MACRA and Value-Based Reimbursement

Now that the first performance period for MACRA — the U.S. Medicare Access and CHIP Reauthorization Act of 2015 — is underway, it is vital that healthcare providers identify and implement strategies to ensure value-based reimbursement (VBR) success. MACRA, which expands and reforms quality-based Medicare clinician payments, has the potential based on program incentives to either increase or decrease clinician profitability.

With the Centers for Medicare & Medicaid Services (CMS) combining multiple Medicare Part B programs into one performance-based payment system, provider organizations must stay on top of requirements and capabilities to maintain and increase Medicare payments over the next decade.

MIPS is fundamentally a budget-neutral program, but with an additional $500 million pool allocated for exceptional performers. Providers, who prepare ahead of their peers, will be able to earn higher payment adjustments and bonuses. For this article, I will focus on four topics related to this shift to value-based reimbursement:

  1. Physician Payment Structure
  2. Bundled Payments
  3. Hospital Inpatient Prospective Payment Systems
  4. Commercial Payers


Topic 1: Physician Payment Structure

The value-based reimbursement methodology is moving to the physician community. A Medical Group Management Association survey revealed that primary care physicians had approximately 6 percent of their compensation tied to quality metrics and it is doubling year-over-year since 2012. CMS issued final 2015 MACRA regulations, including the value modifier, with measurement beginning in calendar year 2017. This affects physicians in groups, with two or more eligible professionals, and solo practitioners.

This regulation requires physicians to report, meet and compete with their peers on quality cost standards. Potential exists for a reporting penalty and a cost/quality adjustment in 2017. The adjustment could have a significant impact on physicians who fail to meet satisfactory quality reporting requirements for the Physician Quality Reporting System (PQRS) because they could end up with a -4.0 percent penalty.

In addition, CMS is proposing increasing maximum downward adjustment under the quality-tiering methodology to -4.0 percent for groups and solo practitioners classified as low quality and/or high cost.  Like all CMS programs, the emphasis on quality remains a top goal, especially since the reach of the regulations expands to more providers, as well as proposed increases in penalties for deficiencies in quality care.

Topic 2: Bundled Payments

Medicare wants higher quality, more coordination, and decreased cost of care for providers involved in all aspects of an episode of care. To achieve these goals, there are four bundled payment models that hospitals and health systems can choose from:

  • Model 1: Inpatient stay in an acute care hospital
  • Model 2: Retrospective acute care hospital stay plus post-acute care
  • Model 3: Retrospective post-acute care only
  • Model 4: Single, prospectively determined bundled payment to the hospital for all services; furnished by the hospital, physicians, and other practitioners.

Our recommendation is to focus on Models 2 and 3, as Model 1 is closing and Model 4 has few participants.

  • Model 2
    In Model 2, the episode of care includes inpatient stay in an acute care hospital, as well as all related post-acute services during the episode. There are 48 eligible clinical episodes (DRG’s) with an end of 30, 60, or 90 days after hospital discharge. There are a total 2,150 participants in this model, according to CMS in 2016.
  • Model 3
    For Model 3, the episode of care will be triggered by an acute care hospital stay and begins at initiation of post-acute care services with a participating skilled nursing facility, inpatient rehabilitation facility, long-term care hospital, or home health agency. The post-acute care services included in the episode must begin within 30 days of discharge from the inpatient stay and will end after either 30, 60, or 90 days. Participants can select up to 48 different clinical episodes (DRG’s). There are 4,617 participants in this model, according to CMS in 2016.

Providers are pursuing the deployment of these models in phases:

  • Phase One: The Preparation Phase, which includes receiving and analyzing data from CMS.
  • Phase Two: The Risk-Bearing Phase, where participants are chosen by CMS. CMS has announced 4,122 providers will be added to Phase 2 and join the 2,412 providers already participating according to CMS. 

Phase One participation increased in both models. Now, organizations need to be able to replicate the bundles by combining data that has typically not been viewed as one episode. For example, if an entity bid on major joint upper extremity, data is needed to show the payments and potential costs for hospital stay, outpatient stay, the physician component, and related post-acute care. These new data requirements indicate the need for quality data and analysis. It also indicates the likelihood organizations will absolutely move down the value-based reimbursement path as they work to increase quality care and decrease costs.

Topic 3: Hospital Inpatient Prospective Payment Systems (IPPS)

When CMS published its final regulations, they included a fact sheet titled “CMS to Improve Quality of Care during Hospital Inpatient Stays.” The title summarizes CMS’s philosophy on what must change for patients during their hospital stay.

