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HMA News

New HMA white paper examines Medicare’s reimbursement system for physicians’ services

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Researchers explore its history, reasons behind calls for reform, and provide recommendations for improvements

Today, HMA released a new white paper, “Medicare Physician Fee Schedule Reform: Structural Topics and Recommendations to Strengthen the System for the Future.” It provides an in-depth analysis of the Medicare Physician Fee Schedule, including the history of its implementation, stakeholder perspectives on reform, major structural issues, and recommendations for improving the $90-plus billion payment system.

Recent years have witnessed a growing bipartisan call to reform how Medicare reimburses for physician and other health professional services. A wide array of stakeholders assert that the current system—the Medicare Physician Fee Schedule (PFS)—is misaligned with today’s practice patterns and market dynamics. Many constituencies maintain that the PFS is insufficiently updated, embeds known pricing distortions, and does not appropriately effectuate value-based care principles. Although a considerable number of legislative and regulatory changes have been implemented to refine and modernize the system, the PFS has never been subject to a major statutory overhaul that would comprehensively address pressing issues. 

HMA studied these issues with support from Arnold Ventures in “Medicare Physician Fee Schedule Reform: Structural Topics and Recommendations to Strengthen the System for the Future.” HMA’s white paper is an accessible primer on the PFS and key moments that led to the current policy situation. The white paper describes structural topics in the PFS that raise concern or prompt calls for change, provides context on the history and progress of the payment system and highlights stakeholder perspectives on reform.

For accessible background and context on the PFS and why the stakeholder community is calling for reforms to the fee schedule, click below.

View an electronic timeline of key policy developments and highlights of topics related to the PFS since implementation in 1992 here.

READ THE FULL REPORT

About HMA

Founded in 1985, HMA is an independent, national research and consulting firm specializing in healthcare and human services policy, programs, financing, and evaluation. Clients include government, public and private providers, health systems, health plans, community-based organizations, institutional investors, foundations, and associations. Leavitt Partners, an HMA Company has been at the forefront of navigating change in healthcare for over a decade and works at the intersection of government and health care, helping clients stay one step ahead of the influences impacting the industry, including economic, market, delivery system, public policy, and political developments. HMA has offices in more than 30 locations across the country and over 700 multidisciplinary consultants coast to coast. Learn more about HMA at healthmanagement.com, or on LinkedIn and X.

About Arnold Ventures

Arnold Ventures is a philanthropy dedicated to tackling some of the most pressing problems in the United States. It is a team of more than 120 subject-matter experts headquartered in Houston with offices in New York and Washington, D.C. It works in five key issue areas: Criminal Justice, Education, Health, Infrastructure, and Public Finance. Its work is guided by evidence-based policy, research, and advocacy.

Brief & Report

Medicare Physician Fee Schedule Reform: Structural Topics and Recommendations to Strengthen the System for the Future

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Recent years have witnessed a growing bipartisan call to reform how Medicare reimburses for physician and other health professional services. Stakeholders assert that the current system—the Medicare Physician Fee Schedule (PFS)—is misaligned to today’s practice patterns and market dynamics. Many constituencies maintain that the current approach is insufficiently updated, embeds known pricing distortions, and does not appropriately effectuate value-based care principles, such as providing cost-conscious, high-quality care that prioritizes performance measurement and patient experience. Calls for reform are further prompted by increasing concern about the viability of independent physician practices, including the implications of consolidation and private equity acquisition of physician offices. Finding a workable comprehensive solution to updating physician payments is an uphill battle stymied by the significant cost of doing so, competing stakeholder positions, and the complexities of restructuring payment.

The original design of the Medicare PFS, still in use today, is based on the resources typically needed to provide services to patients. First implemented in 1992, the PFS is a fee-for-service (FFS) system of payment premised on the idea that services should be separately valued in relation to each other. This requires information on the effort and costs incurred to perform those services and how those variables change over time. The Centers for Medicare & Medicaid Services’ (CMS’s) efforts to update data used to set rates in the required budget neutral manner often result in system instability and may take years to fully implement due to concerns about redistribution. These innate vulnerabilities have been compounded by three decades of policy decisions, statutory changes, and advancements in care delivery.

While established metrics suggest that physicians’ participation in the Medicare program and beneficiary access is currently adequate, the Medicare Payment Advisory Commission (MedPAC) raises concerns that beneficiaries may experience more access to care barriers moving forward. For the past two years, MedPAC has recommended physician payment updates based on changing economic conditions, as well as additional “safety net” payments to physicians treating low-income beneficiaries. Reducing health disparities and improving the foundation of care is a top priority for many in this country, and payment reform within the PFS and more broadly that expands technology while also investing in person-centered, community-oriented care (especially for populations that are underserved and/or living with multiple chronic conditions) is central to that cause.

