Reforming and restructuring
the health care delivery system
Are Accountable Care Organizations and bundling the solution?
Prepared by:
Dan Head, Principal, RSM US LLP dan.head@rsmus.com, +1 703 336 6536
Larry Goldberg, National Health Care Policy Advisor, RSM US LLP April 2013
Our current health care system is predicated on what worked 50 years ago and on how we paid providers then. Congress and the president, through the Affordable Care Act (ACA), have potentially expanded health care insurance for an additional 30 million individuals who currently lack such coverage. However, the federal government cannot and will not directly dictate the workings of our health care system. Telling health care professionals to or for whom they must work, and how much they can earn, is simply unacceptable.
The ACA, in addition to expanding health care benefits, continues to make traditional
reimbursement reductions to provider payments but does little to make fundamental system reform. However, the ACA has set in place two interesting concepts that could make fundamental system reform—Accountable Care Organizations (ACOs) and bundling.
The challenges
There is no doubt that significant changes are underway. First, reimbursement changes are forcing providers to compete over controlled reimbursement payments for their services. Second, physicians are seeking alternatives in practicing; and third, post-acute care providers, many established as a direct result of Medicare’s prospective payment systems, may find they will lose more favorable reimbursements as Medicare seeks to no longer pay for services based on facility type, but pay at the lowest price irrespective of the location of a service.
A couple of recent examples of this include potential Medicare payments for physician evaluation and management codes based on physician office amounts when performed in a hospital outpatient setting, and paying for certain rehabilitation services at lower skilled nursing amounts. The question becomes how does an organization become more efficient and should it participate in system-changing experiments?
The cost driver
Presumptive of any managerial decisions to refine an organization’s services are potential cost— increases or savings. Perhaps this driver is the most misunderstood. Over the years, the concept of cost has been driven by old cost-based reimbursement principles that use charges to translate to costs. The concept of the ratio of Medicare charges as a percent of total charges applied to cost has survived. However, charges are distorted in that they have been used to maximize cost-based payments and frequently do not represent or reflect the cost of providing services.
The need to understand better cost data is essential. Without such data, endeavors to flirt with changes to payment and service arrangements are fraught with huge risks. The following two ACO concept models discussed briefly reflect enormous requirements to participate. As the health care system undergoes change such requirements as those presented in the ACA are likely to be repeated by all payers.
1. Accountable Care Organizations
The ACA section 3022 (Medicare Shared Savings Program) required that no later than Jan. 1, 2012, the secretary establish a shared savings program that promotes accountability for a patient population and coordinates items and services under Medicare parts A and B, and encourages investment in infrastructure and redesigned care processes for high-quality and efficient service delivery. ACOs that meet quality performance standards established by the secretary are eligible to receive payments for shared savings. The keys here are achieving, measuring and sharing in savings. [Note: The ACA refers to these programs as shared savings. ACOs are part of an overall shared savings concepts.]
What’s an ACO?
According to the Centers for Medicare and Medicaid (CMS), ACOs are groups of doctors, hospitals and other health care providers, who come together voluntarily to give coordinated high- quality care to their Medicare patients. The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors.
Medicare offers several ACO programs:
• Medicare Shared Savings Program – A program that helps Medicare fee-for-service program providers become an ACO (final rule at http://www.gpo.gov/fdsys/pkg/FR-2011-11-02/ pdf/2011-27461.pdf).
• Advanced Payment Initiative – A supplementary incentive program for selected participants in the Shared Savings Program (http://www.gpo.gov/fdsys/pkg/FR-2011-11-02/pdf/ 2011-27458.pdf).
• Pioneer ACO Model – A program designed for early adopters of coordinated care. The program is no longer accepting applications. Unlike the shared savings ACOs, Pioneer organizations are required to accept potential penalties in the second year of their contracts if they fail to slow health spending.
• Note: There are currently 220 organizations involved in the ACO effort, and 32 Pioneer accountable organizations.1
Participating in an ACO is purely voluntary for providers. CMS says it realizes different
organizations are at different stages in their ability to move toward an ACO model. Fee-for-service (FFS) Medicare patients who see providers that are participating in a Medicare ACO maintain all their Medicare rights, including the right to choose any doctors and providers who accept Medicare. Whether a provider chooses to participate in an ACO or not, their patients with Medicare may continue to see them.
