Alternative Payment Models: Reforming the Payment System


Rising costs are plaguing health care systems around the world, and payers are exploring payment reforms to reduce those costs. Private and public payers alike are experimenting with ways to link payments to the quality and value of care provided, rather than the volume of services. By paying per unit of care provided without accounting for quality of care, the traditional fee-for-service (FFS) payment system incentivizes volume of services, which may contribute to high healthcare costs. Alternative payment models (APMs) are designed to reform the traditional FFS system by tying payments to quality and requiring communication and coordination of care among teams of providers.

RTI has decades of experience implementing and evaluating different types of APMs, and in that time APMs have become an increasingly importance component of the healthcare landscape in our country. In this post I’ll provide some background on APMs. In a subsequent post, I’ll discuss the future of these models.

What is an APM?

“APM” is a very broad label referring to arrangements designed to move health care away from traditional FFS payments, which incentivize volume, and toward a system that uses reimbursement to incentivize quality and outcomes. Under FFS, each service performed (e.g. each test, visit, treatment) is reimbursed individually; under an APM, payments are organized to promote coordination of care, efficient use of resources, and improvements in quality. Harold Miller, President and CEO of the Center for Healthcare Quality & Payment Reform, analogized health care to selling consumer electronics, equating FFS care with people buying individual circuit boards and antennas while APMs offer customers an already assembled TV. While the label “APM” may be relatively new, many of the concepts underlying APMs are familiar, such as bundled (or episode-based) payments, capitation, Accountable Care Organizations (ACOs), and medical homes.

RTI has been leading APM design and research since the original Physician Group Practice Demonstration, which began in 2005. Our current work includes evaluations of the Independence at Home demonstration, Maryland’s Global Budgets, and the State Innovation Models. RTI leads design and implementation of many Quality Payment Program (QPP) Advanced APMs (a subset of APMs that meet certain QPP requirements, which are discussed below).

I’ve heard the terms MACRA and QPP. Are they the same thing?  

The bipartisan Medicare Access and Children’s Health Insurance Program (CHIP) Reauthorization Act of 2016 (MACRA), was comprehensive legislation to, among other things, extend CHIP (public health insurance for children from modest-income households) and replace the Sustainable Growth Rate (SGR)) with the QPP. The SGR was Medicare’s prior cost containment strategy, which used the previous year’s Medicare expenditures to create a target for the following year’s expenditures. Often the recommendation was reductions in payments to providers, yet the SGR was ineffective in containing costs as the cuts were rarely implemented, with Congress suspending the cuts each year.

Like the SRG it replaces, the QPP is a cost containment strategy, but rather than across-the-board cuts, the QPP is an effort to shift Medicare payments from volume to value. The QPP has two tracks, the Merit-based Incentive Payment System (MIPS) and the Advanced APM track. Most providers in the Medicare program are subject to MIPS (though there are exemptions for providers new to Medicare and small practices). Providers in Advanced APMs are not subject to MIPS, rather they participate in the Advanced APM track of the QPP (described below).

MIPS track—There are four components to a MIPS score; each component is weighted differently (e.g. the quality component is weighted more heavily than the others) but all components together create a single MIPS score. The score is then compared to a benchmark to determine whether the eligible clinician receives an upwards or downwards payment adjustment on their Medicare reimbursements. Three of the four components of the MIPS score replace existing Medicare programs, and one component is new.

MIPS Components Program MIPS is Replacing
Quality Component Physician Quality Reporting System (PQRS)
Advancing Care Information Component EHR Incentive Program (often known as "meaningful use"
Cost or Value Component Value-Based Modifier program
Improvement Activities Component NEW, focused on practice improvement activities

Advanced APM track—The non-MIPS QPP track is for providers participating in Advanced APMs. To be an Advanced APM, the APM must: 1) use certified electronic health record technology, 2) tie payments to quality measures, and 3) either meet the requirements of a primary care medical home or apply a two-sided risk methodology. A primary care medical home must focus on improving access, communication, and care coordination, and involve empanelment, or assignment of individual to providers. Two-sided risk means that if actual expenditures exceed expected expenditures, a monetary penalty is enforced.

There are nine payment models, sponsored by the Centers for Medicare and Medicaid Services (CMS), that qualify as QPP Advanced APMs for 2018. One example of a QPP Advanced APM is the Medicare Bundled Payments for Care Improvement Advanced Model (BPCI Advanced). BPCI Advanced is an episode-based payment model, meaning that an expected or target cost is set for all services associated with a particular condition or service. When a beneficiary triggers that condition or service, costs are bundled for all services, often across multiple providers. If the costs associated with the full episode are less than the target, the providers share in the savings; if the associated costs are greater than the target the providers may have to share in the losses. The other QPP 2018 Advanced APMs are: Comprehensive Primary Care Plus, Comprehensive Care for Joint Replacement Payment (Track 1 - certified electronic health records), Comprehensive ESRD Care (two-sided risk arrangement); Medicare Accountable Care Organization (ACO) Track 1+, Medicare Shared Savings Program Accountable Care Organizations—Track 2, Medicare Shared Savings Program Accountable Care Organizations—Track 3, Next Generation ACO Model, and the Oncology Care Model (two-sided Risk Arrangement).

As systems around the world have committed to experimenting with APMs, learning more about the anticipated and unanticipated impact these payment models have is important for all health care stakeholders. 

Editor's note: This is part one of a two-part series on alternative payment models. For further information, read the second installment, Alternative Payment Models: The Way Forward