Payment Models in Post-Acute Healthcare Settings: A Primer

For several years now, CMS has been trying to move providers into value-based payment models. But they’ve recently recognized that pushing a hospital into a value-based model doesn’t mean that individual providers actually become value-motivated. Now, CMS is working to link a provider’s fee for service to the provider’s quality of care.

MACRA and Payment Models 101

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) was enacted with bipartisan support. MACRA consolidated Medicare quality programs, repealed the Sustainable Growth Rate (SGR) formula, and also replaced many of the former value-based payment programs. In place of the old programs, MACRA essentially places physicians on one of two tracks to avoid penalties to their reimbursement: (1) Merit-Based Incentive Payments System (MIPS), or (2) participation in eligible alternative payment models (APMs). APMs have stringent requirements, but they pale in comparison to the requirements for MIPS compliance.

Fee-for-service payments incentivize additional volume, but they don’t account for the drive towards quality-based payments. Thus, as the law and regulations increase the drive towards quality-based payments models, more risk is being pushed upon providers. Two alternative payment models frequently discussed include episode-based payments and ACOs.

  • Episode-based systems (“bundled payments”): These are built upon the foundations of existing risk holders and don’t typically require a new ACO entity. Instead, this system uses an existing hospital or other healthcare entity that will carry the risk and then enters into contracts with individual providers. The risk-bearing entity (usually a hospital) carries the administrative burden of operating this program.
  • Medicare ACOs (accountable care organizations): These offer robust fraud, waste and abuse waivers, which allow numerous financial relationships among providers that otherwise would have been barred. ACOs also typically require a unique healthcare entity — unlike the bundled payments model which relies upon an existing risk holder. To ensure legal compliance, downstream sources of a Medicare ACO’s funds must also be evaluated.

A clinically integrated network (CIN) or an ACO are both means of participating in an alternative payment system (the terms are also frequently used interchangeably). They offer third-party payors the option to enter into a relationship with a group of providers but without needing to contract with them one-by-one. There are also exceptions to fraud, waste and abuse laws that allow relationships which would be otherwise prohibited.

What’s the difference between an ACO and an episode-based model?

Under an ACO model, payors continue to contract directly with the providers. The ACO provides IT, administrative, and financial support, and it offers a legal and regulatory compliance framework. Each provider’s participation agreement with the ACO will describe that provider’s entitlement to savings, distributions, and other details. It’s uncommon for an ACO’s non-physician providers to play an ownership role in the ACO, but not unheard of or prohibited.

An ACO should monitor its compliance with the fairly broad fraud and abuse waivers made available within the shared savings program. These waivers allow ACOs to maintain established financial relationships that would otherwise be barred. However, it’s crucial that a healthcare attorney performs an in-depth fraud, waste and abuse analysis prior to establishing an ACO. State law issues — including state insurance regulations — also implicate ACOs and must be considered.

The ACO structure can be contrasted with the episode-based model. While an ACO offers a unique entity which serves as the “hub” for services and management, an episode-based model is likely to utilize an existing entity to serve as an intervenor. The risk-bearing entity (typically a hospital) provides IT, administrative, and financial support, and it also holds the risk. Each provider will enter into a participation agreement with the risk-bearing entity.

An episode-based model offers a similar opportunity for long-term and post-acute care providers as is offered by an ACO. Under each model, the providers essentially contend that they can help control the high costs associated with post-acute care, and that this cost savings warrants their participation.  Providers’ participation agreements under an episode-based model should be carefully drafted and reviewed by healthcare attorneys to ensure they follow the regulatory-based and contractual-based programs in play. Episode-based care models also implicate a variety of fraud, waste and abuse issues; while some waivers are available to accommodate the likely downstream financial relationships, their requirements are strict.

If you’re considering participating in one of these alternative payment models or contracting with an entity like an ACO, it’s crucial that you obtain the counsel of an experienced healthcare attorney. Jackson LLP’s attorneys support their clients’ varied regulatory compliance needs, including fraud, waste and abuse prevention counseling. To schedule your free attorney consultation, click the button below.

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