On April 27, 2016, the Centers for Medicare & Medicaid Services (CMS) posted a pre-publication version of a proposed rule implementing changes to Medicare payment for physician services authorized under the bipartisan Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). The 962-page, pre-publication version of the proposed rule is available here. CMS is soliciting comments on the rule by a deadline of June 27, 2016.

The proposed rule outlines CMS’ proposed approach to implementation of the Merit-Based Incentive System (MIPS) and the Alternative Payment Models (APM) required by the MACRA legislation.

Under MACRA, the MIPS program would subject physicians and certain other professionals to positive, neutral, or negative adjustments to their Medicare fee-for-service reimbursement beginning in 2019, using 2017 data. Providers participating in an Advanced APM would not be subject to the MIPS payment adjustments, but they would instead have the opportunity to receive additional bonus payments and Medicare fee schedule updates in future years. The proposed rule outlines CMS’ views regarding entities that can qualify as Advanced APMs, focusing on Medical Homes and including the requirement that such entities must bear financial risk.

The proposed rule implements the policy framework enacted in MACRA to migrate the Medicare fee-for-service payment system from volume to value, and in doing so, complement’s CMS’ recent actions and strategic framework directed at this goal. Additional information on the MIPS and APM portions of the proposed rule is available here.

MACRA Payment Model Proposals

MIPS combines components of three currently existing programs, namely the physician quality reporting system (PQRS), the value-based payment modifier (VBM), and the electronic health record (EHR) incentive program (also called Meaningful Use), basing performance on four categories of quality, resource use, clinical performance improvement activity (CPIA), and advancing care information, formerly known as meaningful use of certified electronic health record technology. Quality measures would be published in November of each year. MIPS would result in potential changes in fee-for-service reimbursement to physicians and certain other providers based on their performance relative to quality, resource use, clinical practice improvement activities, and EHR technology metrics. MACRA provides for positive or negative adjustments to Medicare fee for service reimbursement ranging from up to 4 percent beginning in 2019 (using 2017 data), to 9 percent adjustments beginning in 2022 based on performance under the MIPS. Data would be publicly available via the Physician Compare website.

CMS also provided proposals relative to implementation of the Alternative Payment Models (APM) required by MACRA. The proposed rule outlines requirements applicable to Advanced APMs under the Medicare program, and Other Payer Advanced APMs including commercial and Medicaid programs.

Both types of APMs would require participants to:

• Use certified EHR technology

• Provide payment linked to quality measures similar to those used in MIPS

• Meet defined financial risk standards consisting of either a general standard or a unique standard applicable to medical home models

Advanced APMs would not be subject to the MIPS adjustments, but instead would have the opportunity to earn potential bonus payments beginning in 2019, along with potential Medicare physician fee schedule updates beginning in 2026. APMs are, however, subject to financial risk.

APM Financial Risk Requirements

The proposed rule outlines financial risk standards that would need to be met for an APM to qualify as an Advanced APM. The financial risk criteria would apply to the financial risk arrangement between CMS and the APM entity. The criteria generally requires that the APM entity must bear financial risk in its arrangement with CMS, and the amount of risk must be in excess of a “nominal” amount.

Under the general financial risk standard, CMS would be able to use withholds, repayment obligations, or arrangements through which the APM entity owes payments to CMS and therefore is financially responsible to CMS, where the APM entity’s actual expenditures exceed expected expenditures for an applicable performance period. The financial risk arrangement between CMS and medical home model APMs may include these same mechanisms, plus the additional option that the subject APM entity may lose the right to all or part of guaranteed payments.

Under the financial risk criteria, the APM must bear financial risk that is in excess of a “nominal” amount. Here too, the proposed rule sets forth both a general standard and a unique standard applicable to entities using a medical home model. The general standard base risk as percentages of the APM entity’s assigned benchmark, while the risk percentages for medical home models are based on the medical home model APMs actual Medicare Part A and B revenue. CMS viewed this distinction as important, given the nature of medical home models (in that they commonly have a relatively small number of providers, have more limited revenues and have limited, if any, operating experience with financial risk).

The proposed general standard provides that an APM would meet the in excess of “nominal” risk standard where:

• The marginal risk borne by the APM entity – defined as the percentage of the amount by which actual expenditures exceed expenditures for which the APM entity would be liable – is at least 30 percent of the losses

• The minimum loss rate – defined as the percentage by which actual expenditures may exceed expected expenditures without triggering financial risk – must be no greater than 4 percent

• The total potential risk – defined as the maximum potential payment for which an APM Entity could be liable under the APM – is no greater than 4 percent of expected expenditures

For medical home model APMs to meet the excess of “nominal” risk standard, the total annual amount that the Advanced APM entity potentially owes CMS or forgoes must be at least 2.5 percent of the APM entity’s total part A and B revenues in 2017. These amounts increase on an annual basis to 5 percent applicable in 2020 and later years.

The proposed rule notes that various entities participating in CMS initiatives would qualify as Advanced APMs based on the proposed financial risk criteria, including Medicare Shared Savings Program ACOs (track 2 and 3), NextGen ACOs, the recently announced comprehensive primary care plus program, and certain other programs sponsored by the Center for Medicare & Medicaid Innovation (CMMI).

A full capitation arrangement would meet the criteria to qualify as an Advanced APM, although capitated arrangements involving Medicare Advantage organizations would not qualify for such purposes.