The ACO rule
CMS issued final rules to implement ACA section 3022 Nov. 2, 2011. Under these provisions, providers of services and suppliers can continue to receive traditional Medicare FFS payments under Parts A and B, and be eligible for additional payments if they meet specified quality and savings requirements. The rule stipulates the following concepts and requirements.
Providers eligible to participate
Under the final rule, “a group of providers and suppliers of services agree to work together with the goal that patients get the right care at the right time in the right setting.” The final rule requires that each group of providers be held accountable for at least 5,000 beneficiaries annually for a period of three years. Each group must include health care providers and Medicare beneficiaries on its governing board.
CMS says all Medicare providers can participate in an ACO to coordinate care, but only certain types of providers are able to sponsor one. Sponsors include physicians in group practice arrangements, networks of individual practitioners, and hospitals that are partnering with or employ eligible physicians, nurse practitioners, physician assistants and specialists. To help providers serving rural and other underserved areas, the final rule allows Rural Health Clinics (RHCs) and Federally Qualified Health Centers (FQHCs) to work together to coordinate care for patients.
Measuring quality improvement
The rule will link the amount of shared savings an ACO may receive, and in certain instances, shared losses it may be accountable for, to its performance on:
• Quality standards on patient experience • Care coordination and patient safety • Preventive health
• At-risk populations
CMS notes that these standards will be measured in a way that accounts for providers who treat patients with more complex conditions. To earn shared savings the first performance year, providers must fully and accurately report across four domains of quality. Providers will begin to share in savings based on how they perform in the second and third performance years.
Sharing savings and sharing losses
CMS is implementing two models: a one-sided shared savings model, in which providers only share in savings; and a two-sided shared savings and losses model, in which providers also share in losses if growth in costs go up. The proposed rule required ACOs in the one-sided shared savings model to share losses in the third year of the agreement period. In response to comments, CMS has modified the proposal, and the final rule allows ACOs to participate under the one-sided shared savings-only model for the entire length of their first agreement period. ACOs may share up to 50 percent of the savings under the one-sided model and up to 60 percent of the savings under the two-sided model, depending on their quality performance.
CMS will develop a target level of spending for each ACO to determine its financial performance. Because health care spending for any group of patients normally varies from year to year, CMS will also establish a minimum savings and minimum loss rate that would account for these variations. Both shared savings and shared losses will be calculated on the total savings or losses, not just the amount by which the savings or losses exceed the minimum savings or loss rate. In addition, the amount of shared savings would depend on how well the team of providers performs on the quality measures specified in the rule.
Below is a CMS chart highlighting some of the key differences between the proposed and final rules.
PROPOSED RULE VS. FINAL RULE FOR ACOS IN MEDICARE SHARED SAVINGS PROGRAM
Topic Proposed rule Modifications in final rule
Transition to risk in Track 1 ACOs could choose from two tracks, each entailing a three-year agreement. Track 1 would comprise two years of one-sided shared savings with a mandatory transition in year three to performance-based risk under a twosided model of shared savings and losses. Track 2 would comprise three years all under the two-sided model.
Remove two-sided risk from Track 1. Two tracks would still be offered for ACOs at different levels of readiness, with one providing higher sharing rates for ACOs willing to also share in losses.
Prospective vs. retrospective Retrospective assignment based on utilization of primary care services, with prospective identification of a benchmark population.
A preliminary prospective-assignment method with beneficiaries identified quarterly; final reconciliation after each performance year based on patients served by the ACO. Proposed measures
to assess quality Sixty-five measures in five domains, including patient experience of care, utilization claims-based measures, and measures assessing process and outcomes.
Pay for full and accurate reporting first year, pay for performance in subsequent years.
Alignment of proposed measures with existing quality programs and private sector initiatives
Thirty-three measures in four domains. (Note: Claims-based measures not finalized to be used for ACOmonitoring purposes) Longer phase-in measures over course of agreement: First year, pay for reporting; second year and third year, pay for reporting and performance.
