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February 01, 2018

CMS Reshapes the Playing Field for Innovative Payment Models

Christopher Dean, Kristen Bohl and Catherine Martin, Baker Donelson, Baltimore, MD

The Centers for Medicare & Medicaid Services (CMS) continues to reshape the playing field of innovative payment models by cancelling proposed programs, limiting the scope of a mandatory, nation-wide program, and suggesting that different innovation programs would be released in 2018.  In particular, CMS cancelled the moribund Episode Payment Model (EPM) and Cardiac Rehabilitation Incentive Payment Model (CR Incentive Payment Model) outright.1 The Comprehensive Care for Joint Replacement (CJR) Model witnessed its broad mandate reduced from hospitals within 67 Metropolitan Statistical Areas (MSAs) to 33 MSAs and also provided low volume and rural hospitals an opportunity to opt out of its requirements.2  These changes should simplify existing models and could indicate that future models will do more of the same.

However, healthcare providers interested in pursuing innovative bundled payment models can remain optimistic for 2018.  Throughout these changes, CMS expressed that it remains focused on the continued testing and evaluation of innovative payment models aimed at improving quality and outcomes, reducing costs, and promoting transparency.  Healthcare providers can expect that CMS and its Innovation Center will present additional changes that could improve the Medicare reimbursement environment and reduce the administrative burden for many healthcare providers, including those involved in the CJR Model, Advanced Alternative Payment Models (APMs), and the Quality Payment Program (QPP).

EPM and CR Incentive Payment Models Cancelled

Under the now-cancelled EPM and the CR Incentive Payment Models, CMS proposed to establish bundled payment programs for acute myocardial infarction, coronary artery bypass graft, surgical hip/femur fracture treatment, and cardiac rehabilitation.3  In February 2017, CMS suggested that these models might be significantly delayed, modified, or cancelled, and the proposed cancellation was first announced in the Federal Register in August 2017.4 When it announced the final cancellation, CMS noted that providers and beneficiaries would be better served by more fully developed and improved models.  Curiously, CMS also observed that the CR Incentive Payment Model might be revisited in a different, voluntary model later, after soliciting stakeholder feedback about how to approach cost-efficient cardiac rehabilitation, which may exclude intensive cardiac rehabilitation services.

Healthcare providers who declined to heed CMS' warnings in February and August and planned to make changes in anticipation of those models may continue their efforts and stand to be well-positioned for future bundled payment programs - without the benefit of the bundled payment incentives.5  CMS noted that any investment in care coordination and quality improvement is a benefit to both providers and beneficiaries.6

What Happened to the CJR Model?

There are a number of changes to the CJR Model in the new calendar year that occurred in the same rule-making that cancelled EPM and the CR Incentive Payment Model.

1. One Half of the Mandatory MSAs are now Voluntary:  Thirty-three of the 67 MSAs used for the CJR Model become voluntary, which means that all hospitals located in the 33 voluntary MSAs will need to opt-in to continue as participants in the CJR program.  These 33 MSAs were selected because the hospitals had less of an opportunity to show overall episode payment improvement and less of an economic incentive to alter care.7  Hospitals located within a voluntary MSA that did not opt-in are no longer required to comply with the CJR program.  Individual hospitals were required to opt-in by January 31, 2018 and those that opted in are required to participate in the CJR program from February 1, 2018, to December 31, 2020.  This was a one-time opt-in event in an effort to minimize confusion and risk of gaming the system.8 

2. Voluntary Participation for Rural and Low Volume Hospitals:  Rural and low volume hospitals located in the remaining 34 mandatory CJR MSAs are no longer required to participate in the CJR program.  Rural and low volume hospitals in those MSAs that wanted to continue in the CJR program were also required to opt-in by January 31, 2018.  Similar to the hospitals in voluntary MSAs, this opt-in commits the hospital for the remaining three years of the CJR program.  These changes made sense because rural and low volume hospitals traditionally have significantly lower volumes and were unlikely to have a statistically relevant impact on the overall Medicare expenditures.  For example, low volume hospitals had fewer than 20 lower extremity joint replacement episodes during the three-year period from 2012 to 2014.9 

3. Clarification of Impact of Hospital Re-Organization on the Reconciliation Process:  CMS also addressed the impact of a hospital re-organization (i.e., acquisition, merger, divestiture or other reorganization) on the annual reconciliation process.  CMS conducts an annual reconciliation, or comparison, of the actual expenditure paid by Medicare for each clinical episode against the target price set by CMS for that clinical episode.  In an effort to provide further clarity and transparency, CMS added language to 42 C.F.R. § 510.305(d)(1) that specifies that where the re-organization event results in the issuance of a new participant hospital CMS Certification Number (CCN), separate reconciliations will occur. This means that separate reconciliation calculations will occur for episodes before and after the reorganization event that resulted in the new CCN.

