In the waning days of the Obama Administration, the Centers for Medicare & Medicaid Services (CMS) has unveiled a lengthy and complex final rule to establish mandatory Medicare bundled payment programs for acute myocardial infarction (AMI), coronary artery bypass graft (CABG), and surgical hip/femur fracture treatment (SHFFT) procedures furnished in designated geographic areas.  The rule also includes provisions to promote the use of cardiac rehabilitation services, refine current Comprehensive Care for Joint Replacement Model (CJR) rules, and integrate bundled payment programs into the new physician Quality Payment Program. The 1,606-page advance version of the rule was released on December 20, 2016; the official version is scheduled to be published January 3, 2017.

Note that President-elect Donald Trump’s designee for Secretary of Health and Human Services, Rep. Tom Price, M.D., has been highly critical of the proposed version of the rule published in August 2016, and has called on the CMS Center for Medicare and Medicaid Innovation (CMMI) to “stop experimenting with Americans’ health, and cease all current and future planned mandatory initiatives within the CMMI.” It is therefore uncertain whether all provisions of the final rule will actually be implemented as CMS currently envisions.  Nevertheless, impacted providers need to be prepared for potentially significant changes.

Mandatory Episode Payment Models for Cardiac Care, Hip/Femur Fractures

The final rule establishes new “episode payment models” (EPMs) that seek to “advance CMS’ goal of improving the efficiency and quality of care for Medicare beneficiaries and encourage hospitals, physicians, and post-acute care providers to work together to improve the coordination of care from the initial hospitalization through recovery.” CMS estimates that the EPMs will save $159 million during the duration of the program (July 1, 2017 through December 31, 2021).

CMS will “test” the EPMs beginning July 1, 2017 and ending December 31, 2021. CMS has selected 98 metropolitan statistical areas (MSAs) for the CABG and AMI EPMs, and will implement the SHFFT model in the same 67 MSAs where the CJR program is already underway. Acute care hospitals in these areas will participate in the models if they are paid under the Inpatient Prospective Payment System (IPPS) and are not concurrently participating in Models 2, 3, or 4 of the Innovation Center’s Bundled Payment for Care Improvement (BPCI) initiative for AMI, CABG, or SHFFT episodes. CMS estimates that approximately 1,120 hospitals will participate in the AMI and CABG models, and 860 hospitals will participate in the SHFFT model.

Under the final rule, an AMI, CABG, or SHFFT model episode will begin with an inpatient admission to an “anchor hospital” for the following specified Medicare Severity-Diagnosis Related Groups (MS-DRG):

AMI Model: AMI MS-DRGs 280-282 and those Percutaneous Coronary Intervention (PCI) MS-DRGs (246-251) with an ICD-10-CM diagnosis code of AMI

CABG Model: MS-DRGs 231-236

SHFFT Model: MS-DRGs 480-482

The episode will end 90 days after the date of discharge. The episode will include the inpatient stay and almost all related care covered under Medicare Parts A and B within the 90 days after discharge, including hospital care, post-acute care, and physician services, with very limited exceptions.  Note, however, that CMS will continue to pay hospitals and other providers and suppliers according to the usual Medicare fee-for-service (FFS) rules.

As under the current CJR program, the acute care hospital will be the “episode initiator” and bear financial risk for the quality and cost of EPM care. At the completion of an EPM model performance year (PY), CMS will compare (1) actual Medicare claims data for Medicare Parts A and B services furnished to beneficiaries during the episode, to (2) a hospital’s quality-adjusted target price based on historical data with various adjustments and discount factors to reflect savings to Medicare.  The target price initially will be based on a blend of hospital-specific and regional historical data, gradually transitioning to only regional pricing.  Hospitals that deliver care for less than the quality-adjusted target price and meet applicable quality standards will be eligible for a “reconciliation payment”; hospitals with costs that exceed the quality-adjusted target price will be required to repay Medicare after a phase-in period.

A number of factors are considered in determining reconciliation and repayment amounts, including stop-loss and stop-gain limits intended to “both protect hospitals from excess financial risk offset while limiting gains proportional to the potential downside risk.”

The final stop-gain limits are as follows:

PY Calendar Year EPM Episodes Included Stop Gain Limit
1 2017 EPM episodes that start on or after July 1, 2017 and end on or before December 31, 2017 Up to 5% of quality-adjusted target price
2 2018 EPM episodes that end between January 1, 2018 and December 31, 2018, inclusive Up to 5% of quality-adjusted target price
3 2019 EPM episodes that end between January 1, 2019 and December 31, 2019, inclusive Up to 5% of quality-adjusted target price
4 2020 EPM episodes that end between January 1, 2020 and December 31, 2020, inclusive Up to 10% of quality-adjusted target price
5 2021 EPM episodes that end between January 1, 2021 and December 31, 2021, inclusive Up to 20% of quality-adjusted target price

