The Perils and Pitfalls of Value-Based Contracting

September 25-26, 2017

Max Reiboldt, CPA

President | CEO

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Learning Objectives

This session will provide you with the knowledge to:

1. Know what types of value-based contracts (VBCs) exist in

today's market and who is offering them.

2. Know the key elements the wary contractor should look out for

in VBCs.

3. Know key capabilities and competencies providers need to have

in order to be able to go "at risk" for value-based payments.

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Volume to Value Shift

Major imperatives in healthcare today:

Quality and patient safety

• 1999 - 98,000 preventable deaths in US hospitals due to medical errors

• 2016 – 250,000 preventable deaths due to medical errors

• Slow down in cost inflation secondary to recession is now picking backup

• Expansion of insurance coverage through ACA is driving increased utilization

• Aging of population driving more and more costs related to chronic illness

Consumerism and patient demands

• Cost shifting by payers and providers ending up in the laps of consumers

• High deductibles and co-pays causing consumers to demand more value

Costs of healthcare

The Value

Equation

– Q/C

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Volume to Value Shift

Payers

Patients Providers

• CMS

• 90 % VBRs by end of 2018

• MACRA fully implemented by 2020

• Voluntary bundled payment pilots now mandatory

• Commercial Payers

• Anthem - $38 B shift from FFS to FFV in January 2015

• Aetna – 70+ ACO health plans in place across the country

• United – development of PCP networks

• Organization

• ACOs / CINs / PHOs / IPAs to CINs

• Consolidation

• Hospital – physician employment / mergers / acquisitions

• Operations

• Providers as payers

• Niche players undercutting large systems

MIPS and

Alternative

Payment

Models

(APMs)

• Questions to Ponder

• Has VBR lost momentum in 2017?

• Are you involved in VBR at all?

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Traits of MACRA

Five Key Traits of MACRA

1. Repeals the Sustainable Growth Rate formula (a.k.a. “Doc Fix”) and provided new updates to the Medicare Physician Fee Schedule (MPFS)

2. Authorizes Medicare to change how it rewards clinicians: value over volume

3. Creates the Merit-Based Incentive Payments Systems (MIPS), which aggregate three separate payment programs and creates a fourth:

• Physician Quality Reporting Program (PQRS)

• Value-Based Payment Modifier

• Medicare EHR Incentive Program

• Clinical Practice Improvement Activities

4. Provides bonus payments for participation in eligible alternative payment models (APMs)

5. Extends CHIP and community healthcare funding

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A Closer Look at Alternative Payment Models…

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Value-Based Contacting (VBC)

The Basics

• Be aware that:

• Clinical integration between providers is a necessary precursor to VBC

• Hospitals and physicians must also have aligned incentives if they are going to contract together

• Not only must high quality at lower cost be existent, at risk contracting ability must be characteristic.

• Key capabilities necessary to deliver high value include:

• EHRs, preferably connected via an HIE and ideally on a common platform

• Quality and cost measurement systems, automated if possible

• A data-driven performance improvement process

• Engaged physician leadership – can’t do it without them!

• A care management program – care coordinators, chronic care managers, health and wellness coaches, social workers etc.

• Careful timing and sequencing of activities with the local market and the courage to make the leap when the time is right

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Aligning Physicians and Hospitals: A Key Prerequisite to VBC activity

• Health systems need to invest via “full” alignment models with all

affiliated physicians

• Employment

• PSA

• CIN / APM (best structures for independent but “needy” med staff

• Includes capability to support VBCs including MIPS

• Focus alignment on outpatient care

• Establish specific performance requirements

• By specialty/service line for all clinicians (regardless of their aligned

structure)

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A Closer Look at VBCs

• Pay for Performance

• Example: MIPS – Merit Incentive Payment System

• Reimbursements from low performers are shifted to high performers in order to maintain budget neutrality

• Four categories of performance – quality (replaces PQRS), cost (replaces value payment modifier [VPM]), clinical practice improvement activities (Clinical Practice Improvement Activity [CPIA] a totally new program) and advancing care through information (Advancing care information [ACI] which replaces MU)

• Many other commercial payers also have P4P programs

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MIPS Overview

• Will begin distributing payments in January of 2019; however, the performance in 2017 will determine those payments

• Rewards performance via a two year lookback

– E.g. 2017 performance will determine payments for 2019, etc.

