A version of this article was published in the September 2023 edition of Healthcare News.
The macroeconomic headwinds surrounding health care are changing, driving new dynamics and policy changes, bringing a significant impact to future reimbursement. For example, the Inflation Reduction Act has affected drug prices nationally. Additionally, regulations on health care transactions in Massachusetts, New York, Oregon, and California also could become a national trend.
As health care stakeholders navigate new developments, they face competing pressures, including the transition to value-based care (VBC), and market conditions like labor shortages, wage growth, and cost control. Care delivery is changing as virtual care becomes embedded within the continuum—driving new questions and complexities as policies and payment models catch up.
Health care providers need to be aware of changes so they can be ready for the future of reimbursement. Two recent webcasts, available on demand, feature insights from representatives of the Centers for Medicare & Medicaid Services (CMS), the Center for Medicare & Medicaid Innovation (CMMI), and the Medicare Payment Advisory Commission (MedPAC) into an uncertain economic and policy landscape.
Here are ways to prepare for the uncertain future of reimbursement:
About the Webinars
The Future of Reimbursement Through the Lens of CMS
- Eric Lucas, Managing Director, Health Care Consulting Practice, Moss Adams
- Susan Dentzer, CEO and President, America’s Physician Group
- Elizabeth Fowler, JD, PhD, Deputy Administrator and Director, CMMI
- Meena Seshamani, MD, PhD, Deputy Administrator and Director, CMS
The Future of Reimbursement Through the Lens of MedPAC
- Brian Conner, Partner, Health Care Consulting Practice, Moss Adams
- Susan Dentzer, CEO and President, America’s Physician Groups
- Michael Chernew, PhD, Chair, MedPAC
- Eric Klein, Partner and Team Leader, Shepard Mullin National Health Care Practice
Effects of the Inflation Reduction Act
The Inflation Reduction Act, passed in 2022, could create some risk exposure for health systems with its extensive reach, and health care stakeholders should be aware of its impacts. Pay attention to three provisions that could affect operations.
- Medicare can directly negotiate drug prices for certain high-expenditure, single-source drugs covered under either parts B or D. CMS has to publish the list of the first 10 Medicare drugs selected for that program in September 2023, with the goal being to generate a maximum fair price—aan upper limit for the negotiated price—for those drugs based on that negotiation process. Negotiated prices for the first 10 drugs will be available under this program in 2026.
- Pharmaceutical manufacturers must pay rebates if they raise prices faster than the rate of inflation. This change takes effect this year.
- The Part B inflation rebate manufacturers will now have to pay for certain single source drugs and biologicals with prices increasing faster than the inflation rate has implications for the 340B Drug Pricing Program.
To avoid a duplicate discount scenario, no later than January 1, 2024, CMS is requiring all 340B covered entities that submit claims for separately payable Part B drugs and biologicals to report modifier JG or TB on claim lines for drugs acquired through the 340B Drug Pricing Program. This isn’t new for hospitals paid under the Outpatient Prospective Payment System, but will be new for other covered entities participating in the 340B Drug Pricing Program.
Demonstrating CMMI’s early influence on these policy changes, Fowler explained the Innovation Center was proud of the model they tested to offer Part D insulin at $35—a model that would eventually inspire the provision in the Inflation Reduction Act. But there may be more to come here—Fowler added that CMMI has submitted a paper to the White House outlining additional potential opportunities for transformation.
On the MedPAC side of things, Michael Chernew acknowledged the tension between the Inflation Reduction Act’s cost control measures and the incentive to innovate. It’s a potential concern all stakeholders should be aware of, and an issue that deserves ongoing discussion.
CMS has demonstrated a commitment to cutting drug costs, but the reimbursement squeeze will mostly affect pharma. Health care providers should be aware of the changes, which will ultimately benefit patients, but rest assured at least for now, they’re not in the immediate path of risk exposure.
Transition to Value-Based Care
By 2030, CMS aims to have roughly 30 million Medicare beneficiaries served by providers in accountable care relationships with CMS. But is that going to happen?
