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Value in Healthcare – Part 2

May 17, 2017

By: Victor Lee

Part 2: Linking Reimbursement to Quality and Value

In part 1 of this blog series, I provided an overview of payment models that vary in their incentivization of volume-based and value-based care. In this discussion, I would like to focus on some specific category 2 payment models. According to the Alternative Payment Model Framework, category 2 payment models utilize traditional fee for service payments which are subsequently adjusted based on adherence to performance metrics related to quality or value.

Among many other things, the Patient Protection and Affordable Care Act of 2010 (ACA) gave birth to three mandatory pay-for-performance programs in category 2: Hospital Value-Based Purchasing (HVBP)Hospital Readmissions Reduction Program (HRRP), and Hospital-Acquired Condition Reduction Program (HACRP). Other legislative actions have spawned programs that have also garnered a lot of attention, namely Meaningful Use and the Merit-based Incentive Payment System—let’s take a closer look at these two programs.


Meaningful Use

Meaningful Use (MU) is officially known as the Electronic Health Records (EHR) Incentive Programs which is administered by the Centers for Medicare & Medicaid Services (CMS). It is accompanied by the Health IT Certification Program (formerly “EHR Certification Program” when it was narrower in scope) which is administered by the Office of the National Coordinator for Health Information Technology. Meaningful Use and the Health IT Certification Program originated from the American Recovery and Reinvestment Act of 2009 (ARRA) whose Health Information Technology for Economic and Clinical Health Act (HITECH; ARRA Division B, Title IV) provisions established an incentive payment system for eligible professionals (EPs) and eligible hospitals (EHs) to implement and meaningfully use EHRs and other health IT systems. MU is a category 2 payment model because central to the meaningful use of certified health IT is the adherence to electronic clinical quality measures. Failure to satisfy MU requirements results in the assessment of penalties. Hence, the linking of payments to quality.

MU has been implemented in 3 stages, each with increasingly challenging requirements and goals. Stage 1 goals are to capture and report data after EHR implementation, stage 2 introduces requirements for advanced clinical processes, and stage 3 focuses on improving outcomes. A basic overview of requirements is presented here:

Source: Office of the National Coordinator for Health Information Technology. How to Attain Meaningful Use. Last accessed: May 3, 2017.


At the time of this writing, most EPs and EHs/CAHs are likely to be attesting to stage 2 criteria, with some early adopters planning to attest to stage 3. Starting 2018, stage 3 will become mandatory for all providers. The specific requirements of each stage can be found on the Electronic Health Records (EHR) Incentive Programs web site.

CMS has shared compelling data that MU has increased adoption of EHRs and health IT systems for office-based physicians and acute care hospitals. However, success with adoption has been accompanied by challenges during implementation. Many physicians and hospitals feel that the long lists of prescriptive measures have forced them to “check checkboxes” rather than spend time on quality improvement and care coordination activities that could enable them to optimize outcomes outside of regulatory requirements. Many EHR/health IT vendors feel that certification criteria are mandated on timelines that are too short for complex development cycles and that the journey to compliance leaves insufficient room for product innovation.

As a result, many individuals and industry groups have advocated change. Some changes have been incremental and include items such as modifications to reporting periods as well as the addition, modification, or removal of certain requirements. Staunch opponents have called for more drastic change such as the termination of MU altogether, and some of these individuals actually got what they asked for, and then some. How so?

At the 2016 J.P. Morgan Annual Health Care Conference, Andy Slavitt (then CMS Acting Administrator) said, “Now that we effectively have technology into virtually every place care is provided, we are now in the process of ending Meaningful Use and moving to a new regime culminating with the MACRA implementation. The Meaningful Use program as it has existed, will now be effectively over and replaced with something better.”

Was this the death knell of MU? Did this really mean that the era of MU had ended? Not quite, at least not yet. To clarify, MU is actually comprised of 4 related programs, each with varying eligibility criteria, measures, incentive payment amounts, and other program requirements:

  • Medicare EP
  • Medicare EH
  • Medicaid EP
  • Medicaid EH

Only the Medicare EP program has been folded into the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) legislation, while providers in the other 3 programs carry on with MU as usual—that is, until something else comes along. So at least for now, MU is very much alive for Medicaid and for Medicare EH/CAH participants. Medicare EPs, on the other hand, are paying close attention to MACRA.


