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Delivery System Reform 2.0: Scaling Alternative Payment Models is the New Normal

For some health care providers, a pair of recent announcements made by the Obama Administration to implement mandatory alternative payment models (APMs) for home health value-based purchasing and bundled payments for hip and knee episodes of care will come as a shock.  For others who have participated as APM early adopters, the news may have a far lesser impact.

The Centers for Medicare and Medicaid Innovation (CMMI) will run both the home health and orthopedic bundled payment models under the Affordable Care Act Section 3021 authority.

Home Health Value-Based Purchasing

Akin to the Hospital Value-Based Purchasing Program and other VBP models, the Home Health Value-Based Purchasing (HH-VBP) model, which is scheduled to begin on January 1, 2016, will apply an annual payment reduction (or increase) to home health agencies (HHAs) of 5% initially, and up to 8% in later years, based on performance against a set of quality measures predominantly drawn from the current Outcome and Assessment Information Set (OASIS).

CMMI will score HHAs for the quality of care delivered based on their performance compared to both the performance of other HHAs and also their own historical experience.  HHAs will be provided quarterly quality performance feedback reports that document their own performance and compare them to the larger HHA cohort.  Payment adjustment amounts will be calculated on an annual basis.

The HH-VBP model will apply to all Medicare-certified home health agencies in Arizona, Florida, Iowa, Maryland, Massachusetts, Nebraska, North Carolina, Tennessee and Washington. Any new market entries in the selected states would also be subject to participation in the HH-VBP program.  According to the proposed regulations, CMS is not proposing to waive any Medicare or Medicaid fraud and abuse laws.

The model is proposed to last five performance years, starting in 2016.  Comments on the proposed mandatory model are due September 4, 2015.

Lower Extremity Joint Replacement (LEJR) Bundled Payment

The Comprehensive Care for Joint Replacement (CCJR) Model will test bundled payment and quality measurement for an episode of care associated with hip and knee replacements.  The intent is to encourage hospitals, physicians, and post-acute care providers to better coordinate care from the initial hospital admission through recovery.  A LEJR episode will be defined as an admission of a fee-for-service Medicare beneficiary that eventually results in a discharge paid under MS-DRG 469 and 470 (Major joint replacement or reattachment of lower extremity with/out major complications or comorbidities).

The bundled payment will cover all Part A and B services (e.g., physician services, inpatient hospital services, inpatient rehabilitation facility, skilled nursing facility, outpatient services, clinical laboratory services, durable medical equipment, and Part B drugs, et. al.) provided beginning with hospital admission through 90 days following discharge.

Similar to the Bundled Payments for Care Improvement (BPCI) initiative, a target cost will be set based on expected spending and historical spending with a 2% discount.  While providers will be paid through the normal fee-for-service system during the year, they will be paid, or have to pay back Medicare, after a reconciliation process that occurs annually where each provider’s actual spending will be compared to the target cost.  Further, the proposed model will allow for certain Medicare waivers such as the three-day inpatient hospital stay for skilled nursing facility admissions, physician visits to beneficiary homes via telehealth technology, and payment for certain types of physician-directed home visits for non-homebound beneficiaries.

Hospitals that are required to participate include all IPPS hospitals in 75 randomly selected geographic areas, with the exception of those who are currently implementing similar orthopedic bundles under CMMI’s existing bundled payment pilot, BPCI Models 1, 2 and 4 who were given an exception from participating in the CCJR.

The CCJR model is proposed to last five years, starting in 2016, with a target cost rebasing adjustment made annually.  Comments on the proposed mandatory model are due September 8, 2015.

What’s Next and Take Aways

Until now, with a few exceptions, such as the Prior Authorization of Power Mobility Devices (PMD) Demonstration (which was not implemented using Section 3021 of the Affordable Care Act), none of the major delivery reform pilots have been mandatory.  The reason for this shift is rooted in the statutory mandate under Section 3021, which established CMMI and the authority of the Secretary of Health and Human Services to scale successful delivery reforms.  In the law, the Secretary is given the authority to scale certain delivery reform models once: 1) they are certified by the CMS Office of the Actuary to lower costs; and 2) they generate enough evidence to show that quality has been maintained, if not improved, for Medicare beneficiaries.

To meet these two criteria, it will be necessary to scale APMs such that there are enough participating providers and beneficiaries to pass muster with the CMS Actuary and HHS Assistant Secretary for Planning and Evaluation.  Thus, the natural evolution for the Obama Administration is to scale various APMs that have shown some promise and would benefit from larger participation to increase the statistical strength of a potential nationwide and permanent change to the Medicare payment system.

For some providers who have already participated in at least one of the approximately two dozen models administered by CMMI, this news will validate, to a certain extent, their early investment and engagement with the federal government’s efforts to reign in health care spending.  For example, some providers chose to become early adopters and engage in CMMI models with the hope of being exempt from mandatory models such as the CCJR model. Additionally, early adopters have already invested in much of the infrastructure that is necessary for care redesign and have been able to fine-tune their processes over the past few years.

While future APM scaling announcements are a certainty, not all of them are likely to be mandatory.  For example, the Pioneer ACO model (the first scaling announcement) was recently opened up for additional applicants for the first time since its inception in 2011.  The key for stakeholders moving forward will be to actively engage policymakers and their own internal decision-makers to be as prepared as possible for the new reality, that is, a much more aggressive version of delivery system reform.

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