As robust policy discussions are taking place to explore these issues and identify solutions, Arnold Ventures engaged HMA to provide accessible background and context on the PFS for people who may be unfamiliar with the payment system, including a review of how the stakeholder community got to the point of needing to “fix” the fee schedule. Through a thorough assessment of the most pressing policy and payment concerns, we identified several key structural issues within the physician fee schedule that should be considered and balanced when making policy changes to the payment system.

Blog

Succeeding in the world of value-based payments: assess your organization’s VBP readiness

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In the ever-evolving landscape of healthcare, the shift towards value-based care (VBC) has emerged as a transformative force, promising improved outcomes, reduced costs, and enhanced patient experiences. While the benefits of VBC are clear, the path to implementation can be complex and challenging, particularly for behavioral health (BH) providers. In this blog post, we delve into the significance of assessing readiness for VBC and value-based payment (VBP) systems, with a specific focus on BH providers, and why it serves as a crucial step towards success.

Behavioral health plays a pivotal role in holistic patient care, addressing mental health and substance use disorders that significantly impact overall well-being. However, traditional fee-for-service models often inadequately incentivize preventive and coordinated care, leading to fragmented services and suboptimal outcomes. Recognizing this gap, the transition to VBC offers a promising avenue to realign incentives, improve care coordination, and enhance patient outcomes in the realm of behavioral health.

Insights from the HMA Spring Workshop

In March 2024, HMA hosted a workshop on value-based care, (you can read more of the key takeaways here). A consensus emerged on the indispensable role of data and technology in driving informed decision-making. Dr. Katie Kaney’s keynote address on innovative approaches to holistic care metrics resonated with attendees, highlighting the need to move beyond conventional measurements towards a comprehensive understanding of patient well-being.

A pivotal aspect of VBC lies in the collaborative effort between payers and providers to align measures and incentives while ensuring these measures hold significance for all stakeholders, including payers, providers, and patients. The conversations with attendees on Empowering Care Delivery through Tangible Measures underscored the imperative of clinician involvement in outcome measurement establishment. We discussed the importance of meaningful measurement for state-level initiatives and local strategies, all aimed at achieving better outcomes for our communities.

The Importance of Readiness Assessment

Embarking on the journey towards VBC demands a comprehensive understanding of organizational strengths, challenges, and readiness to embrace change. As we navigate the transition to value-based care, understanding where your organization stands is key. This is where readiness assessment tools play a pivotal role. By systematically evaluating various aspects of organizational preparedness, such as infrastructure, data capabilities, care delivery models, and cultural readiness, organizations can identify areas for improvement and tailor strategies to navigate the transition effectively.

Tailoring Strategies for Success

Assessing readiness enables organizations to tailor strategies that align with their unique circumstances and challenges. For instance, organizations lacking robust data infrastructure may prioritize investments in health information technology and analytics capabilities to support population health management and outcome measurement. Similarly, addressing workforce training and cultural transformation can foster a patient-centric approach and promote collaboration across care teams.

Mitigating Risks and Maximizing Opportunities

VBC presents both opportunities and risks for organizations. While it offers incentives for preventive care, care coordination, and improved outcomes, it also requires operational and cultural shifts that may pose challenges. Readiness assessment enables organizations to identify potential risks, such as inadequate data systems, reimbursement uncertainties, or staff resistance, and develop mitigation strategies to address them proactively. Moreover, it empowers organizations to capitalize on opportunities, such as alternative payment models, partnerships with primary care providers, and value-based contracting, to enhance sustainability and growth.

Driving Quality and Equity in Behavioral Health

At its core, VBC embodies a commitment to delivering high-quality, equitable care that addresses the diverse needs of patients. By assessing readiness and embracing VBC principles, BH providers can enhance care delivery, improve outcomes, and reduce disparities in access and quality of care. Furthermore, by integrating behavioral health into broader care delivery models and payment structures, organizations can foster a more holistic approach to health and well-being, promoting resilience and recovery for individuals and communities alike.

Moving Forward with Confidence

As organizations navigate the complexities of VBC, assessing readiness serves as a guiding compass, illuminating the path forward and empowering organizations to embrace change with confidence. By leveraging readiness assessment tools, organizations can identify strengths, address weaknesses, and chart a course towards sustainable, value-driven care delivery. In doing so, they not only enhance their own viability and success but also contribute to a more resilient, equitable healthcare system that prioritizes the well-being of all individuals.

