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2023 Physician Fee Schedule Final Rule Supports Health Equity Through Investments in Accountable Care Organizations

The Centers for Medicare & Medicaid Services (CMS) recently issued its Medicare Physician Fee Schedule (PFS) final rule (the “final rule”), with most changes becoming effective January 1, 2023.

Each year, the final rule defines payment for physician services in various settings, including “physician offices, hospitals, ambulatory surgical centers, . . . skilled nursing facilities and other post-acute care settings, hospices, outpatient dialysis facilities, clinical laboratories, and beneficiaries’ homes.”[1] While the final rule addresses modifications to the methodology for calculating physician payment among several programmatic changes, this Insight focuses on the final rule’s changes to the Medicare Shared Savings Program (MSSP), which are a means to achieve CMS’s and the Biden administration’s goal of improving health equity by encouraging new accountable care organization (ACO) entrants into MSSP and further supporting the success of ACOs focused on serving rural and underserved populations.

The Medicare Shared Savings Program

MSSP is a program under traditional Medicare that incorporates value-based elements into fee-for-service care delivery. Under MSSP, CMS arranges for care to be delivered through networks of providers created and maintained by ACOs. Through their care management interventions, ACOs endeavor to save money on the total cost of care delivered to their attributed population through either shared savings or both shared savings and shared losses with CMS.[2] Unlike Medicare Part C (also known as Medicare Advantage), there are no health plans involved in MSSP, and CMS still pays claims directly for all services rendered. CMS estimates that “over 11 million people with Medicare receive care from one of 528,966 health care providers in the 483 [ACOs] participating in [MSSP], the largest value-based purchasing program in the county.”[3] We anticipate that MSSP and other similar programs will continue to grow because CMS stated in January 2022 that its goal is that “100 percent of people with Original Medicare will be in a care relationship with accountability for quality and total cost of care by 2030.”[4]

Changing MSSP to Expand the Program and Achieve Greater Health Equity

The following policy changes, largely unchanged from their debut in the 2023 PFS proposed rule, are prime examples of CMS’s interest and investment in growing MSSP by encouraging new ACO entrants and sustaining incumbent ACOs as they continue to reduce their health care spend while meeting baseline quality standards.

1. New ACOs May Receive Advanced Investment Payments to Help Establish Themselves in MSSP

Beginning in January 2024, CMS will provide an advanced investment payment (AIP) to certain ACOs that are new to MSSP. ACOs that are considered to be “low revenue” and “inexperienced with performance-based risk Medicare ACO initiatives” are invited to apply for an AIP as part of their application to participate in MSSP. The AIP will consist of (i) a one-time, $250,000 payment, and (ii) a total of eight per-beneficiary quarterly payments for the first two years of the ACO’s participation in the program. Quarterly payment amounts will vary by ACO and depend on their panel of attributed members. CMS is still finalizing its proposal but expects that ACOs with more Medicare Part D low-income subsidy enrollees and more dually eligible enrollees will receive a greater per-beneficiary quarterly payment.

Recipient ACOs will be responsible for repaying the AIP to CMS through any shared savings earned over the term of MSSP (five consecutive performance years). However, as the final rule explains, this repayment mechanism is not a form of downside risk: “[I]f the ACO does not achieve shared savings in all 5 of its performance years of its agreement period and does not renew for another agreement period in [MSSP], we would not recoup any AIPs made to the ACO.”[5]

2. Inexperienced ACOs May Remain in an Upside-Only Arrangement for Their Entire First Agreement Period

CMS acknowledges the chilling effect that moving too quickly to upside and downside risk may have on inexperienced ACOs. In an effort to keep more ACOs involved in MSSP, the final rule will “allow certain ACOs in their first agreement period in the program to maintain participation in a one-sided model (with a lower sharing rate) for a longer period of time, rather than having those ACOs leave the program altogether to avoid transitioning to a two-sided risk before the ACO is confident it has been able to implement the systemic changes necessary to deliver high quality, value-based care.”[6] This means that ACOs, depending on their experience in risk-bearing arrangements, may enter in the BASIC track and remain at Level A (shared-savings-only model) within the BASIC track for all five years (plus an additional two years for certain ACOs) before transitioning to an upside and downside risk arrangement and continuing to move along the BASIC track glide path.

Under this new trajectory, ACOs may enjoy a maximum of seven years under a shared-savings-only model as compared to the maximum two years under the BASIC track glide path (i.e., BASIC track Levels A and B in years one and two and take on downside risk in Level C during year three).[7] Further, the ACO’s determination of “inexperience,” and therefore its eligibility to remain in a one-sided risk arrangement, will be entirely based on the ACO’s exposure to performance-based Medicare ACO initiatives. CMS will not consider the ACO’s revenue level so as to not “disincentivize the formation of ACOs that include high-cost providers (that is, high revenue ACOs)” and to allow a broader group of entities to participate in the lower-risk contracting model.[8]

3. More ACOs Will Be Eligible for Some Level of Shared Savings Using a Quality Performance Sliding Scale

CMS is expanding eligibility for shared savings under MSSP by transitioning the “quality cliff,” which previously excluded certain ACOs from sharing in savings, to a more flexible “sliding scale.” Under the current “quality cliff” infrastructure, “an ACO is eligible to receive a shared savings payment . . . provided that the ACO meets both the quality performance standards . . . and achieves the required level of savings against its historical benchmark.”[9] This creates an “all-or-nothing” infrastructure under which an ACO will share in savings at the maximum allowable sharing rate, but only if it meets or exceeds the specified performance standards. Any ACO falling short of that standard is completely excluded from savings, regardless of its financial performance.