Finalize as proposed.
Sharing savings One-sided risk model: Sharing
beginning at savings of 2.0 percent, with some exceptions for small, physician-only and rural ACOs. Two-sided risk model: Sharing from first dollar.
Sharing beneficiary ID claims data Claims data shared only for patients seen by ACO primary care physician during performance year; beneficiaries given
opportunity to decline at the point of care.
The ACO may contact beneficiaries from provided quarterly lists to notify them of data sharing and opportunity to decline.
Eligible entities The four groups specified by the ACA, as well as critical access hospitals paid through Method II, are eligible to form an ACO. ACOs can be established with broad collaboration beyond these providers.
In addition to groups included in the proposed rule, FQHCs and RHCs are also eligible to both form and participate in an ACO. In order for beneficiaries to be assigned on the basis of utilization of primary care services, these organizations must provide a list of practitioners who directly render primary care services in their facilities.
Start date Agreement for three years
with uniform annual start date; performance years based on calendar years.
Program established by Jan. 1, 2012; first round of applications are due in early 2012. First ACO agreements start April 1, 2012 and July 1, 2012. ACOs will have agreements with a first performance year of 18 or 21 months. ACOs starting April 1, 2012 and July 1, 2012 have option for an interim payment if they report CY 2012 quality measures. ACO must report quality
measures for CY 2013 to qualify for first-performance-year shared savings.
Aggregate reports
and preliminary prospective list Reports will be provided at the beginning of each performance year and include: name, date of birth, sex and health insurance claim number.
Additional reports will be provided quarterly.
Electronic health record (EHR) use Aligning ACO requirements with EHR requirements, 50 percent of primary care physicians must be defined as meaningful users by start of second performance year.
No longer a condition of participation. Retained EHR as quality measure but weighted higher than any other measure for quality-scoring purposes. Assignment process One-step assignment process:
beneficiaries assigned on the basis of a plurality of allowed charges for primary care services rendered by primary care physicians (internal medicine, general practice, family practice and geriatric medicine).
Two-step assignment process: • Step 1: For beneficiaries who
have received at least one primary care service from a physician, use plurality of allowed charges for primary care services rendered by primary care physicians. • Step 2: For beneficiaries who
have not received any primary care services from a primary care physician, use plurality of allowed charges for primary care services rendered by any other ACO professional. Marketing guidelines All marketing materials must be
Comment
While the ACO program has been launched, its requirements and data aspects are significant. The issue becomes what will results produce that could affect all providers and what actions should you be taking now in anticipation of potential changes?
2. Bundling
ACA section 3023 establishes a National Pilot Program on Payment Bundling and requires the secretary to establish a pilot program for integrated care during an episode of care provided to an applicable beneficiary around a hospitalization in order to improve the coordination, quality and efficiency of health care services. Unlike the ACO requirement, the bundling amendment is a pilot program and its final results regarding adoption are still questionable. Nonetheless, many past pilot demonstrations have been adopted.
The CMS and the CMS Innovation Center invited providers to apply to help test and develop four different models of bundling payments. A Federal Register notice announcing a request for applications for acute care and associated post-acute care, using both retrospective and prospective bundled payment methods was published in the Aug. 25, 2011 Federal Register
http://www.gpo.gov/fdsys/pkg/FR-2011-08-25/pdf/2011-21707.pdf. The models to be tested are as follows:
• Model 1: Retrospective payment models around the acute inpatient hospital stay only. • Model 2: Retrospective bundled payment models for hospitals, physicians and post-acute
providers for an episode of care consisting of an inpatient hospital stay followed by post-acute care.
• Model 3: Retrospective bundled payment models for post-acute care where the episode does not include the acute inpatient hospital stay.
• Model 4: Prospectively administered bundled payment models for the acute inpatient hospital stay only, such as prospective bundled payment for hospitals and physicians for an inpatient hospital stay.
In the retrospective models, CMS and providers would set a target payment amount for a defined episode of care. Applicants would propose the target price, which would be set by applying a discount to total costs for a similar episode of care as determined from historical data. Participants in these models would be paid for their services under the original Medicare FFS system, but at a negotiated discount. At the end of the episode, the total payments would be compared with the target price. Participating providers may then be able to share in those savings.
