On April 27th, CMS released proposed rules for the implementation of the Medicare and CHIP Reauthorization Act (MACRA), an act that heretofore was famous for containing the repeal of the Sustainable Growth Rate (SGR).  The SGR was uniformly hated by physicians and other providers, as it theoretically controlled the rate of Medicare inflation, while in practice did nothing of the sort.   It essentially put all physicians on one global cap for the nation, such that if utilization went up, the price paid for each service was adjusted down to make the overall cost effect neutral.  Every year, the rate adjustment was threatened, and every year, some short-term, finger-in-the-dike measure was passed by Congress to avoid the cut.  Providers rightly felt little motivation to think in cost-effective terms, as any efforts they made in that direction were essentially diluted by the vast majority of providers who didn’t (almost everyone else).

So this is the bargain that was struck.  In exchange for getting rid of this sham spending control, providers must move to payment systems that emphasize quality and value over pure volume, through a variety of mechanisms to be determined later.  “Deal!” cried providers.  “Anything to get rid of the despised SGR!”  But having lifted one end of that stick, the implications of the other end are become clearer.

First, there are two tracks from which you can choose as a provider.  Track one is called the Merit-Based Incentive Payment System (MIPS).  This is essentially a fee for service system that overlays a modifier based on several factors.  These factors are an amalgam of prior incentive programs, including the Physician Quality Reporting System (PQRS), Meaningful Use, and the Value-Based Payment Modifier.  There are four factors that weigh into the formula: quality, practice improvement, advancing care information, and relative cost.  These factors taken together form the basis of getting paid more if you perform well, and less if you don’t.  The program is designed to be cost neutral, so theoretically the bonuses paid will equal the penalties imposed.  This program is intended for all those who can’t or choose not to participate in an Alternative Payment Model (Advanced APM).

The second track is the Alternative Payment Models (APMs).  These include the next iteration of Medical Home, Comprehensive Primary Care Plus (CPC+); Accountable Care Organizations (ACOs); and various bundled payment programs.  All of these generally share the quality of having significant financial risk for participating providers.  The rewards are bigger for those participating in APMs, and probably justifiably so, as they likely involve more work and more risk financially.  (Risk and reward are naturally connected, and usually commensurately so.)

This two track design carries forward CMS’ stated intent to shift to value-based reimbursement and alternative payment methodologies.  It attempts to thread the needle of offering incentives for assume more financial risk, but also give credit for those who are doing good things without assuming risk.  It gives some nods to small providers for whom assuming downside risk is just not feasible, given their lack of access to capital and infrastructure to bear that risk. 

What will be the effect of this pivotal piece of rule-making?  I would say that as of this moment, it’s impossible to tell.  On the whole, it attempts to ease the transition between fee for service, still the dominant payment methodology for most payers, and forms of aggregated payment that gradually increase provider financial risk.  It continues with the clear intent of moving away from FFS, and toward other payment forms that are less activity-based, and more outcome-based.  It attempts to incorporate quality, interoperability, process improvement, and cost containment as determinants of payment rates, in essence saying that pure FFS alone isn’t enough to get us what we want.  To get real value, you have to pay for it, and CMS is defining that value as including the above categories. 

This inevitably will reshape how we practice American medicine.  Whether intentional or not, this new wave of pay for reporting increases the advantage of large organizations with the access to capital necessary to track and report outcomes.  It is likely, in my opinion, that it will accelerate the consolidation of the health care sector, both vertically and horizontally.  The evidence that bigger is better or even just cheaper is quite mixed, and so consolidation alone cannot be the desired outcome.  But it seems it may be a necessary side effect to achieve to goal of value-based care and payment.

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