Value-Based Reimbursement Updates Under the 2026 Medicare Physician Fee Schedule

The 2026 Medicare Physician Fee Schedule (MPFS) final rule provides insight into how the current administration is thinking about value-based reimbursement. Adam Laughton, Shareholder, Greenberg Traurig LLP, speaks with Alex Kirkland, Senior Vice President, Coker Group, about the trajectory of value-based reimbursement and what is happening in traditional Medicare under the 2026 MPFS. They discuss issues related to alternative payment models (APMs) and conversion factors, steps that providers need to take to qualify as an APM (including investments in electronic health records and an analysis of costs versus benefits), and compliance considerations. Alex recently co-authored an article in Health Law Connections magazine about this topic. From AHLA’s Physician Organizations Practice Group.

Watch this episode: https://www.youtube.com/watch?v=D-ZCaG-clNI

Read the Health Law Connections article: https://www.americanhealthlaw.org/content-library/connections-magazine/article/6e583147-a398-42ab-85c6-293440c564da/Review-of-the-Challenges-and-Requirements-of-Becom

Learn more about AHLA’s Physician Organizations Practice Group: https://www.americanhealthlaw.org/practice-groups/practice-groups/physician-organizations 

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Transcript

SPEAKER_00 0:04

This episode of AHLA Speaking of Health Law is brought to you by AHLA members and donors like you. For more information, visit AmericanHealthlaw.org.

SPEAKER_01 0:16

Hello everyone. Welcome to this AHLA podcast. Today we'll be talking about an article in the January-February issue of the AHLA Connections magazine. The article is entitled Review of the Challenges Requirements of Becoming an APM Qualified Participant and Potential Gains under the 2026 Medicare Physician Fees Schedule. My name is Adam Lawton. I'm a shareholder of Greenberg Troy in Houston, Texas, and I'm vice chair of the Physician Organizations Practice Group of AHLA. And we have with us Alex Kirkland, who is part of the Coker Group and one of the co-authors on the article I mentioned previously. Alex, welcome to the podcast. And could you give us a brief introduction into yourself and your work?

SPEAKER_02 1:11

Absolutely. Thanks so much for having me. Alex Kirkland, I'm a senior vice president with Coker Group. I work out of our Nashville, Tennessee office. I like to joke that if I'm I'm not in uh country music, so therefore I got into healthcare. But uh excited to be with you today and talk through some of these dynamics. My focus within the firm is specifically related to physician compensation. And so I work with um practices around the country developing compensation models, um, administering fair market value opinions around them. Um, years ago, when CMS rolled out MacRA and repealed um SGR, I got deeper into a lot of the value-based uh programs in consideration of what it would do to physician compensation. And so as a new administration came into office and released their fee schedule rule for 26, I was excited to work with my team, kind of share our view vanish points about some of the trajectory of value-based reimbursement, what they're doing through traditional Medicare and other means to further that aim. So looking forward to talking that through with everybody today.

SPEAKER_01 2:27

Yeah, and you you already mentioned it sort of in your introduction. Um, when the federal government rolls out these programs, they they love having lots of acronyms and jargon to go along with it. It's like learning a new language every time a new program comes out. So maybe that's where we can start because this rule and the article that we're talking about talks a lot about APMs or alternative payment models. So, could you give us a brief background on what is an alternative payment model and what sorts of programs fit under that category?

SPEAKER_02 3:04

Sure. And I think it's important to note that everything that we're discussing in this is about payment considerations, which is different from coverage dynamics. I think on the coverage side, that tends to be a little bit more political. Why that's important is because um during the Obama administration, when the Affordable Care Act was rolled out, there was the uh creation of CMMI and accountable care organizations, um, which really set the structure for some of these alternative payment models. And what we're seeing in this new fee schedule rule that came out for 26 is that regardless of the party of power, I think both sides have recognized in different um facets that payment reform, move bending the cost curve, having less spent in terms of our GDP on uh health care is a good thing. And so both sides have been advocates for moving forward value-based care. They've done so by creating some of these alternative payment models. I think what most people would recognize those to be would be within the Medicare Shared Savings program. There's different cuts of tracks that um can be participated in. There's other alternative payment models as well. CMI has tested um specialty level models over the years that have had varying results. The Medicare Shared Savings program has proven to be the one that is most substantial, most participation, and is driven by their accounting standards the best results. Within different cuts of the Medicare Shared Savings program, you can elect not to take on risk, which would just be an alternative payment model, or you could participate in a certain track, which would qualify as an advanced alternative to payment model, and that kind of incurs downside risk. If you're incurring downside risk, that's where there's um additional upside to recognize, and we're we're we're seeing how this new administration effectuated their carrots and sticks within alternative advanced alternative payment models.

