Alternative Payment Models: The Way Forward


There is widespread belief in the health policy community that alternative payment models (APMs) can help the U.S. achieve the goals of lower health care costs and higher quality care. By tying payments to quality and performance, rather than to volume of services, and by requiring coordination and communication between providers, APMs incentivize efficient resource use and improve health outcomes.

Although they share a common goal of paying for value rather than the volume of care provided, APMs can take many forms. At times it may seem that every stakeholder has a unique opinion on the best way to implement these reforms, and frequent changes in policy direction can make forecasting the future of health care delivery difficult.

In this post I’ll review some current opinions on APMs and discuss the future of these models. For an introduction to APMs, see Alternative Payment Models: Reforming the Payment System.

Does MEDPAC’s recommendation that MIPS be replaced mean that the MIPS program is over?

In a recent report (March 18, 2018) the Medicare Payment Advisory Commission (MedPAC) recommended that the Merit-based Incentive Payment System (MIPS) program be reexamined – however, the MIPS program continues to be active today. In January of 2018, MIPS started performance year 2. The MEDPAC does not have the authority to cancel MIPS, but their recommendations to Congress carry weight and frequently influence federal health policy.

It is notable that MedPAC did not recommend that the entire Quality Payment Program (QPP) be replaced—just the MIPS track. In fact, MedPAC was in favor of expanding the Advanced Alternative Payment Model (APM) track. In place of the MIPS track, MedPAC suggested that whenever a provider charges for a service, a small percent of each payment should be withheld by the payer. Then, performance on measures of health care quality (based on Medicare claims) would be used to determine whether that amount would be paid back in full. This method would a) tie payments to quality so that providers offering higher quality services see a monetary bonus, and b) reduce the reporting burden on providers as claims-based measures can be calculated by the payer using the same data providers submit for payments.

Some episode-based payment models have been canceled, and others have become voluntary programs. What’s likely to happen to APMs and large-scale research to determine how effective they are?

In his tenure as Secretary of Health and Human Services (HHS), starting in the fall of 2017, Secretary Alex Azar has made statements in support APMs and Medicare payment reform demonstrations. On March 5, 2018, he spoke to members of the Federation of American Hospitals, saying, in reference to the traditional fee-for-service system, “… there is no turning back to an unsustainable system that pays for procedures rather than value…. In fact, the only option is to charge forward—for HHS to take bolder action and for providers and payers to join with us.”

Secretary Azar demonstrated his support for federal programs taking the lead in driving APM adoption by saying that “only Medicare and Medicaid have the heft, the market concentration, to drive this kind of change, to be a first mover.” Demonstrating bipartisan support for Medicare APMs, Senators Bill Cassidy, a Republican from Louisiana, and Sheldon Whitehouse, a Democrat from Rhode Island, jointly wrote to Secretary Azar requesting that Medicare continue to lead on delivery system reform efforts (link to the Cassidy Whitehouse letter).

What’s next for APMs?

All signs point to APMs sticking around in the health care industry for some time. The Centers for Medicare and Medicaid Services (CMS) has issued few statements about their plans for new Medicare APM demonstrations and evaluations. However, outside of Medicare, there has been growing interest in and adoption of APMs.

There have been calls for alignment between APMs under traditional Medicare and APM efforts in Medicare Advantage (MA), which provides services to Medicare beneficiaries through managed care plans. The America’s Physician Groups wrote a letter to CMS Administrator Seema Verma in support of a CMS MA APM demonstration project. Farzard Mostashari and Travis Broom of Aledade, Inc., wrote about Medicare ACO alignment with MA plans in the New England Journal of Medicine blog, the Catalyst.

Commercial payers are also experimenting with APMs. For example, Blue Cross Blue Shield of Massachusetts has had a two-sided risk model called the Alternative Quality Contract in place since 2009 and United Healthcare started a bundled payment collaboration with the University of Texas MD Anderson Cancer Center in 2014. Also, new and innovative models for Medicare are being developed by groups outside of CMS through the Physician-Focused Payment Model Technical Advisory Committee.

Medicaid has been experimenting with APMs through the 1115 Delivery System Reform Incentive Payment (DSRIP) program since 2010, and there are other state-based APM efforts as well – for example, 11 states have active Medicaid ACOs and 10 more are pursuing them.

While there is frequent disagreement over the best routes to cutting health care costs and improving quality, APMs are one area where broad groups of health care system stakeholders seem to be in agreement. Although there are many kinds of APMs, it seems the age of paying for volume without thought to value is past and APMs are here to stay.

Editor's note: This is part two of a two-part series on alternative payment models. For further information, read the first installment, Alternative Payment Models: Reforming the Payment System