Digital health margins will be under pressure due to Medicare’s ACCESS model’s low pay rates: Capstone

A recent report by strategy firm Capstone warns that reimbursement rates of Medicare’s ACCESS model are lower than expected, which creates the risk that some of the participants may experience compressed, or even negative, profit margins. 

News that Medicare will launch a decade-long payment program to increase the adoption of digital tools in the management of chronic diseases was initially well-received by the health technology sector. The program was seen by many companies as much-needed confirmation by the federal government, especially after the years of poor and unstable reimbursement. 

In spite of all these, Capstone recommends that bigger, more established digital health businesses like Omada Health and Hinge Health can still be useful. Such organizations are already at scale and have the infrastructure to handle compliance and the volume of patients. Capstone analysts feel that incentives generated to encourage referrals by the provider and patient outcomes based on bonuses would help bring about sufficient enrolment to offset the reduced margins.

In December, the new program was unveiled as the Advancing Chronic Care with Effective Scalable Solutions Model of the Center of Medicare and Medicaid Innovation. The demonstration program will be aimed at testing outcome-based payments in the traditional Medicare in the fee-for-service format. The model will result in Medicare reimbursing technology-enabled interventions to patients with qualifying chronic conditions in the event that such patients record quantifiable clinical outcomes, such as improved blood pressure control. The program will start in July and will last until the middle of 2036.

ACCESS targets four key clinical groupings that, in combination, cover over two-thirds of Medicare beneficiaries. They consist of early cardio-kidney-metabolism disorders, like hypertension, obesity, and prediabetes, and more complicated cardio-kidney-metabolism diseases, such as diabetes and chronic kidney disease. Musculoskeletal disorders and behavioral health disorders (depression and anxiety) are also considered in this model.

Industry observers were disappointed when the release of payment rates occurred. The initial year of participation is planned to be reimbursed at the rate of $360 annually under early cardio-kidney-metabolic conditions, 420 under more severe cases, and 180 under musculoskeletal and behavioral conditions. The following years halve the payments in most categories, and the musculoskeletal care is never offered a follow-on payment.

Most observers say that these numbers are much lower than the existing rates on fee-for-service reimbursement, especially in the high-touch, clinician-based care. When put monthly, attorney Carrie Nixon observed that current monthly payments to remote physiologic monitoring and chronic care management are greater than those provided by ACCESS. She wondered why the providers would do away with much higher payments in comparison with relatively low payments that would not be capable of sustaining clinician participation.

It is also noted in the review by Capstone that one-half of every monthly payment under the ACCESS will be held until the completion of 12 months of care, and the full payment will only be provided in case at least half of the patients meet specific outcome criteria. The organizations that would not meet those standards would be compensated with a proportionate amount of the compensation. On top of that, sellers are required to be registered as Medicare Part B providers, which places regulatory and financial challenges that might lock out less-resourced and smaller companies.

Nevertheless, the opportunity is still important. Traditional Medicare has approximately 30 million potential beneficiaries, which is a market that Hinge Health leaders have termed as very appealing in the long run. Nevertheless, executives have admitted that there will be participation contingent upon final payment terms being financially viable, and any material impact on revenue would probably appear in 2027 or beyond.

Finally, Capstone finds that ACCESS may spur the wider use of digital health tools, particularly preventive care among lower-risk patients, but only patient volume and proven clinical impact will determine its success. The engaged firms might be required to take interim margin pressure to experience scale to position themselves in the long-term to grow, should outcome-based reimbursement become popular in Medicare and the other insurance markets.

Medicare ACCESS Model and Reimbursement Pressure

Capstone emphasizes that the ACCESS model’s lower rates are a structural shift rather than a temporary adjustment, forcing digital health companies to adapt quickly.

Impact on Digital Health Business Models

According to Capstone, profitability will increasingly depend on scale efficiencies, operational discipline, and reduced reliance on Medicare-only revenue streams.