SPEAKER_01 5:30

Thank you. Yeah, it's definitely been an evolution of approaches, but all within the same goal of moving everything away from feed service, moving everything into value-based uh payment models. Uh, one other piece of vocabulary I think we ought to cover because this comes up uh repeatedly in the article is the discussion of a change in the conversion factor. So can you describe for us just what is a conversion factor in the Medicare payment world?

SPEAKER_02 6:04

Absolutely. So CMS uses the RVU model or relative value units to reimburse for their services. And there's different RVUs for different types of services. There's a work RVU, which is most commonly associated with physician compensation models, but there's also an RVU for to reimburse for practice expenses, for the cost of carrying liability insurance, malpractice insurance. And so when those RVUs are totaled up, it creates one total RVU and that it gets geographically adjusted based on where the practice is located in the country. But after those geographic adjustments are made, it gets multiplied by one number, a conversion factor, and that determines what CMS's allowable reimbursement is for that given service. So it's down at the CPT code level, and there's considerations for those different RVU components, but it it is CMS's economic driver that converts RVUs into reimbursement.

SPEAKER_01 7:13

So the the conversion factor as as I understand it is a number one number dollar amount that uh the government sets every year. And then with these RVUs and the RVUs associated with different codes, uh the government in their rules sort of tinker with them every year and you know, ratchet them up, ratchet them down, and that, and then you multiply by the conversion factor, and that gets your payment. So it seems significant that now we have a totally separate conversion factor for APMs, where historically it's been only one conversion factor that applied to everyone.

SPEAKER_02 7:58

Yeah, that's correct. There's been one singular conversion factor, and we've seen that be either held constant or even decrease in the past several five years or so. So they have now created a second conversion factor, and they did it based on providers' participation in some of these um value-based uh payment models, most notably all advanced alternative payment models. And so if they're if the physician or provider, because it's not limited to just physicians, if the healthcare provider, uh-huh, the clinician is participating in uh MIPS, the merit-based incentive payment system, uh uh, which is where most providers default into, then they get the standard conversion factor that's been in place for years. If the provider is a qualifying participant, which means they have at least 75% of their Medicare Part B payments flowing through an advanced alternative payment model, uh, or at least 50% of their Medicare Part B patients attributed to an advanced alternative payment model, they're a qualifying participant. And so that would be um justification for this higher conversion factor, getting higher um reimbursement for Medicare, Medicare services, if they are um meaningfully participating in some of these advanced alternative payment models that we spoke about that that take on downside risk and uh and other considerations.

SPEAKER_01 9:43

So if you're a provider and you're let's say you've been you know historically into uh traditional fee-for-service Medicare, you know, and the and now I guess part of MIPS, because as you said, that's sort of the default option if you're not doing other things. Uh if you're a provider wanting to move into an into an alternative payment model or even an advanced alternative payment model, what steps do you have to take to qualify, to be a qualifying participant or qualifying provider?

SPEAKER_02 10:16

Well, I think there's there's I would have two responses to that. One is probably an organizational strategic question. What is our broader risk strategy look like? Whether it be Medicare, Medicare Advantaged, Managed Medicaid, commercial at-risk contracts, um, what is that at-risk payer contracting strategy looks like? From a provider perspective, you want to make sure that you have things set up in place for the providers to succeed. Is there reliable sharing of information where they you can segment here's our patient population, um, target care coordinators around them? Or do we have, are we reinforcing our provider compensation model to have a quality element within the compensation structure? Things like that. So I think that there's an organizational strategy component of to what degree do we want to take on pay our contracting risk? And then secondarily, or I should say parallel to that, what is our preparation assessment for being able to measure quality performance, measure um the total cost of care, uh, be able to coordinate care through certified electronic health record technology and some of those other considerations. I know we can get deeper into those other areas, but let me pause and see if that hopefully started to get a response back to your question.

SPEAKER_01 11:42

Yeah, that that's helpful. And I I want to go in because you mentioned that just towards the end of your answer about sort of the investments in EHR technology that you would need to make in order to qualify or become a qualifying participant. And so, you know, practices, providers, and such have been making investments in EHR for, you know, gosh, probably uh 12, 15, 20 years now. How does a provider look at um the cost-benefit analysis of having to make yet other investments in EHR technology and what they stand to get out of the advanced alternative payment model structure?

