Reed Smith Client Alerts

Authors: Paul W. Pitts

The Centers for Medicare & Medicaid Services (CMS) has finalized sweeping reforms of the Medicare physician fee schedule (MPFS) update framework, as mandated by Congress last year. While CMS transition policies are intended to help physicians avoid payment cuts in the first year of the program, these policies add to the complexity of the regulations. Physicians’ actions in 2017 will impact their Medicare payments in 2019, so it is important to begin preparing for the new system right away.

The Centers for Medicare & Medicaid Services (CMS) has finalized sweeping reforms of the Medicare physician fee schedule (MPFS) update framework, as mandated by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Beginning in 2017, physicians can choose one of two tracks within its “Quality Payment Program” to determine their MPFS update: reporting under the Merit-based Incentive Payment System (MIPS) or participation in an Advanced Alternative Payment Model (APM). A physician’s 2019 MPFS payment update (positive or negative) is based on action in 2017 – leaving little time to digest and prepare for the new framework before the system kicks in January 1, 2017. In order to give physicians and other affected clinicians additional flexibility going into 2017, CMS adopted several “transition” policies that will allow physicians to “pick their pace of participation” and report fewer quality measures, or report for a partial year and still avoid a negative payment adjustment in 2019, and possibly qualify for a positive adjustment.

The byproduct of the final rule’s additional flexibility is a dizzying complexity of requirements for avoiding negative adjustments in Medicare payment – the advance version of the final rule is almost 2,200 pages and more than twice as long as the May 2016 proposed rule. Moreover, CMS expresses its intention to further modify numerous provisions in future years as clinicians and CMS gain experience with the program. To that end, the agency is accepting comments on a wide range of provisions through December 19, 2016. Thus, even though CMS has at long last issued the final MACRA rule, the specific policies linking MIPS quality reporting and/or APM participation to actual Medicare payment adjustments may still be in flux for several years.

We highlight below major provisions of the final rule’s new payment framework and significant changes from the proposed rule. We would be pleased to answer any specific questions or provide additional analysis regarding the new system.

Merit-Based Incentive Payment System

MIPS will consolidate and replace the following Medicare physician quality and value programs: the Physician Quality Reporting System (PQRS), the Physician Value-based Payment Modifier (VM), and the Medicare Electronic Health Record (EHR) Incentive Program. MIPS will impact MPFS payments beginning in 2019, based on 2017 performance and reporting.

The MIPS program will apply to most Medicare Part B clinicians, including physicians, physician assistants, nurse practitioners, clinical nurse specialists, and certified registered nurse anesthetists, and groups that include such professionals (hereinafter clinicians”), with certain exceptions (e.g., for newly-enrolling and low-volume clinicians, as specified in the final rule). Furthermore, clinicians that meaningfully participate in qualified Advanced APMs are exempt from MIPS and subject to separate payment policies, as discussed below. CMS estimates that roughly 600,000 clinicians will be eligible to participate in MIPS in the first year of the program, with more than 700,000 excluded because of the low-volume, new enrollment, or qualifying APM participant exclusions, or because they are an ineligible clinician type.

MIPS-eligible clinicians will receive a positive, negative, or neutral adjustment to their Medicare payments, based on their MIPS performance score compared with a threshold and subject to other adjustments (e.g., for small practices). The annual maximum negative adjustments are set by statute, with positive adjustments scaled up or down to achieve budget neutrality. Specifically, the maximum negative adjustments are: 4 percent in 2019, 5 percent in 2020, 7 percent in 2021, and 9 percent in 2022 and subsequent years. The maximum positive adjustment for a year is capped at three times the annual limit on negative payment adjustments. Furthermore, MACRA authorizes a $500 million additional performance bonus for “exceptional performance” (capped at 10 percent) during the first five years of the program.

