Reimbursement methodologies are focused increasingly on making health care providers accountable for coordinating care, improving health outcomes and controlling costs. The movement toward value-based health care is intended to incentivize a broad range of providers (hospitals and health systems, ambulatory surgical centers, post-acute care providers, and physician practices) to identify and to implement clinical and operational changes that will allow them to improve care delivery and to assume financial risk for their services most effectively.
In this segment of our value-based health care teleconference series, “Winners and Losers in the Provider Sector in the Movement to Value-Based Health Care,” health care partners John O. Chesley, Brett R. Friedman and Deborah Kantar Gardner will discuss the provider value-based health care landscape and highlight strategies for providers to position themselves for success in the movement to new models of payment and care delivery.
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Theresa: Good afternoon. My name is Theresa, and I will be your conference operator today. At this time, I would like to welcome everyone to “The Transition to Value-Based Health care: Winners and Losers in the Provider Sector in the Movement to Value-Based Care” conference call. All lines have been put on mute to prevent any background noise. If you should need assistance during the call, please press * and 0, and an operator will come back online to assist you. Mr. John Chesley, you may begin your conference, sir.
John: Thank you, Theresa, and thank all of your for joining us. I’m a partner in the Health care Group of Ropes & Gray in the San Francisco office, and I’m joined today by my colleagues, Deborah Gardner, a partner in the group in Boston, and Brett Friedman, a partner in the group in our New York office. We hope you will find the program worthwhile. Before starting, let’s run through a few reminders. First, you should have received the slides by email that we will be using, and if you did not, please email email@example.com, and someone will send them to you right away. Second, today’s presentation is being recorded. Your phone line, however, is muted. Third, you will have an opportunity to ask questions during the presentation. If you would like to do so, please email your question to the same email address – firstname.lastname@example.org – and we will try to weave your question into the presentation or, if time allows, answer it at the end of the program or afterwards. Fourth, today’s presentation is for educational and informational purposes only. Nothing we say, nor our slides, should be construed as legal advice or legal opinion on any specific facts or circumstances. Today’s presentation is not intended to create a lawyer-client relationship, and you are urged to consult with your own lawyer. Finally, if you are interested in receiving CLE credit, please fill out the attorney affirmation form that was included in the confirmation email. At the end of the presentation, I will give you the number code to add to the form so you can receive CLE credit. Once you get the code, please send the form to email@example.com. So, with those housekeeping details out of the way, let’s begin with Deb Gardner.
Deb: Thank you, John. Good afternoon everyone and welcome to the second installment of our series on value-based care. My name is Deborah Kanter Gardner, and John Chesley, Brett Friedman and I will be talking today about value-based care as it relates to the provider sector. Let’s turn to slide 2, and those of you who have had an opportunity to view Ropes & Gray’s value-based health care website may have seen we consider the topic of value-based care both broadly and as it applies to the various health care sectors.
In this segment of our teleconference series, we will be discussing the provider sector – physician groups and independent practices, hospitals and health systems, ambulatory surgery centers, and post-acute care providers – as we address where we are in the movement to value-based care, and what it takes to succeed as we transition to a payment system based less on fee for service, and more on assumption of risk. The goal of today’s program is to discuss winners and losers in the shift to value-based care payment methodology. We believe that payment reform will continue, that alternative payment models with various tucks and tweaks, are going to become standard payment models, and that providers increasingly will be required to bear financial risks for the individual patients they serve and for populations for whom they are held responsible.
What factors do we believe position a provider to thrive as reimbursement changes from volume to value? I’m going to provide some background for our discussion, touching on the meaning of value-based care, the evolution of value-based payment programs, and the current initiatives available to providers. Brett Friedman will then talk briefly about risk sharing, what we mean by the concept of risk, and how winners and losers are determined under value-based care. Then we will address individual provider sectors. John Chesley will discuss physician groups and independent practices. I will discuss hospitals and health systems, and Brett Friedman will discuss ambulatory surgery centers and post-acute care providers. So, let’s start with what we mean by value-based care.
Turning to slide 3 – value-based care is a system of care delivery and reimbursement that is tied to clinical quality, good patient outcomes, and reduced cost growth. Particularly critical is the reimbursement methodology associated with value-based care, which compensates providers not solely for the volume of care they provide (their productivity) but on how well they improve outcomes and slow cost increases. Value-based care aims to align payment with disease prevention care coordination, good patient outcomes, and fewer costs. It incentivizes a broad range of providers to identify and to implement clinical and operational changes that, among other things, will allow them to assume financial risks for their services.