How HMA Can Help

There are many tools online that offer to help organizations determine their readiness for implementing VBC. By using HMA’s new VBP Readiness Assessment tool, you also can gain access to the experts on HMA’s behavioral health and VBC teams. Meticulously crafted to gauge your organization’s preparedness, HMA’s value-based payment readiness assessment surveys six domains of core functions necessary for successful payment reform models.

Taking the survey and receiving one analyzed response is free, but you may find value in contracting with HMA for a more in-depth analysis of your organization.

Assessing readiness for VBC is not merely a preparatory step but a fundamental aspect of organizational transformation. For behavioral health providers, it represents a critical opportunity to reshape care delivery, drive quality and equity, and ultimately, improve the lives of those served. As the healthcare landscape continues to evolve, readiness assessment will remain an indispensable tool for navigating change, fostering innovation, and realizing the full potential of value-based care in behavioral health.

Blog

Medicaid Unwinding Check-in: Data Informed Observations to Guide Future Action

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In this week’s In Focus section, HMA Managing Director Matt Powers and Associate Principal Lora Saunders discuss observations and perspectives as we approach completion of the Medicaid unwinding.   

Overview  

In response to the COVID-19 pandemic, CMS offered states an enhanced federal match in exchange for states pausing Medicaid disenrollments. As a result, Medicaid enrollment increased from around 71 million at the start of the pandemic to more than 92 million in December 2022, when Congress passed a bill to end the “continuous eligibility” provision. States began to resume normal (pre-pandemic) redetermination activities in early 2023—a massive undertaking of attempting to reach and verify eligibility for the then 94 million Medicaid enrollees known as “unwinding.”  

More than 70 percent of the efforts that will precipitate the largest one-year drop in enrollments since the program’s inception in 1965 have been completed. The enrollment reductions to date have been virtually identical to HMA’s aggregate projections, and overall enrollment remains well above pre-pandemic levels. Perhaps most importantly, the Medicaid unwinding has put policymakers in a position to better evaluate how to improve enrollment and redetermination processes going forward.   

Figure 1 summarizes pre-pandemic enrollments, unwinding enrollments, and the projected end of 2024 enrollment. If the current trend holds, national Medicaid enrollment will be approximately 80 million enrollees—down from the 94 million pre-unwinding enrollment peak and nearly 10 million greater than the 71 million pre-pandemic enrollment. 

Our team’s assessment of the status of and data related to the Medicaid unwinding has led us to the following observations: 

  • Arkansas, Iowa, Nebraska, Utah, and West Virginia have completed the redetermination process. More than half of the states are within two months of finishing the process. 
  • The states that saw Medicaid enrollment grow the most under the continuous coverage policy are generally the same ones that are experiencing the greatest enrollment declines during the Medicaid unwinding. 
  • Some larger states—including California, New York, and Texas—have sizeable outstanding redeterminations.   
  • Nationally, more than 70 percent of all Medicaid enrollees have completed the redetermination process.  Figure 2 points out how far along states are with the redetermination process as of late April 2024. 

Medicaid Unwinding: The Road Ahead 

As the Medicaid unwinding process enters its final phase in most states, we are looking back at the experiences and lessons that can be applied to make impactful changes to Medicaid eligibility policies, systems, and procedures. 

Despite the challenges that the pandemic presented, the safety net was tested and responded well. In early 2020, the number of employed Americans decreased from 158 million to 133 million, and unemployment levels quickly reached 15 percent. Many new healthcare policies targeted direct access issues (e.g., financial supports to providers and telehealth regulatory relaxations), whereas the Medicaid continuous coverage requirement was intended to mitigate the effects of the abrupt spike in unemployment and potential effects on healthcare insurance. Table 1 shows how HMA projects national coverage patterns to change by type of coverage from before the pandemic through the end of the Medicaid unwinding. While the number of people with employer-sponsored insurance (ESI) or uninsured remains essentially flat, Medicaid enrollment grows significantly, and marketplace enrollment nearly doubles. Myriad federal and state policy changes contributed to a remarkably stable uninsurance rate during one of the most volatile economic periods in the past century. 

A next question for policymakers is whether, or to what extent, the rate of uninsured people can be sustained or reduced. The broad state adoption of policies to expand postpartum coverage to 12 months from two months and the nationwide January 2024 requirement for states to offer 12 months of continuous Medicaid coverage for children provide a coverage and continuity boost, especially given that nearly 40 million children will benefit from the new law. Other policy levers have the potential to be widely accepted and provide a further incentive to move people who are uninsured toward coverage, more stable insurance products, and more predictable outcomes and costs relative to the inefficiencies and ineffectiveness of non-coverage. 

