Federal and Other Initiatives That Are Transforming Provider Risk

Building on the foundation set by the Affordable Care Act in 2010, the U.S. Department of Health & Human Services (HHS) is continuing to increase the percentage of Medicare payments tied to value and made through alternative payment and delivery models. The department’s stated goal was to tie 30 percent of Medicare payments to alternative payment models (APMs) by the end of 2016 and 50 percent by the end of 2018. In early 2016, HHS announced it had met its first goal via a combination of accountable care models, episode-based payments, and primary care initiatives.

Quickening the pace of the value-based payment transition continues to be a major focus for HHS. Despite the political shifts, there remains a strong bipartisan commitment to the shift in focus to value. There is likely to be increased emphasis on the implementation of Medicaid and Medicare APMs. As the largest payers in the industry, Medicaid and Medicare have the market power to be the first movers in the accelerated value-based payment transition.

In addition to federal reporting and quality improvement programs—such as the Hospital-Acquired Conditions Reduction Program (HACRP) and the Hospital Readmissions Reduction Program (HRRP) administered by the Centers for Medicare & Medicaid Services (CMS), which together penalize inpatient hospital payment by as much as 8 percent for poor-quality performance—new “at-risk” payment models such as bundled payments, shared savings, pay-for-performance, and capitation introduce variable financial risks and incentives linked to clinical performance, value-based utilization, and cost containment across inpatient and outpatient care settings.

When Congress passed the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), “risk” moved front and center as a feature of provider payment models. MACRA’s Quality Payment Program contains two value-based payment tracks: the Merit-based Incentive Payment System (MIPS) and the advanced alternative payment model (APM) track. Providers that take on sufficient financial risk under an advanced APM can earn value-based incentive payments greater than the MIPS payment adjustments. CMS expects about 25 percent of eligible clinicians in the Quality Payment Program to participate in an approved two-sided-risk APM by this year. In addition to these federal initiatives, hospitals and health systems must now manage payment risks associated with value-based payment arrangements with large employers and value-based purchasing consortiums. Examples include the following:

• Boeing is contracting with providers to offer a preferred-partnership accountable care organization (ACO) to 50,000 employees in target markets.
• Marriott International is contracting with local hospitals to provide primary and urgent care through outpatient clinics.
• Lowe’s and other employers have established bundled payment arrangements with Centers of Excellence programs for high-volume procedures such as joint replacement and spine surgery.
• More than 300 ACOs now manage approximately 20 million individuals with commercial insurance or Medicaid.

Paul Tuten is a senior vice president, Quantros, Milpitas, Calif.