Let’s turn to slide 4. The transition to value-based care has been happening for some time. So, why are we focused on it now? The answer is that payment models are increasingly incentivizing and even compelling providers to take on financial risks for care delivery. Largely beginning with the Affordable Care Act and in subsequent state initiatives, federal, state and commercial payors have been incentivizing hospitals and physician groups to organize themselves and to develop the infrastructure to bear more risk for the cost and quality of the care they provide. They have done this historically through a variety of reimbursement models that, for some programs, began with penalties and have moved toward incentives. It began with programs that required providers to implement quality data capture and reporting capacity, and that penalized them for failing to do so. It transitioned to programs that fostered data measurement capabilities for quality and costs, and that penalized them for failing to meet quality performance and cost benchmarks. And it then moved to shared savings models. First, upside only incentive programs, then upside and downside risk models. Payors now more than ever are incentivizing and requiring providers to assume more financial risks for costs and quality, with programs involving bundles for episodes of care, and even full financial risk for population health.
As all of you are aware, implementation of any of these models takes considerable planning and investment. As outside counsel, we have the benefit of being able to view different approaches our clients take and consider the factors that contribute to success and failure, including legal challenges associated with certain approaches.
Let’s turn to slide 5. The current payment models now available to providers— whether they be federal, state or commercial models—show this evolution of initiatives within the value-base care movement, shifting to higher levels of risk bearing. Medicare offers Accountable Care Organizations that, beginning with the Medicare Shared Savings Program, have various tracks allowing providers to participate in upside only programs—model 1— or in shared risk programs in models 2 and 3. Medicare’s Next Generation ACO allows participants to gain greater financial rewards than its shared savings or pioneer models by assuming even a larger share of financial risk, including through a track that involves an all-inclusive population-based payment model with fee for service payments replaced by monthly payments to the ACO.
Medicare’s bundled or episodic payment models make providers responsible for the costs of a continuum of care for services furnished to a patient associated with particular clinical conditions. Medicare’s Bundled Payments for Care Improvement (BPCI), for example, is a voluntary program in which providers across a spectrum of care assume risk for total spending relative to a target price for up to 48 clinical episodes that begin with an acute care hospital stay.
Medicare’s Comprehensive Care for Joint Replacement, or CJR, initiative, is an example of a mandatory bundled program that puts providers at risk for the cost and quality for episodes of care originating in hospitals and associated with hip and knee replacements.
The new mandatory cardiac care bundled payment initiatives, and one new mandatory orthopedic bundled payment initiative, now delayed until October of this year, and potentially until next January, further present providers with opportunities for bearing financial risk.
The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) and the October 26, 2015 Final Rule that implemented it work in conjunction with other payment models by incentivizing physicians to participate in value-based payment arrangements. MACRA established a quality payment program that applies to physicians, physician assistants, and other clinicians, and imposes penalties unless they participate successfully in one of two initiatives – either a Merit-based Incentive Payment System, in which they receive an upward or downward adjustment of their Medicare payments based on their performance and cost quality improvement, and health IT, or an Advanced Alternative Payment Model, which provides bonus payments based on participation in certain value-based payment programs.
Turning to slide 6, states too are increasingly compensating providers through value-based payments using Delivery System Reform Incentive Payment Programs – DSRIP. New York, for example, has been at the forefront going from a quality incentive program for its Medicaid managed care, which involved incentive payments for quality reporting, to value-based payment models that begin with only upside risk, but that aim, by 2020, to make 80% of Medicaid manage care payments to providers using value-based payment methodologies based on assumption of risk. And to give you sense of the extent of state commitments to value-based care, New York’s DSRIP program, for example, invested over 7.4 billion dollars to encourage clinical integration and ready providers for value-based payment methodologies. MassHealth’s Accountable Care Organization program, which is scheduled to launch in December, allows ACOs to choose from three models with increasing levels of risk sharing and different care delivery characteristics. Other states have similar initiatives that will encourage provider risk sharing in their Medicaid programs in an attempt to improve quality and reduce costs.
Turning to slide 7… Likewise in the commercial context, payors have been shifting compensation through the use of ACOs and bundled payment models, encouraging providers to manage the health of populations and assume financial risk associated with episodes of care and population health.
I’m now going to turn the presentation over to Brett Friedman, who’s going to speak briefly about risk sharing, what we mean by the concept of risk, and how winners and losers are determined using value-based care.
Brett: Great. Thanks, Deborah.
As Deb mentioned, the concept of risk is important in all these models. This is really the end point of most of the governmental, state and commercial value-based payment, value-based health care programs that are being initiated. So, what do we mean by risk? Risk is defined in various ways, but the way I like to think of it, and the way I advise my clients to think of it is, you’re putting providers, and you’re giving them skin in the game such that their reimbursement is directly impacted and effected by the virtue of quality, cost, and clinical outcome. The reason why risk is such an important end point to all of these different models is that it benefits both, or can benefit, really, both payors and providers.
