10 FAQs About Alternative Payment Models (APMs)
Updated for 2018

We strive here to explain in one narrative the key aspects of APMs, as updated for the 2018 performance year, both for those new to APMs as well as those with previous familiarity. The FAQs are optimally read in sequential order but are also sufficiently standalone (with linking across FAQs) to enable skipping to the one of greatest interest.

On November 2, 2017, CMS released the 2018 Quality Payment Program (QPP) final rule (easier-to-read format here) in accordance with one of the most bipartisan and significant legislative changes to Medicare in a generation, the Medicare Access and CHIP Re-authorization Act of 2015 (MACRA).  MACRA repeals the legacy Medicare Part B Sustainable Growth Rate (SGR) reimbursement formula and replaces it with the QPP, a new value-based reimbursement system impacting Part B payments to clinicians nationally. The QPP consists of two major tracks:

  • The Merit-based Incentive Payment System (MIPS)
  • Alternative Payment Models (APMs)

CMS predicts that 185,000 to 250,000 clinicians in 2018 will participate in Advanced APMs. Advanced APMs are value-based payment programs operated by CMS which meet minimum requirements for the use of certified EHR technology, quality measurement, and the level of financial risk placed upon clinicians. These minimum requirements distinguish Advanced APMs from APMs generally. Qualifying participants in Advanced APMs can earn an annual 5% Medicare Part B incentive (paid 2019 – 2024) and an exemption from MIPS. In addition, starting in 2026, Advanced APM qualifying participants will accrue a higher annual Part B physician fee schedule (PFS) increase of 0.75%, rather than 0.25% for other clinicians.

Read on for some of the most frequently asked questions about APMs and Advanced APMs, in particular.

  1. What are Alternative Payment Models (APMs) and Advanced APMs?
  2. How does a clinician participate in an APM?
  3. What are the benefits of participating in APMs?
  4. What are the risks of participating in APMs?
  5. How does CMS approve and publish APMs?
  6. How does a clinician “sufficiently participate” in an Advanced APM to earn the benefits?
  7. How is the Advanced APM incentive calculated and paid?
  8. What are APM reporting requirements?
  9. How do you select an appropriate APM?
  10. How do you apply and prepare for an APM?

CMS References


1. What are Alternative Payment Models (APMs) and Advanced APMs?


Under QPP, the primary purpose of APMs is to move clinicians away from fee-for-service to value-based payment mechanisms. An APM can be thought of as the rules and structure (the “model”) defining how CMS will pay a provider organization based on quality and cost metrics. An example of an APM (the “model”) is the Medicare Shared Savings Program (MSSP), in which APM Entities such as accountable care organizations (ACOs) contract with CMS to share in cost savings achieved relative to benchmarks. In turn, one or more provider organizations and their clinicians may be part of the same APM entity.  For instance, multiple medical groups or hospitals may band together to form an ACO (APM entity).   Hence, the relationship hierarchy from top down is as follows: APM > APM entities > provider organizations > clinicians.

In the industry press, the term “APM” is sometimes also used to refer to payment models sponsored by payers other than CMS.  Although such commercial programs often share key tenets with CMS-operated APMs, we do not specifically address them in these FAQs. We address those specifically sponsored and listed by CMS and fit these model categories:

  • CMS Innovation Center (CMMI) model (other than a Health Care Innovation Award)
  • Medicare Shared Savings Program (MSSP ACOs)
  • Demonstration under the Health Care Quality Demonstration Program
  • Demonstration required by federal law

“Advanced APMs”

Advanced APMs are a subset of APMs where participating organizations are more deeply engaged in value-based care with typically greater revenue risk and opportunity.  Under the QPP, clinicians sufficiently participating in Advanced APMs qualify for an annual 5% Medicare Part B incentive (paid 2019 – 2024), and an exemption from MIPS. Advanced APMs must fulfill these additional requirements:

  • Participants must use certified EHR technology
  • Payment is based on quality measures comparable to those in the MIPS Quality performance category
  • APM entities must bear more than a “nominal amount of risk” for payment or other monetary losses, or the APM is a Medical Home Model expanded by the CMS Innovation Center

