CMS’s Growing Interest in Value-Based Payments

The Centers for Medicare and Medicaid Services (“CMS”) is increasing its efforts to transform Medicare from a fee-for-service payment system to a payment system that pays based on the value, quality, and outcome of the services provided.

In 2015 and 2016, the CMS implemented several mandatory episode-based payment models for joint replacement, cardiac rehab, acute myocardial infarction, coronary artery bypass graft, and surgical hip/femur fracture. Under the episode-based payment model, payment for all care related to the specific condition provided within 90 days of hospital discharge was included in the episode of care payment. The CMS noted that it believed these models would further the goals of improving efficiency and quality of care for Medicare beneficiaries receiving care for these common clinical conditions and procedures.

In 2017, with a change in administration, the CMS rescinded most of the mandatory episode-based payment models and allowed certain hospitals to opt-out of participation in the joint replacement model, leading many to speculate that there would be no further expansion of mandatory bundled payment models in the Trump administration. However, in 2019, the CMS proposed a radiation oncology episode-based payment model that, if finalized, may lead to further episode-based models for other common conditions/procedures or the re-introduction of some of the 2015/2016 models.

Previous value-based payment models have generally involved the CMS sharing gains with providers but allowing providers to limit their share in losses. Increasingly, the CMS now appears to be designing payment models that will require providers to bear downside risk along with gains. The CMS has also finalized revisions to the Medicare Shared Savings Program that require accountable care organizations to repay the CMS a portion of any shared losses beginning in the third year of participation. In addition, the CMS has begun adding voluntary primary care value-based payment models.

In 2019, the CMS proposed exceptions to the physician self-referral law for certain value-based arrangements between or among providers that include full financial risk arrangements and meaningful downside financial risk to physicians. Though not finalized, these proposed rules would suggest that the CMS is promoting value-based payments on multiple fronts.

All of these recent developments signal a trend by the CMS to restart the initiatives that began in 2015 to move from fee-for-service to value-based payment for services. The year ahead should prove instructive as to whether these initiatives, if finalized, will result in a significant and lasting shift to value-based payment models.