MACRA Part 1: What are Advanced Alternative Payment Models?

December 2, 2020

On January 1, 2011 the first Baby Boomer became eligible for Medicare, and more than 60 million more have or will follow her. In many ways, this demographic fact lies at the heart of the health care reforms over the past several years. It’s why the Affordable Care Act (ACA) not only expanded access to care, but also had several provisions to decrease costs and boost health outcomes. Last year, Congress passed the Medicare Access and CHIP Reauthorization Act of 2015(MACRA), which replaced the SGR formula for health care provider reimbursement, and that too included efforts to bring down costs while increasing quality. Yesterday, CMS proposed the details for implementing MACRA. How these rules are finalized and the effect they have will play a big part in determining whether or not our country can afford to care for the aging Baby Boom without breaking the bank, raising taxes, or cutting critically important care.

MACRA creates two Medicare paths for physicians. First, is the Merit-based Incentive Payment System or MIPS (yes, the acronym jungle just got a lot thicker). As a consolidation and refinement of various incentive programs, MIPS is an important program, but it neither aspires to nor will drive change in the value of health care at anywhere near the levels of change that the retirement of the baby boomer generation will force upon Medicare and society. For more background on MACRA itself we encourage you to check out some of our previous blogs herehere and here.

The second path MACRA creates are alternative payment models (APMs). These models are not just incentives, but fundamental changes in how we pay for health care in the U.S. It is these models, particularly those dealing with total cost of care, that have the potential to fundamentally alter the value we receive from health care.

Under these rules, there are now two types of alternative payment models: alternative payment models and advanced alternative payment models. Advanced alternative payment models are the ones we are interested in. They are the ones that exclude a physician from MIPS, the ones the Congress endorsed as special. Under MACRA, if a physician participates in an advanced alternative payment model, they will be exempt from the Merit-based Incentive Payment System (the subject of part 2 of the What is it MACRA blogs), and they will receive a lump sum payment from Medicare in the amount equal to 5% of last year’s fee for service payments. To qualify as an alternative payment model under the MACRA statute, it must use Certified EHR Technology, report quality measures comparable to measures under MIPS, and bear financial risk in excess of a nominal amount – or – is a Medical Home Model expanded under section of 1115A(c) of the law.

First, the spoiler. CMS set a pretty high bar for what counts as an Advanced APM, requiring pretty substantial downside risk, with the curious exception of “non-expanded Medical Homes”. If the rule is finalized as proposed, CMS estimates only a small percentage of providers- as few as 5% – would receive Advanced APM bonuses in 2019. We believe that with some very reasonable changes that CMS has left the door open to, this could be significantly expanded, especially for those independent physician ACOs found to be most successful in the current Medicare Shared Savings Program.

CMS was charged with defining in its regulations, the following:

  • What is use?
  • What is Certified EHR Technology?
  • What makes measures comparable to measures under MIPS?
  • What is financial risk?
  • How much financial risk is in excess of a nominal amount?
  • What is a Medical Home Model?

Let’s look at these questions.

What is a Medical Home Model?

No Medical Home Model under section 1115A(c) has been expanded to date so we can set aside that criteria for the time being.

What is financial risk?

CMS does not propose to define who among the participants in an advanced APM must bear risk. To use an ACO as an example, the ACO could bear all of the risk and the members of the ACO no risk, the entities could share risk or the ACO organization could pass through all the risk to the members of the ACO. CMS wisely choose not to dive into this potential morass.

In the regulations, risk is defined as financial losses tied directly to performance in the advanced APM. CMS dismisses what many ACOs had advocated- that the investments made to participate in the APM count as risk- for two reasons:

  1. The MACRA statute recognizes that not all APMs will meet the criteria and that the inclusion of risk to investment would qualify most if not all APMs as advanced APMs
  2. The wide variation in investment made by different entities in different models makes it impractical to quantify whether the investment or business risk is more than nominal or not

We agree that the MACRA statute does lean towards only counting risk as it relates directly to the model. We agree that quantifying investment risk is difficult, but not more so than many other things CMS must accomplish with this rule.

So which are dollars that count as being at risk according to CMS?

  • “Withhold payment for services to the APM Entity and/or the APM Entity’s eligible clinicians”;

Translation: Not at all for services that would have been paid for outside the model until you meet a performance target in the model

  • “Reduce payment rates to the APM Entity and/or the APM Entity’s eligible clinicians; or”

Translation: Not as much for services as would have been paid for those same services outside the model until you meet a performance target in the model

  • “Require the APM Entity to owe payment(s) to CMS.”