Pivoting to best practices and making policy changes permanent. Just as the relaxation of relatively rigid telehealth policies has become more accepted, post-Medicaid unwinding will provide a natural opportunity to assess best practices and consider permanent policy changes.    

  • Making Ex Parte Durable Policy.  Evidence suggests that ex parte policies effectively reduce churn. Further refinement of longstanding ex parte policies is within reach. Ensuring ex parte appropriately manages both the complexities of household versus individual eligibility issues and addresses the weaknesses of unreliable member contact information can improve the likelihood that ex parte can effectively serve as durable policy.  
  • Pivoting from Paper to Electronic Communications.  The Medicaid unwinding has seen more partnerships and innovation with state and federal workers, providers, managed care organizations, and consumer advocates, and allowed the increased use of mobile devices for outreach and engagement. Making more deliberate strides to simplify eligibility and move the eligibility platform, patient engagement, and member outreach to more reliable communication methods (e.g., email, text, and member portals rather than paper communication) while adhering to privacy and security requirements is a logical next step.   
  • Continuing to Measure Better. Call abandonment rates, call center wait times, and application processing times—metrics that focused on some of the key challenges to a successful redetermination and timely access to care—received greater attention during the unwinding but were frequently overshadowed by other primary metrics like “disenrollments” and “procedural terminations.” Though disenrollment data and procedural terminations could be used to identify potential areas of concern, their emergence as primary metrics often diverted energy from innovative engagement and redetermination efforts. A focus on contextualized metrics that provide actionable information will support effective oversight and monitoring.

Marketplace growth may be the real story. Throughout the pandemic, marketplace enrollment has steadily increased, jumping nearly 90 percent from 2020 to 2024 and 30 percent from 2023 to 2024, to reach more than 21 million enrollees. Driving the growth in marketplace enrollment are temporarily increased marketplace subsidies and Medicaid unwinding public awareness campaigns.  

  • The marketplaces are proving to be a reliable source of coverage for consumers without health insurance access through ESI or other public programs, particularly in times of significant change such as the Medicaid unwind. With more marketplace enrollees and, therefore, broader risk pools, more health insurers are considering offering marketplace plans and are assessing competitive advantages like lower costs, broader provider networks, and more robust drug formularies. 
  • Figure 3 shows that marketplace growth in non-expansion states is far outpacing marketplace growth in Medicaid expansion states, suggesting that the key elements of the Affordable Care Act have developed deep roots.  

HMA’s experts continue to monitor Medicaid unwinding developments. We are taking a comprehensive approach to assessing lessons learned and opportunities to improve Medicaid as state and stakeholder experiences and data continue to become available over the next two quarters. 

For more information or questions about Medicaid unwinding developments, contact Matt Powers and Lora Saunders. 

Brief & Report

Compassionate Overdose Response: Summit Highlights and Key Takeaways

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HMA’s Compassionate Overdose Response Summit suggests “high dose” naloxone isn’t necessary.

More than 100,000 people in the United States die every year from drug overdoses, driven by the availability of illicitly manufactured fentanyl. On March 19, 2024, HMA held the Compassionate Overdose Response Summit to discuss overdose response and reversal drugs like naloxone in the context of a fluctuating drug supply. Forty experts participated in consensus-building discussion on a standard of care opioid overdose response protocol. Throughout four panel presentations, a critical message emerged: those responding to an overdose should aim to restore breathing without causing withdrawal by supporting the person’s breathing, giving low or standard doses of naloxone (0.4 mg intramuscular injection and <4 mg intranasal spray) until spontaneous breathing is restored, and creating a calm environment. Despite fluctuations in the drug supply, standard dose naloxone is effective.

The standard dose of naloxone is considered 0.4 mg intramuscular injection and <4 mg intranasal spray. It is extremely effective and preferred by people who experience overdose. Reports at the Summit from four states (Missouri, Kentucky, Pennsylvania, and New York) made clear that an increase in naloxone dose is not a necessary response to the presence of fentanyl in the drug supply. Negative reactions following naloxone administration may be avoided, and anger can potentially be managed via low-dose naloxone titration and a calm, compassionate, and considerate communication style between the person who overdosed, the person who administered an opioid antagonist, and bystanders, including EMS.

