Salvaging MACRA Implementation Through Medicare Advantage


Salvaging MACRA Implementation Through Medicare Advantage

Oct 16th, 2017 9 min read

Former Senior Fellow, Health Policy

Dr. John O’Shea addressed the pressing physician payment and doctor practice issues in the health sector as senior fellow at Heritage.

On June 20, 2017, the Centers for Medicare and Medicaid Services (CMS) released the proposed 2018 Medicare Quality Payment Program (QPP) rule. The rule addresses participation requirements for 2018 and future years under the merit-based incentive payment system (MIPS) and the advanced alternative payment model (APM) pathways created by the Medicare Access and CHIP Reauthorization Act (MACRA) of 2015.

Although the MACRA proposed rule for 2018 considers counting participation in advanced APM arrangements in Medicare Advantage toward the advanced APM thresholds in 2019, CMS needs to recognize the full spectrum of innovation in the Medicare Advantage program and incentivize participation in a broader array of APMs.

At the same time, CMS needs to revise MIPS to better align the two arms of the QPP. Meaningful progress toward both goals can be achieved using Medicare Advantage as the platform.

Current Implementation Needs To Change To Achieve The Goals Of MACRA

As originally intended, MACRA had three main goals: repeal the sustainable growth rate (SGR) Medicare payment system; stabilize payments for a period of time; and move providers to a value-based payment system. To achieve the third goal, MACRA established the QPP, which aimed to transition providers into viable alternatives to traditional fee-for-service by making fee-for-service increasingly unattractive through MIPS and rewarding participation in APMs.

Although there is considerable flexibility in MIPS reporting requirements and financial penalties during the first and likely the second years of implementation, most providers will experience a “rude awakening” of increased administrative burden and deteriorating reimbursements once MIPS is fully implemented. As fee-for-service becomes rapidly untenable, many providers will not have a viable alternative. Under current MACRA regulations and guidance, only a small number of complex, risk-based Medicare Part B models, mostly Center for Medicare and Medicaid Innovation demonstrations, qualify as advanced APMs. There is no clear “on-ramp” for Medicare providers that want to begin the transition along the value continuum but lack the resources to meet the current advanced APM requirements. The early results from current advanced APMs are disappointing, and their long-term success remains uncertain. In addition, the current process for developing, testing, and implementing successful APMs in Medicare may take up to seven years, according to a Congressional Budget Office analysis.

Recently, Peter S. Hussey and colleagues considered the effects of MACRA on Medicare spending and use and how the effects might differ under various scenarios. They estimate that physicians’ Medicare payments will be substantially lower under MACRA than they would have been if MACRA had never been passed and the cycle of SGR overrides had continued. They suggest that if MACRA is to fare better than the SGR, well-designed APMs must be available to physicians. Otherwise, there could be unintended consequences for patients, and the MACRA program will fail to meet its value-based payment objective.

Assets Of Medicare Advantage

To achieve the original goals of the MACRA legislation, Medicare Advantage could serve as a platform to reduce the burden on physician practices, provide an on-ramp to increasingly advanced payment models, and accelerate the transition to a value-based payment system in Medicare.


Despite reductions in payments to plans authorized by the Affordable Care Act, Medicare Advantage enrollment has grown 71 percent since 2010. As of 2017, one in three people with Medicare (33 percent or 19 million beneficiaries) is enrolled in a Medicare Advantage plan, and enrollment is projected to grow to at least 41 percent over the next decade. Unlike participation in accountable care organizations, beneficiaries choose to be in Medicare Advantage plans. Because Medicare Advantage’s cost-reduction efforts can result in plan rebates that are passed on to the beneficiary as premium reductions or increased services, patients can be incentivized to make high-value health care decisions.

Cost Reduction

The Medicare Payment Advisory Commission (MedPAC) and others have argued that the Medicare Advantage program is more expensive than fee-for-service Medicare. Yet there is evidence that the techniques used by Medicare Advantage plans are effective in changing physicians’ care patterns to reduce the use of expensive services, which may actually have a spending reduction “spillover” effect in fee-for-service Medicare.