From a payor’s standpoint, if you’re ceding or delegating risk to the providers, it can actually reduce the risk-based capital reserve requirements that payors are typically required to hold in escrow under various state insurance laws. So essentially, they can keep the admin component which is usually around 10%, and then delegate the risk down to the providers. The providers, depending on state law, which I’ll talk about in a bit, may have to retain their own reserves, but it essentially improves the balance sheet by delegating the risk management to the providers as opposed to the plan. And that, again, is a real state law consideration.
For providers, it can also benefit them because they’re really, you know, their upside is potentially unlimited in terms of if they can improve on the cost savings of their assigned population base, then they recognize the outcomes. They essentially become the direct beneficiary of their good work. Again, it’s not based on volume, but it’s based on achieving good population health, and this is seen and viewed as really the accountability that the ACA and other initiatives have thought to create.
The other piece of it which you shouldn’t lose sight of is, under the ACA, there needs to be 85% medical loss. So plans are required to spend 85 cents of each dollar of premium on health care services delivered to their beneficiaries. As care management gets better and utilization of health care services theoretically declines, how do you get to the 85% if people aren’t overutilizing the health care system? Most state insurance models permit counting of essentially risk-based premiums or risk bonuses in the MLR health services calculation. So, if through good management a provider is able to bring down the MLR beneath 85%, you can essentially gross up the 85% which then benefits both the plan who have kept health care costs down, and the providers whose good work has created that positive result.
The last piece to mention too is when you’re ceding risk, and this is something that CMS mentioned in their Next Gen ACO guidance, and it’s often overlooked, and we have a specific piece on it on our value-based payment website, but state insurance laws become a critical consideration here, and every state treats the downstream risk bearing of providers differently. So, as I mentioned earlier, if a plan is feeding premium to, you know, an individual provider or provider collective, the way that the state treats that and whether the provider themselves have to now bear statutory shared reserves to perform that function, is something that having looked at this across almost all 50 states, differs markedly by state. New York has a different theory than New Jersey, than Pennsylvania, than Connecticut— and even just in the northeast corridor where I’ve been focused on this, different states have different nuances. So, when a provider, whether an aggregated provider collective of independent providers, or an individual integrated provider, is going to assume risk under a commercial arrangement or under a Medicare/Medicaid arrangement, they need to be cognizant of what that actually means from an operational and licensure standpoint because the relevant state insurance department is going to be interested in what that means for you. So, again, something not to lose sight of.
Moving to slide 9, and this goes back really to the fact that this is the provider focused presentation. Ropes & Gray in March launched an online hub and resource center that’s focused specifically on value-based health care arrangements. In thinking about how we’ve been advising providers really over the last five years and beyond, the impact of these value-based payment models applies differently to different industry segments. Today’s presentation is focused on providers and actually sub-sectors of the provider segment. But you’ll see too that we have organized based on the digital health, the pharma sector, medical device, and payors as well, because the considerations while all related, there are distinct elements to keep in mind, and this presentation’s focus is really drilling down on the website under the industry segment tab for providers.
If you move to slide 10, under that provider segment tab, we focus really on these individual sub-sectors which are today’s presentation – hospitals, physician groups, ASCs and post-acute, because the programs are different, the considerations are different, and what makes a certain industry sub-segment succeed or not succeed under the available program is also different. That leads me into slide 11…
…Which is this concept of winning and losing. It’s a little bit of a harsh framework to think about, but winning and losing is a relative construct. As we describe the provider sub-segments and whether they are positioned to win or lose, definitionally it’s important to know what we mean by that. By win, we mean that you have a provider structure organization that’s going to achieve the benefits. They’ll perform well under a risk-based program, but not just overall from an industry segment; so is the ASP segment going to do better than the hospital segment—there is that sort of overarching assessment, but then going and drilling down into the specific segment to say which are the hospitals that are doing well and what are they doing to make sure they are doing well, and which are the hospitals that, in our view have not been doing well because either they’re slow to adapt or they haven’t focused their resources on the right portions to succeed in the programs that are available.
And what we mean by lose is that they are unlikely to be able to achieve the goal. They are not going to improve their bottom line by moving to a risk-based or value-based payments arrangement. It’s actually going to hurt them. And one of the things I’ve heard by attending a lot of different industry segments is that value-based payments are really going to push out those providers that have service lines that can’t compete based on quality and costs. And these are, if you think about it, those service lines that a hospital—or different provider group—has no business being in; they do a handful of procedures a year; they may have a physician or two on staff that knows how to do those procedures, but it’s not a well-oiled machine in terms of determining which are the best types of patients to get the surgery, when to essentially build this scale of efficiency in doing the procedure and then managing the post-acute care environment to prevent a readmission, which is penalized under most intensive models. Most value-based incentive payment models reward providers that can compete on scale, and by producing such scale they can achieve efficiencies. And so what we have been seeing a lot of is providers that are closing these programs—whether it be interventional cardiology, whether it be a small orthopedics program—that they just can’t compete based on volume with other providers in their market that can do the scale that allows them to achieve success under the value-based payment arrangement.