In the final rule, CMS established the following four MIPS performance categories (with final first-year performance weights for full participation):

  • Quality (60 percent instead of proposed 50 percent): Clinicians generally will report six measures from a lengthy list of measures intended to accommodate differences among specialties and practices. CMS set a floor of three points for each quality measure submitted in 2017, with a maximum score of 60. CMS will gradually decrease the weight of this measure to 30 percent by 2021.
  • Advancing Care Information (25 percent): Clinicians will report measures reflecting how they use technology in their practice, with an emphasis on interoperability and information exchange. CMS reduced the number of required measures to five; reporting on all five measures earns a score of 50 percent, with higher scores available for reporting on optional measures.
  • Improvement Activities (15 percent): Clinicians will select from a wide range of clinical practice improvement activities (e.g., care coordination, beneficiary engagement, and patient safety activities), which are divided into medium- and high-weight categories. CMS reduced the number of activities required to achieve full credit for this performance category to four medium-weighted or two high-weighted activities (with alternate criteria for small or rural practices and for “non-patient-facing” clinicians/groups). Clinicians also will receive credit for participating in APMs and in Patient-Centered Medical Homes. The maximum score in this category is 40 points.
  • Cost/Resource Use (0 percent instead of proposed 10 percent): Clinicians will receive a score based on Medicare claims for 10 episode-specific measures (rather than the proposed 41 episodes) that account for differences among specialties. For 2017, scores will be provided for clinicians’ information and will not impact payment. CMS will gradually increase the weight of this measure to 30 percent by 2021.

The score for each performance category will be added and multiplied by 100 to determine a final score that that is compared with the threshold. Note that as part of its transition policies for the 2017 reporting year, CMS will allow clinicians to report data for a minimum of a continuous 90-day period within 2017 (with certain exceptions) and still receive credit.

CMS also adjusted the 2017 threshold to subject fewer eligible clinicians to a negative adjustment in 2019. Instead of setting the threshold at a level where approximately half of the eligible clinicians would be below the performance threshold and half would be above the performance threshold, as proposed, CMS set the 2017 threshold at three points. CMS observes that a clinician can reach this threshold in 2017 – and avert a negative adjustment for 2019 – by reporting only one quality measure given the three-point floor (that is, three points out of a possible 60, or 5 percent, multiplied by the category weight of 60 percent, multiplied by 100, which equals three). Likewise, this threshold can be met by attesting to at least one improvement activity or reporting one advancing care information measure in the transition year. Scores higher than 3.0 will receive a positive MIPS adjustment of up to 4 percent, and clinicians with a final score of 70 or higher will be eligible for both the positive MIPS adjustment and the exceptional performance adjustment. On the other hand, a clinician with a score of less than 3.0 (such as an eligible clinician who does not report any performance measures) would be subject to a negative adjustment of up to 4 percent for 2019. CMS summarized the possible 2019 payment adjustments in the following table:

Illustration of Point System and Associated Adjustments in Transition Year

Final Score Points 

MIPS Adjustment 


Negative 4 percent (Note: CMS anticipates that this range will include mostly MIPS-eligible
clinicians with a final score of 0.)


Negative MIPS payment adjustment greater than negative 4 percent and less than 0 percent on a linear sliding scale. (Note: CMS does do not anticipate many MIPS eligible clinicians to fall into this range.)


0 percent adjustment


Positive MIPS payment adjustment ranging from greater than 0 percent to 4 percent × a scaling factor to preserve budget neutrality, on a linear sliding scale


Positive MIPS payment adjustment AND additional MIPS payment adjustment for exceptional performance. (Additional MIPS payment adjustment starting at 0.5 percent and increasing on a linear sliding scale to 10 percent multiplied by a scaling factor.)

CMS estimates that in 2019, 94.7 percent of MIPS-eligible clinicians will have a positive or neutral MIPS payment adjustment, and 5.3 percent will have a negative adjustment.

Advanced Alternative Payment Models

MACRA authorized a separate payment track for clinicians who participate in qualified APMs (such as certain types of accountable care organizations) that coordinate care, improve quality, and reduce costs. Qualified APM participants will be exempt from MIPS payment adjustments and will instead qualify for bonuses in 2019 through 2024 equal to 5 percent of their prior year’s payments for Part B covered professional services. Beginning in 2026, APM qualified participants (QPs) also will receive a higher MPFS update than non-participants (0.75 percent vs. 0.25 percent).

Under MACRA, qualified APMs – which CMS calls “Advanced APMs” – must: (1) use certified EHR technology, (2) use quality measures comparable to the MIPS measures, and (3) either bear more than nominal financial risk if actual expenditures exceed expected expenditures, or be a Medical Home Model expanded under section 1115A of the Social Security Act (CMS’s Innovation Center authority).