4. Ability to Qualify as an Advanced APM Participant Could Make It Easier to Qualify Under the QPP:  Physicians, non-physician practitioners, and therapists who participate in the CJR program can also participate as a Qualifying APM Participant (QP) without being a CJR Collaborator.10  Previously, CJR hospitals provided a financial arrangement list to CMS of those eligible clinicians who entered into contractual, financial arrangements with the Advanced APM entity (the participant hospital for CJR program purposes).  This list, in turn, resulted in an Affiliated Practitioner List. CJR participant hospitals will now be able to create a clinician engagement list of physicians, non-physician practitioners, and therapists who are not CJR collaborators but have a contractual relationship with the CJR hospital that is based, at least in part, on supporting the CJR hospital's quality or cost goals under the CJR program. 

Individual professionals on the Affiliated Practitioner List are eligible clinicians who supported the Advanced APM’s quality or cost goals and therefore qualify as a QP.  With the change, CMS will consider both a hospital's financial arrangement list and a clinician engagement list as an Affiliated Practitioner List.  CMS will use the professionals on these lists to determine which professionals are QPs. 

This is important because QPs qualify for participation in an Advanced APM under the Quality Payment Program (QPP) and enjoy the benefits of the QPP without having to participate in the administratively tedious Merit-based Incentive Payment System (MIPS).11 Clinicians who become QPs in an Advanced APM are eligible to receive a five percent lump sum increase in their Medicare claim reimbursement.  This change acknowledges that the work performed by clinicians involved in Advanced APMs is valuable to the success of the APM and deserves consideration for the QPP, regardless of whether the involvement includes requiring the clinician to take on financial risk or receive compensation from the CJR hospital.

5. Composite Score Change Could Affect CJR Payments - or Amounts Owed to CMS:  The initial reconciliation for performance year 1 of the CJR program was conducted in early 2017.  Initial reconciliation calculations were made in the fall of 2017 to accommodate the appeals process.  CMS is now planning to conduct the reconciliation calculation for performance year 1 of the CJR Model in the first quarter of 2018.  CMS has warned that although this reconciliation may result in additional amounts being paid to some participants, others may have additional amounts to repay.12  To address this issue, CMS will combine these reconciliation results with the performance year 2 initial reconciliation results to offset the amounts as appropriate. 

The impact to the reconciliation calculations is the result of changes to the CJR Model included in the EPM final rule.  Although it would have been more favorable to have the improvements to the CJR Model quality measures and composite quality score methodology effective at the start of performance year 1 initial reconciliation, the provisions were delayed until May 20, 2017.  As a result, 42 C.F.R. §§ 510.305 and 510.315 in effect on April 17, 2017 differ from those currently in effect.  The use of the new provisions may result in a range of upward or downward payment adjustments for participant hospitals.

6. Extreme and Uncontrollable Circumstances:  CMS also issued an Interim Final Rule13 in the same Federal Register to address the increased episode costs as a result of natural disasters like Hurricane Harvey14 that occurred during the 2017 CJR performance year and which could also apply in future performance years.  This extreme and uncontrollable circumstances waiver would apply to those hospitals located (a) in a county, parish, territory, or tribal government declared under the federal Stafford Act,15 and (b) in an "emergency area" and "emergency period" set forth in a waiver set forth by CMS under Section 1135 of the Social Security Act.  For hospitals that qualify for the waiver, CMS will cap the actual episode spending amounts at the target amounts for those episodes, which means that hospitals would not be penalized on their bundled payment for incurring additional, unexpected costs from these events. 

The spending cap waiver differs depending on when the episode began in relation to the start of the emergency period and whether the lower extremity joint replacement episode was a fracture or a non-fracture episode.  For a non-fracture episode, an episode qualifies for the spending cap waiver if it began 30 days prior to and including the date of the emergency period.  This reflects that the greatest period of excess cost would most likely occur for those patients who were already admitted and then needed to be transported, or experienced other additional costs, because of the disaster occurring during the inpatient admission.  Non-fracture episodes would be unlikely after a natural disaster as these types of episodes are generally planned in advance and would be postponed and rescheduled as necessary.  For fracture episodes, the spending cap waiver applies to 30 days before, after, and on the date of the emergency period for fracture episodes.  Fracture episodes are primarily emergency or unplanned procedures and CMS did not want to provide hospitals a disincentive to postpone necessary care for these types of episodes.