So it’s not simply what’s going to create the highest margins based on the per procedure reimbursement, but looking collectively at the service line do we have the resources that allow us to compete in this service line and can we invest in the resources that are necessary to really grow it and make it succeed. So that’s what we mean by losers—it’s those providers that have to leave a certain segment or leave a certain service line because under the change in the payment model they are not going to be able to compete successfully anymore. And if you are too slow to get out, you are going to end up losing because you are going to take a major hit on your bottom line in trying to make that change. And so I’ll send it over to John now, who is going to discuss the specific considerations around physician groups and independent practices as they explore value-based health care.
John: Thank you Brett. Let’s go to now to slide 13 after our next agenda page number 12, so beginning on page 13. What I’d like to do is start with an overall assessment and then take a quick look at applicable value-based care programs and finish off with some of the factors that influence success in this construct of winners and loser in the context here of physicians and independent groups in particular.
The status of physicians at this stage is a toss up. Some, I think, are on the path to being winners and some, as Brett has described by those criteria, clearly fall under the other category. Let me start with a cautionary tale of Cornerstone Healthcare, a large multi-specialty physician group in Highpoint, North Carolina. At first it appeared clearly to be a winner and we can come back to what that means. It pioneered as a Medicare Shared Savings Program participant in a market that was still heavily fee for service. Among its innovations was a care management program focused on the top 20% of sickest cardiac patients and it set-up a chronic disease management specialty clinic for chronic heart failure. To do so, it set patient selection criteria including clinical symptoms and the requirement that patients have a cardiologist from inside the group to participate in the clinic program. It established a care model based on a team approach comprised of internists, behavioral health specialists, pharmacists, a health navigator and a nutritionist. A treatment planning for the participating patients was done by the team members. They brought to bear close monitoring of medications and adjustments of medications and a heavy dose of patient education on symptom management. All of these elements should begin now to sound familiar as the components of a well thought out care management program over and above treating individual symptoms and moments of crisis. The health navigators maintained close contact with patients between scheduled visits. This was a key element of the program. When Cornerstone encountered reluctance of attending physicians to turn over the management of their patients to this clinic, it made some adjustments. It addressed those concerns by incorporating the attending physicians into the care planning process. And when it found that patients weren’t showing up for follow-up visits, Cornerstone determined that in those cases it was often the additional co-pays that were imposed by insurers that deterred the patients from coming in for those clinic visits, so Cornerstone negotiated waivers of co-pays with insurers. The program reduced hospitalizations and care costs substantially and Cornerstone reaped the financial benefits of that gain share.
However, these care and payment successes weren’t enough to protect the group from losing key specialists to a nearby hospital system that offered them employment. Volume and revenue suffered, Cornerstone also faced a default on a $20 million bank loan incurred to finance information technology assets needed to handle the increased burdens of care management, data complexities and billing of the value-based care that the group was delivering. And under that pressure, Cornerstone ultimately was acquired by another local hospital system which has provided the needed working capital and additional investment to allow Cornerstone to continue its transition to value-based care. And in that role now as an affiliate of a larger health system, Cornerstone is not only continuing to provide the kind of direct personal care management for individual patients, but is also something of an instructor for other groups in how to construct good care management and financial arrangements.
So in some ways, clearly a winner with respect to the fundamentals of value-based care and its objectives; but because of the context of the marketplace—a highly competitive fee for service oriented marketplace where well-heeled competitors in the form of hospital systems were able to take away some of the key specialists—it became a challenging, mixed outcome. Physician groups clearly have emerged as key partners for developing cost efficient provider networks of this kind and the acquisition of Cornerstone by a hospital system represents one end of that spectrum, where large groups gain access to capital and support for the growth and stability that are needed in order to try out and evolve through value-based care models. At the other end of the spectrum, independent community physicians are clearly threatened by the risks that such market dynamics pose for them. And we see in this overall assessment that no one approach is going to meet all needs because of the extreme diversity of market context, the levels of fee for service versus value-based care experience and exposure in a particular market. Every market is going to be different and it’s going to really require sound design responses.
