September 16, The Honorable Pat Tiberi. Chairman

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1 1201 L Street, NW, Washington, DC T: F: September 16, 2016 The Honorable Kevin Brady The Honorable Ron Kind Chairman U.S. House of Representatives House Committee on Ways and Means 1502 Longworth House Office Building 1102 Longworth House Office Building Washington, D.C Washington, D.C The Honorable Pat Tiberi Chairman House Committee on Ways and Means Subcommittee on health 1203 Longworth House Office Building Washington, D.C Dear Chairman Brady, Rep. Kind, and Chairman Tiberi: On Behalf of the American Health Care Association (AHCA) and the nearly 10,000 skilled nursing centers represented by the association, we are appreciative of your continued leadership and innovation in modernizing post-acute care (PAC) payment systems. AHCA has been supportive of efforts to improve quality and utilize valuebased purchasing (VBP) as one approach to achieving better quality for the patients we serve. Already, AHCA worked with the Congress and the Committee on the Skilled Nursing Facility Hospital Readmission Reduction Program contained in the Protecting Access to Medicare Act (PAMA) of 2014 (P.L ). The recently implemented program establishes specific targets to further encourage nursing facilities to shift toward a value-based payment system, where providers are rewarded for highquality, low cost care. Furthermore, the Association has had a hospital readmission goal as part of its Quality Initiative for over three years and the most recent data shows that skilled nursing centers are markedly reducing re-hospitalization rates. We want to thank you and your staff for reaching out for comment on your recent efforts to implement VBP in the PAC setting, specifically H.R. 3298, the Medicare Post-Acute Care Value-Based Purchasing Act of While we are committed to advancing programs like this in Medicare, we unfortunately oppose the legislation in its current form. In October of last year, we presented changes to the original version of this bill that we would have liked to see made and while we appreciate the effort to offer revisions, the changes simply were too modest to warrant our full support. The American Health Care Association and National Center for Assisted Living (AHCA/NCAL) represent more than 12,000 nonprofit and proprietary skilled nursing centers, assisted living communities, sub-acute centers and homes for individuals with intellectual and developmental disabilities. By delivering solutions for quality care, AHCA/NCAL aims to improve the lives of the millions of frail, elderly and individuals with disabilities who receive long term or post-acute care in our member facilities each day.

2 As you modify H.R. 3298, we offer the following requested changes that we hope you will adopt as part any PAC VBP program. Should all these revisions be made, AHCA sees no reason that it could not support your legislation. If these changes are not made in full, however, we will oppose passage of this legislation. I. Reduce the payment withhold to 2%. We strongly urge you to align the withhold percentage with that of existing VBP programs. The current Hospital VBP program as well as the SNF program previously mentioned are both set at a 2 percent withhold and we believe it is fair that PAC providers be set at the same rate. Specifically, we ask the PAC VBP withhold percentage be as follows: *Year 1: 1% *Year 2: 1.25% *Year 3: 1.5% *Year 4: 1.75% *Year 5: 2% This phase-in schedule and capped withhold percentage is identical to the Hospital VBP program. Hospitals have more than one decade of experience reporting on quality measures to the Centers for Medicare & Medicaid Services (CMS) while both measures and reporting are very recent developments for the PAC sector highlighting the need for caution and a thoughtful approach when implementing these programs. The Skilled Nursing Facility (SNF) VBP system only began implementation this year and more than doubling the withhold before we can see the effects of the current program could be devastating to our members and that patients they serve. As you well know, the independent Medicare Payment Advisory Commission has concluded that SNF overall margins are a razor thin 1.9%. Any withhold above the current 2% would unnecessarily jeopardize needed resources to provide direct care. An argument has been made that hospitals have a total of 8% of their Medicare payments at risk due to four initiatives impacting hospital inpatient payments. We feel that this is an unfair comparison for a number of reasons. First, this 8% withhold does not apply to all hospital payments more than $40 billion of hospital outpatient payments in 2015 alone were exempt from this 8% withhold. Second, not all of this 8% is at risk. For example, if a hospital shows it meaningfully uses health information technology, the hospital is not as risk for that portion of the payment (2.025% in FY17). Third, many of these hospital payment programs were included as part of the agreement the industry made as part of the Affordable Care Act. Hospitals realized they would benefit from an increase in insured patients and a decrease in uncompensated care. As such, they could afford to put a portion of their Medicare payments at risk to help fund the Medicaid and Exchange coverage expansion. Lastly, it took years before 8% of inpatient payments were put at risk and was done only after years of experience reporting on quality measures and adjusting practice patterns were in place to account for such measures.