In both Models 2 and 3, the bundle would include physicians’ services, care by a post-acute provider, related readmissions, and other services proposed in the episode definition such as clinical laboratory services; durable medical equipment, prosthetics, orthotics and supplies; and Part B drugs. The target price will be discounted from an amount based on the applicant’s historical fee-for-service payments for the episode. Payments will be made at the usual fee-for-service payment rates, after which the aggregate Medicare payment for the episode will be reconciled against the target price. Any reduction in expenditures beyond the discount reflected in the target price will be paid to the participants to share among the participating providers.
Feature Model 1 Inpatient stay only
Model 2
Inpatient stay plus post-discharge services Model 3 Post-discharge services only Model 4 Inpatient stay only
Eligible awardees • Physician group practices • Acute care
hospitals paid under the IPPS • Health systems • Physician-hospital organizations • Conveners of participating health care providers • Physician group practices • Acute care hospitals paid under the IPPS • Health systems • Physician-hospital organizations • Post-acute providers • Conveners of participating health care providers • Physician group practices • Acute care hospitals paid under the IPPS, health systems, long-term care hospitals • Inpatient rehabilitation facilities • Skilled nursing facilities • Home health agency • Physician-hospital organizations • Conveners of participating health care providers • Physician group practice • Acute care hospitals paid under the IPPS • Health systems • Physician-hospital organizations • Conveners of participating health care providers Payment of bundle
and target price Discounted IPPS payment; no separate target price Retrospective comparison of target price and actual FFS payments Retrospective comparison of target price and actual FFS payments Prospectively set payment Clinical conditions
targeted All MS-DRGs Applicants to propose based on MS-DRG for inpatient hospital stay Applicants to propose based on MS-DRG for inpatient hospital stay Applicants to propose based on MS-DRG for inpatient hospital stay Types of services
included in bundle Inpatient hospital services • Inpatient hospital and physician services • Related post-acute care services • Related readmissions • Other services defined in the bundle • Post-acute care services • Related readmissions • Other services defined in the bundle • Inpatient hospital and physician services • Related readmissions Expected discount provided to Medicare To be proposed by applicant; CMS requires minimum discounts increasing from 0 percent in first six months to 2 percent in year three To be proposed by applicant; CMS requires minimum discount of 3 percent for 30-89 days postdischarge episode; 2 percent for 90 days or longer episode To be proposed
Payment from CMS
to providers Acute care hospital: IPPS payment less pre-determined discount Physician: Traditional fee schedule payment (not included in episode or subject to discount) Traditional fee-for-service payment to all providers and suppliers, subject to reconciliation with predetermined target price Traditional fee-forservice payment to all providers and suppliers, subject to reconciliation with predetermined target price Prospectively established bundled payment to admitting hospital; hospitals distribute payments from bundled payment
Quality measures All hospital IQR measures and additional measures to be proposed by applicants
To be proposed by applicants, but CMS will ultimately establish a standardized set of measures that will be aligned to the greatest extent possible with measures in other CMS programs
Gainsharing
In addition to streamlining care through the use of bundles, the proposals for this initiative may include gainsharing arrangements. Gainsharing refers to payments that may be made by hospitals and other providers to physicians and other practitioners as a result of collaborative efforts to improve quality and efficiency. These payments can further align incentives for health care providers to coordinate care, improve quality and efficiency of care, and partner in the improvement of care delivery.
Letter of intent
Interested organizations had to submit a nonbinding letter of intent by Sept. 22, 2011 for Model 1 and Nov. 4, 2011 for Models 2-4 as described in the Bundled Payments for Care Improvement initiative RFA. For applicants wishing to receive historical Medicare claims data in preparation for Models 2-4, a separate research request packet and data use agreement had to be filed in conjunction with the letter of intent. Final applications must have been received on or before Oct. 21, 2011 for Model 1 and March 15, 2012 for Models 2-4. Some of these initial requirements have been refined since their publication dates.
Conclusion
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