Another key takeaway from the Summit, and shared in the report released today, was the acute and long-term adverse outcomes of withdrawal on people who experience overdose. The way a person is treated during an overdose, i.e., the communication style of the responder, likelihood of withdrawal, and the care they are offered after, affects their risk behavior such as using more opioids to feel better. In a study from New York State, those who received 8 mg nasal spray were more likely to experience withdrawal than those who received 4 mg nasal spray. People who experience withdrawal after an overdose may be discouraged from seeking help in the future.

“A compassionate overdose response is looking at the entire person. It’s not that moment of reviving them. It’s [also] what happens afterward.” – Joy Rucker, Summit Panelist

The findings shared at the Summit are timely given the availability of high-dose and long-acting overdose reversal products in the US. The FDA continues to ignore the life-threatening side-effects of high-dose products and recently approved a 10 mg nasal spray. This trend has drawn concern from addiction medicine providers, emergency medical services, toxicologists, harm reductionists and people who experience overdose alike. Standard dose products are available at the lowest cost for bulk purchase and decades of research show their use in the community reduces overdose mortality. A chart with currently available opioid overdose reversal products is available at PrescribetoPrevent.org.

What’s Next

To learn more about compassionate overdose response and the significance of overdose reversal product selection, listen to the event proceedings and read the report below. View the webinar replay with links to download PDFs of speakers’ presentations.

Contact Erin Russell to discuss the policy and program implications of the Summit’s findings.

Contributions

The Compassionate Overdose Summit was presented with support from HMA, Harm Reduction Therapeutics, Vital Strategies, the Bloomberg American Health Initiative, and the University of Pittsburgh Graduate School of Public Health. Funds were used to secure event space and speaker stipends to cover their time and travel needs, hotels, meals, AV equipment, and event staffing.

Webinar

Webinar replay: Substance Use Disorder (SUD) Ecosystem of Care – Pivoting to Save Lives Part 3: Building Systems-Thinking in the SUD Ecosystem

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This webinar was held on May 1, 2024

The final webinar of this three-part series emphasized the importance of a comprehensive and interconnected spectrum of engagement and treatment strategies. To truly build and maintain a substance use disorder (SUD) ecosystem with accountability across the system and ‘no wrong door,’ best practices must embrace a systems-thinking approach. An interconnected system requires building strong partnerships across the SUD ecosystem and engagement and treatment strategies will focus on leveraging those partnerships to facilitate engagement of individuals throughout the system.

Learning objectives included discussing approaches to system alignment that emphasize impact and ensure individuals remain engaged no matter where they are in their SUD journey and how to describe a comprehensive approach to systems thinking that builds accountable relationships and partnerships to ensure that the system has no wrong doors for engagement of individuals throughout the system.

Watch previous webinars in the series.

Case Study

New Mexico: Hospital Global Budgeting

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The Client

The New Mexico Office of the Superintendent of Insurance (OSI) was directed by its state legislature to explore hospital global revenue budgets and other innovative hospital payment models over several years, and to explore key elements of affordability and accessibility of coverage and care, including hospital global budgeting.

Background

OSI contracted with HMA to build on previous hospital global budgeting research and provide technical assistance in resolving the complex issues surrounding global budgeting, including development of a potential global budget payment model framework. The contract also called for HMA to prepare an implementation framework that involves stakeholder engagement, including a plan for engagement with the Centers for Medicare and Medicaid Services (CMS) Innovation Center and to identify key administrative and data challenges.

Approach

HMA divided the project’s scope into two phases:

Phase 1

Develop preliminary policy and model options, including submission of two deliverables:

  • Global Budgeting Principles and Experience in Other States Report
  • Hospital Global Budget Options Paper

Phase 2

Refine the hospital global budgeting model based on OSI’s input on the Hospital Global
Budget Options Paper and develop and submit three additional reports:

  • Recommendations for a Proposal to the CMS Innovation Center, which supports the development and testing of state-based innovative healthcare payment models
  • Implementation and Stakeholder Engagement Plan
  • Administrative and Data Challenges Report on implementing the payment model

Results

HMA developed an overview of principles and global budgeting models developed by other states, policy options, recommendations for how to work with CMS, a blueprint for stakeholder engagement, and an assessment of data needs and challenges. The proposed hospital global budget payment model was informed by the HMA team’s expertise and research on three states’ experience with CMS Innovation Center payment models (Maryland, Pennsylvania, and Vermont). The five public reports can be found at Healthcare Affordability and Accessibility Research Projects. These reports detail a plan for budgeting and governance that will enable the creation of a value-based payment system that supports a delivery system in which hospitals provide services that their communities need, rather than focus on the services most likely to merely enhance revenue. Through leadership and innovation, the state can help ensure a sustainable provider network is available to deliver high-quality and efficient care to all New Mexicans.

