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Delivery System/Payment System Reforms Contained in Federal Reform

Robert A. Berenson, M.D.

Institute Fellow, The Urban Institute

SCI National Meeting

Minneapolis 6 August 2010

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The Presentation Will Review:

Some challenges that the delivery system and payment policy face

Pros and cons of different payment modelsOverview of payment and organizational

reform models in ACAWhat is an accountable care organization

anyway?

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Hospitalizations by Number of Chronic Conditions

4%8%

12%17%

22%

32%

0%

10%

20%

30%

40%

50%

0 1 2 3 4 5+Number of Chronic Conditions

Perc

ent o

f Peo

ple

with

Inpa

tient

H

ospi

tal S

tays

Source: G. Anderson, “Hospitals and Chronic Care”, PowerPoint Presentation to the American Hospital Association. Partnership for Solutions. 16 June 2004.; MEPS 2000.

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Annual Prescriptions by Number of Chronic Conditions

0

10

20

30

40

50

0 1 2 3 4 5Number of Chronic Conditions

Ave

rage

Ann

ual

Pres

crip

tions

*

*Includes Refills

Sources: Partnership for Solutions, “Multiple Chronic Conditions: Complications in Care and Treatment,” May 2002; MEPS, 1996.

3.7

10.4

17.9

24.1

33.3

49.2

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Utilization of Physician Services by Number of Chronic Conditions

7.811.3

14.9

19.5

37.1

13.8

8.16.55.24.01.3 2.0

0 1 2 3 4 5+

Number of Chronic Conditions

Unique PhysiciansPhysician Visits

Sources: R. Berenson and J. Horvath, “The Clinical Characteristics of Medicare Beneficiaries and Implications for Medicare Reform,” prepared for the Partnership for Solutions, March, 2002; Medicare SAF 1999.

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Medicare Spending Related to Chronic Conditions

22.1%0.9%

15.1%

3.5%

16.3%

6.8%

14.8%

10.3%

11.3%

12.7%

20.3% 65.8%

Percent of MedicarePopulation

Percent of Medicare Spending

5+ Conditions4 Conditions3 Conditions2 Conditions1 Condition0 Conditions

Source: Partnership for Solutions, “Medicare: Cost and Prevalence of Chronic Conditions,” July 2002; Medicare Standard Analytic File, 1999.

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Projected Total Medicaid Spending Per Enrollee

$16,300$17,200

$1,400 $2,300

$11,200$12,300

$2,000$3,200

Children Adults Disabled Elderly

FY 2001FY 2006

Note: Includes federal and state spending on benefits.

Sources: J. Crowley and R. Elias. “Medicaid’s Role for People with Disabilities,” The Kaiser Commission on Medicaid and the Uninsured, August 2003; KCMU analysis based on CBO baseline for Jan. 02.

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“The Tyranny of the Urgent”

“Amidst the press of acutely ill patients, it is difficult for even the most motivated and elegantly trained providers to assure that patients receive the systematic assessments, preventive interventions, education, psychosocial support, and follow-up that they need.” (Wagner et al. Milbank Quarterly 1996:74:511.)

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The Pressure of the 15 Minute Office Visit

“Across the globe doctors are miserable because they feel like hamsters on a treadmill. They must run faster just to stand still…The result of the wheel going faster is not only a reduction in the quality of care but also a reduction in professional satisfaction and an increase in burnout among physicians.” (Morrison and Smith, BMJ 2000; 321:1541)

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How Patients are Affected

Asking patients to repeat back what the physician told them, half get it wrong. (Schillinger et al. Arch Intern Med 2003;163:83)

Patients making an initial statement of their problem were interrupted by the PCP after an average of 23 seconds. In 23% of visits the physician did not ask the patient for her/his concerns at all. (Marvel et al. JAMA 1999; 281:283)

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Incidents in the Past 12 Months

1. Been told about a possibly harmful drug interaction

2. Sent for duplicate tests or procedures

3. Received different diagnoses from different clinicians

4. Received contradictory medical information

Sometimes or often

54%

54%

52%

45%

Among persons with serious chronic conditions, how often has the following happened in the past 12 months? (Harris, Survey 2000)

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The Issue of ReadmissionsIn Medicare, about 11% of patients are readmitted

within 15 days and almost 20% within 30 days50% of patients hospitalized with CHF are

readmitted within 90 days The majority of readmissions are potentially

preventable – declining with time from index admission

Half of those discharged to community and readmitted within 30 days after medical DRG had no interval bill for physician services

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“There are many mechanisms for paying physicians, some are good

and some are bad. The three worst are fee for service, capitation and

salary.”

