Life Science Compliance Update

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January 11, 2017

HHS Releases Regulations on Alternative Pay Models in Last Weeks of Current Administration


Despite Republicans’ call for a suspension on new rules, the Department of Health and Human Services (HHS) pushed regulations regarding Medicare and Medicaid alternative pay models and insurance exchange stability out the door in the final weeks of the Obama administration. It is likely that the administration wanted to put final touches on changes to demonstrations, which test pay and delivery reforms in Medicare and Medicaid. However, the next administration might undo some of the biggest demonstrations for which the Centers for Medicare & Medicaid Services (CMS) published rules in December because they apply to policies most Republicans oppose.

Alternative Payment Models

CMS in December published regulations on mandatory bundled-pay demonstrations for cardiac and joint-replacement services and announced a demonstration that pays bonuses to accountable care organizations for reducing Medicaid spending on beneficiaries enrolled in both Medicare and Medicaid.

The new APMs include three episode payment models (EPMs) for episodes of care surrounding an acute myocardial infarction (AMI), coronary artery bypass graft (CABG), and surgical hip/femur fracture treatment excluding lower extremity joint replacement (SHFFT). HHS chose the AMI, CABG, and SHFFT models because the agency believes those EPMs will allow hospitals to engage in effective care redesign, by:

  • increasing post-hospitalization follow-up and medical management for patients;
  • coordinating across the inpatient and post-acute care spectrum;
  • conducting appropriate discharge planning;
  • improving adherence to treatment or drug regimens;
  • reducing readmissions and complications during the post-discharge period;
  • managing chronic diseases and conditions that may be related to the EPMs' episodes;
  • choosing the most appropriate post-acute care setting; and
  • coordinating between providers and suppliers such as hospitals, physicians, and post-acute care providers.

The EMPs will be tested for five years, with the first performance year beginning July 1, 2017.

The federal government is letting states share in Medicare savings for the first time, which offsets what states lose when CMS shares Medicaid savings with providers. That model, called the accountable care organization Track 1 +, aims to get more physicians to accept the risk of penalties for poor performance.

Insurance Exchange Stability

HHS also published regulations aimed at stabilizing the exchange-plan market. The final rule maintains several changes to the Affordable Care Act's (ACA) permanent risk adjustment program and adds a provision to reduce the statewide average premium used in the risk-transfer formula.

This final rule comes after health insurance companies across the United States requested steep premium increases time and time again, claiming that providing coverage for a sicker patient population with the implementation of the ACA has contributed to the substantial financial losses appearing in their earnings reports.

The final rule also lowers the fee for state-based exchanges seeking to use the platform to 2 percent in 2018, and dedicates 3 percent of the 3.5 percent user fee for other federally facilitated market states to education and outreach efforts. CMS also set 2018 certification deadlines for qualified health plans. The final 2018 letter to federally facilitated market issuers mostly keeps the same time-frame despite issuers' assertions that the process should be delayed until at least summer to account for uncertainty.

The current administration’s goal is for a stronger risk pool, enrolling younger – typically healthier – younger adults. These changes may be a step in that direction.

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