Let’s turn next to slide 14, which will take a look at some of the MACRA elements as well in particular here, which are effecting who the winners and losers may be on the physician side. Programs such as MACRA and the ACO programs, including Primary Care Medical Homes and such, involve payors contracting directly with physician groups. Here, CMS and other payors pay perspective monthly care management fees or other compensation directly to physician practices, in addition to payments for direct care. Basically, MACRA means a fundamental change for Medicare participating physicians. It replaces the ineffective, Sustainable Growth Rate formula that Congress had imposed in the 1990s and the Balanced Budget Act - never worked. And it is the fulfillment of the promise of the Affordable Care Act, which itself was not able to address the SGR dilemma. MACRA is the answer to that 20-year search for a way to pay physicians but to reduce or bend the cost curve of physician compensation. And it’s doing that through two mechanisms— two tracks. The first one will be most likely the one that the largest number of physicians enter, those that don’t have a track record already with advanced payment models or APMs. And they will be paid on a composite performance score that draws upon some of these same elements that we are familiar with: quality, replacing the PQRS system and the quality component of the value modifier program. So MACRA is an evolution or a next step from training wheels to a bicycle for physicians who are already supposed to be experienced with the PQRS approach. A second component, advancing care information, which replaces the meaningful use program that incentivized that option of electronic health records. This element will measure the use of interoperable health record technology. Adoption of that and e-prescribing into the practice. The third is the clinical practice improvement activities menu, which is a new program; and the fourth will be a component of resource use, replacing the cost component of the value modifier program.
All of this will add up to a gradual band of increasing risk and benefit for physicians in the MIPS program. Beginning with a 4% upside or downside adjustment to payments in 2019 based on this year’s - 2017’s - performance and driving up to a 9% up or down, plus or minus, gain or loss change to the fee schedule effective in 2022—that’s an enormous amount of financial risk that will be placed on the majority of Medicare participating physicians on the fee for service side. Those few physicians who have already acquired the skills and have the resources, such as Cornerstone does, to enter into advanced APMs will receive instead a 5% bonus on top of the gain share that they are able to achieve from their participation in APMs or bundled payments through ACOs. These are challenging times for Medicare physicians as this two track process shows and clearly those who are in the MIPS program are being incentivized to make the transition to being qualified physicians where they can take greater financial risk and gain much more certainty of financial reward over the coming years. Both of these approaches require individual physicians, as well as groups of physicians, to master a complex set of competencies. And the next two slides will take us through some of those factors.
So onto slide 15. Factors that influence success— alignment through consolidation or integration or possibly the formation of virtual groups driven by MACRA will be necessary. The experience of Cornerstone, the financial pressure brought upon on it by the potential for a major bank loan default, is the kind of object lesson to keep in mind here. The rescue by sale to a better capitalized hospital system points up a major risk factor for success in value-based care. In general, it will be difficult for independent physicians in smaller groups to make the necessary investments and practice transformations that they must to compete in this environment with the kind of payment adjustments that they will be looking at ranging up to the 9% deduction in 2022 for MIPS participation.
Primary care providers are going to continue to be very much in demand because of their critical role in clinically integrated networks, but it is really through the aggregation of physicians—the ability to take on practice risk as well as the ability to assume financial risk—that will drive who are the winner and losers. One alternative here for those who are determined, or by location, such as rural practices, necessitated to find ways to network without consolidation would be to form virtual groups and MACRA provides for CMS to recognize virtual groups as a way of pooling performance on the four MIPS measures that I’ve mentioned. However, much to the disappointment of industry associations that represent small group physicians, such as the American Academy of Family Physicians, the CMS MACRA rule did not address or create a pathway for achieving virtual group status under MACRA. That is an item that we are going to keep an eye on—watch the website. Last, I would say that on the winning side here would be groups that can, if they don’t insource and develop the infrastructure themselves—they don't make it— those that can buy it through contracting with capable MSOs are going to be on the winning side. Moving to the next slide here.
Slide 16, clinical integration demands a change in work process—a culture shift—and the ability to make that change from what some have called a “craft based industry” to a profession organized around patient or disease state—that culture change, that process change, is another critical factor of success here. The ability to develop protocols and clinical care guidelines that lead to success under the quality metrics measured in MIPS, measured in the Alternative Payment Models, will be key elements here. Along with the ability to financially integrate to share risk and to find ways to share the gain in order to keep individual physicians well enough compensated to be engaged and to move them along the culture change scale here.