However, beginning in performance year 2023, an ACO will still be eligible for shared savings (based on its financial performance) but at a decreasingly lower rate based on its quality performance score. The quality performance score “would reflect the ACO’s [Merit-Based Incentive Payment System (MIPS)] Quality performance category score plus any health equity adjustment bonus points the ACO is eligible to receive.”[10] The combination of the sliding scale, plus the advent of a health equity adjustment bonus (as discussed in the next section), will insulate ACOs from an outsized impact caused by fluctuations in the ACO’s MIPS Quality performance category scores and create a greater chance of financial success for those participating in the program.

4. ACOs Serving a High Proportion of Underserved Beneficiaries May Enjoy Higher Quality Scores Due to a Health Equity Adjustment

As a companion innovation to the AIPs discussed above, CMS will formulate and apply a health equity adjustment for purposes of upwardly adjusting quality scores for ACOs serving a high proportion of underserved beneficiaries. This update is based upon a proposal that received broad support in the proposed rule as well as historical conversations in which CMS contemplated risk adjusting quality measures to account for demographic information, including geographic location, socioeconomic status, education, race, ethnicity, gender, preferred language, disability status, and health literacy. However, CMS ultimately rejected such risk adjustment because “[r]isk adjustment for social risk factors may also have the unintended effect of setting lower quality standards for underserved populations, rather than ensuring high quality standards for all populations . . . .”[11]

Instead, the final rule adopts an incentive for ACOs to receive up to 10 additional points to their MIPS Quality performance category score based on “the joint consideration of an ACO’s performance on quality measures and the population serviced by the ACO, such that ACOs that perform well on quality measures and serve a higher population of beneficiaries who are from underserved neighborhoods . . . or are dually eligible for Medicare and Medicaid would receive a higher number of bonus points.”[12] This adjustment will be available to ACOs who report on the six measures in the Alternative Payment Measure Performance Pathway measure set, a reporting and scoring pathway used as part of Medicare’s MIPS (referred to as the “APP measure set” in the final rule), and would be available to those ACOs both in the BASIC and ENHANCED tracks.

5. Changes to Calculating ACO Historical Benchmarks to Stave Off Diminishing Returns for Incumbent ACOs

Starting on January 1, 2024, CMS will include a prior savings adjustment in its benchmark for returning/renewing ACOs so that such entities are not required to “continually beat their own performance (also referred to as a ‘ratchet effect’).”[13] The adjustment will incorporate a prospective projected administrative growth factor called an Accountable Care Prospective Trend (ACPT) into the existing national and regional growth rates.[14] The ACPT, which is set for the whole agreement period at its outset, serves to “insulate a portion of the annual update from any savings occurring as a result of the actions of ACOs participating in [MSSP].”[15] The purpose of this adjustment is to support the agency’s goal of longer-term participation in MSSP rather than having ACOs exit as they find it harder to meet their savings benchmarks and therefore are more likely to be responsible for shared losses.

Conclusion

Since its inception, MSSP has demonstrated a long-standing focus on appropriate care delivery and care coordination for traditional Medicare beneficiaries. The final rule serves to expand the reach of that focus to additional Medicare beneficiaries, especially those in rural and underserved communities, through the implementation of these policy changes.

ENDNOTES

[1] CMS Fact Sheet, “Calendar Year (CY) 2023 Medicare Physician Fee Schedule Final Rule – Medicare Shared Savings Program” (Nov. 1, 2022), available at https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2023-medicare-physician-fee-schedule-final-rule-medicare-shared-savings-program.

[2] CMS Final Rule, “CY 2023 Payment Policies Under the Physician Fee Schedule and Other Changes to Part B Payment and Coverage Policies,” 87 Fed. Reg. 69404 (Nov. 18, 2022), available at https://www.govinfo.gov/content/pkg/FR-2022-11-18/pdf/2022-23873.pdf (hereinafter “CMS Final Rule”).

[3] Id. at 69777.

[4] Id. at 69809.

[5] Id. at 69803.

[6] Id. at 69808.

[7] The BASIC track glide path has ACOs move up one level each year, starting at Level A in year one and progressing to Level E in year five. CMS requires ACOs to take on downside risk beginning in Level C (i.e., year three of their MSSP participation); https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/ssp-aco-participation-options.pdf.

[8] CMS Final Rule, supra note 2, at 69811.

[9] Id. at 69830.

[10] Id. at 69831.

[11] Id. at 69839.

[12] Id.

[13] Id. at 69880.

[14] Id. at 69882.

[15] Id.

©2023 Epstein Becker & Green, P.C. All rights reserved.National Law Review, Volume XII, Number 337
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About this Author

Jackie Selby, Epstein Becker, Health Care Attorney,
Member

JACKIE SELBY is a Member of the Firm in the Health Care and Life Sciences practice, in the firm's New York office.

Ms. Selby:

  • Negotiates agreements by and among managed care companies, insurers, hospitals, health systems, physicians and ancillary providers

  • Advises clients on compliance with state and federal health care laws and regulations

  • Counsels clients on third-party payor reimbursement and operational...

212-351-4627
Marjorie T. Scher Attorney Healthcare Law Epstein Becker Green
Associate

Managed care organizations and health care providers know they can rely on attorney Marjorie Scher for help on managed care contracts and regulatory matters, including Medicare and Medicaid compliance, value-based payment methodologies, and corporate practice of medicine.

Marjorie understands the complexities of the network arrangements in the managed care space, including in- and out-of-network reimbursement and intermediary carve-out service arrangements for services such as behavioral health and disease management.

...

212-351-3745
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