SPEAKER_02 12:31

So, your to your earlier point, um, organizations have made a concerted effort over the past many years to move from paper to electronic records. And so we've seen a lot of healthcare systems make that investment. Private practices have largely followed suit, but not everywhere. And so there are considerations to make for the true private practice that is still on paper. There could be an investment. Um, and then within the article, we tried to outline what some of those investment considerations might be from hardware uh dynamics to EHR software licensing fees, training of staff, other things like that. But there's there's likely some type of um broader network that it may be made available for those providers to tap into so that they're not making an undue investment all by themselves. It's expensive to move from paper to electronic records. And so we've seen across the country a lot of movement on health systems engaging their their private um provider uh physicians and APPs into a broader network where technology can be donated or they can participate into a broader network that does aggregate um results and share some of this analysis. So I think that's about the cost side in terms of the return for this. We we have seen in years past there was a flat 5% lump sum payment if providers participated in that advanced alternative payment model. That's now been sunset, that's gone away, and now in favor of that, is this higher conversion factor they'll get on their traditional Medicare services if they're in an advanced alternative payment model and qualify as a qualifying participant. Um right now that's about a 50 basis point differential between those two conversion factors, but it it's set to continue year after year. There's there should be a continuous um increase in the if you're a qualifying participant that higher that higher conversion factor. And so those those um returns could compound in future years. And so I think that's where organizations need to start to look at the cost-benefit analysis. Right this year, we may only get you know a few um cents higher on our conversion factor, but after several years of this, it could compound to a more meaningful return in terms of the overall Medicare population.

SPEAKER_01 15:18

And that that runs nicely into my next question. So as you're having these discussions with providers and organizations about making this, how are they thinking about weighing? Well, we should do this now, and you know, even though the benefit in this year is small, but the you know, the the cost may be significant this year, and then we'll get the benefit of all the changes. Versus, why don't we let other organizations be the guinea pigs and we'll come in you know five years from now and do this when it's actually worth more?

SPEAKER_02 15:59

Yeah, that that's a question that we hear. And I think that what we're seeing is that CMS, this new administration has reaffirmed CMS's 2030 goal of having all of their reimbursement touch some form of quality. And so there continues to be a desire to have value-based reimbursement. It's a big, nasty animal that uh in in the world of value-based reimbursement. And so it's gonna take a long time to really turn the ship. Um, but we're seeing continued progress, carrots, and sticks from government lawmakers and payers that are pushing us in that direction. And so I think organizations need to recognize that it's it's almost a no-regrets move to determine what does value-based reimbursement look like, and how do we succeed within that? That's number one, prompting a strategy conversation. How are we going to participate in at-risk contracts? You may determine that that answer is not in 2026 or even 2027, but in the years ahead, when do you want to try to target that in a more intentional or proactive manner? Alongside that, there's a preparation side. So there's a strategy, I think, that would be crafted first. There's a lot of activity and preparation that I think is informed by the strategy. No matter how you look at it, it's a no-regrets move to start to plan in that regard. What we've seen is that organizations that try to incorporate in a in a quick banner a value-based or quality component of their comp model, they're they're reacting. And when every time you're reacting, as opposed to planning, you're having to move faster than you otherwise would and make rush decisions, and it just feels more stressful. If there can be some proactive planning on we need to set up a structure within our comp model, no, or or we need to have some type of mechanism on how we're going to consume this information. I think those are operational conversations that can happen today that allow organizations to put structures in place so that they're more on the planning side as opposed to the reactive side.

SPEAKER_01 18:22

And a moment ago, you mentioned sort of carrots and sticks. And when you talk about sticks, we've got to talk about Stark and NIK Facts statute. They have pushed you know, exception and safe harbors out there that allow for physicians to participate in value-based model. And that means you know that that reimbursement is going to float a little bit differently. So, how are organizations thinking about the you know compliance or fraud and abuse aspect of changing up their compensation system?

SPEAKER_02 19:07

It's a great question, and one that I think should have um a larger strategic consideration than probably what is what we're actually seeing today. Um as you pointed out a few years ago, CMS and um OIG and uh others jointly uh revised some of the Stark and AKS um rules to allow for um value-based exceptions. They establish different levels of exception within those regulatory updates. And so there are um full uh downside risk uh exceptions, there's meaningful downside risk uh exceptions, and then there's um those that are just to um garnered towards care coordination types of dynamics. I think that organizations need to familiarize themselves with what those three levels of exceptions are and know how those can sink inside of a broader payer contracting at-risk strategy. What we've been working with organizations about is crafting what that at-risk payer contracting strategy, how do we um craft what a value-based enterprise or or some of these uh uh stark exception dynamics alongside that that broader um value-based or at-risk payer contracting? I think it it takes an organizational commitment that here's how we're going to address this, kind of that strategy planning aspect that I mentioned. And as you do that, it starts to uh prompt questions on okay, how do we need to align our incentives to be supportive or synergy with the strategy that we've crafted? And I think organizations are starting to um have those conversations, some more um readily than others, but I think that they're we're gonna see more and more movement in this regard, especially as CMS rolls out their team model. So they uh last year they announced the advent of the transforming episodic accountability model, where they're they're they're trying to connect value-based reimbursement to um procedures predominantly done in the hospital facility setting as well. I think we've we've historically thought about value-based care in the world of primary care. We're seeing now um CMS and lawmakers push other considerations that's pushing uh value-based dynamics across the care continuum. And so I think it starts with what is our our our strategy? How are we going to deliver care within that that that strategy in an optimal basis? And then making sure that we have um incentives aligned in a legally compliant framework to achieve the the best outcomes we can.