During the Future of Reimbursement with CMS discussion in January 2023, panelists Elizabeth Fowler and Meena Seshamani emphasized the Medicare Shared Savings Program (MSSP) is the main focus of implementing CMS’s strategic plan. Health care providers want and need feedback from all stakeholders.
Experts discussed positive gains as well as some learnings. For example, the number of accountable care organizations (ACOs) in the MSSP declined from 483 in 2022, to 456 in 2023. That said, the number of Medicare beneficiaries served by these ACOs declined only slightly, from 11 million to 10.9 million, meaning the ACOs may be consolidating into larger groups and staying in the program, or mostly small-sized ACOs are leaving the program.
While ACOs have provided care more efficiently, the savings are marginal—just 2–5%, which hasn’t revolutionized spending in the fee-for-service (FFS) system.
One concern is rural providers are reluctant to assume the risk of a new payment model because they need stability and predictability, especially now. CMS acknowledged that strain, but suggested the need to resolve it so value-based care (VBC) prevails.
CMS efforts to remedy this strain include diversity, equity, and inclusion efforts such as health equity measures that reward providers serving disadvantaged groups. Panelists also discussed Advance Investment Payments. This is a concept tested by CMMI and then applied to MSSP, which involves giving money to new ACOs—up to $250,000 up front and $45 per member per quarter—to help them make value-based care financially feasible.
Some ACO experts appear excited about the Advance Investment Payments. During the pandemic many health care organizations deprioritized VBC strategies to focus on emergency response.
Now that the urgency of the COVID-19 pandemic has eased, many health systems and primary care provider networks are starting to reevaluate the MSSP, ACO Realizing Equity, Access, and Community Health (REACH), and commercial risk-based arrangements. This year is a strategic time for new ACOs to join the MSSP because of the Advance Investment Payments.
CMMI recently announced a new payment model dubbed Making Care Primary, being tested in eight states to encourage advanced primary care investments by Federally Qualified Health Centers (FQHCs), Tribal clinics, Method I Critical Access Hospitals, and solo and group primary care practices.
As mentioned, applications of VBC extend beyond ACOs. Some suspect the industry will continue to see population-based programs such as oncology bundles in the broader health care market. As reimbursement decreases, providers will turn toward such value-based changes to recover costs.
CMS is continuing to press its value-based strategy. When evaluating your approach to VBC, take a measured, gradual approach, and consider how external partners can support your internal resources.
The Growth of Medicare Advantage
The Medicare Advantage (MA) program has seen exceptional growth over the past few years, as roughly half of Medicare members are now enrolled in an MA plan. With these significant increases, there are several questions and implications, including around changing the benchmarks and transitioning MA to an ACO-driven model.
MA and MSSP Alignment
There’s an opportunity to align MA and MSSP and focus on parity. For example, the health equity index is designed to reward care for underserved populations enrolled in MA plans, similar to the health equity reward in MSSP. This, in turn, simplifies workflows and priorities for providers and globally drives VBC for both traditional Medicare and MA plans.
Value-Based Insurance Design
Value-based Insurance Design (VBID) targeting social determinants of health (SDOH) is another model the webcast discussed. This concept centers around clinical interventions and social support, where MA plans can address nutrition benefits, transportation, and other individualized needs.
Regarding star ratings, the panelists also mentioned the proposal to walk back a previous change that more heavily weighted patient experiences and complaints. They want to strike the right balance between patient experience and clinical outcomes.
What about changing the MA benchmarking methodology, something MedPAC has recommended? Presenters noted the predictability such adjustments would provide. But there are challenges to implementation and risks to moving too fast, they cautioned.
Responses to the agency’s request for information from the public warned against moving too quickly. Panelists noted the need for ongoing engagement with plans, providers, patient groups, and manufacturers.
MedPAC’s recommendations included payment cuts by at least two percentage points, although it could be more. The cuts are a result of the need for balance.