Download the full case study here:

Blog

Analysis of five key proposals in CMS’s FY2025 Medicare hospital IPPS rule

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Our second In Focus section reviews the policy changes proposed by the Centers for Medicare & Medicaid Services (CMS) on April 10, 2024, for the Fiscal Year (FY) 2025 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTCH) Proposed Rule (CMS-1808-P). This year’s IPPS Proposed Rule includes several policy changes that will alter hospital margins and change administrative procedures, beginning as soon as October 1, 2024. 

We highlight five proposed policies that are likely to have the greatest impact on Medicare beneficiaries, hospitals and health systems, payors, and manufacturers:  

  • Annual inpatient market basket update  
  • New technology add-on payments (NTAP) policy changes  
  • Transforming Episode Accountability Model (TEAM) 
  • Hospital wage index and labor market adjustments 
  • Revision to housing-related diagnosis coding  

Stakeholders have until June 10, 2024, to submit comments to CMS on the contents of this regulation and request for information. 

Market Basket Update  

Proposed rule: Overall CMS’s Medicare 2025 Hospital Inpatient Proposed Rule will increase payments to acute care hospitals by an estimated $3.2 billion in 2024−2025; however, recent trends in economy-wide inflation may alter this estimate by the time the agency releases the final regulation in August 2024.  

HMA/Moran analysis: CMS’s 2.6 percent increase is based largely on an estimate of the rate of increase in the cost of a standard basket of hospital goods—the hospital market basket. For beneficiaries, this payment rate increase will lead to a higher standard Medicare inpatient deductible and increase out-of-pocket costs. For hospitals and health systems, payors, and manufacturers the proposed payment increase (2.6%) falls below economywide inflation over the past year (3.5%) and below what Medicare Advantage plans will receive for 2025 (3.7%).1,2 Importantly, based on our expertise with the calculation of the hospital market basket, we anticipate the proposed 2.6 percent increase will increase slightly by the time rates are finalized later this year.  

New Technology Add-on Payments (NTAPs)  

Proposed Rule: CMS proposes three changes to the NTAP program and discusses NTAP applications for FY 2025: 

  • CMS proposes to shift the date used to determine whether an otherwise qualifying product is within its newness period. As proposed, if the product’s three-year anniversary occurs after the beginning of the fiscal year on October 1, the product will receive NTAP payments that year. 
  • CMS proposes to allow products with a hold on their FDA marketing authorization application to be considered eligible for NTAP. 
  • Beginning with applications approved in the current FY 2025 cycle, the NTAP add-on percentage for gene therapies treating sickle cell disease would increase to 75 percent.  

HMA/Moran Analysis: The first two proposed changes are in response to concerns about more restrictive application requirements finalized last year. When CMS shifted the FDA approval deadline to May 1 last year, commenters noted that fewer products would be eligible to receive NTAPs in their third year of the newness period. Allowing all products with a third anniversary that falls within a fiscal year (rather than only those with expirations in the second half of the fiscal year) to receive NTAPs narrowly addresses this concern. More products will qualify for NTAPs during their third year of newness, but that does not necessarily mean that more products will receive three years of NTAPs.   

The second proposal tweaks last year’s change requiring a “complete and active” FDA application at the time an NTAP application is submitted to ensure that NTAP applications were far enough along in the FDA review process that information about the product would be available to the public and for CMS staff review. CMS proposal acknowledges that the original bright line rule may have inappropriately excluded potential applicants.   

Finally, CMS’s proposal to increase the NTAP percentage for gene therapies treating sickle cell disease aligns with the Cell and Gene Therapy Access Model’s focus on sickle cell therapies. Of note, CMS seeks comment on whether the increased NTAP percentage should be applied only to applicants that have entered value-based purchasing agreements or are “otherwise engaging in behaviors that promote access to these therapies at lower cost.” CMS seems willing to increase NTAP payments in limited situations to boost selected policy goals, but the proposals in this regulation do not represent widespread NTAP payment increases. 

Transforming Episode Accountability Model (TEAM) 

Proposed Rule: CMS proposes to establish a new mandatory episode-based CMS Innovation Center model, Transforming Episode Accountability Model (TEAM). In the TEAM model, selected acute care hospitals would coordinate care for people with traditional Medicare who undergo one of the five specified surgical procedures: 

  • Lower extremity joint replacement 
  • Surgical hip femur fracture treatment 
  • Spinal fusion 
  • Coronary artery bypass graft 
  • Major bowel procedure 

Hospitals in the model will assume responsibility for the cost and quality of care from surgery through the first 30 days after the Medicare beneficiary leaves the hospital. Hospitals also must refer patients to primary care services to support optimal long-term health outcomes.  