-- Robinson, Milbank Q, 2001

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Distinguishing Between Payment to Groups and Payment to Physicians Within Groups

Within physician organizations, 1/4 paid FFS, 1/4 paid by either capitation or pure salary, 1/2 on blends of retrospective and prospective methods– Robinson, Shortell, et al. HSR, Oct, 2004

Note that “salary with productivity incentives” usually means measures of productivity as defined by FFS payment parameters, either actual billings or RVUs generated -- may be counterproductive (pun intended)

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The Basic Problem with Current FFS Payment to Clinicians

The Resource Based Relative Value Scale (RBRVS)-based fee schedule has inherent limitations

By design, the relative values of 7000+ codes are, at best, an approximation of underlying resource costs, not an attempt to determine what services beneficiaries need

And, what purports to be an objective process is, despite many good intentions, inherently subjective

Health reform legislation addresses the issue by calling for actual data to inform the CMS-RUC process, e.g. to determine actual time, not estimates, for work and otherwise focusing on potentially overvalued services

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FFS for Primary Care Has Been Rooted in Face-to-Face Encounters

There are plenty of reasons, e.g.,– high transaction costs, associated with non-

face-to-face, frequent, low dollar transactions;– major program integrity concerns – “moral hazard” driving expenditures

Yet, increasingly, face-to-face visits do not encompass the work of primary/principal care for patients with chronic conditions (most Medicare beneficiaries and the duals)

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Gaps in FFS Payments and the Patient-Centered Medical Home

Current payment policies do not support the activities that comprise the Wagner Chronic Care Model: non-physician care, team conferences, coordinating care, community resources, patient registries, evidence-based practice guidelines, EMR

The Patient-Centered Medical Home as a remedy?The House would have formally tested the community network

medical home model, based on NC Medicaid, Vermont approaches

Administration has committed to multi-payer demos called Advanced Primary Care – currently in process

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Five Specific Payment Options (not mutually exclusive)

Enhanced FFS payments for office visitsReimburse for new CPT servicesRegular FFS for office visits and small PPPM for medical

home activitiesReduced FFS for office visits and larger PPPM for medical

home activitiesComprehensive payment for medical services and medical

home activitiesCan also provide startup/seed money for developing MH

capacity

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FFS Attributes

Advantages– Rewards activity, industriousness – Theoretically can target to encourage desired behavior– Implicitly does case-mix adjustment– Commonly used by payers and physicians

Disadvantages– Can produce too much activity, physician-induced demand– Maintains fragmented care provided in silos – High administrative and transaction costs– What is not defined as reimbursable is marginalized– Complexity makes it susceptible to gaming and to fraud

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PPPM (Comprehensive or Global Payment)

Advantages– Internalizes allocation of activity and costs to meet needs– Direct incentive to restrain spending– Predictable and capped spending – Administratively simple (until address some of the problems)– Low transaction costs

Disadvantages– May lead to stinting on care– Susceptible to cream-skimming– Incentive to cost shift to services outside the PPPM– Can’t specifically promote desired activity – May resist innovation/ new services

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Episode/Condition/Bundle/CaseAdvantages

− internalizes incentives for efficiency within the episode− potentially aligns incentives across siloed providers− arguably, is an intermediate step on the way to real integration

Disadvantages− does not fundamentally alter incentive to generate units of service− be careful about what you wish for, e.g. physician-hospital

alignment without determination of appropriateness in a FFS environment

− currently, political challenges in bundling among providers− technically challenging (esp. for ambulatory care) – vagaries of

diagnosis (more episodes in Miami than Minnesota), bias to performance of a procedure in a case rate, sorting out where particular claims are assigned to

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What is an Episode of a Chronic Disease, Such as Diabetes, CHF?

An oxymoron. Would patients with 5 or more chronic conditions have 5 or more 365-day payment episodes? With payments to different clinicians/providers?

To maintain any reasonably holistic approach to the patients with multiple chronic conditions, would need episodes of conditions that often cluster together, e.g. diabetes, hypertension, and renal failure

But then why not go right to population-based payment, i.e., PPPM?

