The CBO first projected net federal government savings from the Center for Medicare & Medicaid Innovation (CMMI) in 2010 and then again in 2015 and 2016. CBO’s 2010 projection was $1.3 billion in net federal government savings from CMMI over the 2010-2019 budget window. In 2015, CBO began projecting more substantial savings from CMMI: $27 billion in net federal government savings over the 2016-2025 budget window; and then in 2016, $34 billion in net federal government savings over the 2017–2026 budget window. To explain the higher savings projected in 2016, CBO noted that although ongoing CMMI demonstrations had not yet generated noticeable savings, it believed that CMMI would identify successful demonstrations and continue them over the 10-year budget window. CBO also assumed that demonstrations that did not generate savings would be terminated.

CBO notes that their 2015 and 2016 estimates rely on “judgments of how effectively the [CMMI] will identify, refine, and expand approaches that reduce spending. Such judgments are inherently uncertain, however.” With several years of demonstration experience to draw on, Avalere conducted an analysis combining CBO principles with available program evaluations and budget impact analyses to provide updated projections of CMMI’s impact on Medicare spending. Avalere’s approach for projecting future CMMI activity is generally consistent with CBO, with the notable exception that Avalere’s projected savings for CMMI rely on demonstration-specific savings estimates, based on program evaluation reports for existing demonstrations and CMS regulatory impact analyses for proposed demonstrations. Avalere assumes $11 billion in program spending for 2017–2026.

Avalere estimates net Medicare savings of $18.0 billion from CMMI for the 2017-2026 budget window, lower than the $34 billion projected by the CBO in 2016 (Figure 1). Net Medicare savings reflects expected reduced Medicare program expenditures net of CMMI outlays (which we estimated at $11 billion over the period, similar to CBO). Avalere’s 2020 estimates include the following 3 components:

1. Continuation/Expansion of Existing Demonstrations with Reported Savings: The continuation and expansion of already-existing CMMI demonstrations generate $4.4 billion in gross Medicare savings between 2017 and 2026. Existing demonstrations that have been found to generate Medicare savings include the Maryland All-Payer Model, Next Generation Accountable Care Organizations (ACOs), Comprehensive Primary Care Plus (CPC+), and Comprehensive Care for Joint Replacement (CJR). Note: When results from evaluation reports are preliminary or only available for the first or second year of the demonstration, Avalere assumed similar performance for later years of the demonstration.
2. Implementation of Proposed Demonstrations: Proposed demonstrations generate $21.4 billion in gross Medicare savings for 2017–2026. Currently proposed demonstrations, which are designed to start in 2020, include the Radiation Oncology model, End-Stage Renal Disease (ESRD) Treatment Choices (ETC) model, and the International Pricing Index (IPI) for Part B drugs. Note: Avalere’s estimates for proposed demonstrations rely on CMS regulatory impact analyses. Avalere assumes each of the proposed demonstrations are continued through the 2017–2026 budget window, and that they continue to achieve Medicare savings similar to their final demonstration year.
3. Future Successful Demonstrations: CMMI will launch new, not yet proposed demonstrations that generate $3.3 billion in gross Medicare savings for 2017–2026. Note: For estimating savings for currently unknown future demonstrations, Avalere assumes that CMMI’s ability to launch successful APMs will continue similarly to its history.

Given the degree of uncertainty around key assumptions to estimate the future impact of CMMI, Avalere modeled alternative scenarios (explained below) to determine the range of potential budget impact.

Under the alternative scenarios, Avalere adjusted assumptions related to durability of savings—i.e., whether demonstration savings remain constant, increase, or decrease over time. In addition, the alternative scenarios vary assumptions about future savings tied to IPI given the substantial impact that projected IPI savings have on the overall estimate. Avalere individually modeled each of these alternative assumptions holding constant all other assumptions to be consistent with the Avalere baseline scenario with net savings of $18.0 billion. In these alternative scenarios, Medicare could experience a range of spending impacts from net savings as high as $19.4 billion to, at the other extreme, net expenditures that are $2.8 billion higher than baseline Medicare spending (Figure 2). The assumptions used in the alternative scenarios are:

1. High Durability of Savings: Avalere assumed that savings would increase 50% over 10 years instead of remaining constant through the remaining budget window. Under this scenario, net Medicare savings for the 2017–2026 budget window increased to $19.4 billion.
2. Low Durability of Savings: Avalere assumed that savings would dissipate 10% annually over 10 years instead of remaining constant through the remaining budget window. Under this scenario, net Medicare savings for the 2017–2026 budget window decreased to $15.7 billion.
3. Medium IPI Estimate: Avalere assumed that the IPI would be implemented but would experience 50% of the original estimated savings. Under this scenario, net Medicare savings for the 2017–2026 budget window decrease to $7.7 billion.
4. Low IPI Estimate: Avalere assumed that the IPI would not be implemented. Under this scenario, net Medicare budget impact for the 2017–2026 budget window is $2.8 billion in Medicare spending.

Funding for this research was provided by the Pharmaceutical Research and Manufacturers of America. Avalere retained full editorial control.

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Methodology

Avalere reviewed publicly available CMS reports and information on prior and existing CMMI demonstrations to capture demonstration impacts and their resulting savings. In order to estimate the implications for projecting future CMMI savings, Avalere combined the most recent evidence of CMMI demonstration savings with CBO’s stated methodology in 2015 and 2016 for estimating future CMMI savings. In some cases, when evaluation report results were preliminary or only available for the first or second year of the demonstration, Avalere assumed similar performance for later years of the demonstration. In addition, Avalere estimated CMMI program costs by using available data on HHS budget outlays for CMMI through 2019, assuming no changes in CMMI’s decennial $10 billion appropriations, and projecting $11 billion in CMMI outlays from 2017–2026.

To estimate the implications for projecting future CMMI savings, Avalere first estimated the savings impact of expanding successful demonstrations, currently in effect, over the budget window. Similar to CBO, Avalere assumed that CMMI demonstrations would be continued or expanded only if they were generating savings. These programs include the Next Generation ACO model, CPC+), CJR, and Maryland All-Payer Model.

Because CMMI continues to test new demonstrations, Avalere also estimated future Medicare savings for demonstrations that are currently proposed. These proposed demonstrations include the Radiation Oncology model, the ETC model, and the IPI for Part B drugs. For these proposed demonstrations, Avalere relied on CMS’ Medicare savings projections. In addition, Avalere assumed that CMMI would continue to create new demonstrations over the next ten years that have not yet been proposed, which is consistent with CBO scoring assumptions. Avalere projected the savings impact of future unknown demonstrations by assuming that CMMI would continue to create a similar number of successful demonstrations as it has so far.

Alternative Scoring Scenarios

Avalere employed an alternative scoring methodology to project additional CMMI spending/savings scenarios. Under this analysis, we examined 4 alternative scenarios: (1) a high durability of savings for CMMI demonstrations, where savings will increase 50% over 10 years; (2) a low durability of savings for CMMI demonstrations, where savings will dissipate 10% annually over 10 years; (3) a medium estimate for IPI, where the program is implemented but with savings at 50% of original estimates; and (4) a low estimate for IPI, where the program is not implemented. We looked at each of these alternatives as a standalone projection and the resulting impact on Avalere’s original estimate (see Figure 2).

The impact of these alternative scenarios produces a range of CMMI spending and savings estimates from -$19.4 billion (i.e., slightly more savings than Avalere’s original estimate) to $2.8 billion in increased spending.