Merit-based Incentive Payment System

MACRA is a complex piece of legislation, of which I will summarize two key aspects. First, it repeals the Sustainable Growth Rate (SGR) formula that was created by enactment of the Balanced Budget Act of 1997. The SGR formula determined how physicians were paid for services rendered to Medicare beneficiaries, and while its intent was to curb spending growth, it became so unpopular that its implementation was temporarily delayed through congressional lawmaking (a.k.a. “SGR patch” or “doc fix”) a whopping 17 times between 2003 and 2014. A historical review of the SGR formula and its repeal is provided in this Health Affairs Blog.

Second, in place of the SGR formula, MACRA introduces the Quality Payment Program (QPP). Andy Slavitt was alluding to this program as the replacement for MU in the quote above. The QPP consists of two tracks: the Merit-based Incentive Payment System (MIPS) track and the Advanced Alternative Payment Models (APMs) track. The Advanced APMs are category 3 payment models which I will address in my next blog, and in this post I will focus on MIPS.

Clinicians will “default” to the MIPS track unless they are enrolled in an advanced APM, and based on current APM participation, CMS anticipates that MIPS will apply to most clinicians. MIPS is a 2-sided program, meaning that Medicare Part B payments may be adjusted upward or downward depending on one’s composite performance score (CPS) that is based on the following categories:


Source: Centers for Medicare & Medicaid Services. What’s the Merit-based Incentive Payment System (MIPS)? URL: Last accessed: May 3, 2017.


Here’s more information about these 4 categories (details are subject to change):

  • The Quality category replaces the Physician Quality Reporting System, and clinicians will be able to choose 6 measures from a list of 271 measures (which will be updated annually by November 1) that best reflect their practice. In the 2017 performance period, this will account for 60% of the CPS.
  • The Advancing Care Information category replaces MU (for Medicare EPs only, as stated above). Measures of interoperability and information exchange are derived from MU and simplified. There are 2 reporting options to choose from, based on one’s EHR edition. In the 2017 performance period, this will account for 25% of the CPS.
  • The Improvement Activities category consists of 92 clinical practice improvement activities, of which 4 must be chosen for most participants (groups with fewer than 15 participants and providers in rural or health professional shortage areas need only select 2 activities), and this category account for 15% of the CPS in the 2017 performance period.
  • The Cost category replaces the Physician Value-Based Modifier program and is a measure of resource use. There is no reporting process, as CMS calculates this score based on claims. This will not be factored into the CPS calculation for the 2017 performance period (which is considered a transitional year) but is planned to be introduced and gradually increased in subsequent years.


The streamlining of PQRS, VM, and MU (Medicare EP only) components under a single MIPS program is intended to ease clinician burden, and these legacy quality reporting programs will be sunsetted. As you can see, even though the MU program for Medicare EPs is officially ending, many of its components live on through the MIPS Advancing Care Information category. More details about the MIPS scoring methodology are provided by CMS.

Like many other value-based programs, MIPS has 2 important sets of dates to remember: performance period dates (as mentioned in the descriptions of the 4 CPS categories above) and payment adjustment dates. The first performance period begins as early as January 1, 2017 and as late as October 2, 2017 to allow data collection for a consecutive period of at least 90 days. The first payment adjustments begin January 1, 2019 and are based on the 2017 performance period.

ARRA HITECH, ACA, and MACRA are probably the 3 most influential pieces of healthcare legislation to come out of congress in the last decade. They symbolize a torrid pace of change in how we intend to pay for healthcare services and how we derive value from our care interventions and our technology systems that support them.

It is clear that for the next several years, category 2 payment models will permeate healthcare laws and regulations as well as our day-to-day conversations among payers, providers, and hopefully an increasing number of empowered patients who engage in the active management of their own health and healthcare. There will be additional challenges and lessons learned as we continue to move away from straight fee for service with no link to quality or value (category 1 payment models) and continue to link reimbursement to quality and value (category 2). It will not be easy, and the plot will thicken when we explore alternative payment models (categories 3 and 4) in the next post.

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