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The Financial Impact of MACRA – Uncertainty Reigns in a Recent RAND Corporation Study

With all the talk of the Affordable Care Act’s uncertain future, it is easy to forget about the Medicare Access and CHIP Reauthorization Act (“MACRA”), a bipartisan law passed by Congress in 2015 to change the way physicians will be reimbursed by Medicare. MACRA is a complex and confusing law. A new study published by Health Affairs in April 2017, which used the RAND Corporation’s Health Care Payment and Delivery Simulation Model (the “Study”), has estimated the potential effects of MACRA payment models on physician and hospital Medicare reimbursement revenue. The results: uncertain.

MACRA creates two payment models for physicians to choose from for Medicare Part B reimbursement. Within the models there are multiple payment track options. These new payment tracks are risk-based and are designed to encourage physicians to move into alternate Medicare payment models that foster value-based care, as opposed to volume-based care. The two reimbursement models are the Merit-Based Incentive Payment System (“MIPS”) and the Advanced Alternative Payment Models (“APMs”). MIPS scores are based on several integrated performance categories. Physicians are required, starting now in 2017, to collect and report data within the categories; and, based on the physicians’ performance, the physician’s Medicare reimbursement will be adjusted in 2019 up or down. Because MIPS is a “budget-neutral” scheme, each year there will be “winners and losers,” with some physicians getting enhanced reimbursement and others receiving reductions. APMs are risk-based Medicare payment systems, including specified existing APMs (such as Track 2 and 3 Shared Savings Programs, the Next Generation ACO Model, and certain bundled payment programs) and APMs that will be created in the future. Depending on which APM model physicians choose to participate in, they will shoulder greater or lesser amounts of reimbursement risk. Hospitals may participate in APM models as well.

The Health Affairs’ Study attempts to quantify the potential Medicare reimbursement impact of MACRA for physicians and hospitals participating in APMs between the years of 2015-2030. The Study cautions that “our estimates are subject to a high degree of uncertainty” and “should be interpreted with caution.” This is especially so since MACRA’s final regulations could change and new APM models may be introduced. Thus, the results must be taken with the proverbial “grain of salt.”

The Study utilizes a complex analysis with assumptions based on four scenarios: a pre-MACRA baseline and three MACRA scenarios based on financial incentive and risks – low, medium, or high. The range in Medicare reimbursement revenue depends on which financial risk model the physicians or hospitals choose to participate in. The Study found that physician Medicare revenue may decline anywhere between $35 billion to $106 billion compared to the pre-MACRA baseline, while hospital Medicare revenue may increase by $32 billion or decline as much as $250 billion. The Study “found that if these models use fairly strong financial incentives, Medicare payments to physicians will be far lower than they would have been without MACRA.” The Study also found that, because physicians may respond to different payment models in ways that reduce the use of hospital care, “[h]ospital revenue from Medicare will decrease by a larger magnitude than physician revenue . . .” But, the Study also reiterates that “[b]ecause MACRA represents such significant changes, physicians’ participation in APMs is highly uncertain.”

Ultimately, it may be too soon to predict the ultimate financial impact of MACRA’s APM models, since physicians and hospitals are just beginning to understand the role of value-based care. Nevertheless, regardless of the uncertain financial impact, one thing is certain: CMS must be careful how it designs and implements new APM models, and providers and hospitals must understand the impact of their participation in such APMs.

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume VII, Number 123

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About this Author

Steven J. Chananie, Sheppard Mullin, complex healthcare transactions lawyer, compliance arrangements attorney
Partner

Steven Chananie is a partner in the Corporate Practice Group in the firm's New York office, focusing on healthcare issues. Mr. Chananie has represented numerous healthcare providers, advising them on regulatory and fraud and abuse issues in the structuring of complex healthcare transactions and arrangements; guiding them in the resolution of potential compliance problems; and assisting them in implementing or modifying their compliance programs.  Mr. Chananie has also defended numerous clients against civil government actions and investigations, including in False Claims...

212.653.8199
Sophie Solomon, Bankruptcy Attorney, Sheppard Mullin Law Firm
Associate

Sophie Solomon is an associate in the Finance and Bankruptcy Practice Group in the firm's New York office. Ms. Solomon is also part of the firm's Healthcare practice team and Non-Profit Industry Team.

Areas of Practice

Ms. Solomon’s practice is focused on representing healthcare entities and not-for-profit corporations on a large range of transactional and regulatory and compliance matters. Ms. Solomon’s practice is also focused on representing Debtors and Creditors in chapter 7 and chapter 11 bankruptcies.

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