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Back from the Dead: CMS Announces $1 Billion Second Round of Health Care Innovation Awards

May 28

Written by: Grants Office, LLC
Tuesday, May 28, 2013  RssIcon

November 14, 2011:  The Center for Medicare and Medicaid Services (CMS) announces $1 billion in funding for Health Care Innovation Challenge (HCIC), with a second round to take place in Spring 2012

June 2012:  CMS cancels second round of Health Care Innovation Challenge

May 15, 2013: CMS announces $1 billion in funding available to be distributed through a second round of Health Care Innovation Awards (HCIA)

Author's Note:  The reader is encouraged to read “That's a Billion with 'B': The Health Care Innovation Challenge” (FUNDED, December 2011) for background and contextual information on this funding opportunity.  The article is available at

Henry A. Wallace once said, "The only certainty in this life is change," and while he was commenting on liberals, the axiom is probably the best descriptor available to characterize the grants landscape generally and the HCIC/HCIA program specifically.  At this time in 2012, it was pretty clear that CMS was not thrilled with the process of, or response to, the Health Care Innovation Challenge, and it would ultimately be a one-and-done funding opportunity.  However, if you were paying close attention during the first round, the messaging from CMS has been anything but consistent.

CMS has historically favored running their own demonstration projects rather than distributing funding through the mechanism of a grant.  Of course, that is really where the problem begins.  The opportunity is labeled a cooperative agreement, indicating that there will be integral involvement on the part of the funder in the development and implementation of various project components. CMS went out of its way to convince folks that since these projects were meant to demonstrate savings (budget neutral), it should not be considered grant funding.  If it were a grant program, and CMS is relatively new to that distribution mechanism, then one would expect many bumps in the road and a difficult first round.  If you are convinced it is budget neutral and more in the mold of a demonstration project, then it should fall into an area where CMS has built expertise over decades. 

CMS went on to make over 100 awards in the first round, and noted that many of the funded projects were preventive in nature and would not generate savings during the initial grant period.  This was true even though the guidance document attached to round one clearly indicated that projects unable to demonstrate savings in the 3-year project period would not be funded. At this point last year, CMS seemed to be pointing the finger at the applicants after reviewing over 2,000 applications and not seeing as much innovation as they had evidently  anticipated.  This historical account is critical to understanding the underlying reason we have seen the program return. 

When you look at the changes CMS has made to the program for this second round (see chart below), it becomes clear that perhaps CMS did some self-reflection (pointed the finger at themselves) over the past year and learned some important lessons.  Regardless of whether you want to use the term "grant" for the program or not, CMS seems to have realized that the distribution mechanism they are using for HCIA doesn't allow as much post-application control and direction as their traditional demonstration programs.  In the first round, they erred on the side of being vague and open-ended, a well-intentioned approach considering they did not want to deter potential breakthrough innovations.  Instead, they received a high volume of applications, many of which were seeking funds for relatively established models and routine projects. 

In the first go around, they invited applications from everyone except states and state agencies.  While they later provided clarification, CMS unintentionally discouraged health care providers tied to public universities and other state agencies from pursuing funding.  This time, states and local governments are eligible, a change that may indeed lead to some truly innovative proposals. 

While the objective is still to achieve the three-part aim of better health (status), better health care (delivery mechanisms) and reduced costs, CMS provides many more details for this round of funding.  CMS defines four areas accompanied by priority populations, provider specialties and disease categories that will receive a preference in the review process.  Furthermore, applicant must propose a design for new payment structures for every innovation in service delivery proposed in the application.  Just as important as giving applicants some specifics as to the types of projects they are seeking, is the insight CMS provides as to what they will not consider under the program.  For instance, they are not interested in projects that focus exclusively on acute inpatient hospital stays, regardless of whether the project is in line with the overall goals of the funding program.  

In the end, CMS appears to have learned some lessons from the first round of HCIC and incorporated them into the second round.  Given the apparent reflection and conscious improvement that has been devoted to this second round, potential applicants would be wise to heed the guidance CMS provides this time around.  Less than 5% of the applications reviewed in the first round were funded.  It goes without saying that CMS will only be funding the most innovative projects (particularly on the payment modeling side).  While CMS may indicate "other models will be considered" following a discussion of their preferences for the second round, anyone that doesn't address their priority areas might as well be playing the lottery.

Chart 1: Health Care Innovation Awards - Highlighting Changes/Insight CMS has Offered for Round 2

First Round

Second Round

Must address innovations for publicly-insured populations, including Medicare, Medicaid and Child Health Insurance Program (CHIP), but applicants could address other types of insured individuals as well.


  • Projects must focus on Medicare, Medicaid and CHIP populations exclusively (collectively referred to as MMCHIP).  A particular focus this time around on Medicaid and CHIP

States/State Agencies were ineligible


  • Eligibility is wide-open

Consider any projects that meet the three-part aim of better health, better health care and reduced costs

  • Models that focus exclusively on acute hospital inpatient care will not be considered
  • Projects must fit into one of four "Innovation Categories"*
  1. Models that reduce costs for MMCHIP populations in outpatient and/or post-acute settings
  2. Models that improve care for populations with specialized needs
  3. Models that test approaches for specific types of providers to transform their financial/clinical models
  4. Models that improve the health of populations - which can be defined geographically, clinically, or by socioeconomic class - through activities focused on engaging beneficiaries, prevention, wellness, and comprehensive care that extends beyond clinical service delivery setting


Applicants must propose innovations in service delivery and/or payment models

  • CMS specifically seeks new payment models to support the service delivery models funded by the initiative.  Applicants are required to submit the payment model design with the application
  • Preference for payment models that include other payers (public/private) besides MMCHIP
  • They are not interested in exploring models they currently are exploring through other programs or extensions of fee-for-service payment models


Models must demonstrate savings to CMS by the end of the 3-year project period

  • Applicants required to submit financial plan documenting return on investment to MMCHIP payers
  • Applicants requesting $10 million or more in funding must obtain and submit an external actuarial certification of their financial plan with the applications.


*Within each "Innovation Category", CMS indicates a set of target priority populations, providers, or disease categories that will receive a preference in the application process.

Health and Human Services Secretary Kathleen Sebelius announces the Health Care Innovation Challenge

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