• Eligible participants:

– Now:

• Physicians

• Dentists

• PAs, NPs

• Clinical nurse specialists

• Certified Registered Nurse Anesthetists (“CRNAs”)

– In year three:

• Rehab professionals: physical therapists (“PTs”) / occupational therapists (“OTs”) / speech and language pathologists (“SLPs”)

• Audiologists

• Nurse midwives

• Clinical social workers

• Clinical psychologists

• Dieticians / nutritional professionals

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MIPS Overview (cont’d)

• In 2017, approximately 85% of providers eligible for MACRA are expected to participate in MIPS

• Ineligible providers – Those participating in first year with Medicare Part B – Those who bill Medicare less than $10,000 per year?– Those who care for 100 or fewer Medicare patients per year?– Those participating in an advanced APM – Hospitals

• MIPS measures and creates a composite score– Quality (uses PQRS) – 50%– Resource use* (uses VPM) – 10%– Clinical practice improvement (creates clinical practice improvement activities

(CPIAs) – 15%– Advancing care information (uses MU) – 25%

*The final rule stated that the resource use category will not be factored in for the 2017 data. Therefore, during the first year only, the quality category will be weighted at 60%.

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MIPS Overview (cont’d)

• Payments – CMS intends to set the payment threshold so that 50% of eligible clinicians will receive a

favorable adjustment and 50% will receive a negative adjustment (to remain budget neutral)

– Exceptional performers may receive up to a 10% upward adjustment in payments which is outside of the budget neutral component of the program

– Payment adjustments by year • 2019 -> + / - 4%• 2020 -> + / - 5% • 2021 -> + / - 7% • 2022 -> + / - 9%

– MIPS providers that are in an APM may receive an additional increase in reimbursement of .5% until 2020

May be adjusted by a factor of 3 to maintain budget

neutrality

2019

+ / - 4%

2020

+ / - 5%

2021

+ / - 7%

2022

+ / - 9%

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MIPS Measures

• Quality Measures – Replaces PQRS – Most participants report up to 6 quality measures, including one outcome

measure for a minimum of 90 days – Groups report 15 measures for a full year – Groups in APMS, but reporting MIPS measures, report through the APM

• Improvement Activities – New category– Most participants attest that they’ve completed 4 improvement activities for a

minimum of 90 days– Groups with < 15 participants or in rural or shortage areas – attest that they’ve

completed 2 activities for 90 days– Participants in PCMHs (or comparable specialty practices) automatically earn full

credit – MIPS participants in APMs will receive full credit in year one and at least ½ credit

thereafter

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MIPS Measures (cont’d)

• Advancing Care Information – Replaces the Meaningful Use Program – Must fulfill required measures for 90 days*

• Security risk analysis• E-prescribing• Patient access • Sending summary of care • Request / accept summary of care

– Bonus credit • Report public health and clinical data registry reporting measures • Use certified EHR technology to complete certain improvement activities in

the CPIA category• Cost

– No data submission required. Calculated from claims

*May not need to submit ACI if the above measures don’t apply to your practice

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Essentials of Preparation for Contracts like MIPS

• Know how you performed under PQRS, VBM and MU programs. • These will reappear under MIPS under different names • Download your QRUR report from CMS

• Use the QRUR (Quality and Resource Use Report) report to develop quality, cost and ACI improvement initiatives• QRUR shows how your payments under Medicare Part B FFS will be

adjusted based on quality and cost• Performance is compared to benchmarks of similar peer groups

• Shoot to be in the group that will receive bonus payments in 2019• Use tried and true performance improvement methods to drive change

• Process mapping• Cost accounting (costs to Medicare)• Best-practice care process design• True outcomes measures• Continuous process improvement

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Alternative Payment Models (APMs) Overview

Basic APMs

• CMS Innovation Center Model (e.g. medical home model)

• MSSP (Medicare Shared Savings Program)

• Demonstration under the Healthcare Quality Demonstration Program

• Demonstration required by federal law (e.g. bundled payments)

Advanced APMs

• Must use certified EHR technology

• Must base payments on quality measures comparable to MIPS quality category

• Must have at least one outcome measure

• Participants must bear more than nominal financial risk

Expected Advanced APMs in 2017 – MSSP (Tracks 2 and 3 - Next Generation ACO Model), Comprehensive End-stage Renal Disease (ESRD) Care, Comprehensive Primary Care Plus and the Oncology Care Model (Two-sided risk track available in 2018)

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C. APMs Overview (cont’d)

In 2021, CMS will consider “other payer” APM models to determine if a provider is a qualifying provider if the APM satisfies the following requirements:

• Use of a Certified EHR

• Required Quality Metrics

• Financial Risk / Medical Home

Bonus payment for APM Qualified Providers

• 5% lump sum bonus payment from 2019 -2024

• Starting in 2026, increase on Fee Schedule of 0.25% to 0.75% per year

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MIPS vs. APM Participation

• In order to be a Qualifying Participation (“QP”) of the APM, and therefore be excluded from MIPS, there are certain requirements (i.e. type of APM, threshold for QP, etc.); however, if possible, it can be extremely lucrative for organizations

Estimated 70,000 –120,000

Estimated 592,000 –642,000

Estimated $333 million

- $571 million

+/- $199 million

APMs MIPS

Temporary Incentive

Payments/ Payment

Adjustments

Participating Clinicians

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MIPS: Be wary of…

• Expecting exemption from MIPS – few APMs available at this time

• Cost performance measures are risk adjusted but benchmarks are national averages

• Participating in medical home models will automatically qualify you for CPIA credit, but few specialty medical homes available

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A Closer Look at VBCs

Bundled Payments

• Example: CJR

• Bundled payments most likely to bend cost curve – Brookings

Institute 2009

• Initially voluntary, now mandatory in some areas BPCI - CJR

• More on the way – hip fracture, AMI/Cardiac rehab, ambulatory

bundles (cataracts and colonoscopy), and primary care bundles

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Bundled Payment Example

▪ Example of a coronary artery bypass grafting (CABG) bundled payment based on average US payments

Sources: NCBI/Health Services Research

Physician • $6,183

Hospitalization • $33,913

Post-Acute Care • $3,286

Readmissions • $3,393

Total CABG Bundled Payment

• $46,775

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Bundled Payments vs. Capitation • Bundled Payments

– Providers are paid for the care of a patient’s medical

condition across the entire care cycle

– Primary care – bundles by patient population (adult,

elderly, children)

– Specialty care – bundles by clinical condition (total

joint, transplant)

– Sets up competition on value (quality/cost)

– Proven to bend the cost curve – BPCI, Transplant

programs

– Efforts geared toward each patient’s specific

condition (what matters most) – complications,

return to baseline health status

– Providers at risk for things they can control

– Risk adjustment easier for single conditions or

patients

– Drives competition and innovation

– Drives integrated, multi-disciplinary care

• Capitation– The healthcare organization receives a fixed

payment per year per covered life and must meet

all the needs of a broad patient population.

– Restricts patient choice

– Not proven to change the cost trajectory – failed

capitated managed care models of the 80’s and

90’s.

– Efforts geared toward population health– overall

spend, readmission rates, length of stay (LOS)

– Providers at risk for things they can’t control

– Hard to risk adjust a population

– Drives consolidation and monopolization

(providers and payers)

Are bundles the alternative to capitation?

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Bundled Payments – Five Essentials

1. Payment covers the overall care required to treat the condition

2. Payment is contingent on delivering good outcomes

3. Payment is adjusted for risk

4. Payment provides a fair profit for effective and efficient care

5. Providers are not responsible for unrelated care or catastrophic cases

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A Closer Look at VBCs

Capitated Population Health Management Example: CPC + • Comprehensive primary care program recently expanded to CPC+

• Emphasizes patient / provider engagement through multi-disciplinary primary care delivery and advanced healthcare information systems

• Regionally-based multi-payer (CMS, Commercial Plans and State Medicaid Agencies) program

• Track 1 – FFS plus Care Management Fee (CMF) plus P4P (Expected CMF = $15 PMPM)

• Track 2 – Reduced FFS plus Comprehensive Primary Care Plus Payment (capitated payment paid quarterly) plus P4P (Expected CMF = $28 PMPM)

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Essentials of Preparation for capitated PHM contracts

• Clinically integrate your primary care providers

• Train PCPs in the essentials of population health management

• Health risk assessment and risk stratification

• Chronic care management (CCM)

• Non-traditional care delivery, e.g. telemedicine

• Emphasis on preventive care and wellness services

• Value-based referrals to specialists

• Recognition of all PCP practices as NCQA Level III PCMHs

• Start with CPC + Track 1 and then move onto Track 2 (Track 1 and Track 2 are defined on the previous slide)

• Be first to market with a primary care platform that can take on capitated population health management

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Capitated Population Health Management (CPHM): Be wary of…

• Risk stratifying patient populations and effectively allocating resources to hot spots.