Translation: Writing CMS a check due to not meeting a performance target in the model

The Wild Card: Medical Home Models that have not been expanded

While the MACRA statute only talks about expanded Medical Home Models for APMs, CMS has proposed a different set of definitions of losses for organizations that meet certain standards to be labeled as Medical Homes. The standard relevant to the financial capacity is that the APM Entity, that is the organization that has the contract with CMS for the model be, owned and operated by organizations with 50 or fewer clinicians

So which are dollars that count as being at risk for Medical Home Models to CMS?

The same three as before plus

  • Lose the right to all or part of an otherwise guaranteed payment or payments, if either:
    • Actual expenditures for which the APM Entity is responsible under the APM exceed expected expenditures during a specified performance period; or
    • APM Entity performance on specified performance measures does not meet or exceed expected performance on such measures for a specified performance period

Translation: In CPC+ this means that the money CMS gives you up front for being in the model, but could take back if you don’t hit quality or cost targets counts as risk. This differs from the other three loss definitions because this is money that is only accessible through the model. This is a very generous definition of loss and we have significant concerns that it pulls primary care physicians who would tackle total cost of care backwards towards something that looks more like “pay for performance”.

How much financial risk is “more than nominal”?

This was always going to be the tougher question. CMS threw a little more complication in there with the Medical Home track. How much was always going to be a sliding scale.

The first decision is how much as compared to what? CMS proposes for most advanced APMs that the answer be the target in the model itself. So in the ACO world a percentage of total cost of care. In the bundle world a percentage of the target price. The other specifically discussed option (and one CMS uses for the Medical Home group) is a percentage of Part A and B Medicare revenue received by the APM entity (page 492). In our view this is a far superior way of looking at risk as we have written about before. It works across all models and accounts for organizational size and financial resources directly. CMS clearly debated between the two in the proposed regulation, and we hope to convince them of the virtue of a revenue based target for measuring financial risk. If you care about increasing the number of independent primary care providers that can participate in Advanced Alternative Payment Models and successfully tackle better care at lower cost (we are crazy about it!)- and you only comment on one thing in the reg, it should be this:

We seek comment on the Advanced APM nominal amount standard. In particular, we seek comment on whether the Advanced APM benchmark or the Advanced APM Entity revenue is a more appropriate basis for assessing total risk and on the proposed amounts of total potential risk, marginal risk, and maximum allowable minimum loss rate. (MACRA p 492)

Back to what was proposed. For most advanced APMs, there are three financial tests that must be passed. The marginal risk rate must be 30%, and the loss protection in the form of a minimum loss rate must be 4% or less. Conversely, loss protection in the form of a stop loss must expose the organization to at least paying 4% of the denominator in question (total cost of care or target price) to CMS. So for example if an ACO split losses 50/50 with CMS then the stop loss would need to be at least 8%. Under these definitions all two sided tracks of MSSP would meet the definition. The regulation contains more examples of these factors, but to sum up.

  • Entity must be on the hook to pay back at least 30% of the losses that are greater than 4% of the denominator to qualify, or
  • Entity must be on the hook to pay back losses totaling 4% or more of the denominator

Confused yet? To simplify, we recommend that CMS simply say that organizations must be on the hook to pay losses amounting to at least 15% (one percent more than MIPS combined with the APM Bonus) of their Medicare Parts A and B revenue. This is the same denominator proposed by CMS to use for Medical Home Model participants, but with a higher percentage to reflect CMS desire to make advanced APMs riskier than MIPS.

What makes measures comparable to measures under MIPS?

The easiest of the criteria. All APMs introduced by CMS to date have robust quality measures and I don’t see them ever introducing an APM that would have problems meeting the quality definition.

What is use of Certified EHR Technology?

Advanced alternative payment models adopt the current definition of Certified EHR Technology as certified EHR technologies that meet the definition of meaningful use. The definition refines with the evolution of that definition under the Merit-based Incentive Payment System. The use part of the requirement is left to be defined by the advanced payment model itself.

To sum up:

  • Always use certified EHR technology
  • Know the stance on use that your advanced APM choose (for example, the Medicare Shared Savings Program uses the EHR Incentive Program meaningful use requirements currently)


Advanced APMs are what is going to drive the movement to value based health care. We need a framework for becoming an advanced APMs that scales across models and across different organizations. By shifting the risk basis to Medicare revenue from model benchmarks and prices, CMS can easily achieve these goals. We look forward to working with CMS on developing APMs that work from all providers. If we are really going to increase value across the spectrum, we need to have 50% of physicians looking after total cost of care not 5% of physicians with only some of them looking after total cost of care.