May 10, 2016

Medicare Proposes Sweeping Changes to Physician Payments

Holland & Knight Alert
Miranda A. Franco


  • The Centers for Medicare & Medicaid Services (CMS) released a proposed rule to implement major Medicare physician payment reform provisions included in the Medicare Access and CHIP Reauthorization Act (MACRA). 
  • The act would implement reforms to tie physician payment updates to quality, value and participation in alternative payment and delivery models.
  • Healthcare industry professionals need to understand Medicare's evolving payment structures so they can position their organizations for success in the new value-based world.

The Centers for Medicare & Medicaid Services (CMS) released on April 27, 2016, the highly anticipated proposed rule to implement major Medicare physician payment reform provisions included in the Medicare Access and CHIP Reauthorization Act (MACRA). 

The MACRA repealed the Medicare sustainable growth rate (SGR) formula and directed the Secretary of Health and Human Services to implement reforms to tie physician payment updates to quality, value and participation in alternative payment and delivery models. The law fundamentally changed how Medicare pays clinicians who participate in the program and established two tracks for Medicare reimbursement.

More specifically, the MACRA mandates the development of the Merit-based Incentive Payment System (MIPS) to replace existing physician quality programs, including the Physician Quality Reporting System (PQRS), the Value-based Payment Modifier (VM) and the Electronic Health Records (EHR) Incentive Program (Meaningful Use) beginning Jan. 1, 2019.

The MACRA also mandates incentives for providers to participate in alternative payment models (APMs) that focus on coordinating care, improving quality and reducing costs. The Secretary of Health and Human Services must establish criteria for physician-focused APMs, including models for specialist physicians, by Nov. 1, 2016.

The regulation is complex with many interwoven pieces, all ostensibly to be accomplished within an aggressive timetable. However, it is important to note that a lot could change between now and the release of final rule. The CMS asks for stakeholders to share thoughts on how to improve the current parameters. The next few months present an important opportunity to participate in the comment period and share thoughts with the agency.

The proposal was published in the Federal Register on May 9, 2016. Comments are due at 5 p.m. EST on June 27, 2016.

Highlights of the proposed rule include:

  • establishing a new approach to quality reporting that seeks to streamline and simplify the disparate PQRS, VM and Meaningful Use programs into a single MIPS, a new program for certain Medicare-enrolled clinicians
  • setting 2017 as the first performance measurement year for the new MIPS
  • detailing criteria for qualification as an APM participant, including eligibility for future incentive payments
  • detailing criteria for use by the Physician-Focused Payment Model Technical Advisory Committee (PTAC)

Key provisions of the proposed rule include:


Performance Period
The performance period is a full calendar year – Jan. 1 through Dec. 31. Calendar Year (CY) 2017 is proposed as the first performance period on which the CMS plans to base the CY 2019 payment adjustment.

Eligible clinicians (as opposed to eligible professionals (EPs) per the MACRA) include physicians, physician assistants (PAs), nurse practitioners (NPs), clinical nurse specialists (CNS), certified registered nurse anesthetists (CRNAs) and groups that include such physicians.

The CMS has authority to expand the definition of MIPS-eligible clinicians to include additional clinicians through rulemaking in future years and may do so for other clinicians who are currently reporting through the PQRS.

MIPS-Eligible Clinician Identifier
MIPS-eligible clinicians have the flexibility to submit information individually or via a group. The CMS will allow the use of both Taxpayer Identification Number (TIN) and National Provider Identifier (NPI) identifiers in MIPS. Clinicians can choose to report at either the TIN or the NPI level, as long as the organization or individual is consistent in how the information is submitted across all performance categories.

MIPS contains numerous proposals exempting certain subsets of providers from MIPS participation, including 1) Medicare newly enrolled (first year) clinicians, 2) clinicians below the low-volume threshold and 3)certain participants in Advanced APMs.

MIPS does not apply to hospitals or facilities.

Performance Categories and Scoring
As outlined in the MACRA, the proposal would consolidate three currently disparate Medicare quality programs into MIPS: 1) the Physician Quality Reporting System (PQRS), 2) the Value-based Payment Modifier (VM) and 3) the Electronic Health Records (EHR) Incentive Program (Meaningful Use). The CMS proposes that eligible clinicians receive composite scores relative to their performances in each of the four categories. Quality measures for these core domains will be selected annually, with the data regarding clinician performance on the measures made available via the Physician Compare website.

  • Quality (50 percent of the total score in year one): This category would replace the PQRS and the quality component of the VM. Eligible clinicians would report six measures versus the nine required under the PQRS. This category gives clinicians a variety of reporting options to accommodate differences in specialty and practice with an emphasis on outcome measurement.
  • Advancing Care Information (25 percent of the total score in year one): This category was formerly Meaningful Use. Clinicians would choose to report customizable measures that reflect how they use technology in their day-to-day practices with a particular emphasis on interoperability and information exchange. Unlike the existing reporting program, this category would not require all-or-nothing EHR measurement or redundant quality reporting. Further, the CMS proposes to reduce the number of quality reporting measures from 18 to 11 and remove the requirement to report on two measures that cross-cut two or more National Quality Forum (NQF) domains – participants will no longer be required to report on Clinical Decision Support (CDS) and the Computerized Provider Order Entry (CPOE) measures. However, under an alternate proposal, the CMS offered to include them.
  • Clinical Practice Improvement Activities (CPIA) (15 percent of the total score in year one): This category would reward clinical practice improvements, such as activities focused on care coordination, beneficiary engagement and patient safety. Clinicians may select activities that match their practices' goals from a list of more than 90 options. In addition, clinicians would receive credit in this category for participating in APMs and Patient-Centered Medical Homes (PCMHs).
  • Cost (10 percent of total score in year one): This category's score would be based on Medicare claims, meaning no reporting requirements for clinicians. This category would use 40 episode-specific measures to account for differences among specialties.

