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How CMS Alternative Payment Programs Impact Healthcare

In recent years, CMS has invested greatly in alternative payment programs like bundles and shared savings.

Bundled Payment Model

Source: Thinkstock

By Vera Gruessner

- Over the last five years, the Centers for the Medicare & Medicaid Services (CMS) has released many new payment systems for Medicare providers including shared savings, pay-for-performance programs, and bundled payment models. The alternative payment programs originally came from the Center for Medicare and Medicaid Innovation (CMMI), according to a perspective published in The New England Journal of Medicine.

Patient-centered medical homes along with accountable care organizations and bundled payment models all take up the highest spending in CMMI alternative payment programs. At the beginning of 2016, nearly 9 million seniors were being treated through the Pioneer ACOs, Medicare Shared Savings Program, or the Next Generation ACOs. This led to at least $85 billion in Medicare Part A and Part B spending to be in the form of alternative payment models.

CMS has also invested heavily in advancing bundled payment models over the last several years. Through the Medicare Bundled Payments for Care Improvement (BPCI) initiative, as many as 415 acute care hospitals, 723 skilled nursing facilities, and 305 physician groups participated in advancing bundled payment models and were given the opportunity to be paid through 48 different clinical episodes of care.

Most healthcare providers joined either Model 2 or Model 3 of the Medicare Bundled Payments for Care Improvement initiative. Model 2 payment involves an episode of care that begins in the hospital and covers all medical services for up to 90 days after a hospitalization. Model 3, however, begins with a stay at a post-acute care facility or a home visiting nurse.

This particular CMS bundled payment model brings $10 billion in spending for Medicare coverage on an annual basis. Additionally, a CMS bundled payment model to cover the costs of joint replacement surgeries began in April 2016 and will cost at least $2.5 billion yearly, according to The New England Journal of Medicine.

READ MORE: Bundled Payment Models Need to Align Payer, Provider Incentives

Along with its investment in bundled payment models, CMS has set goals of quickly transitioning a large part of their Medicare claims into alternative payment structures. In 2016, CMS was able to integrate alternative payment models into 30 percent of their Medicare payments. CMS still has a goal of transitioning 50 percent of Medicare payments into alternative reimbursement structures by 2018.

Other major healthcare payment transformations coming from CMS revolve around the Medicare Access and CHIP Reauthorization Act (MACRA) legislation. Starting in 2019, 25 percent of Part B Medicare payments would be in the form of an alternative payment model due to MACRA implementation. By 2023, that number is expected to increase to 75 percent.

Some of the challenges that healthcare providers may face when attempting to meet the requirements of bundled payment models, shared savings programs, and other alternative payment structures involves the administrative burden of meeting different, multiple quality measures. This proves even more difficult when considering variations between commercial payers, Medicare, and state Medicaid programs.

“As CMS expands from pilots to large-scale initiatives, more patients will be treated by different providers participating in different payment models,” according to the editorial. “Such model overlaps make evaluation of outcomes difficult and create financial distortions that may undermine the models’ goals. An immediate example is the interaction between ACO and bundled-payment approaches.”

“In Medicare’s ACO programs, organizations are rewarded or penalized on the basis of their total annual spending for a population of assigned Medicare beneficiaries as compared with a historical spending benchmark. Potential conflicts emerge when organizations participating in a bundled-payment program treat patients who are also attributed to an ACO. Currently, a ‘bundle participant’ that treats an ACO patient maintains financial responsibility for the episode. Any gains or losses during the episode accrue to the bundle participant and are removed from the ACO results in a year-end financial reconciliation.”

READ MORE: Accountable Care Organizations Rely on Population Health Data

To address the challenges of managing multiple reimbursement contracts, commercial healthcare payers could assist their provider networks by aligning their quality metrics and value-based payment structures to CMS reimbursement models. Dr. Farzad Mostashari, Founder of Aledade Inc. and former National Coordinator for Health IT, explained in a prior interview how private payers could align their payment models with CMS templates and contracts.

“I see some positive trends just in the past two years, but private payers, by and large, are still behind CMS in terms of making it easy for organizations to apply for and qualify for these models,” Mostashari told

“Medicare has an application process that is complicated but predictable whereas with many private payers, the process itself is opaque and the outcome uncertain. I would strongly suggest that private payers institute more predictable processes and requirements as well as boilerplate contracts that are based off of CMS templates and a clear process for how organizations can apply for and get those risk, value-based contracts.”


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