Several studies suggest that the care provided through Medicare Advantage may be of higher value than the care offered through traditional Medicare, especially for patients with chronic medical conditions such as diabetes and cardiovascular disease. Furthermore, there is evidence that the combination of full-risk capitation and revenue gainsharing agreements in Medicare Advantage can promote clinical practice transformations at the provider group level, which are associated with increased office-based care, decreased hospital-based services, and increased survival for chronically ill, elderly beneficiaries.

Flexibility To Innovate

The current MACRA APM provisions reward only those providers that have the resources to participate in complex, risk-bearing advanced APMs. By comparison, a MACRA-mandated CMS study reported to Congress that Medicare Advantage organizations and their network providers have long been engaged in payment models that can be classified under every category of the administration’s payment taxonomy framework. The report also found that Medicare Advantage organizations work with physician practices as they progress along the payment continuum, from one category of models to the next and, within a category, from one payment approach to the next. This payment reform “glide path” is not incentivized in the current MACRA provisions. In addition, a recent analysis by the Health Care Payment Learning and Action Network (HCP-LAN) reported that in 2016, as much as 41 percent of Medicare Advantage health care dollars were in a composite of more advanced categories three and four payment models. This is substantially higher than the corresponding portion for other payers and suggests that Medicare Advantage could play a major role in accelerating the transition to value in Medicare.

The 2018 Proposed Rule

Delayed Impact Of MIPS

In the 2018 draft rule, CMS proposes treating the 2018 performance year as another transition year of the QPP, extending program flexibility and minimizing the MIPS reporting burden and exposure to penalties. Moreover, mainly through an expansion of the low-volume thresholds (from $30,000 or 100 beneficiaries in 2017 to $90,000 or 200 beneficiaries in 2018), an estimated two-thirds of clinicians will be exempt from MIPS, substantially limiting the impact of the program, at least for the first two years. This is welcome news to many, but not all, providers. As a budget-neutral program, fewer penalties means significantly smaller rewards for providers that participate and would otherwise expect to benefit.

While excluding a large number of clinicians from MIPS and temporarily sheltering many more from the program’s impact addresses the immediate concerns of many providers, it raises questions about the underlying purpose of MIPS. If the program’s objective is to improve the quality of care delivered in fee-for-service Medicare, past experience suggests that MIPS will not achieve that goal. Although MIPS is by far the largest pay-for-performance initiative to date, an extensive analysis of pay-for-performance over the past decade failed to demonstrate a consistent association with improved health outcomes in any setting.

MIPS will, however, achieve the objective of rapidly making fee-for-service Medicare uncomfortable, if not untenable. In addition to facing a substantial reporting burden once MIPS is fully implemented, the average provider in MIPS (no bonuses or penalties) will see its inflation-adjusted reimbursements fall substantially over the next several years. Furthermore, small variations in scores may have a large effect on the publicly reported composite performance score, affecting an individual provider’s reputation and employability, even though there may be no significant difference in the value of the care provided. As the June 2017, MedPAC report to Congress concluded, MIPS, as presently designed, is unlikely to succeed in helping beneficiaries choose clinicians, helping clinicians change practice patterns to improve their care, or helping the Medicare program reward clinicians based on value.

Consideration Of APMS In Medicare Advantage

Under the 2018 proposed rule, participation in Medicare Advantage payer arrangements that meet the criteria will be considered when determining whether eligible clinicians earn the 5 percent incentive payment and are exempt from MIPS, beginning with the 2019 performance period. The rule includes an option that allows payers to initiate the process on behalf of providers to identify their arrangements as qualifying advanced APMs. This is a departure from the 2017 final rule, which largely ignored risk contracts within Medicare Advantage. However, unless the rules are structured to credit innovation along the entire payment reform continuum, it will not have the desired effect of substantially expanding participation in alternatives to fee-for-service.

