Positive Change

The U.S. health care marketplace is in the midst of revolutionary change. The Centers for Medicare & Medicaid Services (CMS), primarily through the work of its Center for Medicare and Medicaid Innovation (CMMI), is reforming how health care is financed and delivered. CMS already has reached its stated goal of tying 30 percent of traditional Medicare payments to quality or value through alternative payment methods (APMs), such as accountable care organizations (ACOs) or bundled payment arrangements, and plans on tying 50 percent of payments to these models by the end of 2018. Because Medicare payments represent almost 4 percent of the nation’s gross domestic product (GDP) at over $600 billion per year, these changes affect a substantial sum of dollars.

Health insurers, employer groups and other payers have noted the advantages of CMS’s payment reform and have proliferated their own value-based reimbursement arrangements with providers. Both the government and private payers appreciate the increased focus on the quality of outcomes these new reimbursement models emphasize, as well as the newly-imposed accountability for cost containment. There is no doubt that the payment models currently being introduced will continue to evolve as the health care delivery system transforms. However, it is no longer viable for providers to not embrace value-based payment. Their largest payer, CMS, is no longer making it optional.

MACRA—Widespread Impact

CMS’s recent changes regarding value-based payments that have had the greatest widespread impact are the Merit-Based Incentive Payment System (MIPS) and the Alternative Payment Model (APM) incentive programs, which were introduced through the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). These programs introduce significant change for the reimbursement structure for most clinicians under traditional Medicare. Under MIPS, beginning in 2017, clinicians will be evaluated based on quality, resource use, clinical practice improvement and meaningful use of certified electronic health record (EHR) technology, which will impact their reimbursement for the 2019 payment year. How they perform in these four areas can change their reimbursements between +/−4 percent (with the potential for up to +12 percent) in the first year, and expands to +/−9 percent (with the potential for up to +27 percent) within four years—with the total reimbursement mandated to be revenue-neutral, except for high-performing providers that are eligible for bonus payments. The magnitude and swift implementation of these changes surprised many and underscores the serious nature of provider payment reform.

Through the APM incentive program, providers that more aggressively embrace movement toward value-based reimbursement and are accountable for the overall cost of care for their patients by participating in Advanced APMs will avoid some of the financial uncertainty associated with MIPS. In addition, they are guaranteed 5 percent bonus payments. For a program to be considered an Advanced APM, providers must bear more than a nominal amount of risk for the cost of care. Also, providers will need to demonstrate that a significant portion of their overall Medicare fee-for-service (FFS) revenue or patient volume is part of the Advanced APM arrangement. This likely will be much more feasible for primary care physicians (PCPs) than specialists, based on the methodology employed to assign beneficiaries to Advanced APMs. These programs also bring along their own sets of requirements and financial risks, and should be carefully evaluated.

For PCPs, perhaps one of the more appealing CMS Advanced APM models, the Comprehensive Primary Care Initiative (CPC+), was announced recently. CPC+ incentivizes both the private and public payers to come together in paying for primary care under value-based reimbursement methods, and assists clinicians in transforming their practices to be focused on improved population health management, care coordination, and quality and resource use improvements. In designated markets where multiple payer alignment exists, PCPs will be given the option to join CPC+, where CMS will pay significant care management fees—$15 or $28 per beneficiary per month (PBPM), depending on the model chosen. These guaranteed payments should empower providers to develop new and innovative ways of interacting with their patients, including the use of telemedicine, care coordinators and other alternative methods of connecting with patients. They also will be eligible to earn additional performance-based incentives (up to $2.50 or $4.00 PBPM) for improved quality and cost efficiency.

Along with CPC+, certain Medicare ACO models also will be eligible for Advanced APM status. These models include the Next Generation ACO Model, as well as Medicare Shared Savings Program (MSSP) Track 2 and Track 3 participants. Both of these models require the provider to be financially accountable if costs are higher than the set Medicare benchmarks. The most popular current option in which providers have participated, the MSSP Track 1, does not include downside risk and will not meet the requirements for exclusion from MIPS—but it may reduce some of the reporting burden.

Hospitals and Post-Acute Providers Also Face Change

CMS also has made significant changes to reimbursement for hospitals, both through modifications in diagnosis-related group (DRG) reimbursement for things such as readmission rates and frequency of hospital-acquired conditions, as well as quality and efficiency measurements. In addition, many facilities (acute and subacute) have participated in the voluntary Bundled Payment for Care Improvement (BPCI) models. The BPCI models measured how well patients were managed across the care continuum for a specific episode of care, such as a major joint replacement or coronary artery bypass graft (CABG) surgery.

The early indication of success in BPCI, particularly in major joint replacement surgery, led CMS in April 2016 to roll out a mandatory program for the Comprehensive Care for Joint Replacement Model (CJR) in approximately 25 percent of hospitals. CJR progressively holds hospitals at risk for most of the care individuals require after a lower extremity joint replacement surgery for 90 days post-discharge. This requires hospitals to create programs that ensure individuals are provided the highest-quality care, as well as most cost-efficient care, after the surgery takes place.

New Models Transfer Risk to Providers

Central to these new programs are the “Triple Aim” goals of improving the patient care experience, improving the health of populations and reducing per capita costs. While these programs target valuable goals, they also introduce much more complex financial models with a focus on shifting the financial risk to entities with little or no experience or expertise in this area. Where traditionally the health insurer, whether CMS or commercial insurance, was almost entirely responsible for financing the care delivered, more of this risk now is being reassigned to the provider community. Providers not only need to reimagine the delivery and focus of health care, but they also must gain expertise in risk management and analytics.

The majority of the models employed are retrospective models in which providers continue to be paid on a FFS basis. Their performance, however, is evaluated retrospectively both on cost and quality. A determination is made on whether they are to be paid additional incentive bonuses or potentially owe a penalty. Often, the costs that are included in these measures were paid to other providers within the system, which they may or may not be able to control. A deep understanding of what actions can be taken to influence or change both the individual patient’s behavior, as well as the behavior of other providers, is important in order to be successful under these contracting approaches. In addition, ensuring the risk of these patients is accounted for properly in the risk scoring is imperative, because almost all of the models employ a form of risk adjustment to account for the morbidity of the population evaluated.

Skills and Knowledge Necessary for Success

The skills necessary for providers to be successful as they take on much more of the insurance risk, either through global capitation, shared risk agreements or bundled payments, are opening up tremendous opportunities for actuaries to join provider organizations or offer their services as consultants. The reimbursement models have significant similarities to pricing health insurance products by forecasting medical costs, normalizing for different risk populations and determining the best methods to spread risk through stop-loss and reinsurance programs.

Actuaries are able to assist providers in determining which of the different programs will be most financially advantageous, based on the provider’s own unique abilities and strengths. In addition, they can ensure the contracts with payers include necessary provisions to prevent providers from taking on risk for which they are not yet prepared.

In addition, actuaries’ contributions also expand to many analytics needs, including medical cost and trend analysis, population health analytics, risk score analysis and quality score optimization. As providers also look even further into offering their own insurance products or networks to employers and individuals, they will need the more traditional actuarial skills of pricing and reserving.

The U.S. health care market will certainly look much different 10 years from now compared to what it is today. CMS is driving this evolution by incentivizing providers to enter into new and challenging financial models of reimbursement. These new financial challenges to the provider community are opening up new opportunities for actuaries to provide their leadership and expertise to ensure these challenges are met in a way that brings success.