Let’s turn to slide 17, and finish off with factors that influence success in the context of physicians. The investment in care management technology is critical, it’s huge and again a major hurdle for smaller groups, pushing them either to aggregate or to outsource and to find ways to develop the internal information technology systems to manage and feedback the kind of information needed; and there, it will be critically important to develop relationships with other sources such as payors, who themselves have through their claims databases the ability to provide reports, to provide meaningful feedback to physician groups on how they are doing. Payors drive this transition—what are they looking for? – is a key question for the physician sector. Payors that were surveyed by CMS in its 2016 survey of Medicare Advantage plans, noted that they were looking for like mindedness, whether the group buys into the plan’s care delivery and physician engagement models. They are looking for whether the group collaborates fundamentally in a way with the plan, through data, data analytics, consultation, and interoperable EMRs; and they were looking for a readiness to transition to the next level of the payment continuum. The ability through technological capability and of level of commitment to move forward, and of course they were looking for financial stability, since a good deal of the value-based care transition that, as Brett has described it, is really a form of risk shifting from the payor to the provider.
And other factors that they have looked for— certainly competition among providers to intensify as groups within a particular marketplace are forcing each other to gain experience with value-based arrangements. And finally, the risk factors that will always play into whether one is a winner or loser—cash flow, the ability to sustain monthly, weekly payments while waiting for that year end distribution of the bonus payment, the cash strain on cash accounting for physician groups can be a significant limiting factor, again pushing them toward aggregation; the difficulty of continuously improving performance and squeezing more gain out of smaller, smaller improvements. So at this point, I think we will pause and move on to the hospital and health systems topic.
Deborah Thank you John. So let’s move right to slide 19, and in keeping with our framework of thinking about winners and losers, hospitals certainly as a category are poised to be net winners. They are often the most resourced, have the most access to capital; often have size that is to their advantage; and organized processes and systems already in place from having to deal with payors in the first place. But within the larger category of hospitals, there will be struggling hospitals and various challenges introduced by these value-based care models.
It will require real reorientation and focusing on processes that the hospitals have not been paid for in the past. This will require significant upfront capital investment for legal and strategic assistance. John mentioned the data infrastructure, development of new operational processes, just among other things. It’s going to require alignment and this is really a big issue; really establishing a network of outpatient care providers and post acute care providers to be able to coordinate care and to manage their patients. And it will require operational challenges—instituting new work streams, implementing new administrative and clinical support functions.
At a very high level, for providers with experience with risk sharing, that have access to capital, that have strong leadership, management, that have organized clinical care processes, and that have this ability to identify good clinical partners, and have the ability to lure good physician groups, and particularly specialty physicians—they are the ones that are going to be the winners here. Community or rural hospitals with potentially less resources and less volume or, as Brett mentioned earlier, hospitals which have little volume in particular service lines will face the bigger challenges under value-based care. So we will talk in a moment about the factors that can influence success, but turning to slide 20, briefly this shows you the applicable value-based care programs. We have really gone over these already, the one thing I will mention is that with respect to macra, I think that that’s really been a boost to hospitals in aligning the physician’s incentives with the hospital’s. So, hopefully that will help hospitals out. So let’s turn to slide 21 and talk about some of the factors that we feel influence success.
And first off, while it seems very basic and each of you have likely analyzed the financial risk and reward of each program, knowing the details of each program is important. The goals are all similar but the terms, the benchmarks, the requirements of each one vary; things like beneficiary alignment, the way the cost benchmark is established, the various risk sharing arrangements offered by the program, the payment mechanisms, and the cash flow possibilities will influence which program that you chose; and considering carefully whether your organization has the infrastructure and operational and administrative capacity to be successful on the various defined measures. Thinking about what the implementation will be and will entail is really the first step in being able to be successful. We have seen organizations participate unsuccessfully in some of these programs because they either can’t report sufficiently or they can’t perform under the applicable cost benchmarks.
As Brett mentioned, value-based care programs also require an understanding of the associated regulatory challenges. The most successful of our clients get upfront with this. The initiatives can require collective risk bearing and providers need to be familiar with what the state insurance laws provide, and the possibility of having to put up financial reserves for the particular payment model. State insurance laws may view risk bearing organizations as performing traditional or quasi insurance function. Some states view the licensed insurer entity as primarily responsible for the care of the individuals and that poses minimal or no limitation on providers that are looking to assume downside risk for members. But the legal treatment of these risk bearing organizations vary widely from state to state. As Brett mentioned, no two states seem to do it the same way. And then there are other state specific considerations including state licensure and approvals, corporate practice of medicine issues and the prohibition of fee splitting. We know that improving quality, reducing cost growth, and being able to measure performance is all critical to success. These are all operational aspects, but in the next three slides, I thought I would go through and just address some of the factors that we have seen contributing to success in these areas.
So let’s turn to slide 22. With respect to improving quality, here, though obvious, minimizing complications through understanding patient comorbidities, having standard clinical processes in place before, during, and after a hospital intervention, is really a foundational factor in leading to better quality. And hospitals and health systems that do this well through clearly defined processes and with disease specific specialists will do better under value-based care. As we head toward more and more bundled payments and episode payments, payments for complications and things like outlier payments are going to go by the wayside and those providers that are able to achieve better quality in the hospital are going to see payment results.
