On August 15, 2017, the Centers for Medicare and Medicaid Services (CMS) released a proposed rule that would significantly roll back two of CMS’s mandatory alternative payment models. The Proposed Rule would make continued participation in the Comprehensive Care for Joint Replacement (CJR) model voluntary for acute care hospitals in 33 of the 67 Metropolitan Statistical Areas (MSAs) in which participation is now mandatory, and would cancel entirely CMS’s Episode Payment Model (EPM) program, which is currently scheduled to begin on January 1, 2018. The Proposed Rule appears to demonstrate a policy shift by CMS away from compulsory participation in hospital-led alternative payment models.

Since its commencement in April 2016, CJR has been mandatory for most acute care hospitals located in one of 67 MSAs. CJR sets a quality-adjusted target price for all Medicare Part A and Part B reimbursement for hip and knee replacements from hospital admission through 90 days post-discharge, reconciles actual reimbursement against the target, and requires hospitals to share financially in any differences between actual reimbursement and the target. If finalized, the Proposed Rule would require continued participation in CJR for the vast majority of acute care hospitals in 34 of the current 67 MSAs, but would become voluntary for certain low-volume and rural hospitals within those MSAs.  Likewise, participation in CJR would be entirely voluntary for acute care hospitals located in the remaining 33 MSAs currently covered by CJR. Hospitals for which participation in CJR would become voluntary will have a one-time opportunity to elect continued participation in CJR. The Proposed Rule indicates that hospitals could exercise this opt-in election by sending a letter, in a form specified by CMS, between January 1, 2018, and January 31, 2018. Hospitals failing to submit the election notice within this period would automatically be removed from CJR, effective February 1, 2018, and the financial reconciliations for those hospitals would end with CJR’s Performance Year 2.

The Proposed Rule also proposes a number of smaller changes to CJR, including:

• Clarifying that the ICD-10 codes used to identify complications for purposes of quality measures would be the ICD-10 codes as regularly updated;
• Providing details regarding how reconciliations would be performed in the event of hospital mergers and acquisitions;
• Providing that telehealth G codes would be reimbursed using the facility practice expense component (PE), rather than the current rule’s assignment of zero (0) to PE;
• Allowing certain practitioners to qualify for participation in an Advanced APM for purposes of MACRA by supporting a participant hospital’s quality or cost goals under CJR (“Clinical Engagement”), even absent sharing in financial risk;
• Requiring participant hospitals to submit a list to CMS on a quarterly basis identifying practitioners involved in Clinical Engagement;
• Clarifying that the “subsequent reconciliation” for CJR Performance Year 1, which will occur in early 2018, will be based upon the quality provisions contained in amendments to CJR adopted in 2017, which CMS indicates generally will be more generous to hospitals; and
• Clarifying the use of CMS Price (payment) Standardization Detail Methodology for purposes of excluding certain special payment provisions in calculating target prices.

The Proposed Rule would also cancel entirely EPM, currently scheduled to begin January 1, 2018. As set forth in a final rule published January 3, 2017, EPM creates a model virtually identical to CJR applied to additional procedures – hip and femur fractures – in the same 67 MSAs covered by CJR. In addition, EPM would establish models similar to CJR for coronary artery bypass graft and acute myocardial infarction in 98 MSAs, including the 67 MSAs covered by CJR. The Proposed Rule would also cancel the Cardiac Rehabilitation Incentive Payment Model contained in the same final rule that promulgated EPM.

The Proposed Rule expressly notes that it was prompted by the new administration. It observes that EPM is too complicated and that providers do not have enough time to prepare for the current January 1, 2018 start date. The Proposed Rule also indicates that CMS believes that requiring participation in additional alternative payment models is not in the best interest of CMS or providers, that a large mandatory program might limit CMS’s ability to engage providers in voluntary programs, and that the Proposed Rule will give CMS greater flexibility to design and test other voluntary programs.

CMS estimates in the Proposed Rule that the changes to CJR will cost the Medicare Program approximately $90 million, representing savings lost by making participation voluntary in 33 MSAs. CMS predicts that the Proposed Rule would reduce participation in CJR from approximately 700 hospitals to between 453 and 473 hospitals – 393 in the MSAs that will continue to be mandatory, and approximately 60 to 80 hospitals that CMS anticipates will elect to continue to participate on a voluntary basis. The Proposed Rule does not attempt to quantify lost savings from cancelling EPM.

Finally, the Proposed Rule suggests additional regulatory and sub-regulatory changes may be coming. While the Proposed Rule did not propose any changes to the current provisions limiting the amount of gainsharing payments participant hospitals can make to collaborating physicians and physician practices under CJR, it sought additional comment on those rules, indicating the possibility of changes in the future. In addition, the Proposed Rule indicates that CMS may move forward in the future with voluntary alternative payment models similar to CJR and EPM, but that such models would likely differ in certain unspecified respects, and would be promulgated through the sub-regulatory process that has characterized other voluntary programs.

The Proposed Rule comes less than a year after then Representative Tom Price (now HHS Secretary) and other lawmakers sent CMS a letter asking it to “stop experimenting with Americans’ health, and cease all current and future planned mandatory initiatives.” Whether Secretary Price will continue to direct additional change in CMS’s portfolio of alternative payment models remains to be seen; however, providers interested in participating in innovative models can look to CMS’s guidance on the future creation of voluntary models with optimism. As the healthcare industry continues to transition from fee-for-service to innovative and value-based models, providers who have participated in programs like CJR and EPM will continue to develop the infrastructure and gain the experience needed to help them to succeed.