Understanding Alternative Payment Models and Related Regulatory Issues

Published by The Health Lawyer

Colin McDermott, CFA, CPA/ABV, VMG Health and Lisa G. Han, Esq., Jones Day

With the advent of the Patient Protection and Affordable Care Act (“PPACA”), (1) the healthcare industry has since made great strides in transforming from a fee-for-service (“FFS”) system to value-based models. PPACA
provides policymakers and the Centers for Medicare & Medicaid Services (“CMS”) with great flexibility to test payment models for Medicare FFS patients. (2) In 2015 the U.S. Department of Health and Human Services (“HHS”) announced its goal of shifting 30 percent of Medicare FFS by the end of 2016, and 50 percent by the end of 2018, to value through alternative payment models (e.g., accountable care organizations (“ACOs”) and bundled payment arrangements). (3) As authorized by PPACA, CMS established the Center for Medicare & Medicaid Innovation (“CMMI” or “Innovation Center”) to test innovative payment and service delivery models that improve care, lower costs, and better align payment systems to support patient-centered practices. (4) The programs implemented by CMMI focus on Medicare, Medicaid and the Children’s Health Insurance Program (“CHIP”). CMMI has since implemented a number of value-based initiatives, such as the patient centered medical home, (5) the Medicare Shared Savings Program (“MSSP”), (6) the Bundled Payment for Care Improvement Initiative (“BPCI”), (7) the Comprehensive Care for Joint Replacement Model (“CCJR”)8 and the NextGen ACO program. (9) Although some of the programs have been scaled back or terminated in the past few years, CMMI has noted that it may add or reintroduce them later and has continued to introduce new programs, such as the direct provider contracting model. (10)

While alternative payment models are not new in the commercial insurance
industry, the passing of PPACA and the implementation of many innovative value-based programs by CMMI for the government healthcare programs have accelerated the development of value-based contracting for commercial payors. Commercial payors have followed the trend led by CMMI by implementing a variety of value-based programs with a diverse group of providers, especially ACOs and clinically integrated networks (“CINs”). ACOs originated from the MSSP part of PPACA, and many providers use the ACOs formed for MSSP purposes as a platform to develop relationships with commercial payors. CINs refer to a group of providers that are organized based upon the principles of clinical integration. (11) ACOs and CINs are not mutually exclusive, and many ACOs are organized to operate on the basis of clinical integration.

This article reviews value-based contracting models between payors (government payors and commercial payors) and providers and discusses the relevant legal, regulatory and valuation issues arising under the value-based contracting arrangements in both Medicare and the commercial market. (12)

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