The Centers for Medicare and Medicaid Services (“CMS”) is forging ahead with the implementation of innovative and value-based payment programs, despite Donald Trump’s win in the presidential election and Republican congressman Tom Price’s nomination as Secretary of the U.S. Department of Health & Human Services (“HHS”). On January 3, 2017, CMS published a final rule in the Federal Register to implement three new episode bundled payment models:

  • The Acute Myocardial Infarction Model (“AMI”);
  • The Coronary Artery Bypass Graft Model (“CABG”); and
  • The Surgical Hip and Femur Fracture Treatment Model (“SHFFT”).

The AMI and CABG Models address care provided to patients receiving treatment for heart attack or heart surgery to bypass blocked coronary arteries. The SHFFT Model expands the scope of the Complete Joint Replacement (“CJR”) Model — which applies to knee and hip replacement procedures — to include patients who undergo surgery after a hip or femur fracture.

Under these new mandatory bundled payment models, and like the CJR program, hospitals in selected markets will be held responsible for the quality and total cost of care for services related to heart attack, bypass surgery, or hip or femur procedures from the time of admission until 90 days following discharge. The total cost of care will include all Medicare Part A and Part B payments for services related to these procedures furnished by the hospital and all other providers and suppliers during the 90-day episode of care, with few exceptions. For hospitals located in the selected geographic areas, participation is mandatory, unless an exception applies.

The hospitals that will participate in the SHFFT Model will be those located in Metropolitan Service Areas (“MSAs”) in which CJR is currently underway. Several MSAs on the West coast that were not included in CJR have been included in the AMI and CABG models.

The final rule also softens the impact of these new bundled payment programs by increasing opportunities for incentive payments through the Alternative Payment Model (“APM”) of the Medicare Access and CHIP Reauthorization Act (“MACRA”).

In addition to implementing the new bundles, the final rule announces a new Cardiac Rehabilitation (“CR”) Incentive Payment Model and the creation of the Medicare ACO Track 1+ Model. The Track 1+ Model is intended to increase provider participation in the Medicare Shared Savings Program.

These new programs are described in further detail in the Q&As below.

Q1: Who is required to participate in the new Episode Payment Models?

SHFFT Model: Approximately 860 hospitals will participate in the SHFFT Model, which is being implemented in the 67 MSAs where the CJR is currently underway. This includes the following west coast areas:

  • Washington: Bellevue, Seattle, Tacoma, Vancouver;
  • Oregon: Hillsboro, Portland; and
  • California: Anaheim, Hayward, Long Beach, Los Angeles, Modesto, Oakland, San Francisco.

AMI and CABG Models: 98 MSAs have been selected to implement the AMI and CABG Models. Approximately 1,120 hospitals will participate in the AMI and CABG Models. None of the MSAs participating in the CJR Model will also participate in the AMI and CABG Models. The West coast MSAs selected for mandatory participation are:

  • Washington: Bellingham, Kennewick, Richland, Spokane, Spokane Valley, Wenatchee;
  • Oregon: Bend, Eugene, Medford, Redmond, Salem;
  • California: Chico, Salinas; and
  • Alaska: Anchorage.

Q2: When do AMI, CABG, SHFFT and the CR Incentive Payment Models begin?

The first performance period begins on July 1, 2017, and the program concludes in its current form on December 31, 2021.

Q3: How are payments and risk assumption determined under the AMI, CABG, and SHFFT models?

The payment and risk methodologies under AMI, CABG and SHFFT mirror the CJR program in most respects.

Retrospective Payment Reconciliation: All providers and suppliers will be paid under traditional Medicare payment system rules and procedures for episode services throughout the performance year. These actual costs are aggregated at the end of the model’s performance year and compared to a set target price for the participant hospital. If actual costs exceed the target price, the hospital is required to repay Medicare for a portion of this excess spending. If the actual cost of care is below the target price and the hospital meets or exceeds its composite quality score (“CQS”), then it is eligible to receive a percentage of the target price.

Target Price: CMS determines the target price based upon historical hospital-specific and regional data. The price includes almost all Part A and Part B services related to the relevant Medicare Severity-Diagnosis Related Groups (“MS-DRGs”) from admission to 90 days post-discharge. The relevant MS-DRGs include: 410.01, 410.11, 410.21, 410.21, 410.31, 410.41, 410.51, 410.61, 410.71, 410.81, 231, 232, 233, 234, 235, 236, 480, 481, and 482. The Target price will also be adjusted based upon a hospital’s overall quality scores and relative complexity of episodes of care.

Measuring Quality: Each model participant earns a CQS that is based on the required quality measures and submission of voluntary data applicable to the specific model. This score is updated each performance year, factoring in performance and improvement on the prior year’s score.

Timeline of Implementation: Both upside rewards and downside risks will be implemented gradually. In the first year, reconciliation payments are capped at 5%, and there is no repayment responsibility for failure to meet quality and cost goals. At year five, reconciliation payments are capped at 20% and failure to meet quality and cost goals will result in full repayment responsibility up to a specified limit.

Mitigating Factors: The final rule includes stop loss limits to protect hospitals from excessive financial risk and stop gain limits to ensure that potential gains are proportional to downside risk. The stop loss limits will be lower for rural hospitals, Medicare-dependent hospitals, rural referral centers, sole community hospitals, and certain low-volume hospitals.

