MACRA—The Medicare Access & CHIP Reauthorization Act: A Catalyst for Moving Physicians to Value Kaufman, Hall & Associates, LLC June 30, 2016

Introduction Introduction Passed with the broad bipartisan support of Congress in 2015, the Medicare Access & CHIP Reauthorization Act (MACRA) will make sweeping changes to how Medicare pays for physician services, pushing physicians toward risk-bearing value arrangements. Physician participation is mandatory. We expect MACRA to dramatically alter the way physicians practice, whether independently or as employees of hospitals and health systems. For the financial viability of their practices, physicians will need to partner with larger organizations that have risk contracts for managing population health. MACRA can be expected to accelerate the shift of physicians into large practices and employment by hospitals. This publication presents details on how MACRA is to be implemented, the implications and tactical challenges for hospitals and health systems, and questions healthcare leaders should be asking about their organizations’ preparedness for MACRA. CONTENTS Introduction 2 MACRA in Brief 3 Implications 6 Tactical Challenges 7 Questions Leaders Should Be Asking 8 For More Information 9

MACRA in Brief Alternative Payment Models (APMs) Two-Track Framework Alternative Payment Models (APMs) Advanced APMs bear “more than a nominal amount of risk for monetary losses”—in other words, significant downside risk Defined as either an accredited Patient Centered Medical Home (PCMH), or model with performance-tied payment of 25% or higher of a physician’s or group’s Medicare revenue, or 20% of patients served by the physician/group in 2019 Include six proposed models: Medicare Shared Savings Program (MSSP) ACOs Track 2 and 3, Next Generation ACOs, Comprehensive Primary Care Plus (approved PCMHs), most ESRD care organizations, and Oncology Care Model Track 2 Require use of certified EHR technology Offer a 5% incentive payment Merit-based Incentive Payment System (MIPS) Physicians who do not participate in advanced APMs will be default participants in MIPS Based on the fee-for-service model with a direct tie to quality performance Includes allied clinicians MACRA eliminates the sustainable growth rate formula and creates a two- track framework to reward physicians for providing value- based care

MIPS Program Component (% of score) Value-based Payment Modifier MACRA in Brief MIPS Performance Management Structure Pre-MACRA Program MIPS Program Component (% of score) Measures PQRS Quality (50%) Clinicians select six measures to report (one outcome or high-value measure; one cross-cutting measure) Value-based Payment Modifier Resource Use (10%) CMS will calculate these measures based on claims; no reporting required Meaningful Use Advancing Care Information (25%) Clinicians report measures of patient engagement and information exchange None Clinical Practice Improvement (15%) Physicians choose from more than 90 activities. Medical homes earn full credit; APMs earn half credit MIPS payment adjustments of up to ± 9% will be based on physician performance in four categories Source: Adapted from CAPG: “MACRA: A Deep Dive on the Proposed Rule.” Webinar, June 7, 2016.

MACRA in Brief Timeline Physicians must move quickly toward one of the two tracks. Performance Year 1 starts January 1, 2017 for FY 2019 payment MACRA in Brief Timeline 2015 and earlier 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 and later .5% 0% ±4% ±5% ±7% 0.75% APMs FEE Fee Schedule Updates 0.25% MIPS Quality Resource Use MIPS Clinical Practice Improvement Activities ± 9% Meaningful Use of Certified EHR Technology PQRS, Value Modifier, EHR Incentives MIPS Maximum Bonus or Penalty (+/-) Certain APMs Qualifying APM Participant Medicare Payment Threshold Excluded from MIPS 5% Incentive Payment Excluded from MIPS Source: Centers for Medicare & Medicaid Services : www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/Value-Based-Programs/MACRA-MIPS-and-APMs/MACRA-MIPS-and-APMs.html MIPS and APMS begin operating

Implications It will be difficult for solo and small practices to make the investments needed for MIPS compliance or advanced APM qualification without alignment with an entity that has scale and contracting capabilities Hospitals will need a pluralistic approach to helping and integrating physicians Offer an advanced APM Provide support for MIPS compliance Expect to invest (further) in physician practices and sustain at least initial operating losses Hospitals that employ physicians may bear the cost of the implementation of—and ongoing compliance with— the MIPS reporting requirements, and be at-risk for any payment adjustments1 It is unclear whether Medicare Advantage plans—which now cover one in five Medicare beneficiaries—will be deemed an advanced APM The Act is expected to survive whomever wins the November election If your hospital doesn’t help physicians, some other entity will 1American Hospital Association: “Physician Payment Reform—What Is the MACRA?” Issue Brief, Apr. 19, 2016.

Tactical Challenges Develop and implement a plan for your independent medical staff Sort out which physicians you’re willing/not willing to employ Put in place an effective clinical integration network Access risk contracts with managed lives and a provider network Understand that downside risk is a must; upside-only contracts don’t count Implement specific performance requirements for all clinicians participating in your network Develop the ability to measure and grade clinician performance Be willing to exclude/remove clinicians who do not meet your performance requirements Build or purchase the capabilities and infrastructure required to manage risk Although a limited number of health systems have made the pivot to value, most health systems will need to address four tactical challenges

Questions Leaders Should Be Asking How do you envision helping your independent physicians prepare for MACRA? What steps are you taking toward offering physicians an advanced APM? What alignment strategies are you pursuing with affiliated physicians? What investments will be needed to fund MACRA- readiness and alignment strategies? Do you have the necessary financial resources to compete for physicians? If not, what partnerships and/or relationships might be necessary? MACRA is revenue-neutral. There will be winners and losers

For More Information Please contact James J. Pizzo Managing Director and National Physician/ Value Leader (jpizzo@kaufmanhall.com), or Robert W. York Senior Vice President and leader of the Population Health Management division (ryork@kaufmanhall.com), at 847.441.8780