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The Cost of Learning: Participating in APMs Despite Projected Financial Losses
Jessica Walradt, MS; Hannah Alphs Jackson, MD, MHSA; Brian Walsh, BA; and David Manning, MD

The Cost of Learning: Participating in APMs Despite Projected Financial Losses

Jessica Walradt, MS; Hannah Alphs Jackson, MD, MHSA; Brian Walsh, BA; and David Manning, MD
This article explores Northwestern Medicine’s decision to participate in a Medicare alternative payment model (APM) despite projected losses.
Recommendations for Long-term Sustainability

This article was written in the context of NM’s current preliminary MJRLE target price. Although the final target price will be updated to reflect Medicare rate changes and its patient case mix, NM does not expect its projection to change significantly as a result. However, it is likely that the target price could decline in future performance years when Medicare sets a new baseline period and reruns its methodology. It is possible that following this change, NM (and many other BPCI Advanced participants) may be forced to withdraw from the MJRLE episode due to significant unavoidable financial losses.

CMMI can prevent this with refinements to the target price methodology. Specifically, we recommend that CMS consider one or all of the following possible changes:

Do not rebase; utilize the 2013-2016 period as a fixed baseline for the entirety of BPCI Advanced. CMS is set to rebase targets for performance year 2020, meaning it will alter the baseline to include more recent years—years that reflect a higher portion of providers pursuing efficiencies in the MJRLE care pathway. This action will inevitably cause target prices to decline. In order to provide more predictability and stability to target prices, CMS should elongate the periods between rebasing (minimum of 3 years). If and when rebasing is required, CMS should simply elongate the baseline by 1 year (add on 2017) instead of shifting the entire period forward (eliminating 2013 and potentially 2014).

Apply a floor to the ACH efficiency measure and/or PAT factor. As previously stated, ACH efficiency measures and PAT factors below 1.0 signal that a provider is historically efficient and that providers in peer comparison groups are historically efficient, respectively. These factors are directly applied to a dollar amount to calculate the target price. To prevent target prices from reaching unsustainably low figures, CMS could place a floor on these adjustment factors by prohibiting them from falling below 0.85, for example. Identifying an appropriate floor would require extensive consideration, but the principle of applying a floor is a worthy and sensible policy. CMS has previously applied caps when setting target prices in other models, as it capped quarterly changes in trend factors under the original BPCI.

All of these proposals seek to address the ever-present challenge of any APM’s benchmark methodology: how to prevent the race to the bottom. When a model adjusts a target price to reflect a single provider’s or provider group’s historical efficiency, the target will continue to decline as providers become more efficient. However, there is a floor to this efficiency beyond which the decreases in utilization necessary to match a declining target price would likely threaten the quality of patient care. Thus, a floor must exist in target price methodologies.


APMs such as BPCI Advanced play an important role in healthcare. It is likely that innovation will occur at NM as a result of participation and that performance will continue to improve. Its efforts and the lessons learned via participation will position NM as best possible to manage future challenges in joint replacement and other episodes of care. However, the threat and realization of significant financial losses will stifle innovation and performance improvement if NM and others withdraw from participation. There is a floor to possible efficiencies in care, and CMS must acknowledge this fact as it refines target price methodologies.

Author Affiliations: Northwestern Memorial HealthCare (JW, HAJ, BW, DM), Chicago, IL.

Source of Funding: None.

Author Disclosures: The authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (JW, HAJ, BW, DM); analysis and interpretation of data (JW, DM); drafting of the manuscript (JW, DM); critical revision of the manuscript for important intellectual content (JW, DM); administrative, technical, or logistic support (HAJ, BW); and supervision (HAJ, BW).

Send Correspondence to: Jessica Walradt, MS, Northwestern Memorial HealthCare, 251 E Huron St, Chicago, IL 60611. Email:

1. Azar AM II. Remarks on primary care and value-based transformation. HHS website. Published November 8, 2018. Accessed March 15, 2019.

2. Speech: remarks by CMS Administrator Seema Verma at the Medicare Advantage and Prescription Drug Plan Spring Conference. CMS website. Published May 9, 2018. Accessed March 15, 2019.
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