Traditional Medicare (aka Medicare FFS, Original Medicare) is the backbone of our public health insurance system. Since 1965, Medicare has paid licensed, credentialed, and enrolled physicians for each service or procedure they perform, based fee schedule that is updated annually. These fees are determine by the diagnosis of the patients (indicated via a ICD-10 code), the procedure (CPT code), and various other factors such as inflation and geography.
The Relative Value Scale Update Committee (RUC) is a committee that meets every year to decide fees. These fees serve as benchmarks for Commercial fees, which are usually 10-250% higher than Medicare rates. The RUC consists of ~30 people and votes, most of which are specialists who can outvote primary care.
"While specialties considered part of primary care (including family medicine, pediatricians, and geriatricians) make up about a third of all practicing physicians, such specialties hold just five of 32 votes on the RUC.”
Since 1965, this system has incentivized doctors to over-utilize healthcare services, particularly in select specialties. This incentive and the subsequent growth in total health expenditures has forced the government to reduce physicians’ rates year over year using the Sustainable Growth Rate (SGR) , which mandated cuts to payment whenever overall physicians' costs exceeded target expenditures**.** However, Congress often intervened to prevent these reductions through temporary fixed known as doc fixes. Congress needed a more sustainable methodology that would not require their doc fixes, pay physicians well, and not break the budget, so they introduced a number of reforms, including Accountable Care Organizations (ACOs), Alternative Payment Models (APMs), and the Merit-based Incentive Payment System (MIPS), with the goal of transitioning payment for value (improved outcomes + lowered cost), rather than volume.
In 2010, the Affordable Care Act (ACA) created ACOs, or groups of doctors, hospitals, and other health care providers who come together to give coordinated, higher-touch care to their Medicare patients, often run by health systems, medical groups, enablers, and payers. CMS has set a goal of having 100% of Traditional Medicare beneficiaries and the vast majority of Medicaid beneficiaries in accountable care relationships by 2030. As of 2024, ~45% of the total ~28M Traditional Medicare beneficiaries are in an ACO.
To describe the business model of an ACO at a high level, this group of doctors (often led by Primary Care Physicians (PCPs) is assigned a population based on the patients they’re treating (claims-based alignment) and who wants to aligned to their ACO (voluntary alignment). A benchmark for this population is calculated based on costs from a prior three year period, the trend of these costs, geography, how sick the patients are (risk scores), and more. If an ACO’s population in the performance years costs less than this benchmark, **then the ACO shares in some of those savings with CMS. Quality measures (like patient reported outcomes) “gate” the savings that ACOs are able to take home (i.e., if an ACO doesn’t hit their quality measures, they cannot take home some of the savings). Different programs have different alignment methodologies (i.e., the Kidney program uses nephrologists to align patient rather than PCPs), different benchmarking methodologies, quality measures, and ways to share savings. Overall, ACOs participate in a business model that gives clinicians the freedom to do what is right for the patient (i.e., focusing on higher-touch, preventative care) and the financial health of this country.
The oldest and most popular ACO program is the Medicare Shared Savings Program (MSSP), which has been dubbed the chassis for innovation due to its relative success, primary-care focus, and thoughtful architecture. While there are a few other CMS programs, most of the ACO models are run by the Center for Medicare and Medicaid Innovation (CMMI) which are operated at a smaller scale. If these temporary models have either improve outcomes or reduced costs (ideally both), they will be certified (i.e., made a permanent program).
There has recently been more scrutiny from Republicans and the Congressional Budget Officer (CBO) on the cost-effectiveness of CMMI, further turning our attention to what has worked / not worked in MSSP and other models. Despite this criticism, CMMI has begun to move the needle on delivery system reform by bringing talent and funding into value-based care, generating lessons from each individual model.
CMS has and always will have a focus on primary care-led models because PCPs are patients first contact with the healthcare system (aka the “front door”); however, primary care only targets a small sliver of spend. Specialty care spend accounts for ~60% of national healthcare spending and is the next frontier. CMMI has begun to address this problem with models like Kidney Care Choices (KCC) and the Enhancing Oncology Model (EOM).
MACRA (passed in 2015) repealed the SGR and added two new tracks for provider participation that reward value-based care (VBC): APMs and MIPS. This policy agenda further signaled to the market our movement in VBC with a heavy-handed focus on quality measures, which are often burdensome for patients and providers alike.