For each performance year, CMS determines and lists whether an APM meets the Advanced APM requirements.  In particular, complex rules govern whether an APM imposes at least a nominal amount of financial risk on clinicians.  For instance, an APM meets the nominal risk standard if CMS determines that the APM puts at least 8% of the average estimated Medicare Part A and B revenues at risk across participating APM Entities. Given that CMS is granting a 5% bonus and exemption from MIPS to clinicians sufficiently participating in an Advanced APM, CMS wants assurance that such clinicians will also be motivated by sufficient negative financial consequences for not performing well. In order to receive the 5% bonus and MIPS exemption an APM must be an Advanced APM and deemed sufficiently participating, i.e. receive Qualifying APM Participant (QP) status.

Some Advanced APMs include:

  • Comprehensive ESRD Care (CEC) (large dialysis organization or LDO arrangement and non-LDO two-sided risk arrangement)
  • Comprehensive Primary Care Plus (CPC+)
  • Medicare Shared Savings Program Track 2
  • Medicare Shared Savings Program Track 3
  • Next Generation ACO Model
  • Oncology Care Model (OCM) (two-sided risk arrangement)

Note that the MSSP Track 1 model is not considered an Advanced APM and, therefore, must participate in MIPS and is not eligible for the 5% bonus. However, the newly introduced Track 1+ model is considered an Advanced APM in 2018.

“Other Payer Advanced APMs”

Starting with the 2019 performance year, payment models outside of CMS can qualify to be an “Other Payer Advanced APM”.  Other Payer Advanced APMs must fulfill requirements similar to those listed above for CMS Advanced APMs. However, participation in an Other Payer Advanced APM by itself cannot earn a clinician the Advanced APM 5% incentive nor MIPS exemption.  Instead, such participation can help a clinician who is also in a CMS Advanced APM meet the “sufficient participation” threshold to qualify for the 5% Part B incentive and MIPS exemption. In other words, a minimum level of participation is required in the Medicare APM before the Other Payer Advance APM will be considered for QP status.

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2. How does a clinician participate in an APM?

A clinician may either join an existing APM entity, such as a Medicare Shared Savings Program (MSSP) accountable care organization (ACO), or a clinician’s organization may apply to CMS to become an APM entity for a given APM. CMS maintains a global participation list for each APM defining which clinicians and their associated organization tax IDs (TINs) are participating in each APM entity. Most APM entities allow clinicians and TINs to join the entity throughout the calendar year on a rolling basis to accommodate new clinicians joining an organization mid-year. For example, typically a TIN and its clinicians may join an ACO by contracting with that ACO anytime during the year.  If the APM entity is in an Advanced APM, then a clinician must be on the entity’s participation list by August 31st in order to earn the Advanced APM annual 5% Part B incentive (paid 2019-2024) and an exemption from MIPS.

An organization that wishes to create a new APM entity must adhere to application deadlines published by CMS. Application deadlines may recur annually, such as those for the MSSP program, or every few years for an APM at an earlier stage of development. Typically, organizations research and apply for APMs in the first half of the calendar year in order to begin participation in the following year. We discuss below some of the considerations involved in selecting appropriate APMs for participation.

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3. What are the benefits of participating in APMs?

APMs give provider organizations a CMS-sponsored means to transition towards new ways of delivering care and being paid in a value-based world. As organizations vary on where they are on the journey from fee-for-service to pay-for-value, APMs provide a wide array of participation options with varying levels of upside and downside financial risk. Some Advanced APMs provide fully capitated payment mechanisms where there is a fixed fee per beneficiary, so that the provider organization assumes full downside revenue risk should the cost of care exceed payment.

The proliferation of APMs spurred by the QPP has also driven growth in payment models created by other payers.  By participating in CMS-sponsored APMs, provider organizations gain experience and expertise in transforming care and managing risk. Successfully optimizing participation in a growing portfolio of value-based programs can bring significant payment incentives and competitive advantage to high performers.

