and health care policymakers as a strong policy lever to shift to value-based payment, but their exclusion may effectively limit many physicians and other providers.

Concluding thoughts and outstanding questions

With only six months before physicians’ performance will have an impact on their payment under MACRA, physicians are intensely scrutinizing the two payment incentive programs and how they would fare under them. But most are confused about how best to navigate the various programs given the complexity of the rules and options. The lack of timely data with which to assess their performance on an ongoing basis may further handicap the ability of physicians to make informed choices and improve their performance.

While the proposed rule elucidates many elements of the new payment systems and the final rule will help clarify some remaining questions, many questions about moving parts remain, including those related to: the different risks and rewards for MIPS vs APMs; the uncertainty of movement between both pathways; and the potential for additional payment models (such as the Physician-Focused Payment Model option). These and other uncertainties have raised concerns about the viability of small practices in this environment and the risk that MACRA will lead large numbers of physicians to seek employment by hospitals and large physician organizations. This risks potentially leading to to much higher degrees of consolidation and losses in physician productivity.

MACRA remains a fundamentally important change from the status quo. It offers significant promise to change—and hopefully improve—physician practice and move payment from volume to value. Without question, its implementation will be watched intently.

Since the Affordable Care Act’s (ACA) health insurance marketplaces first took effect in 2014, news story after story has focused on premium increases for certain plans, in certain cities, or for certain individuals. Based on preliminary reports, premiums now appear set to rise by a substantial amount in 2017.

What these individual data points miss, however, is that average premiums in the individual market actually dropped significantly upon implementation of the ACA, according to our new analysis, even while consumers got better coverage. In other words, people are getting more for less under the ACA.

Covered California, that state’s marketplace, just announced premium increases averaging 13.2 percent. But even if premiums increase by the 10 or 15 percent overall that some are predicting for 2017, they will still be far lower than premiums otherwise would have been in the absence of the law. Moreover, this analysis does not include the effects of premium and cost-sharing subsidies that serve to make ACA marketplace plans more affordable for many people.

2014 Premiums In the ACA Marketplaces Were 10-21 Percent Lower Than 2013 Individual Market Premiums

While many stories of pronounced increases are simply the natural result of a law that works differently in every region and for people of different health statuses, it appears to be conventional wisdom that the ACA increased premiums in the individual, non-group insurance market, if only because it increased the quality and robustness of coverage. Indeed, many of the ACA’s new rules do have the anticipated effect of increasing premiums, such as:

• mandated guaranteed issue regardless of health status;
• restrictions on the ability to charge different premiums based on anything besides age and smoking habits;
• requirements for plans to offer certain benefits deemed “essential;”
• limits on out-of-pocket costs an enrollee can pay for covered services in a given year; and
• the elimination of any lifetime limits on coverage.

However, many features of the ACA push in the opposite direction and save consumers money. The individual mandate and federal subsidies greatly expanded the number of people purchasing coverage in the individual market, pushing premiums down both by increasing the sheer size of the market – the bigger the market, the lower the prices – and including many healthier people who previously went uninsured. In addition, the ACA created relatively transparent marketplaces where insurers must compete on premiums for products standardized by actuarial value, allowing competition to drive down prices.

Together, by creating a much larger and more competitive market, these changes placed strong downward pressure on insurance premiums, outweighing the factors pushing in the opposite direction. Stronger rate review and minimum requirements for how much an insurance plan must spend on actual health care expenses furthered this downward pressure on prices.

According to our analysis, average premiums for the second-lowest cost silver-level (SLS) marketplace plan in 2014, which serves as a benchmark for ACA subsidies, were between 10 and 21 percent lower than average individual market premiums in 2013, before the ACA, even while providing enrollees with significantly richer coverage and a broader set of benefits. Silver-level ACA plans cover roughly 17 percent more of an enrollee’s health expenses than pre-ACA plans did, on average. In essence, then, consumers received more coverage at a lower price.

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Editor's note: This piece originally appeared in Health Affairs.

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As the nation still struggles with high healthcare costs that consume larger and larger portions of patient budgets as well as government coffers, the search for ways to get costs under control continues. Total healthcare spending in the U.S. now represents almost 18 percent of our entire economy. One promising cost-savings approach is called “reference pricing,” where the insurer establishes a price ceiling on selected services (joint replacement, colonoscopy, lab tests, etc.). Often, this price cap is based on the average of the negotiated prices for providers in its network, and anything above the reference price has to be covered by the insured consumer.

A study published in JAMA Internal Medicine by James Robinson and colleagues analyzed grocery store Safeway’s experience with reference pricing for laboratory services such as such as a lipid panel, comprehensive metabolic panel or prostate-specific antigen test. Safeway’s non-union employees were given information on prices at all laboratories through a mobile digital platform and told what Safeway would cover. Patients who chose a lab charging above the payment limit were required to pay the full difference themselves.

Employers see this type of program as a way to incentivize employees to think through the price of services when making healthcare decisions. Employees enjoy savings when they switch to a provider whose negotiated price is below the reference price, whereas if they choose services above it, they are responsible for the additional cost.

Robinson’s results show substantial savings to both Safeway and to its covered employees from reference pricing. Compared to trends in prices paid by insurance enrollees not subject to the caps of reference pricing, costs paid per test went down almost 32 percent, with a total savings over three years of $2.57 million – patients saved $1.05 million in out-of-pocket costs and Safeway saved $1.7 million.

I wrote an accompanying editorial in JAMA Internal Medicine focusing on different types of consumer-driven approaches to obtain lower prices; I argue that approaches that make the job simpler for consumers are likely to be even more successful. There is some work involved for patients to make reference pricing work, and many may have little awareness of price differences across laboratories, especially differences between those in some physicians’ offices, which tend to be more expensive but also more convenient, and in large commercial laboratories. Safeway helped steer their employees with accessible information: they provided employees with a smartphone app to compare lab prices.

But high-deductible plans like Safeway’s that provide extensive price information to consumers often have only limited impact because of the complexity of shopping for each service involved in a course of treatment -- something close to impossible for inpatient care. In addition, high deductibles are typically met for most hospitalizations (which tend to be the very expensive), so those consumers are less incentivized to comparison shop.

Plans that have limited provider networks relieve the consumer of much complexity and steer them towards providers with lower costs. Rather than review extensive price information, the consumer can focus on whether the provider is in the network. Reference pricing is another approach that simplifies—is the price less than the reference price? What was striking about Robinson’s results is that reference pricing for laboratories was employed in a high-deductible plan, showing that the savings achieved—in excess of 30 percent compared to a control—were beyond what the high deductible had accomplished.

While promising, reference pricing cannot be applied to all medical services: it works best for standardized services and where variation in quality is less of a concern. It also can be applied only to services that are “shoppable,” which is only about one-third of privately-insured spending. Even if reference pricing expanded to a number of other medical services, other cost containment approaches, including other network strategies, are needed to successfully contain health spending and lower costs for non-shoppable medical services.

Editor's note: This piece originally appeared in JAMA.