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Public Reporting and Pay-for-Performance (P4P)

Advantages– provides a hybrid payment to mitigate disadvantages of pure models;

some natural blends – PPPM and under-service measures– can start to actually reward desired performance, instead of rewarding

volume of services produced– can include measures of patient experience, which have been

generally ignored in considerations of reformed payment approaches Disadvantages

– underdeveloped measure set – especially for physicians – what gets measured gets done?– marginal incentives may be insufficient to counter basic incentives in

whatever base model it is superimposed over – contributes more administrative complexity

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Examples of Blended or Hybrid Payment Models

PPPM with FFS carve outs or “bill aboves” and public reporting on underuse measures

For PCMH, FFS for visits (possibly “discounted”), PPPM for medical home activities and P4P for patient experience

Shared savings for ACOsPartial capitation – FFS/PPPM and/or risk corridors and/or

particular sector (professional services, but not institutional)Any of the above with public reporting and/or pay-for-performance

− quality measures where they exist, expenditure or utilization targets, patient experience measures

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Key Payment Provisions HR3590 Patient Protection and Affordable Care Act and HR 4872 The Health

Care and Education Reconciliation Act of 2010

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Payment Rate ChangesMedicare Part A providers get reduced payment

updates assuming economy-wide productivity increases.

Physician fee schedule updates remains in the grips of the SGR nightmare, but there is greater authority for CMS to address mispriced services in the Fee Schedule

Some providers are exempt from reach of new Independent Payment Advisory Board (IPAB) till 2019, e.g. hospitals, hospices, inpatient psych, etc.

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Targeted Physician Payment Rate Changes

In Medicare, 10% bonuses for primary care physicians (based on specialty designation and 60% of services are E&M) and for general surgeons in shortage areas

In Medicaid, increased payments in FFS and managed care for primary care services (E&M and immunizations) to 100% of Medicare for 2013 and 2014, with 100% match, based on rates applicable on July 1, 2009.

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Some “Value-based” Payment Provisions

In Medicare, hospitals will receive incentive payments using the structure of the current Reporting Hospital Quality Data for Annual Program Update (RHQDAPU).

To establish VBP standards to assess overall performance of each hospital – those with highest scores will receive highest extra payments – funded by reductions in DRG rates of 1-2% from FY13 to FY 17.

PQRI expansion for physicians

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Payment Adjustment for Conditions Acquired in Hospitals

Based on current program for adjusting DRG payments for HACs, in FY 2015, hospitals in top quartile of risk-adjusted rates are to receive 99% of their payment

Before then, performance reports are to be made public after hospitals review and correct

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Medicaid Quality Measurement Program

To establish priority for the development and advancement of quality measures for adults in Medicaid.

Sets deadlines for development of measures, standardization of reporting formats and requires a report to Congress (2014 and every 3 years)

Prohibits federal payments to states for Medicaid services for healthcare acquired conditions with regs to be effective 7/11

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Geographic Variation In Medicare and Other Payers

The fallout from Dartmouth research and the food fight on the Hill pitting urban against rural and north and west against east and south

The proposed Institute of Medicine Study of various dimensions of “value” – input price adjustments and geographic variations in resource use that was in the House bill did not survive. But one or both may take place under direction of the Secretary

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Center for Medicare and Medicaid Innovation (CMI) within CMS

Broad authority to test lots of new things – e.g. payment models, HIT, patient education, care for cancer patients, post-acute care, chronic care management, tele-health, etc.

Can adopt more broadly without going back to Congress if achieve certain positive outcomes on quality and/or cost

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Innovation Center (cont.)

Waives current budget neutrality requirement initially, but Secretary is supposed to terminate if either quality is not improved or spending reduced

$10 billion available over 10 years (but concern about being “raided” for other purposes in a seriously underfunded agency)

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Federal Coordinated Health Care Office (CHCO)

Is designed to align Medicare and Medicaid financing, benefits, administration, oversight rules, and policies for dual eligibles

Clarifies Medicaid demonstration authority for coordinating care for duals for up to 5 years

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Medicare Shared Savings Program

Narrow construct of the accountable care organization concept with language based on the Brookings model ▪ Real organizations, not “extended medical staffs” or other loose affiliations▪ FFS with bonus for coming in under a spending target▪ historical spending trended forward by projected national growth in A and B, adjusted for risk

▪ beneficiaries assigned (without their knowledge?) to an ACO

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Global Payments and ACO Demonstrations in Medicaid and CHIP

Global payment demo in up to 5 states for safety net hospitals – FY 2010-2012

ACO demonstrations in Medicaid and CHIP to allow pediatric medical providers – presumably pediatric hospital-based -- organized as ACOs to participate in shared savings approach – 2012-2016

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National Pilot Program on Payment Bundling

By 1/1/13, start to establish, test and evaluate alternative payment approaches for a 5-year, voluntary pilot for bundled episodes in Medicare – related to care provided around a hospitalization (3 days before to 30 days after). This one must be budget neutral

Can include bids from entities (as in current ACEs -- “acute care events” -- demo)

Beneficiary can have one or more of 10 conditions to be identified

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Medicaid Bundled Payment Demo

For up to 8 states for acute and post-acute care – 2012 -- 2016

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“Independence at Home” Demonstration Program

For 1/1/12, geriatric home visiting care model demo using shared savings approach

Note that the target population is that served by Home and Community-Based Waivers – frail elderly, including duals at home, who may or may not be “homebound” under Medicare definition.

