As Medicare moves to implementthe Medicare Access and CHIP Reauthorization Act, which establishestwo distinct forms of value-based payment, hospitalsare debating which option they should go with ahead of the plannedimplementation in 2019.

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The first option is the merit-based incentive payment system,which pays doctors and providers based on a number ofperformance-based criteria. The second is for the hospital to comeup with an “alternative payment model” that is subject to approvalby Medicare.

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

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Examples of alternative payment models that CMS alreadyuses in pilot programs are accountable care organizations andbundled-payment systems.

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Accountable care organizationsare groups of medical providers that agree to provide coordinatedcare to patients and are rewarded based on the savings they achieveby cutting costs. In some private sector arrangements, providersshare in the savings they provide to insurers but do not assumepart of the risk if the cost of the care exceeds the target. Underthe new Medicare rules, an accountable care organization will onlybe considered a quality alternative payment model if theprovider agrees to share in the risk.

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

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

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

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And yet, abiding by the merit-based incentive paymentsystem is not anticipated to be easy either. CMS has estimatedthat 60 percent of small practices — those with between two andnine doctors — would be subject to financial penalties underthe merit-based incentive payment system if they do notchange their practices.

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

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

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

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

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