In a first of its kind program, CMS has created a voluntary decarbonization and resilience initiative through which participating hospitals can report metrics related to greenhouse gas emissions to CMS. CMS will provide individualized feedback reports and public recognition of participation and potential performance in the initiative. 

HMA/Moran Analysis: The critical aspect of the TEAM model that stakeholders need to understand is that it will be mandatory. TEAM will begin in 2026 and continue for five years. The TEAM model builds on and combines previous models such as the Bundled Payment for Care Improvement (BPCI) model and the Comprehensive Care for Joint Replacement (CJR) model. Hospitals will be required to report various quality measures, and payment will be based on spending targets and include retroactive reconciliation. TEAM also seeks to integrate specialty and primary care. The model complements existing accountable care organization (ACO) models such as ACO REACH or the Medicare Shared Savings Program as beneficiaries would be able to be assigned to both TEAM and ACO programs.  

Hospital Wage Index Adjustments and Labor Market Changes:  

Proposed Rule: CMS proposes two wage index policies for FY 2025. First, CMS proposes to extend the temporary policy finalized in the FY 2020 IPPS/LTCH PPS final rule for three additional years to address wage index disparities affecting low-wage index hospitals, which includes many rural hospitals. Second, as required by law, CMS proposes to revise the labor market areas used for the wage index based on the most recent core-based statistical area delineations issued by the Office of Management and Budget (OMB) based on 2020 Census data. 

HMA/Moran analysis: The two wage index policies that CMS proposes for FY 2025 will have important positive and potentially negative consequences for hospital payment. The policy to extend the low-wage index policy for three additional years will allow many hospitals with low wage indexes to increase their wage index and their payment rates across all MS-DRGs. This policy will bring millions of additional dollars to rural hospitals in FY 2025.  

The second policy is a statutorily required update to the labor markets used to establish CMS’s hospital wage indexes. CMS will redefine 53 counties from urban to rural and 54 counties from rural to urban, which will disrupt various hospital payment policies for hospitals in the affected counties. The overall impact of both proposed geographic policy changes for FY 2025 will be to increase inpatient payment rates for rural hospitals.  

Revision to Housing-Related Diagnosis Coding  

Proposed Rule: CMS proposes to change the severity designation of the seven ICD-10-CM diagnosis codes that describe inadequate housing and housing instability from non-complication or comorbidity (non-CC) to complication or comorbidity (CC).  

HMA/Moran Analysis: In proposing this change, CMS is building on its previous policy of including diagnosis codes for describing when a beneficiary is homeless (e.g., unspecified, sheltered, unsheltered). Importantly, this new policy proposal will enable hospitals to be paid higher inpatient payment rates when patients with inadequate or unstable housing are served. Specifically, this proposal would result in cases involving patients to whom these codes apply to be coded in a higher-level MS-DRG within a given family of MS-DRG codes. If finalized, this change in coding policy will result in higher payment rates for hospital patients who are experiencing housing insecurity.  

Connect with Us 

HMA’s Medicare Practice Group, including consultants from The Moran Company, works to monitor legislative and regulatory developments in the inpatient hospital space and to assess the impact of inpatient payment, quality, and policy changes on the hospital sector. Our Medicare experts interpret and model inpatient policy proposals and use these analyses to assist clients in developing their strategic plans and commenting on proposed regulations. We replicate the methodologies CMS uses in setting hospital payments and model alternative payment policies using the most current Medicare (100%) claims data. We assist clients with modeling for DRG reassignment requests and to support NTAP applications.  We also support clients in analyzing CMS Innovation Center alternative payment models.  

For more information or questions about the policies described above, contact Zach Gaumer, Amy Bassano, Kevin Kirby or Clare Mamerow.

Blog

Five takeaways from the CMS Medicaid managed care final rule

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This week, our In Focus section reviews significant Medicaid policy announcements from the Centers for Medicare & Medicaid Services (CMS). For example, both the Medicaid and Children’s Health Insurance Program Managed Care Access, Finance, and Quality Final Rule (CMS-2439-F) (CMS fact sheet available here) and the separate Ensuring Access to Medicaid Services Final Rule (CMS-2442-F) (CMS fact sheet available here) were released April 22, 2024. 