Benefits of Advanced APMs

For APM entities sufficiently participating in an Advanced APM, CMS rewards the entity’s clinicians with an annual incentive (paid 2019 – 2024) equal to 5% of the previous year’s Part B annual payments for covered professional services, and clinicians also earn an exemption from MIPS.

  • The 5% incentive is paid 2 years after the performance year (say in 2020 for 2018 performance) and irrespective of the entity’s performance within the APM.
  • The net financial gain from participation in an Advanced APM can be greater than 5% if the APM realizes shared savings or, if shared losses are realized, the net gain can be lower than 5%.
  • Similar to a MIPS score that travels with the clinician, if a clinician earns the 5% incentive for a given performance year as part of an Advanced APM, and then moves to a new organization the following year, the new organization will inherit the 5% incentive in the payment year. Hence, the clinician’s position may be enhanced with respect to recruitment and contracting with provider organizations.

Beyond the 6-year life of the 5% Advanced APM incentive ending in 2024, the longer-term benefit of participating in APMs is the transformation of care to improve quality while lowering costs to payers and patients. Participation in an APM, particularly an Advanced APM, requires significant investment, cultural transformation, operational changes, and senior leadership commitment. As discussed below, organizations should carefully consider both short-term and long-term goals and impacts when deciding which, if any, APM to join at a particular time.

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4. What are the risks of participating in APMs?

Financial Margins

Although provider organizations can earn significant CMS incentives by participating in APMs, they have generally made large investments to setup and operate APM entities while taking on revenue and operational risks.

  • The financial margin (revenue minus program costs) of APM participation is often not known and hard to measure.
  • Most APMs, such as in the Medicare Shared Savings Program (MSSP), have yet to earn incentives, often due to performance benchmarks still being refined by the payer. A number of the APMs, such as MSSP, effectively compare APM entities to national benchmarks of quality and cost performance, creating a competitive playing field where not all players will win.

Although there may be strategic, clinical and other reasons to launch an APM entity, during those years when APM participation is not delivering an increase in revenue, the financial margin is negative.


In addition, many APMs currently or intend to publicly publish quality and cost performance of participating entities, which has potential reputational impacts on clinicians. This aligns with CMS’ overall objective of increased transparency and the yearly publication of clinicians’ MIPS scores.  Low performers may risk their low scores being incorporated into consumer-facing healthcare comparison websites.

Organizational Commitment

APM participation also usually requires a deeper commitment by leadership, clinicians and staff to change behaviors, workflows and priorities versus status quo.  Some APMs are highly prescriptive in what APM entities must do in order to comply with minimal program requirements, which may also vary from what an organization is accustomed to.  Many APM entities were originally created based on a plan which was attractive in theory, but which then proved difficult to execute due to cultural barriers, competing priorities, lack of clinician engagement or other execution issues.

Political and Regulatory Changes

While MACRA and the QPP are highly bipartisan and unlikely to undergo major changes, another risk to APM participation is potential political or regulatory changes impacting APM availability, financial impacts and operations.  In 2017, CMS terminated certain APMs, whereas others were launched or modified.

We explore below how to factor such risks into selecting APMs and deciding upon the best time to participate.

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5. How does CMS approve and publish APMs?

MACRA created the Physician-focused Technical Advisory Committee (PTAC), composed of 11 appointed industry experts to vet and recommend proposed new APMs for approval by CMS. Approved APMs are then typically published as a proposed rule by CMS and followed by a public comment period prior to publication of a final rule. CMS may then pilot the model before further expansion across the country. CMS publishes an updated list of all available APMs.

CMS Determinations

Prior to publishing a new APM, CMS determines two key attributes of the model.

  • First, CMS decides whether the APM design satisfies the additional requirements to be deemed an Advanced APM.
  • Second, CMS determines whether the APM meets so-called “MIPS APM” requirements. If an APM is deemed a “MIPS APM” and under conditions where APM clinicians are still subject to MIPS, a constrained version of MIPS would apply. For instance, clinicians who insufficiently participate in an Advanced MIPS APM (i.e. do not receive QP status) would be subject to this alternate version of MIPS.  It is possible for CMS to deem an APM an Advanced APM, a MIPS APM, both, or neither.