Another factor is training on and requiring adherence to standard clinical care guidelines and protocols that are consistent with quality measures. Again this is a means of minimizing complications and ensuring that the quality metrics on which you are measured are achieved. Optimizing clinical coordination and documentation: this is an area we have seen the copy and paste function in the EMR junking up the medical record with so much extraneous and irrelevant information that critical information can be overlooked. Clients have reported that streamlining it has improved quality by making obvious relevant clinical results and observations easily viewable. In addition, these value-based programs are going to continue to add quality and performance measures, ever-increasing the amount of data to be reported. Clinician involvement in understanding the documentation requirements, including specificity of use diagnostic information to various illnesses, documenting the metrics on which the hospital is measured, will lead to providers being paid for the quality that they are providing. Working this into the physicians’ contracts to provide for accountability is also critical.
Most importantly, discharge care management seems to be a very significant factor in improving quality, and it’s really what’s behind the whole value-based care. Understanding the patient’s post hospital needs, including behavioral health needs or physical therapy needs. The availability of support for patients at home and access to PCPs post discharge is necessary. We have seen most success in managing quality outcomes with hospitals that have very sophisticated discharge care management that have hired additional SPEs to work with a patient and the patient’s family to determine the best and least costly post hospital situation. This can involve scouting out, and partnering with, the best institutional or home health care providers—finding those that provide the best quality care and do so most efficiently. Some hospitals and health systems have acquired such hospital care entities, but others have decided just to establish relationships with those who they feel provide the best quality care. So doing that upfront work to identify who your partners are going to be, building relationships, even providing training in those places to ensure that the post acute providers and clinicians are really following appropriate clinical protocols, like for identification of ulcers or infections, that they are notifying patient PCPs when appropriate. But overall, they are minimizing the need for hospital readmission, minimizing any complications. And hand in hand with this is really being able to track the quality of care that is provided at the partners. In addition, developing relationships with outpatient therapy providers. I mentioned at the outset, but would even include nutritional counselors, is really important in ensuring patient health.
Another significant factor is managing the post-acute care of at-risk patients who return home. John mentioned Cornerstone’s very sophisticated process for this. We are aware of providers who have hired staff to manage the post-acute care follow-up with patients and ensure that they fill their prescriptions, that their chronic conditions are being managed, that they have the support that they need; that they are following-up with PCPs or clinics and, as John mentioned, developing creative solutions to make it such that they can. And interestingly, the recognition of post-discharge follow-up as a very important factor to value-based care is evident in Medicare’s next generation ACO, which provides a home visit waiver, which allows certain licensed clinicians to make a minimal number of patient home visits.
So let’s turn to slide 23 and talk a little bit about the factors that reduce cost. Most critically, understanding the cost and the opportunities to reduce cost, and this is really going to a very well developed data infrastructure including sophisticated health information technology agreements to be able to access and secure data from your partners. Good clinician contracts that provide accountability for quality and cost—I mentioned that a moment ago—this is obviously very important to align the interest of your physician partners. And also being able to measure that—we have clients that had great contracts but couldn’t effectively measure the physician satisfaction of those metrics. Again, sophisticated discharge care management—we talked about that briefly; but of course that is a huge component of reducing cost growth and reducing hospital readmissions. And again, aligning with the right partners and through the right arrangements is a major factor. We discussed that as well, clearly there are many choices of post-discharge settings for a patient; our most successful clients have really sophisticated nurses working to do the discharge planning and to try to ensure which setting is most appropriate, which setting can provide the best care at the lowest cost. And having done that upfront work to source out who are those providers and developing sufficient relationships to be able to get access to them.
So turning to slide 24, another factor obviously that influences success is your ability to measure performance. And here, I would just say understanding program measurement, the metrics on which you scored and the inputs into that measurement, if you have employed physicians, for example, with MIPS, physicians reporting quality data are compared with their national peers; the MIPS scoring program is actually quite complicated and knowing what measures to report on and what reporting submission method—whether its by a paper claim, the electronic health record, through a registry—this can determine your physician’s success rate in obtaining incentive payments.
Likewise with ACOs; the benchmark costs—and understanding those costs—is important. One of the new ACO models, for example, has adjusted its cost benchmarking feature. So that when providers are compared against external benchmarks, they are now measured by the cost and care performance of their peers in the counties where their patients live, rather than nation-wide cross data. And so, for hospitals that are in urban, high-cost areas this feature can make this program very attractive. And of course having the infrastructure to capture, track and report the data is obviously very important.
