Earlier this month, HHS Secretary Silvia Burwell made a game-changing announcement about the Obama Administration’s most significant alternative payment model (APM). The Pioneer Accountable Care Organization (Pioneer ACO) model is the first pilot to receive formal certification of its cost-saving potential from the Office of the Actuary at CMS.  This key milestone means that the Pioneer ACO model has met the requirement to show reduced Medicare spending and can now be expanded by CMS, as authorized by the Affordable Care Act (ACA).

The ACA requires APMs to “improve the quality of patient care without increasing spending” as determined by the HHS Secretary before being expanded.  It was no accident that, coinciding with the CMS Actuary’s certification on spending, the GAO found that Pioneer ACOs that participated in both 2012 and 2013 had significantly higher quality scores in the second year over the first year for 67 percent of the quality measures.  The GAO concluded that this demonstrates the sustainability of the Pioneers’ quality improvement potential.

Finally, to further mark this achievement, CMS officials penned a New England Journal of Medicine perspective piece assessing the CMS Innovation Center’s progress in developing APMs over the past five years.  In the article, the authors highlighted the 26 models that have been launched since 2010 and emphasized that they reach across all 50 states and through the entire care spectrum.  The article also highlights the Obama Administration’s efforts to accelerate payment reform through multi-payer engagement/alignments and the need for further change in Medicare payment systems, especially as more APMs become eligible for expansion.

To achieve the Administration’s stated goals of capturing at least 30% of all Medicare payments within APMs by 2016, and 50% by 2018 (the current figure is 20%), it will be essential for CMS not only to develop new APMs, especially in “portfolio gap” areas such as mental health and outpatient services, but also to expand other models that could include medical home and bundled payment pilots.

The further proliferation of APMs could signal a dramatic shift in some markets and also draw some providers off the sidelines if they have been hesitant to participate in one or more of the Medicare pilots to-date.  For states, the increase in type and number of risk-bearing health care entities also presents the opportunity to stretch the current application of licensing and insurance law, as is happening, for example, in Massachusetts, which has instituted a certification process for risk-bearing provider organizations.

Ultimately, providers will still have to weigh the total costs associated with participation in APMs, especially those with significant downside risk potential.  For example, although the GAO audit found that 48 percent of the Pioneer ACOs produced $121 million in total shared savings in 2013, six of the twenty-three participating ACOs (26%) experienced shared losses in the second year, averaging $3.8 million each, not including costs associated with startup and infrastructure costs such as Health IT.

The documented success of the Pioneer ACOs to date will undoubtedly incentivize CMS to extend these and other APM initiatives.  As has happened before, changes in Medicare payment methodologies also migrate into the private, commercially insured sector.  Joined with state-level action that similarly encourages APM approaches to delivery system reform, the provider world can expect rapidly increasing pressures to move away from fee-for-service.  It is important that providers prepare themselves for further developments in this space in terms of infrastructure development and the formation of efficient care management capacity.

While predictions are always perilous in the health care field, and while years ago we heard predictions that capitation would inevitably dominate health care payments, the movement toward APMs seems real and likely to continue for the foreseeable future. The key over the near term will be managing the challenge of how agile regulators and stakeholders can be in transforming care delivery within rapidly evolving APMs, while adapting them to existing legal and business frameworks as seamlessly as possible.