Leading up to the 2019 performance year, CMS will be accepting applications from payers and provider organizations for non-CMS value-based payment programs to be deemed “Other Payer Advanced APMs”. As discussed above, participation in an Other Payer Advanced APM by itself cannot earn a clinician the Advanced APM 5% incentive nor MIPS exemption.  However, such participation can help a clinician who is also in a CMS Advanced APM meet the “sufficient participation” threshold to qualify the clinician for the 5% Part B incentive and MIPS exemption. Although there are complex rules around whether a payment model qualifies as an Other Payer Advanced APM, CMS has generally designed them to be as closely aligned as possible with requirements for CMS-sponsored Advanced APMs. In particular, CMS wants to accurately gauge whether a model designed by another payer imposes enough financial risk and quality requirements on clinicians so that participation meaningfully moves organizations towards value-based payment. Starting with the 2019 performance year, CMS will publish an approved and updated list of Other Payer Advanced APMs for provider organizations to select from.

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6. How does a clinician “sufficiently participate” in an Advanced APM to earn the benefits?

CMS seeks to avoid an APM entity gaming the system by participating in an Advanced APM for its benefits while having low accountability for the Medicare patients seen by the APM entity’s clinicians. Towards this end, CMS defines methods to calculate whether an APM entity “sufficiently participates” in an Advanced APM.  This “qualifying participation” (QP) determination for the APM entity applies to the entity’s clinicians, in that only QP clinicians earn the 5% Medicare Part B bonus and MIPS exemption. If an APM entity does not sufficiently participate, then the entity and its clinicians do not receive the 5% bonus and are subject to either standard MIPS or a constrained version of MIPS (if the Advanced APM is also a MIPS APM).

Under the “Medicare Option” for QP determination, there are two alternate methods for participation measurement including, the Patient Count Method and the Payment Amount Method. CMS will calculate using both methods and select the method that is most favorable to the APM entity in terms of demonstrating sufficient participation.

Attributed Patients

Each APM entity is attributed a population of Medicare patients based upon the rules of the Advanced APM which seek to define which entity and set of clinicians is most responsible for the care of the patient.  For instance, an MSSP Track 3 ACO is attributed patients where the ACO’s clinicians delivered the greatest volume of Medicare-billed primary care services to those patients versus other ACOs or provider organizations.  Other patients seen by the ACO’s clinicians are not attributed to the ACO, as those patients each received more primary care services from other organizations outside of the ACO.

Patient Count and Payment Amount Methods

The Patient Count Method calculates a ratio (the “threshold score”) between: (a) the number of patients attributed to the APM entity and for whom the entity’s clinicians have billed Medicare Part B services, and (b) the total number of patients for whom the entity’s clinicians have billed Medicare Part B services. For 2018, if the threshold score is at least 25%, then the APM entity meets QP status, which is also inherited by all of the entity’s clinicians. For example, if an MSSP Track 3 ACO’s clinicians bill Medicare Part B services for 100 patients and 30 of those patients are attributed to the ACO under MSSP rules, then the threshold score is 30/100 = 30%, which exceeds the 25% threshold.   The Payment Amount Method is similar except that the threshold score is based upon Part B payment volumes rather than patient volumes.

Snapshot Periods

In order to determine QP status for each APM entity participating in an Advanced APM, CMS utilizes three performance year-to-date snapshots for Medicare Part B claims filed in the periods ending on March 31, June 30, and August 31. The snapshots use the APM entity’s clinician participation lists, maintained by CMS, at the end dates of the snapshots to attribute patients. The second and third snapshots can only add additional QPs for the performance year, not subtract them.

  • A clinician’s QP status cannot change for the performance year once they are deemed a QP by one of the snapshots. The purpose of the in-performance-year snapshots is to enable an APM entity to know which clinicians have been deemed QPs, thereby gaining an exemption from MIPS, prior to the MIPS data submission deadline of March 31st of the succeeding year.

Participation in Other Payer Advanced APMs

CMS is looking for ways to encourage clinicians and their organizations to participate in more value-based payment programs across more payers. The All-Payer Combination Option offers an additional path to QP status by supplementing the CMS APM option.

