CMS kicks off regulatory process on new Medicare payment law: hospitals should move quickly to evaluate their strategic options

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The Centers for Medicare and Medicaid Services (CMS) on September 28, 2015, released a Request for Information (RFI) related to the implementation of provisions of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).  The law fundamentally changes how Medicare provider payments will be set in the future. MACRA repeals the Sustainable Growth Rate formula and establishes a path toward a new payment system that will more closely align reimbursement with quality and outcomes measures while steering health care providers away from the fee-for-service reimbursement system. The RFI was published in the October 1 Federal Register and is open to a 30-day comment period.

Implementation of MACRA is a major strategic issue for hospitals and hospital systems that own physician groups because the law will have a major impact on revenue from Medicare payments for services reimbursed under the Physician Fee Schedule. Because MACRA is expected to drive participation in alternative payment models (APMs), such as accountable care organizations (ACOs) and medical homes, the law could present strategic opportunities for hospitals interested in acquiring or entering other arrangements with physician groups. In addition, the law will likely present operational challenges because it will require significant changes to coding systems in a short timeline – new care episode groups, patient condition groups and patient relationship groups will be required to be used for all Medicare claims submitted on or after January 1, 2018.

Overview of provider payment provisions of MACRA

President Obama signed MACRA into law on April 16, 2015. The law repealed the Medicare Sustainable Growth Rate (SGR) formula for Medicare payments to providers under the physician fee schedule and specified physician payment updates for all years in the future:

  • 2016-2018: + 0.5%
  • 2019-2025: 0% (flat)
  • 2026 and all subsequent years: Rates for providers who participate in APMs will increase by 0.75% annually, while rates for all other providers will increase by 0.25% annually

Temporary incentive programs to encourage providers to move to APMs

In addition to setting future payment updates under the Medicare physician fee schedule, MACRA also creates two financial incentive programs that will be in place for calendar years 2019 through 2024 for providers who participate in APMs at some level:

  • APMs: Providers who receive a substantial percentage of revenue from APMs (at least 25% of Medicare payments for 2019 and 2020, increasing to 75% in 2023) will be eligible for bonus payments of 5% of estimated Medicare charges each year.
  • MIPS: Providers who receive smaller percentages of revenue from APMs could be eligible to participate in the Merit-based Incentive Payment System (MIPS) if they meet certain reporting requirements. MIPS will provide for budget-neutral payment adjustments based on providers’ performance relative to a threshold composite score based on quality measures, resource use, clinical practice improvement and use of electronic health records (EHRs). To help administer payment updates under MIPS, the Secretary of Health and Human Services will choose the mean or median of composite scores for all professionals participating in the program as the threshold score. Professionals with composite scores above the threshold score will receive positive payment updates, while professionals with scores below the threshold will receive negative adjustments. Providers with scores that exceed an “exceptional performance threshold” will be eligible to share in $500 million in additional MIPS payment adjustments annually.

Providers who do not meet the thresholds for APM participation or meet the reporting requirements under MIPS will not be eligible for either incentive program and will receive no Medicare payment update from 2019 through 2025.

Administration seeking input from stakeholders

The MIPS and APM programs are the focus of the RFI from CMS. While the legislation itself created the outlines of the programs and established some criteria, many of the operational requirements and key definitions that will determine providers’ Medicare payments under MACRA will be defined in the regulatory process.

For MIPS, some of the key topics of questions asked in the RFI include:

  • Which approach should be used to identify professionals participating in the program (e.g., via National Provider Identifier, Tax Identification Number, some combination of the two, or a new MIPS identifier)?
  • Which categories should be used to measure the quality of care provided by participating professionals?
  • How should meaningful use of EHRs be measured?
  • How should CMS measure clinical practice improvement?
  • How frequently should CMS provide feedback to providers on their performance?

The questions related to APMs were largely focused on a central issue: What should be considered an eligible alternative payment model?

Next steps

The Administration is moving into a period of increased regulatory activity related to MACRA. Next up, MACRA directs the Administration by October 13, 2015 (180 days after enactment of the law) to post a list of episode groups and related descriptive information that will drive coding changes required under the new law. The new codes are intended to help measure resource use more effectively and will be required for Medicare claims submitted on or after January 1, 2018.

US National Health Care Regulatory Team

Anne Phelps
Deloitte Advisory Principal
US Health Care Regulatory Leader
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Daniel Esquibel
Deloitte Advisory Senior Manager
Deloitte & Touche LLP

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Ryan Haggerty
Deloitte Advisory Senior Manger
Deloitte & Touche LLP