• Few provider organizations right now have the data systems, knowledge or experience to do this accurately and well.

• Risk assessment and stratification must be a continuous process.

• Reinsuring against outlier cases

• Consider provider owned captive insurance arrangements, insurance arrangement that is wholly owned and controlled by its insureds; its primary purpose is to insure the risks of its owners.

• Must engage patients before they engage you

• Older providers will find this difficult to do

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Commercial Bundled Payments

• Commercial bundled payments are now being offered by many payers for episodes of care within orthopedics, cardiac surgery and obstetrics

• Many providers are also gearing up to offer direct to employer bundled payment agreements to large self-insured employers

• Commercial bundles commonly utilize the Prometheus Payment Model: – Best practice guidelines are established by expert panels

– Bundled budgets are projected by:

• Adding the fee for service payments for each service included in the best practice guidelines

• Removing payments for potentially avoidable charges (PACs), which include services that aren’t included in the guidelines or services for complications of care (e.g. wound infections, venous thromboembolic events, etc.)

• Discounts for more coordinated/efficient care delivery around the bundle

• Adding in some percentage for PACs which may occur despite best practices

– Quality measures are selected that must be met in order to receive any share of savings

– If savings (difference between budget and actual expenditures) are achieved these are shared between the provider (who must meet the quality measures) and payer. The split between provider and payers of any savings is specified in the agreement.

– The distribution of the savings to the various providers involved in the bundle will then require an income distribution plan (IDP) so that each provider is fairly and equitably reimbursed for their work to make the bundle successful

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Commercial Bundled Payments (ctd.)

• Examples: – Blue Cross and Blue Shield of South Carolina (BCBSSC) – Total Knee Replacement (TKR) bundled

payment agreements

– Venous Thromboembolism (VTE) bundled contracts between Cleveland Clinic and johns Hopkins for orthopedic and cardiac surgery services (Lowes, Walmart etc.)

• Beware of: – What’s included or not included in the bundle

– How much is allowed for inevitable PACs

– How are quality measures selected and measured and what are the thresholds for meeting these measures, what benchmarks are used and are the measures risk adjusted

– What is the provider/payer split for savings and what is the income distribution plan for sharing any savings

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Case Study – Quality Collaborative

• 2009, large healthcare system in the southeast • Key steps in formation:

• Recruitment of 300 physicians (1/3 private and independent, 1/3 medical school faculty, 1/3 employed by health system)

• Development of clinical integration plan (informally presented and approved by FTC)• Governance and management structure assembled • Participation agreements developed and signed • Income distribution model developed • Contracting for value-based reimbursements:

• Internal shared savings with healthcare system (gainsharing)

• Shared savings agreements with commercial payers

• Bundled payment model with BCBS for total knee replacement

• Narrow network / PHM model with health system’s self-insured employee population

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Case Study: Continued

Lessons learned (over 8 years of operation) • Gainsharing arrangements with QC allowed health system to save millions in “low hanging

fruit” areas – blood products, OR supply, antibiotics etc.

• Bundled payment model difficult to make work due to entrenched practice patterns, e.g. referral of all patients post-op to inpatient rehab. Change comes slowly

• Narrow network model for self-insured population seen as threat to third party administrator (also system’s largest commercial payer)

• Difficult to drive savings with commercial carriers unless providers not allowed to opt out (unpopular with many specialists)

• CMS’s move toward VBCs finally providing impetus for quality collaborative to realize full potential

• MIPS / APMs (e.g. MSSP)

• CPC +

• CMS Bundled Payments – CJR, Hip Fx, AMI, CABG

• Need to time transition to VBC carefully to avoid disrupting the entrenched business model and getting too far ahead of new market opportunities

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Conclusions:

• Value-based reimbursements may be slow to come but overall they will continue to be progressed, both in the government and private sectors

• Commercial payers still often ultimately follow CMS’ lead

• Successfully managing VBCs will not be a simple matter of negotiating better rates – many VBCs are coming from CMS who does not negotiate but does mandate!

• Providers must re-tool the delivery system in many ways in order to operate successfully under VBCs, while still functioning in a largely FFS environment

• While concerted VBC strategies are necessary, do not overreact – the “sky is not falling”!!

Contact Us:

Max Reiboldt, CPA

President/CEO

Coker Group Holdings, LLC

678.832.2007

mreiboldt@cokergroup.com

www.cokergroup.com

2400 Lakeview Parkway, Suite 400

Alpharetta, GA 30009