Composite Performance Score (CPS) Under MIPS
The four performance category scores would be aggregated into a MIPS CPS. The MIPS CPS would be compared against a MIPS performance threshold. The CPS would be used to determine whether a MIPS-eligible clinician receives an upward payment adjustment, no payment adjustment or a downward payment adjustment as appropriate.

MIPS Adjustments
The law requires MIPS to be budget neutral. Therefore, clinicians' MIPS scores would be used to compute a positive, negative or neutral adjustment to their Medicare Part B payments. In the first year, depending on the variation of MIPS scores, adjustments are calculated so that negative adjustments can be no more than 4 percent and positive adjustments are generally up to 4 percent with additional bonuses for the highest performers.

Per the law, both positive and negative adjustments would increase over time. Additionally, in the first five payment years of the program, the law allows for $500 million in an additional performance bonus that is exempt from budget neutrality for exceptional performance. This exceptional performance bonus will provide high performers with a gradually increasing adjustment based on their MIPS scores that can be no higher than an additional 10 percent. As specified under the statute, negative adjustments would increase over time and positive adjustments would correspond. The maximum negative adjustments for each year are 4 percent in 2019, 5 percent in 2020, 7 percent in 2021 and 9 percent in 2022.

Advanced APMs

APM Incentive Payments
From 2019 through 2024, Qualifying APM Professionals (QPs) would receive a lump sum payment equal to 5 percent of the estimated aggregate payment amounts for Part B services. Beginning in 2026, payment rates under the Physician Fee Schedule (PFS) will be updated by the 0.75 percent qualifying APM conversion factor. Eligible clinicians who are QPs for a year are also excluded from MIPS for that year. This QP determination is made for one calendar year at a time. To qualify for incentive payments, clinicians would have to receive enough of their payments or see enough of their patients through Advanced APMs.

Advanced APM Requirements
This rule proposes two types of Advanced APMs: Advanced APMs and Other Payer Advanced APMs. To be an Advanced APM, an APM must 1) require participants to use certified EHR technology, 2) provide payment for covered professional services based on quality measures comparable to those used in the quality performance category of MIPS and 3) be either a medical home model or bear more than a nominal amount of risk for monetary loss. The requirements for an Other Payer Advanced APM are virtually the same, but these APMs are intended to be a commercial or Medicaid APMs. In addition, the CMS is proposing to notify the public of which APMs will be Advanced APMs prior to each QP performance period.

Advanced APM Qualifications
Under the agency's criteria for payment models to be eligible for the APM track, the Bundled Payments for Care Improvement (BPCI) initiative, the Comprehensive Care for Joint Replacement (CJR) model and Track 1 of the Medicare Shared Savings Program (MSSP) will not qualify. Notably, the rule does not address whether the CMS will allow Track 1 accountable care organizations (ACOs) to switch MSSP tracks mid-participation agreement to join an Advanced APM.

The proposed rule includes a list of models that would qualify as Advanced APMs as they all require downside risk. These include:

  • Comprehensive End-Stage Renal Disease (ESRD) Care Model (large dialysis organization arrangement)
  • Track 2 of the Medicare Shared Savings Program
  • Track 3 of the Medicare Shared Savings Program
  • Oncology Care Model (OCM) two-sided risk arrangement (available in 2018)
  • Next Generation ACO Model
  • Comprehensive Primary Care Plus (CPC+)

Under the statute, medical home models that have been expanded under the Center for Medicare & Medicaid Innovation authority qualify as Advanced APMs regardless of whether they meet the financial risk criteria. While medical home models have not yet been expanded, the proposed rule lays out criteria for medical home models to ensure that primary care physicians have opportunities to participate in Advanced APMs.

Physician-Focused Payment Models (PFPMs)
The CMS proposes three criteria for PFPMs that outline requirements for 1) paying for high-value care, 2) promoting care delivery improvements and 3) improving the availability of information for decision-making, including though health information technology (IT). 

Takeaways and Conclusions

The proposed rule is further evidence of the desire of the CMS to accelerate the transition from volume to value through targeted incentives. This is the strongest attempt by the CMS to get to risk-based APMs. The MACRA incentivizes physicians to move into Advanced or Other Payer Advanced APMs through several different mechanisms, including a guaranteed 5 percent bonus for six years and a permanent annual 0.75 percent fee schedule bump.

The initial performance benchmark year is set to begin Jan. 1, 2017. As a result, clinicians will be forced to make practice model selection decisions over the next 12 months. Further, APMs and MIPS will increasingly influence care patterns in favor of treatments that improve downstream clinical, financial and patient-reported outcomes. Going forward, those in the healthcare industry should pay close attention to these incentives and to Medicare's evolving payment structures so they can position their organizations for success in the new value-based world.   


Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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