There have been some specific cases where MA plans—which aren’t all the same—have coded patient conditions and diagnoses more aggressively, due to incentives CMS didn’t intend to create. That's why there's a gap between FFS and Medicare Advantage.
The presenters expressed doubts the cuts would happen, noting the complexity of implementing benchmark changes.
The landscape surrounding Medicare Advantage is incredibly complex and heated politically. Most providers should prepare to move toward population health-based models for MA. They should also consider balancing the volume of these patients, and not focusing on Medicare Advantage despite the market growth. Many insurers might move toward profitable MA plans, diversifying is likely to be wise for healthcare provider organizations.
Changes to Medicare Physician Fees
Many providers worry about shrinking fee structures, watching for movement during Congress’s lame duck session.
MedPAC representative Michael Chernew acknowledged physician fees are under-pacing inflation. MedPAC will be reporting in March 2024. Previous MedPAC meetings included discussion of recommendations around this issue. Chernew acknowledged the challenge in flat nominal physician fees and said stakeholders will need further discussion on that.
Changes described as cuts aren’t necessarily a decrease; fees are being returned to their pre-pandemic trajectories. Because the reimbursement for evaluation and management (E&M) codes increased, the cut is designed to impose budget neutrality more broadly.
To offset the cost of paying more for E&M services, there was a cut in the conversion factor spread out over multiple years. It felt like a cut, however, for health care providers.
Cut or not, it’s an area of great interest with an unclear future, though Chernew suspects there will be pressure on Congress to stall the payment changes. He added physician payments writ large will require attention beyond just these changes, including around telehealth.
In the meantime, MedPAC is paying close attention to providers that support the safety net—as well as how any potential payment policies affect sites of all sizes.
“Often, we have a small physician practice in mind,” said Chernew. “There are a lot of small physician practices, but a growing number of physicians are now practicing for large organizations. When we talk about changes to physician payments, a lot of that money is going to the organizations those physicians work for. There's a lot of attention—historic MedPAC attention—on site-neutral payments.”
With so much uncertainty over the direction of physician payments, providers should stay engaged on this topic. Strategic assessment of these changes and proposed changes can ensure alignment with operating goals.
Telehealth and Virtual Care
With the explosive growth of telemedicine, many providers wonder if policy corrections are an inevitability. Emphasizing that telehealth is very much on the MedPAC agenda, Chernew noted the need to balance the value of these tools with the understanding that blanket permissiveness carries with it some risks.
Remote Patient Monitoring
Remote monitoring has a lot of potential patient benefits, but at the same time, introduces regulatory compliance implications, payment complexities, and doesn’t fit well within an FFS program. MedPAC plans to explore permanent solutions from a payment perspective.
In addition, Chernew emphasized the potential administrative burdens of expanding the virtual care tools. For example, new technologies such as artificial intelligence (AI) interpretation often come with new billing codes. That raises questions about how to deal with the associated cost-sharing of those tools—do you send a bill for each item or bundle services?
These technologies make the case for broader payment models that don’t require the administrative burden of delineating codes, according to Chernew. People messaging their providers raises the question of what constitutes care beyond the bounds of a visit?
As telehealth grows, this must be addressed, and MedPAC is watching the issue.
Health care providers should be aware of the many implications of a continuously digitized care continuum. Much of that includes remote monitoring’s clinical impacts as well as the best way to approach technologies, such as AI-enabled clinical care.
There’s also the issue of fraud. In light of warnings and fraud alerts from the Office of Inspector General (OIG), US Department of Health and Human Services, and others, providers should be cautious with telehealth billing of internal services as well as engaging third-party telehealth vendors.
Assess and audit processes routinely and stay aware of state and federal policies and licensing requirements, which can be very different.
What Else We’re Watching
Stakeholders should also pay attention to the following issues.
Traditional Medicare: Fee-for Service
Don’t ignore traditional Medicare FFS regardless of the shift to Medicare-managed care. Over the next few years, providers can expect significant changes to traditional Medicare payment rates, refinements refocusing current reimbursement payments, and additional financial reporting requirements that could challenge hospitals to capture all available reimbursement.