In the final rule, CMS is delaying the requirement to assume downside risk by 9 months; episodes ending on or after January 1, 2019 must assume downside risk. CMS is, however, allowing participants to voluntarily elect downside risk for episodes ending on or after January 1, 2018 in order to qualify as an Advanced Alternative Payment Model (APM) under the separate CMS Quality Payment Program (assuming all other conditions are met). The following table summarizes the final stop-loss thresholds and discount percentages by performance year (with lower thresholds for certain rural hospitals):

PY 1 PY 2 PY 3 PY 4 PY 5
Downside Risk (DR) for All Participants– DR effective for episodes ending on or after 1/1/2019 (anchor discharges occurring on or after 10/4/2018)
Stop-loss threshold n/a as no downside risk in PY1 and PY2 without election of voluntary downside risk for PY2 5% 10% 20%
Stop loss threshold for certain hospitals* 3% 5% 5%
Discount percentage (range) for Repayment, Depending on Quality Category 0.5%-2.0% 0.5%-2.0% 1.5%-3.0%
Voluntary Downside Risk – DR effective for episodes ending on or after 1/1/2018 (anchor discharges occurring on or after 10/4/2017)
Stop-loss threshold n/a as no downside risk in PY1 5% 5% 10% 20%
Stop loss threshold for certain hospitals* 3% 3% 5% 5%
Discount percentage (range) for Repayment, Depending on Quality Category 0.5%-2.0% 0.5%-2.0% 0.5%-2.0% 1.5%-3.0%

*Including rural and sole-community hospitals, rural referral centers, Medicare Dependent Hospitals and hospitals determined to be EPM volume protection hospitals within an EPM.

 CMS anticipates that EPM hospitals will enter into financial arrangements that allow EPM participants to share financial risk with EPM “collaborators” (e.g., gainsharing). The final rule includes the following entities as permissible EPM collaborators:  accountable care organizations; skilled nursing facilities (SNFs); home health agencies; long-term care hospitals; inpatient rehabilitation facilities; physicians; nonphysician practitioners; therapists in private practice; comprehensive outpatient rehabilitation facilities; providers of outpatient therapy services; physician group practices; hospitals; critical access hospitals; non-physician practitioner group practices, and therapy group practices. Any such financial arrangements must meet extensive standards set forth in the rule.

Under the final rule, CMS is waiving certain current Medicare rules to promote flexibility, including the three-day inpatient hospital stay requirement prior to a covered SNF stay (in limited circumstances) and certain telehealth restrictions. CMS is not waiving fraud and abuse authorities under the final rule, but CMS states that the HHS Office of the Inspector General (OIG) and CMS will jointly issue waivers of certain fraud and abuse laws for purposes of testing these models.

Cardiac Rehabilitation Model

CMS is also finalizing a new Cardiac Rehabilitation (CR) incentive payment model to test the use of CR and intensive cardiac rehabilitation (ICR) services for beneficiaries hospitalized for treatment of an AMI or CABG for 90 days post-hospital discharge, where the beneficiary’s overall care is paid under either an EPM or the Medicare FFS program. CR incentive payments will be available to hospital participants in 45 geographic areas that were selected for the CABG and AMI EPMs and 45 geographic areas that were not selected for the EPM program, and it will cover the same period as the cardiac care EPMs.

Under this model, CMS will make standard Medicare payments to providers for CR/ICR services (HCPCS codes 93797, 93798, G0422, and G0423), with an additional retrospective payment to participant hospitals based on total CR service use by beneficiaries attributed to the hospital (subject to Medicare coverage limits). CMS will make an initial payment of $25 per CR/ICR service for each of the first 11 CR/ICR services paid for by Medicare during the care period; after 11 services, the per-service payment increases to $175.

CMS estimates that 1,320 hospitals will participate in the CR Incentive Payment Model, and that the model’s impact on Medicare spending could range between $29 million in net Medicare costs and $32 million in net Medicare savings from July 2017 through December 2024, depending on the change in utilization of CR/ICR services.

Changes to CJR Program

The final rule adopts numerous changes to CJR program rules, including modifications to promote consistency with other EPM policies. Among many other things, the final rule:  modifies the calculation of quality adjusted target prices for Performance Years 3, 4, and 5 to include reconciliation and repayment amounts; revises beneficiary inclusion criteria; adopts changes to the reconciliation process; clarifies determinations that may be appealed; streamlines beneficiary notification requirements; expands the permissible types of CJR collaborators; revises SNF waiver policies; and modifies the terms for CJR sharing arrangements.

Medicare ACO Track 1+ Model

Separate from the final rule, CMS announced a new Medicare ACO Track 1+ Model incorporating more limited downside risk than in Tracks 2 or 3 of the Medicare Shared Savings Program. This model, which will begin in 2018, will qualify as an Advanced APM for purposes of the Quality Payment Program.