What's Next?

Despite the cancellation of EPM and the CR Incentive Payment Model, CMS and the Innovation Center will continue to evaluate and develop bundled payment programs during calendar year 2018.  These programs will likely be designed to qualify as Advanced APMs, which would allow participants to qualify for participation in the QPP without meeting the MIPS criteria. 

New models will also likely also focus on reducing regulatory requirements.  This suggests strongly that new bundled payment models will also be Advanced APM models, which could allow clinicians an administratively easier path to complying with the QPP than completing the MIPS requirements.  For example, on January 9, 2018, CMS released its newest innovation model as a new twist on an existing model.  The Bundled Payments for Care Improvement - Advanced, or BPCI Advanced, is modeled after the existing BPCI program.16  This new program builds on the successes of the BPCI initiative and is also expected to qualify as an Advanced APM.  BPCI Advanced may be the first of many future models that contemplate both the amount of "red tape" that the new model will add as well as whether the new model could reduce red tape leftover from legacy payment models that were developed after the Patient Protection and Affordable Care Act and implemented before 2017.

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1 82 Fed. Reg. 57066 (Dec. 1, 2017).

2 Id. CMS established the CJR Model at 80 Fed. Reg. 73274 (Nov. 24, 2015).

3 82 Fed. Reg. 180 (Jan. 3, 2017).  The Federal Register published the original EPM and CR Incentive Payment Model Final Rule just prior to the end of the previous Administration's term and those rules were delayed in subsequent rule making.  82 Fed. Reg. 22895 (May 19, 2017). 

4 82 Fed. Reg. 39310 (Aug. 17, 2017).

5 82 Fed. Reg. 57066, 57070 (Dec. 1, 2017).

6 Id.

7 Id. at 57075.

8 Id. at 57080.

9 Id. at 57076.

10 CJR Collaborators are Medicare enrolled persons or entities that enter into financial sharing arrangements with CJR hospitals.  Physicians are one type of CJR collaborators.  42 C.F.R. § 510.2.

11 MIPS was created by Congress to replace four different programs that affected physician reimbursement: the Sustainable Growth Rate formula, the Physician Quality Reporting System, the Value Based Payment modifier, and the Electronic Health Record Incentive Program.  The Medicare Payment Advisory Commission (MedPAC), the independent congressional agency that advises Congress on Medicare, has expressed concern about the complexity and workability of MIPS.  MedPAC recommended a more streamlined alternative to MIPS in its June 2017 Report to the Congress on Medicare and the Health Care Delivery System.  MedPAC has slowly shifted support from MIPS to a simpler, voluntary value program.

12 82 Fed. Reg. 57090 (Dec. 1, 2017).

13 See 82 Fed. Reg. 57092 (Dec. 1, 2017).

14 CMS noted that over 70 hospitals in Texas and Florida were forced to evacuate in 2017 during Hurricane Harvey and Hurricane Irma.  82 Fed. Reg. 57092-93 (Dec. 1, 2017).

15 42 U.S.C. § 5121 et seq.  The Robert T. Stafford Disaster Relief and Emergency Assistance Act is the statutory authority for Federal disaster response activities.

16 See

Christopher Dean

Baker Donelson, Baltimore, MD

Christopher Dean advises physicians, physician group practices, hospitals, and other healthcare facilities regarding Medicare and Medicaid billing and compliance.  Lately, he spends a considerable amount of time advising clients on advanced payment systems (and drafting documents to meet their requirements), including accountable care organizations (ACOs), bundled payment systems (BPCI, BPCI-Advanced), the Merit-Based Incentive Payment System (MIPS), the Comprehensive Care for Joint Replacement program (CJR), Advanced APMs, and other payment models created since the passing of the Patient Protection and Affordable Care Act in 2010.  He may be reached at [email protected].


Kristen Bohl

Baker Donelson, Baltimore, MD

Kristen Bohl advises healthcare systems, hospitals and providers in compliance and regulatory issues, with particular emphasis on fraud and abuse matters and Medicare and Medicaid law and policy.  She may be reached at [email protected].

Catherine Martin

Baker Donelson, Baltimore, MD

Catherine Martin has a broad, national practice representing healthcare systems, hospitals and providers in compliance and regulatory matters with a particular focus on fraud and abuse, alternative payment models, provider and physician alignment strategies, and guidance on legal aspects of health system operations, both independently and in support of in-house counsel.  She may be reached at [email protected].