To achieve these goals, CMS updated the following programs: the Hospital Acquired Condition Reduction Program (HAC), the Hospital Value-Based Purchasing Program (HVBP), the Hospital Inpatient Quality Reporting Program (IQR), and the Hospital Readmissions Reduction Program (HRRP). Specifically, CMS’s focus is penalizing underperforming health systems, with a total maximum penalty hospitals could face as high as 5.5 percent of eligible Medicare payments. This does not include any penalty for non-reporting of the IQR measures: 99 percent of hospitals report these measures. Penalties for the four programs are as follows:

The Hospital-Acquired Condition Reduction Program

Under the Hospital-Acquired Condition (HAC) Reduction Program, hospitals with the highest rate of HACs — specifically, those in the top-25 percent — will receive a 1-percent reduction in Medicare inpatient payments. CMS estimates 753 hospitals will be subject to the 1-percent reduction and overall payments will decrease by $330 million, or 0.3 percent.

The Hospital Value-Based Purchasing Program

Under the Hospital Value-Based Purchasing (HVBP) program, the portion of Medicare payments available to fund the value-based incentive payments will increase to 1.5 percent of the base operating diagnosis-related group (DRG) payment. In other words, all hospitals will have payments decreased by 1.5 percent, but with the potential to earn a bonus, rewarding high performing hospitals. According to CMS estimates, the total amount available for value-based incentive payments in fiscal year 2017 will be approximately $1.4 billion. According to CMS in 2017 there are 1,253 hospitals that will receive a bonus (an average of 0.3 percent) and 1,475 hospitals that will be penalized. New indicators under the HVBP program include additional outcome measures and an efficiency measure. The total performance score for each hospital will be calculated by using the following weights:

  • Clinical Process: 20 percent
  • Patient Experience: 30 percent
  • Outcomes: 30 percent
  • Efficiency: 20 percent

There will also be two new outcome measures moving forward: the AHRQ Patient Safety Indicators (PSI) Composite and Central Line-Associated Bloodstream Infection (CLABSI). For the efficiency domain, CMS has chosen Medicare spending per beneficiary (MSPB). An MSPB episode includes all Medicare Part A and Part B claims paid during the period from 3 days prior to a hospital admission through 30 days after discharge.

Unquestionably, the HVBP program has many measures and complicated formulas to compare improvement and achievement. However, there have been several studies negating its validity. Many health systems feel the penalty and reward are too nominal to spur change.

Hospital Readmissions Reduction Program

CMS added two new conditions to their Hospital Readmissions Reduction Program (HRRP) reporting measure: chronic obstructive pulmonary disease (COPD) and total hip arthroplasty/total knee arthroplasty (THA/TKA). In addition to the new conditions, there is now a maximum penalty of 3 percent for readmissions. This is up from 2 percent. According to CMS estimates, over the past few years hospitals have shown significant improvement because of the program. Hospital Medicare readmissions declined by more than 150,000 nationally.

Hospital Inpatient Quality Report

The measures for Hospital Inpatient Quality Reporting (IQR) have been revised. Starting in 2015, CMS reporting requirements were aligned with the IQR reporting and Electronic Health Record (EHR) Incentive Program. These Medicare quality incentive programs will continue to encourage high-quality care, while decreasing the time and effort it takes providers to report the information. Hospitals not submitting quality data will be subject to a penalty that could be as much as ¼ reduction of their reimbursement opportunity. IPPS regulations do include some payment increases, but the overall total dollars are lower by -0.6 percent due to the DSH (disproportionate share) and the penalty programs. CMS continues to stress value, which means hospitals must react. Hospitals need to engage physicians and post-acute providers and collaborate more effectively. This can be achieved through the use of near real-time data to show providers which areas benefit from process improvement initiatives. The insights gleaned from this data will be paramount to a hospital’s success in this value-based environment.

Topic 4: Commercial Payers

The shift to value-based reimbursement is also affecting commercial payers, as insurers move to value-based methods. In fact, 90 percent of payers and 81 percent of hospitals, according to CMS have already implemented a mix of value-based reimbursement and fee-for-service. But while these may seem like big changes, there are even more changes on the horizon. Over the next five years, payers are projecting fee-for-service will decrease from 56 percent to 32 percent, to further incentivize quality outcomes.

Take a large health plan client of ours, for example. They are moving from fee-for-service to value-based reimbursement models by designing and implementing programs that emphasize primary care. These programs reimburse physicians and hospitals on pre-set, non-fee-for-service contracts. This transition fosters proactive management of their patients’ care rather than allowing patients to walk themselves down the path of medically unnecessary and expensive care. The overall goal is to improve care while managing costs.

To date, our client estimates that about 20 percent of claims are value-based. The initiatives put in place include changing payment incentives, collaborating on clinical information sharing, pricing transparency, and engaging patients. The results have been favorable, as the insurer was able to realize hundreds of millions in savings by reducing admissions, readmissions, emergency room visits, high-cost interventions, while proactively enabling access to preventive care and improved control of chronic conditions.

Imagine the impact insurers could have across the entire healthcare industry if they sped up their adoption of value-based reimbursement. If insurers increased their rate of adoption; then the entire healthcare industry could “implement systems-engineering principles that will boost efficiency of care.” The current fee-for-service environment is a disincentive to more efficient care. HighPoint can greatly reduce the administrative cost of participating in MIPS and help you improve performance to maximize your payment adjustment.