The final rule includes detailed rules to determine if a clinician or entity with a group of eligible clinicians meets these criteria. Broadly, the final rule standards include the following:

  • Certified EHR Technology (CEHRT): At least 50 percent of the eligible clinicians in each Advanced APM Entity must use CEHRT to document and communicate clinical care in the first year (except that all hospitals must use CEHRT if hospitals are the APM Entities). CMS did not adopt its proposal to increase this percentage to 75 percent in subsequent years. CMS also adopted alternative criteria for determining whether a Shared Savings Program ACO meets the CEHRT requirement.
  • Quality: The entity must meet quality measures comparable to those used in the MIPS quality performance category. Payment must be based on quality measures that are evidence-based, reliable, and valid, and at least one such measure must be an outcome measure (if an appropriate measure is available on the MIPS measure list).
  • Medical Home or Financial Risk: CMS revised the “nominal financial risk” standard; in the final rule, this standard is met if the total amount an APM entity potentially owes CMS or foregoes under the APM is at least (1) 8 percent of the estimated average total Medicare Parts A and B revenues of participating APM for performance periods 2017 and 2018, or (2) 3 percent of the expected expenditures for which an APM entity is responsible under the APM for all performance periods.

CMS will identify and notify the public of the APMs (including specific APM tracks or options) that will be considered Advanced APMs for a performance period. CMS will publish the final list of Advanced APM Models for 2017 by January 1, 2017. CMS anticipates that the following CMS Innovation Center models will qualify as Advanced APMs:

  • Comprehensive ESRD Care - (Large Dialysis Organization (LDO) and non-LDO arrangement)
  • Comprehensive Primary Care Plus
  • Next Generation ACO Model
  • Shared Savings Program/ACO - Track 2
  • Shared Savings Program/ACO - Track 3
  • Oncology Care Model Two-Sided Risk Arrangement (available in 2018)

CMS is considering expanding this list to include additional APM models for 2017 and 2018, potentially including a new Medicare “ACO Track 1+” Model to begin in 2018, which would test a payment model with more limited downside risk than in Tracks 2 or 3 of the Shared Savings Program, but which bears sufficient financial risk to be an Advanced APM. CMS also is considering changes to certain current models, such as the Comprehensive Care for Joint Replacement model and the Advancing Care Coordination through Episode Payment Models, to enable participants to qualify as QPs. In addition, CMS is considering implementing a new voluntary bundled payment APM for CY 2018 that could meet the Advanced APM criteria. Thus, while CMS estimated in the proposed rule that 30,000 to 90,000 clinicians would be QPs in 2017, CMS now anticipates that there will be 70,000 to 120,000 QPs in 2017 and 125,000 QPs in 2018.

There are other eligibility requirements for a clinician to demonstrate significant participation in an Advanced APM and thus qualify for incentive payments as a QP. Under the final rule, a clinician must meet one of two tests – a payment amount threshold (25 percent in 2019) or a patient count threshold (20 percent in 2019) – to qualify as a QP. With certain exceptions, CMS will make a QP determination at a group level, so the QP determination for the group would apply to all the individual eligible clinicians in the Advanced APM. While CMS will only consider Medicare payments and Medicare beneficiaries for purposes of meeting the qualifying tests in 2019 and 2020, CMS has finalized an “All-Payer Combination Option” beginning in 2021 that may include non-Medicare payments and populations (with separate criteria). To identify QP-eligible clinicians, CMS will take three “snapshots” during an annual performance period with three months of claims, and the QP determinations will be made approximately four months after the snapshot period. Under this timeline, eligible clinicians will know their QP status prior to or near the beginning of the MIPS data submission period; if they do not qualify as QPs, they will need to report to MIPS for the applicable year to avoid a negative payment adjustment.

As proposed, Advanced APMs participants that do not meet the requirements for incentive payments may be considered a “Partial Qualifying APM Participant” (Partial QP) if they meet certain thresholds (e.g., 20 percent payments or 10 percent payments through advanced APMs in 2019 and 2020). Such Partial QPs may opt out of the MIPS framework, or they may participate in MIPS and get credit under the Improvement Activities category.

Educational Opportunities

In light of the significant policy changes included in the final rule, CMS has announced a series of webinars on the policies, and the agency is posting educational materials on its dedicated Quality Payment Program web page. We also will continue to post updates about major implementation developments.


Client Alert 2016-291