Let’s turn to slide 25, because beyond these administrative and operational factors, there are legal and business factors that lead to success. Access to counsel of course is helpful. These value-based care programs, as you know, are complicated. Many of them are increasingly requiring considerable financial risk sharing; we talked about the need to understand the state rules regarding risk bearing and financial guarantees; developing an appropriate legal structure for partners, whether it be joint venture arrangements, loose affiliations, some sort of partnership. It requires consideration of the availability of fraud and abuse waivers or other payment rule waivers. The next generation ACO, for example, waives the three-day stay required for skilled nursing facility visits; it expands telehealth coverage and it changes the supervision requirements for home health visits.
Value-based care programs also require development and submission of implementation plans. Value-based care success also rests on well-structured participation and distribution agreements, aligning the interest of physicians and other providers with yours. We’ve mentioned that we have also talked at length about network development capacity in the ability to identify and develop a really good and diverse network of care providers. Access to capital, developing favorable funding agreements is necessary to really develop the infrastructure. And finally, experience with risk management is an element of success and good reason to continue to developing many of the administrative and operational and other processes that we discussed today, and further shifting from fee for service payment to risk-based payment arrangements.
Now I’m just going to turn it back to Brett.
Brett: Yeah, I think we are just about out of time, so we will give very short shift to ASC and post-acute, which I don’t think is actually necessary given some of the factors that you described—especially as it focused on the post acute care sector and the importance of discharge.
I’ll make two points for each and then move quickly to John to close. For ASCs I think the salient takeaways are there aren’t any specific VBC arrangements despite the promise in the ACA that’s applied to ASCs, but what’s important to note for them is: one, they have operated on a composite rate since the change in the OPPS rule I think back in 2008. And so they are used to being on bundles; they sort of always operate bundles, so they are very good at traditionally high volume, low cost procedures which make them an attractive partner in many types of value-based payment arrangements, but because there is no program that is specifically directly at the ASC other than some limited quality reporting, that its really up to the ASC to determine the sandbox it’s going to play in. So being selective, knowing when to partner with hospitals versus ACOs and which model is going to be the critical determination factor for the ASCs so they get the biggest reward for the quality of care and volume that they provide in the procedures that they are equipped to provide.
And then the point to make on post acute is one that SNFs, I think under any model, are going to be squeezed; a SNF being a more expensive post acute care option than intensive home care is going to make it quite difficult; and as Deb mentioned, given the Medicare three-day rule and the potential for waivers under BPCI and Next-gen, if you don’t have that SNF waiver, there is not going to be a potential for an appropriate diversion from a post discharge home care setting into a SNF setting without running through the inpatient division, which is going to be a readmission and penalize you. So knowing that you have those waivers in place, especially if you are a SNF partner within a value-based payment program, is going to be a critical determination to make that sure you relevance is not marginalized.
And then on the home care side of it, traditionally homecare has been fragmented, but homecare agencies have done a very good job taking advantage of certain BPCI and case rate payments to move away from the encounter-based fee for service methodology they traditionally use, to one that looks at the holistic post-discharge setting at 120-day interval, and really being able to effectively manage the post-acute care and prevent readmission. The real benefit and the sales pitch for a home care agency in the post-acute market is their frequency of contact and their ability to real time monitor through technologies. So if you are measuring persistence and compliance of medication or wound care or whatever the features you are managing, and you are able to very discretely track changes in care delivery and report them to the essential care management function, that’s an effective way to divert the patient away from an acute care or inpatient hospitalization episode and prevent the readmission. And so the homecare agency and the frequency of patient contact has the ability to really make the homecare agency valuable; and so what we are seeing, and to very quickly jump to slide 35, in terms of the factors that influence success is again technology that allows real-time data monitoring, consideration of horizontal integration to increase scale within the home health care or vertical integration, we’re seeing hospitals spinning off their home care or acquiring new home care. And to determine whether the frequency of post-acute care contacts have the appropriate influence on preventing the hospital readmission, which is the death knell in most of these payment models.
And then the last point I want to mention just before we close a little bit over time is PACE programs and I-SNPs, institutional special needs plans, have been a huge area of transactional growth, because to the extent that these two programs, and they are slightly different, provide an ability for the post acute care provider, whether the skilled nursing facility or the home care agency, to take full risk for the health care services that the institutionalized person receives through the spectrum and makes it a very valuable option because it recognizes the fact that the home care agency can have a significant influence on the down stream health care utilization by providing effective long-term institutional care that closely monitors the patient’s condition and prevents an escalation in conditions So with that I’ll kick it back to John to close and provide the CLE information I’m sure you are anxiously awaiting.
John: Thank you all. Thanks to our associates Jessica Alam, Josiah Irvin and Sam Perrone for their assistance to us in preparing this. Please come to our next teleconference in this series, Medical Devices, April 27th. Thank you all. Great that you could join us. Take care. Bye bye.