Based on recent proposals, MedPAC recommendations, and the state of hospital financing, Medicare Disproportionate Share Hospitals (DSH) payments and wage index reporting may receive additional attention from policymakers.
Social Determinants of Health
The financial impact of SDOH measures is becoming more significant in Medicare FFS as well.
For example, under the 2024 proposed IPPS rule, CMS is proposing to change the severity designation of ICD-10 diagnosis codes indicating a patient is homeless to complication or comorbidity, recognizing greater resource use for this population, and resulting in increased claims payment.
Further, health equity measures will be introduced into the VBC payment determinations. Gathering SDOH data is challenging, and hospitals should develop the supporting infrastructure, as this is likely to increase in number of metrics and financial impact in the coming years.
With the influx of these changes, ensure you have people to keep track of the many moving pieces and break through departmental silos.
Site Neutral Payments
While more care continues to shift from the inpatient settings to outpatient settings and ambulatory facilities, Congress and CMS continue to review proposals that move toward site-neutrality payment methodologies for outpatient services.
The overall impact could mean significant reduction to hospital Medicare reimbursement. Hospitals should consider these potential changes in their long-term strategic planning.
Medicare Cost Reporting
More complexity has also been introduced in Medicare cost reporting recently, a trend likely to continue as the focus remains on transparency. CMS released updates over the past months that greatly expand upon current reporting requirements and require immediate focus to ensure providers can report appropriately.
Acute care hospitals will face additional reporting requirements starting as early as next year that could impact reimbursement in a number of areas, including Medicare bad debts, Medicare DSH, Medicare DSH uncompensated care, and organ transplant reimbursement.
While CMS evaluates reimbursement for safety net hospitals and the care for underserved populations within the Medicare program, state Medicaid programs have also made these areas a priority.
The potential is there for alignment between the two programs. One potential change could involve Medicaid Disproportionate Share payments, which have been at risk since the passage of the Affordable Care Act. The deep cuts outlined in the legislation have been postponed, but not eliminated.
Current DSH hospitals should consider the potential for the reduction or even elimination of these funds in the future, while also staying abreast of other potential hospital financing opportunities available for providers addressing underserved populations.
Medicaid Supplemental Payments
Other Medicaid supplemental payments are already addressing health equity issues in some states. Medicaid provider fee programs have introduced millions of dollars in additional reimbursement to supplement Medicaid payments.
Yet, in recent years, CMS has increased scrutiny of these programs, and the result has been uncertainty, reduced payments, and additional complexity. The underlying data used to determine payments in these programs has routinely been found incorrect or incomplete.
Providers need to understand what drives these payments, identify ability to obtain additional reimbursement dollars within these programs, and ensure the data being collected is complete.
Prepare for Changes from Commercial Payers
Implementation of the No Surprises Act and price transparency is driving significant change in the dynamic between payers and providers. Because payment rate information is now publicly available, payers can benchmark their current rates against the lowest rates for a given provider, with the potential to create a race to the bottom for providers.
Because the No Surprises Act protects patients when seeing out-of-network providers, payers are much more prepared to terminate contracts than they were previously, with network adequacy requirements one of the few sticks left to encourage payers to negotiate rates that allow providers to offset losses on providing care to uninsured, Medicaid, and Medicare patients.
Providers are approaching negotiations cautiously after enforcement actions from state attorneys general (AGs) and the Federal Trade Commission (FTC) as well as private lawsuits.
The landmark $575 million 2019 California AG settlement with Sutter Health put restrictions on their ability to negotiate with payers. More recently, four hospital mergers were blocked by the FTC because they could increase commercial reimbursement rates for those hospitals.
We’re Here to Help
For more information on the future of reimbursement or related health care topics, contact your Moss Adams professional. You can also register for the 2023 Annual Health Care Conference in Las Vegas on November 1.