What The Government Needs To Do

If MACRA is to achieve its original goals, policy makers need to incentivize participation in alternatives to fee-for-service at all levels. In addition, as access to APMs is expanded, the substantial burden in MIPS needs to be realigned with the goals of the QPP.

Incorporating Medicare Advantage Into MACRA

While counting risk-based provider contracts in Medicare Advantage toward the advanced APM participation thresholds in the 2018 proposed rule is a move in the right direction, there are several additional steps that policy makers can take to leverage the assets of Medicare Advantage.

Consider Risk-Bearing Medicare Advantage Contracts As Advanced APMs

Through their capitated payment contracts with CMS, Medicare Advantage plans assume risk for a population of beneficiaries and therefore offer an alternative to traditional fee-for-service Medicare, which is well-advanced along the payment reform continuum. CMS should amend MACRA to consider Medicare Advantage contracts that take on more than nominal financial risk, meet quality goals through the Star rating system, and use electronic health record technology as advanced APMs. Providers would then be able to count their Medicare Advantage participation toward meeting the revenue or beneficiary thresholds and would be eligible for APM bonus payments and exemption from MIPS.

Those Medicare Advantage providers that are not participating providers in an APM within Medicare Advantage would not be eligible for the APM bonus but would be able to use the star ratings of their contracts to avoid penalties in MIPS, provided the Star rating is 4.0 or better and they meet MA participation thresholds.

Incremental Incentives For APM Participation Within Medicare Advantage

In addition to the risk assumed by MA plans, many providers within Medicare Advantage are also engaged in risk-based contracts with the plan. Instead of providing incentives only for participation in complex, risk-based advanced APMs, CMS should revise the APM bonus to provide incremental incentives for participation at all levels of the payment reform continuum. For example, using the payment model taxonomy as defined by the HCP-LAN, providers would be eligible for differential bonus payments according to the model category in which they participate. This would provide the on-ramp to value-based payment models that is currently missing in MACRA.

The Medicare Advantage plans would submit the participation data to CMS, and the bonus would be based on revenue that flows through the specific model, instead of on the providers’ fee schedule payments, as suggested in the MedPAC June report. The bonus payments would go to the plan, to be distributed to the providers according to their contracts. This would reduce the administrative burden on physician practices as well as CMS. Plans would be reimbursed for additional administrative costs.

Advance The Timeline For Medicare Advantage Incorporation

To accelerate the transition to a value-based system, CMS should consider allowing plans to submit provider participation and APM-related data as early as January 2018.

Align MIPS With The Goal Of The QPP

MIPS, as currently structured, will do little to improve the value of care, and when fully implemented, the rewards or penalties that providers receive may also have little to do with the value of their care. Simply exempting a large number of providers does not address the current lack of meaningful measures or the inherent difficulty of performance assessment at the individual provider level. It also does nothing to further the QPP goal of transitioning to a value-based system.

Instead of expanding the low-volume thresholds, CMS should markedly reduce the reporting burden in MIPS to a few, easily reportable measures that can be used to avoid negative updates. Any concern that eliminating potential large penalties will make MIPS more comfortable and diminish the incentive to transition to APMs is unfounded. Reducing the number of providers that receive penalties will also reduce the potential for large bonuses, and the erosion of inflation-based reimbursement over time will be a strong incentive for providers to seek an alternative to MIPS. To further ensure that MIPS does not become too comfortable, CMS should repurpose the “exceptional performance” payments toward the APM bonuses to better align with the goals of the QPP.


The implementation of MACRA will have a profound and lasting effect on the future US health care system and the practice of medicine. However, unless there are substantive changes to how the law is implemented, MACRA is unlikely to realize the goal of establishing a Medicare payment system that rewards the value and not the volume of health care services. Many of the key objectives of the legislation can be achieved using Medicare Advantage as the platform.

This piece originally appeared in