The minimum threshold score for each QP determination method increases year-over-year, which raises the required level of accountability for the patients an APM entity serves. However, starting with the 2019 performance year, additional participation in Other Payer Advanced APMs (mentioned above) can also count towards an APM entity’s threshold score.  This enables an APM entity to maintain its existing level of participation in an Advanced APM while adding participation in one or more Other Payer Advanced APMs to preserve its QP status as the minimum threshold scores rise.

CMS applies the All-Payer Combination Option if the Medicare option alone does not bring an APM entity and its clinicians to achieve QP status.  In addition, the All-Payer Combination Option can be applied at the clinician level as well as at the APM entity level to provide more paths to achieve QP status.

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7. How is the Advanced APM incentive calculated and paid?

How the Incentive is Calculated

Unlike the MIPS payment adjustment, which is calculated as a percentage of Medicare Part B annual payments for covered services and items, the Advanced APM incentive is 5% of estimated Part B annual payments for covered services only.

Say a clinician (identified by a national provider identifier, or NPI) in an Advanced APM entity bills Part B through multiple provider organization tax identification numbers (TINs). The total 5% incentive is calculated based on the total Part B annual payments to the clinician during a baseline period across all TIN/NPI combinations through which the clinician billed Part B, even for TINs not in the APM entity. This fact magnifies the size of the incentive beyond what it would be if calculated based only on payments to TINs within the APM entity.

How the Incentive is Paid

The entire 5% incentive for a clinician is paid as a lump sum to the single TIN through which the clinician participates in the Advanced APM entity and gained QP status. As described above, the TIN can earn 5% on the payments paid to other TINs the clinicians bills Part B through. The TIN is free to redistribute some or all of the incentive to the clinician through a physician compensation plan, provider contract, or other mechanism.

The incentive will be paid by CMS within the payment year, e.g. 2020 for the 2018 performance year. The incentive will be paid outside of the Medicare claims processing system, and notifications of incentive amounts will be sent to both Advanced APM entities and their clinicians.

Incentive Follows Clinicians Who Switch TINs

If a clinician changes to a new TIN after the performance year and prior to the payment year, then the clinician’s 5% incentive follows the clinician to benefit the new TIN, even if the new TIN never participated in the Advanced APM. This is similar to how the MIPS score follows the clinician, impacting clinician recruitment, credentialing, contracting, and compensation.

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8. What are APM reporting requirements?

Native Reporting for APMs

Each APM imposes its own data reporting requirements on participating APM entities and clinicians to gauge performance on measures of quality, cost and other performance dimensions. One common aspect is that Advanced APMs must base payment on quality measures comparable to those in the MIPS quality performance category. Consequently, Advanced APMs often utilize MIPS-like measures and data submission mechanisms to satisfy CMS reporting requirements. For instance, the Medicare Shared Savings Program (MSSP) Track 3, an Advanced APM, requires ACOs to submit quality measures using the CMS Web Interface method, which is also a quality reporting method for MIPS.  In addition, MSSP ACOs must conduct a patient satisfaction survey similar to that used within MIPS (CAHPS) and report performance on the MIPS advancing care information measure.

Cost measures are typically calculated by CMS using Medicare claims billed by an APM entity’s clinicians. For example, MSSP calculates the total Medicare Part A (hospital) and Part B expenditures incurred by an ACO’s attributed patients through all their associated Medicare claims.  Hence, no additional cost reporting activities are required by APMs.

MIPS Reporting for APMs

If a clinician is in an APM entity that is either not sufficiently participating in an Advanced APM, or is participating in an APM that is not meeting Advanced APM requirements, then the APM entity is subject to MIPS.  All clinicians inherit the single MIPS score earned by the APM entity. But if the APM is deemed by CMS to be a “MIPS APM”, then the clinician is subject to a constrained version of MIPS rather than standard MIPS.