3 II. Make the PAC VBP program budget neutral. We believe any PAC VBP program should be budget neutral within each provider payment system exactly like the design of the Hospital VBP program. The current SNF VBP program is not budget neutral, as AHCA and its members brought a proposal to the Committee to reduce Medicare skilled nursing spending by $2 billion in order to help pay for the cost of a doc fix patch. However, a comprehensive, cross-setting VBP program should be. We appreciate the offer to pay for regulatory relief with savings from the incentive pool but such an effort warrants its own discussion separate from the implementation of a new VBP program. The best way to improve quality of care is to provide incentives to those providing the best care, which means reinvesting all withheld payments in the form of bonuses. The program should also be budget neutral across provider settings. The inherent goal of VBP programs is to compare peer providers and reward those that provide high quality care at a low cost. Depositing the savings into the Medicare Improvement Fund (MIF) is simply a different version of redistributing the incentive pool inefficiently across multiple settings. There are no assurances that the MIF money will be distributed proportionally or fairly; in fact, it would be nearly impossible to do so via regulatory relief. We also would urge you to create the program in a manner that allows all providers who achieve high quality to receive the full value based payment. A forced curve discourages providers from improving, particularly lower performing providers. At a minimum, the program should take into consideration not only a provider s performance, but also improvement over time. Otherwise poor performing providers will never be incentivized to improve due to their inability to qualify for any of the value payments. The revised legislation also removes the provision that guarantees providers are eligible to receive bonus payments for improving their quality scores. We would like to see this requirement be restored. Lastly, in holding with the preference toward payments and expenses being budget neutral across systems and settings, skilled nursing providers should not be held accountable for expenditures that occur during the acute care hospital stay that initiates the PAC episode. Initiation of PAC services should be the trigger of the episode for efficiency measurement purposes. CMS studies on VBP programs show that when providers are held accountable for expenditures that are not under their control, the program has little to no impact on changing providers practices. III. VBP scores should be focused on patient outcomes, not resource use. The mission of AHCA is to improve lives by delivering solutions for quality care. That being said, we believe this legislation remains overly focused on resource use while eschewing rigorous quality measurements. Our primary concern with the initial iteration of this bill was the lack of quality measurements, making it exclusively focused on cost-containment. While we appreciate the move toward

4 more quality measures, we believe adding only a functional status measure does not do enough to address our initial concerns. We strongly urge you to include a narrow set of meaningful outcomes measures validated for each PAC setting as a key determinant of a given reward. The Hospital VBP includes 17 measures: 8 process, 7 outcomes, 1 satisfaction, and 1 resource use. We ask that the PAC VBP program be structured in a similar way. We would recommend using measures that are not only associated with better quality but also are associated with lower health care costs. The skilled nursing sector has led the PAC community in these efforts. For example, re-hospitalization and ER use are major drivers of overall hospital costs. The VBP program should be based on re-hospitalization and ER use, which would stimulate both better outcomes for individuals and lower health care costs. Many of the measures included in the Improving Medicare Post-Acute Care Transformation (IMPACT) Act of 2014 fall into this category (e.g. improvement in outcomes and lowers health care expenditures). Other measures to consider would include discharge back to the community, medication reconciliation and review, and functional improvement (as function is one of strongest predictors of resource utilization among the elderly). This would also align the PAC VBP program within the IMPACT Act legislation we strongly supported. We urge you to condition no more than 10% of a provider s score on its resource use and preferably less, even if that means delaying implementation of PAC VBP until the outcomes measures called for by the IMPACT Act are finalized. IV. Remove geographic resource use comparison. We recommend that you remove the geographic comparison component, which we believe unfairly penalizes providers based on geographic factors outside of any one facility s control. Geographic measures that compare PAC providers across all settings do not take into account the mix of the providers or population characteristics in any given setting. Providers should not be punished for providing needed care to Medicare beneficiaries in areas with high labor and property costs. Additionally, low-cost providers in settings that are reimbursed at a higher average rate, even if they continue to provide high quality care for a comparatively lower cost, will be punished based on their proximity to high-cost neighbors. A low-cost, high-quality SNF operating in an area with highlyreimbursed settings such as long-term care hospitals (LTCH) or inpatient rehabilitation facilities (IRF) would be unfairly punished compared to the exact same SNF operating in an area with fewer LTCHs and IRFs and lower reimbursed providers, such as home health agencies. This geographic component runs counter to the inherent goal of VBP, which is to compare providers to their peers and reimburse based on low-cost, high quality care alone, not provider mix in a given area. The Institute of Medicine recently published a report on the geographic comparisons and ultimately recommended that Congress not use a geographically-

5 based resource use index, saying that it would unfairly reward low-value providers in high-value regions and punish high-value providers in low-value regions. We believe their conclusions depict an accurate version of what these comparisons would do to a multi-setting PAC VBP program. We believe the changes outlined above would change the bill for the better and would create a palatable VBP program for skilled nursing providers. We appreciate your request for feedback and urge you to adopt our proposed modifications to H.R We believe the SNF VBP program included in PAMA was a move in the right direction and reflects our willingness to move these types of programs forward. Bringing all PAC providers into a value-based system, if designed fairly and in accordance with the changes outlined above, is a laudable goal. AHCA remains committed to working with the Committee to develop a fair, sustainable and outcome driven VBP system. Sincerely, Clifton J. Porter, II, LNHA Senior Vice President, Government Relations American Health Care Association

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