Taken together, these two final rules create new flexibilities and requirements aimed at enhancing accountability for improving access and quality in Medicaid and the Children’s Health Insurance Program (CHIP) across the fee-for-service and managed care delivery systems and provide targeted regulatory flexibility in support of this goal.  

HMA’s April 11, 2024, “What to Watch For” article outlined several proposed changes that CMS was poised to advance in the Medicaid managed care program. We focus today on the approved changes, including:  

  • In lieu of services and settings (ILOSs)  
  • The Medicaid and CHIP quality rating system (MAC QRS)  
  • Medical loss ratios (MLRs)  
  • Network adequacy 
  • State directed payments (SDPs) 

Following are HMA’s insights on the key takeaways in each of these major areas for states, managed care organizations (MCOs), providers, and other stakeholders. In addition, HMA experts will discuss the final rule during a LinkedIn Live on event at 2:00 pm (EDT) April 25, 2024. Go to the HMA LinkedIn feed to watch. 

In future weeks, HMA will review the Ensuring Access to Care final rule. 

ILOSs 

The final rule makes clear that CMS remains committed to the conviction that ILOSs can play an important role in supporting state and MCO efforts to address many of the unmet physical, behavioral, developmental, long-term care, and other enrollee needs. At the same time, CMS continues to put forward requirements in this area to ensure adequate assessment of these substitute services and settings in advance of approval, ongoing monitoring for sufficient beneficiary protections, and financial accountability for related expenditures. 

The final rule presents an opportunity to leverage ILOSs to improve population health, reduce health inequities, and lower total healthcare costs in Medicaid and CHIP, including by addressing unmet health-related social needs as well as through other avenues. To take full advantage of this opportunity, states and MCOs must ensure that that they are prepared to meet the accountability measures outlined in the final rule and partner with existing providers and community-based organizations that already provide such services and settings. 

Medicaid and CHIP Quality Rating System  

CMS finalized most proposed provisions related to mandatory quality measures, the process used to update these measures, the ability of states to include additional measures, and the ability of states to apply an alternative QRS if desired. On this last point, CMS is making several modifications to its MAC QRS proposal to clarify the scope of and to reduce the implementation resources needed for an alternative MAC QRS if a state elects to implement one. 

States will be required to collect from MCOs the data necessary to calculate ratings for each measure and ensure that all data collected are validated. This will require MCOs to assess their capability to produce the mandated data upon request by states and, to the extent possible, to assess baseline performance on measures and proactively operationalize strategies to improve performance where necessary. 

Medical Loss Ratios 

The final rule aligns Medicaid and CHIP MLR QIA reporting requirements with the private market to ensure that only those expenses that are directly related to healthcare QIAs are included in the MLR numerator. CMS notes that this provision will allow for better MLR data comparisons between the private market and Medicaid and CHIP markets as well as reduce administrative burden for MCOs participating across these markets.  

MCOs will need to model the impact of QIA expenditures that are no longer available for inclusion in the MLR numerator to ensure that a resulting failure to meet any minimum MLR requirements can be avoided, and, if it is projected to occur, a strategy can be developed and executed to avert the problem. CMS made this requirement effective as of the effective date of the final rule with no delay because it believes it is critical to the fiscal integrity of Medicaid and CHIP, adding urgency to MCO compliance action here. 

Network Adequacy 

The final rule makes clear that CMS has been persuaded that it needs to increase oversight of network adequacy and overall access to care through a new quantitative network adequacy standard. To measure network adequacy, the agency intends to implement wait time standards, complemented by secret shopper surveys to support enforcement. 

Wait time standards and secret shopper surveys present opportunities for states, MCOs, and providers to collaborate to enhance access where needed and ensure compliance with the final rule. Undertaking secret shopper surveys ahead of implementation of the wait time standards (effective the first rating period beginning on or after three years after the effective date of the final rule) to determine the current performance relative to maximum wait times is a proactive step that is worth consideration by states and MCOs and can also be employed to foster dialogue with providers to address any areas of concern identified. 

State Directed Payments 

CMS is adopting its proposal in the final rule to use the average commercial rate as a limit for SDPs for inpatient and outpatient hospital services, nursing facility services, and professional services at academic medical centers. CMS believes that this approach represents a reasonable limit that is supportive of appropriate fiscal guardrails, while still affording states the flexibility to achieve SDP policy goals. States and providers will need to account for this requirement, along with others, as SDPs are developed going forward.  

Connect with Us 

HMA is ready to support your efforts to understand and take action to account for the managed care final rule’s effects on your state or organization’s strategy and operations. Please reach out to [email protected] to connect with our expert team members on this vital set of issues.