MIPS APMs must meet all of the following criteria:

  • APM entities participate under an agreement with CMS
  • APM entities include one or more MIPS eligible clinicians on an APM participation list
  • APM payment incentives are based on performance on cost/utilization and quality measures

For the 2018 performance year, the MIPS APM scoring and data submission rules for an APM entity are:

  • MIPS Quality: 50% weight
    • Weighted at 50%, but no additional quality reporting requirements because quality data is already submitted by the APM entity through the APM program
  • MIPS Advancing Care Information (ACI): 30% weight
    • Reported for individual clinicians (NPIs) and/or for groups (TINs) in the APM
    • For MSSP, the ACO’s ACI score is the weighted average of each group ACI score across participating TINs.
    • For non-MSSP MIPS APMs, the APM entity’s ACI score is the average of the highest ACI score attributable to each clinician (from individual or group reporting, or both) across all clinicians in the APM entity who are not exempt from ACI
  • MIPS Improvement Activities: 20% weight
    • CMS will automatically grant at least half of and up to the maximum score for all APM entities
    • APM entities only automatically receiving half the maximum score can report improvement activities to earn the maximum score
  • MIPS Cost: 0% weight
    • No additional reporting because CMS deems cost (payer expenditure) measurement to be measured by APMs already

Should an APM entity be subject to MIPS, some suggested activities are:

  • Estimate the number of MIPS eligible clinicians within the APM entity and their Medicare Part B annual payments at risk under MIPS (see our MIPS Financial Calculator to gauge the entity’s exposure to MIPS payment adjustments).
  • Estimate the MIPS score for the APM entity to determine the MIPS baseline and opportunities for improvement.
  • Continually improve MIPS performance. The MIPS performance threshold will increase dramatically for CY2019 by being set to the national mean or median, CMS is projecting that 74% of MIPS clinicians will have MIPS scores of greater than 70 out of 100 in CY2018.

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9. How do you select an appropriate APM?

Deciding to create or participate in an APM entity is not a decision to be taken lightly. As shared earlier, one can expect successful participation to require significant investment, cultural transformation, operational changes, and executive-level commitment. We reviewed some of the benefits and risks of APM participation. Both qualitative and quantitative considerations should be evaluated in prioritizing which APMs may be most suitable for an organization to apply for and operate. For example:

  • How does the design of a particular APM align with the organization’s transformation, growth, and delivery strategy?
  • What is the required infrastructure as compared to the organization’s ability to invest and implement?
  • What competing priorities may distract the organization from fully executing the vision of the APM?
  • How will clinicians be engaged and incentivized to transform care to perform well according to the APM’s performance metrics?
  • How do the revenue impacts compare across different APMs and as compared to MIPS?
  • How might anticipated regulatory changes impact your choices?

Often such evaluation questions are interdependent, where a certain answer to one may affect the answer to another. We further explored recommended approaches to selecting APMs in this webinar on How a Multi-Year QPP Strategy will Help you Excel. . Consider seeking expert advice and knowledge regarding APMs to inform your selection decisions.

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10. How do you participate in an APM?

CMS publishes application procedures and deadlines to create a new APM entity, e.g. for the Medicare Shared Savings Program (MSSP). Typically, initial letters-of-intent are due to CMS in Q2 of the year before the performance year, final applications are due in Q3 and final application decisions are rendered in Q4.  Hence, organizations are often preparing for an APM in parallel with the application process, as the time gap between being accepted and the start of the first performance year can be very short.

An alternate way to participate is for an organization to join an existing entity already participating in an APM. Depending upon the APM, there may be wide variation in the terms and conditions set by APM entities for new organizations joining them.  For instance, the MSSP program allows wide latitude in how ACOs contract with participating organizations in terms of how shared savings are distributed, membership fees, and roles and responsibilities.

The CMS website often publicly lists the names and contact details of entities participating in a range of different APMs.

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CMS References

CMS QPP website

CMS QPP Resource Library website (also linked to by the CMS QPP website)

2018 QPP Final Rule in the Federal Register

2018 QPP Final Rule – public inspection version (generally easier to read and annotate this PDF)

CMS 2018 QPP Executive Summary

CMS 2018 QPP Fact Sheet (detailed table about how 2018 QPP and MIPS compares to 2017)

CMS Webinar (November 30, 2017): “Final Rule with Comment Period for QPP Year 2 (2018)”