As Medicare moves to implement the Medicare Access and CHIP Reauthorization Act, which establishes two distinct forms of value-based payment, hospitals are debating which option they should go with ahead of the planned implementation in 2019.

The first option is the merit-based incentive payment system, which pays doctors and providers based on a number of performance-based criteria. The second is for the hospital to come up with an “alternative payment model” that is subject to approval by Medicare.

Under an alternative payment model, the provider would come up with a number of ways to improve patient care and reduce costs that it would submit to the Centers for Medicare and Medicaid Services. CMS would offer such providers a lump-sum incentive payment beginning in 2019, when the new system is slated to go into effect. The highest-performing providers would begin receiving even bigger lump sums beginning in 2026.

Examples of alternative payment models that CMS already uses in pilot programs are accountable care organizations and bundled-payment systems.

Accountable care organizations are groups of medical providers that agree to provide coordinated care to patients and are rewarded based on the savings they achieve by cutting costs. In some private sector arrangements, providers share in the savings they provide to insurers but do not assume part of the risk if the cost of the care exceeds the target. Under the new Medicare rules, an accountable care organization will only be considered a quality alternative payment model if the provider agrees to share in the risk.

In a bundled-payment agreement, a provider agrees to be paid based on an “episode of care,” rather than for each operation, test or drug administered. The hospital still receives payments based on a fee-for-service basis, but CMS later reviews the total cost of the episode of care and demands a refund if the total cost of the episode exceeded the previously agreed-to target for such episodes. If the total cost was under the target, the hospital will be rewarded with a share of the savings.

So far, Modern Healthcare reports, it looks like the great majority of providers are going with the merit-based incentive payment system, which they perceive as the safer option. While there is bound to be grumbling about the criteria used to determine hospital and doctor quality under the merit-based incentive payment system, it still provides more certainty in terms of payment than an alternative payment model.

Not only is the risk greater under alternative payment models, but many smaller providers will judge the process of setting one up to be too costly and labor-intensive to undertake.

And yet, abiding by the merit-based incentive payment system is not anticipated to be easy either. CMS has estimated that 60 percent of small practices — those with between two and nine doctors — would be subject to financial penalties under the merit-based incentive payment system if they do not change their practices.

The Obama administration has encountered fierce opposition to value-based payment systems that it has already moved to implement. Pharmaceutical groups and clinics have reacted with fury to a new rule that will change the way providers are reimbursed for expensive drugs that are administered on-site, such as expensive intravenous cancer treatments.

As implementation of the broader value-based systems approaches, groups representing doctors, hospitals and drug companies are bound to raise objections if they believe the new model will hurt their profit margin.

Dr. Zeke Emanuel, a former Obama administration health adviser who now teaches at the University of Pennsylvania, summed up the dynamic in an interview with The Hill:

“You're taking the money from many of these organizations. They're going to be resistant. It's like, duh.”

Instant Insights /

Providers face tough choices with new Medicare payment models

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