SPEAKER_01 22:03

I mean, let's talk about the work that your organization is doing with providers. So when providers come to you and and and want to work with you, are they coming to you saying, can you help us get our you know compensation system or whatever right so that we can do this uh advanced APM stuff? Or are they coming to you saying we need to blow up our compensation system and fix it? And you're bringing up, hey, by the way, there's this thing out there that you need to be looking at so you can take advantage of this higher conversion factor.

SPEAKER_02 22:49

We're seeing uh inquiries from across the the spectrum, and I think that we could characterize them inside of what I call a crawl, walk, run type mentality that organizations may have, where they may not, they may be in a heavy fee for service environment and have not been pushed very much in this regard. So that they may be very much in a crawl type of mentality of how do we start to think this through as we see more and more reimbursement pushed in future years or or we see larger percentage adjustments through our MIMPS program for our quality metrics. How do we how do we think how should we go about thinking about things versus an organization that may be in a capitated market that's more proactively uh planning some of this? And we need to take advantage of some of these stark anti-kickback value-based exceptions. And so I think the the organizational profile um informs where we see some of those uh questions come in. Um it still kind of flows back through that framework. What is our broad strategy? How do we assess our preparation for risk? How do we operationalize such? And how do we go out and succeed in the risk game? And that prompts an array of questions from um how do we uh align or affiliate with providers? Do we um target a post-equ strategy, continue with um uh in our network and and and and have that what's the composition of our network? To what type of quality metrics are we gonna put in in um our compensation plan? To what are the how are we gonna deploy care coordinators um within um different different clinics? And so I think it's a wide array of questions that we get. We deal with all shapes and sizes, but going back to the organizational profile, I think informs where organizations can find themselves in that crawl, walk, or run continuum, that's gonna prompt the type of question they may ask.

SPEAKER_01 24:54

And and again, that's a that's a great segue. My my next question is gonna be as you're talking with providers, are you you know, you work with a variety of providers you see that across all shapes and sizes. I mean, I tend to think when these when these big programs come out, it's really the big sophisticated providers and organizations that are gonna be able to take advantage on this because they have the resources to make the investments that are necessary, and they're the ones that are at a scale where these, you know, like you said previously, beginning very small adjustments are gonna make a big difference. But are you also seeing do these concerns scale where you have you know maybe smaller local providers who are also interested because they know they can see ahead and see where this is going and that they need to do something soon?

SPEAKER_02 25:52

Good question. Um, I think that we were initially seeing larger health systems lead the charge in taking on um some type of risk network, whether that was through the a pioneer ACO or a next-gen ACO. But now networks have evolved such that they're they're um engaging private practices in their in their um in their area. And so those private practices have been able to participate, maintain their independence, participate in the Medicare shared savings program and receive uh material uh shared savings payments that have helped them out from an economic standpoint uh materially. Um and so I think that um there's there's increasing number of opportunities for smaller practices to participate in these types of network designs. Another element that will help smaller practice is that there was a rule where to form a Medicare ACO, it required 5,000 uh Medicare Part B beneficiary lives. That threshold got uh was done away with now in the these updates in 26. And so it does allow where you had to have a meaningful amount of lives under management to drive your own ACO. I think what we might see there as opposed to primary care-led ACO, there could be some specialty specific driven ACOs that may have lower patient attribution and that but are materially driving the the higher cost of care elements um for patients that are attributed to them. So we may see some movement in that regard as well.

SPEAKER_01 27:39

Thank you very much. And with that, I think you know, we you've given us a lot to think about, and you know, for organizations and providers that are considering this, uh there's definitely a lot of strategic thinking to be done and looking forward to you know, this is coming down the pipeline, whether you're excited about it or not. So, you know, it's appropriate to you know prepare yourself and start that planning process as soon as possible. So, Alex, thank you so much for for your time. Thank you for for writing this article. Thank you so much for for giving us all a lot to think about.

SPEAKER_02 28:22

Thanks so much, Adam. I appreciate the time.

SPEAKER_01 28:24

Appreciate all your time uh being with us here today, and thank you very much.

SPEAKER_00 28:34

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