Q4: Are there any waivers to existing Medicare payment requirements under AMI, CABG, and SHFFT?

Consistent with the current CJR Model, the new models waive certain Medicare coverage rules, including:

  • SNF Three-Day Rule: Beginning in performance year 3, the AMI Model waives the three-day inpatient hospital stay prior to admission for a covered skilled nursing facility stay under certain conditions;
  • Telehealth: The new models allow payment for certain telehealth services provided to a beneficiary in his or her home; and
  • Post Discharge Home Visit: The new models allow payment for certain types of physician-directed home visits for non-homebound beneficiaries.

Q5: Are there fraud and abuse waivers for the AMI, CABG, and SHFFT programs?

There is no waiver of the fraud and abuse laws in the final rule. Although CMS did not address the substance and scope of any such waivers, it recognized the importance of knowing waiver parameters in advance of entering into financial arrangements. The agency is considering fraud and abuse waivers for the new Episode Payment Models as well as adjustments to the existing CJR waivers. Any such waivers would be issued by CMS and the HHS Office of Inspector General in the future.

Q6: What is the CR Incentive Payment Model and who will participate in it?

The CR Incentive Payment Model intends to encourage the use of cardiac rehabilitation services, which have been historically under-used by Medicare beneficiaries. The program provides progressive financial rewards for continued utilization of cardiac rehabilitations during the 90 day care period after a heart attack or coronary bypass.

The CR Incentive Payment Model is being implemented in 45 geographic areas that have been selected to participate in the AMI and CABG Models, as well as 45 geographic areas not participating in the AMI and CABG Models. Approximately 1,320 hospitals will be able to participate in the CR Incentive Payment Model. The Bellingham, Seattle-Tacoma-Bellevue, Salem, and Eugene MSAs were selected to participate in the CR Model. In California, although not selected to participate in any Episode Payment Model, the Riverside-San Bernardino-Ontario and Santa Maria-Santa Barbara MSAs were selected to participate in the CR Model. No MSAs were selected for CR Model participation in Alaska or Hawaii.

Q7: How are providers paid under the CR Incentive Payment model?

Provider participants will continue to be paid under the traditional Medicare payment system rules and procedures related to CR services. However, at the end of a performance year, participant hospitals will be paid additional incentive payments from Medicare in relation to beneficiary utilization of CR services. Cardiac rehabilitation includes exercise prescription, behavioral and lifestyle risk factor reduction, health education, and personal counseling. Each of the first 11 cardiac rehabilitation services paid for by Medicare during the care period for a heart attack or bypass surgery receive an additional $25 payment per service. After 11 services, the payment increases to $175 per service.

Q8: What is the Medicare ACO Track 1+ Model?

ACO Track 1+ hopes to encourage more providers to move towards performance-based risk by offering a model with more limited down-side risk than the current Medicare Shared Savings Programs. Based on the Shared Savings Program Track 1, Track 1+ has a maximum shared savings rate of 50%, but it also incorporates elements of Track 3 including: prospective beneficiary assignment that provides notice of the patient population the ACO is responsible for; choice of symmetrical thresholds from which to start sharing in savings or losses; and the option to elect the SNF 3-Day Rule Waiver. Track 1+ has a fixed 30% loss sharing rate, and the maximum level of downside risk will vary depending on the composition of the ACO. Lower levels of risk are available for qualifying ACOs that are physician-led or that include small, rural hospitals.

Q9: If physicians participate in CJR, AMI, CABG, and/or SHFFT Models, can they qualify for the 5% incentive payment through the Advanced Alternative Payment Model (“APM”) under MACRA’s Quality Payment Program?

In 2017, MACRA implements changes in how Medicare pays physicians. Under the new Quality Payment Program, practitioners will either be reimbursed through the Merit-Based Incentive Payment System (“MIPS”) or through the Advanced Alternative Payment Model (“Advanced APM”). Providers must be designated as Qualified Providers (“QP”) in order to avoid MIPS and receive the 5% incentive payment through the Advanced APM. The final rule designates the Medicare ACO Track 1+ Model and the CJR, SHFFT, AMI, and CABG Models as Advanced APMs, provided that certain criteria are met. Participating clinicians who receive 25% of Medicare payments, or who see 20% of their Medicare patients through an Advanced APM, can be designated a QP and qualify for the 5% incentive payment.

CJR Participants: Clinicians participating in the CJR Model may qualify for the incentive payment beginning in performance year 2017.

SHFFT, AMI, and CABG Participants: Clinicians participating in the SHFFT, AMI, or CABG Model may qualify for the incentive payment beginning in performance year 2019 and potentially as early as performance year 2018.

Medicare ACO Track 1+ Model Participants: Clinicians participating in the Track 1+ Model may qualify for the incentive payment beginning in 2018.


Rep. Tom Price has repeatedly criticized mandatory episode payment models, and it is uncertain how his nomination as HHS Secretary will impact these programs. It is possible that the incoming administration will change the rules yet again, but such changes typically take a great deal of time and ultimately may or may not materialize. In the meantime, it is prudent for hospitals to undertake the necessary preparations with respect to these new payment models.