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Hospital Readmissions Reduction Program

Starting 10/1/12, adjustments in Medicare payments for hospitals with “excess readmissions” for 3 NQF approved conditions: AMI, pneumonia, CHF, with prospects for expansion to other conditions

Readmission information to be made publically available after hospitals review and corrections

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Community-based Care Transitions Program

Establishes a 5 year Transitions Program starting 1/1/11. Funds hospitals with high readmissions rates and certain community-based organizations that provide transition services to high-risk beneficiaries.

Applicants required to propose a specific care transition intervention other than discharge planning.

Working with AoA and funded at $500 million

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Some Other Medicaid Delivery and Payment Changes

States get a 1% increase in FMAP for preventive services graded at A or B by US Preventive Services Task Force

Coverage for smoking cessation for pregnant women with no cost-sharing

Requires coverage for free standing birth center servicesMedicaid kids can get hospice concurrent with other care$100 million in grant funding for states to set up programs for

Medicaid benes – tobacco cessation, weight control, lower cholesterol and BP, diabetes

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Medical Homes and Accountable Care Organizations

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The ACA Medical Home Provision

Creates a Medicaid state option to implement a test of a “health home” – focus on beneficiaries with at least 2 chronic conditions (one and at risk of another or one serious with persistent mental health condition) – set of activities is specified – chronic care management, health promotion, transition care, etc.

$25 million planning grants with 90 percent FMAP for first 8 quarters for home health-related services

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What is an ACO?

In fact, there is little agreement Some see it as a virtual organization with

providers assigned based on claims history Others emphasize that they are real

organizations, typically identified as integrated delivery systems, with or without a hospital as part

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Potential Real ACO Organizations

Shortell and Casalino identified 5 types of current organizations that could be or be part of an ACO• Independent Practice Association• Multispecialty Group Practice• Hospital Medical Staff Organization• Physician-Hospital Organization• Organized or Integrated Delivery System

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Three Essential Characteristics

Ability to provide and manage with patients the continuum of care across different institutional settings, at the very least, ambulatory and inpatient care

Capacity to prospectively set budgets and allocate resources

Sufficient size to support comprehensive, valid, and reliable performance measurement

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Is ACO Just a New Term for PSO (Provider Sponsored Organization)?

In BBA 1997, PSOs were created to permit Medicare to engage in financial risk contracting directly with providers

They built it and no one came – actually 3 in 10 years.

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What is New?

Greater flexibility in organizational models

New payment models, no longer full capitation – e.g., FFS w. shared savings based on total spending and partial capitation

Improved risk adjustment

Availability of performance measures

Prospect of ratcheting down on FFS rates

Alternatives to a beneficiary hard lock-in

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How Would an ACO Work for Purchasers and Commercial Plans?

Well-founded concern about Medicare “sanctioned” ACOs developing and using market power in negotiations to drive prices higher

Concern is they might reduce costs but not provide the savings to purchasers in reduced premiums

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Section 3022 is Very Prescriptive

Sets out requirements for real, not virtual organizations – IPAs, multispecialty group practices, PHOs, joint ventures between hospitals and physician entities

Shared savings model – FFS with bonus if come in under a spending target – threshold for percentage saved before sharing and savings split to be decided in regs

Accepts historical costs associated with patients assigned to ACO on the basis of claims patterns

Beneficiaries may not know about assignment – and no limits on current freedom of choice

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Section 3022 (cont.)

Language permits CMS to test other payment methods including “partial capitation”

Partial capitation can mean – mixed FFS and PPPM; capitation for part of total spending, e.g. Part B, not Part A – that seems to be the statutory intent; or capitation with corridors to limit losses and gains

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Skeptics In many markets, physicians have drawn away from

the hospital and function increasingly independently. Weak financial incentives may not be able to bring them together. (But in other markets hospitals are employing physicians – for better or worse)

Jeff Goldsmith on Health Affairs blog –“The problem with this movie is that we’ve

actually seen it before and it was a colossal and expensive failure.”