23 rd Annual Health Sciences Tax Conference

Transcription

1 23 rd Annual Health Sciences Tax Conference December 9, 2013

2 Disclaimer This content is for educational and discussion purposes only, and is not intended, and should not be relied upon, as accounting advice. Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Page 2

3 Disclaimer EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Ernst & Young LLP is a clientserving member firm of Ernst & Young Global Limited operating in the US. For more information about our organization, please visit ey.com. This presentation is 2013 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young LLP expressly disclaims any liability in connection with use of this presentation or its contents by any third party. Views expressed in this presentation are not necessarily those of Ernst & Young LLP. Page 3

4 Presenters David Ingber Vice President Finance, Accounting and Financial Reporting Montefiore Medical Center New York, NY Amy Dosik Ernst & Young LLP 55 Ivan Allen Jr. Blvd. Suite 1000 Atlanta, GA Lucille White Ernst & Young LLP 155 North Wacker Drive Chicago, IL Debi Heiskala Ernst & Young LLP 4370 La Jolla Village Drive Suite 500 San Diego, CA Page 4

5 Agenda Accountable care (ACOs): an overview Feedback on early adopters of ACO models Tax considerations for exempt participants in ACOs Case study: Montefiore Pioneer ACO Page 5

6 ACOs: an overview Page 6

7 ACOs Introduction The concept of ACOs is evolving to address the inefficiencies in health care systems and to provide highquality care at reduced costs. Definition An ACO is a local health care organization and a related set of providers, including primary care physicians, specialists and hospitals, that work together to provide evidence-based care to patients in a coordinated model. The group of providers are held accountable for the cost and quality of care delivered to a defined population. Composition An ideal ACO model will include: Patient-centered health homes that deliver primary care and coordinate with other providers as patients move across the delivery system Aligned networks of specialists, ancillary providers and hospitals that are focused on improving outcomes Care integration and coordination mechanisms that bridge the gaps in a fragmented delivery system Payer/provider partnerships and reimbursement models that facilitate and reward high-value, not high-volume, health care Population health information infrastructure, including electronic medical/health records (EMRs/EHRs) to enable community-wide care coordination efforts Page 7

8 ACOs An answer to the conflicts in a health care system? Due to the involvement of several stakeholders in a health care delivery system with divergent aims and objectives, there is an urgent need for a mechanism to drive integration and coordination. A fragmented health care system Government payers Health plans Hospitals Other providers Primary care Acute care Employers Alternative medicine Specialists Pharmaceutical manufacturers Pharmacy Page 8

9 A sustainable care delivery system needs to invert resource allocation Effective primary care is a prerequisite to enhanced access and affordable care to the masses. This requires the intensive funding of prevention activities and robust primary care resource allocation. Primary care Primary care Specialty care Specialty care The need for a transformation Acute care Acute care Existing resource allocation Required resource allocation Such measures are expected to set the pace for process-level multiple changes that would facilitate the successful implementation of a sustainable health care delivery system. Page 9

10 Setting a change platform for effective care coordination ACOs and payment reform appear to be much-needed components of change for effective care delivery. Disintegration Integration Uninsured population Insured population Fee for service Payment reform Uncoordinated providers ACOs Behavioral health discrete from health care Behavioral health integrated with health care Page 10

11 ACOs An approach toward sustainable funding It is believed that the current fee-for-service (FFS) model creates modes of incentives that lead to unsustainable spending, inefficiency, misuse of services and poor care coordination. ACOs are expected to transform health care delivery to address these concerns. ACOs are a group of providers physicians, hospitals or other providers that together provide care and share accountability for the cost and quality of care for a population of patients. Integration of a diversified health care system Aligned together to improve patient outcomes and reduce costs ACOs Page 11

12 ACOs Operating model A patient-centered approach with similar aims/incentives to all the stakeholders ACO leadership Population health data management Specialist physician Postacute care Health home Patients Ancillary providers Home care Hospitals Public health agency Long-term care Pharmacy Page 12

13 ACOs Key elements and characteristics ACOs have quality-driven structural elements duly supported by payment principles. Structural Payment Provide accessible, effective and team-based primary care Validate clinical measures to improve patient outcomes Payment models to confirm accountability by transparency and focus on disease prevention and coordination Incentives for patients engaged in their own health and wellness Sufficient patients to ensure overall improvement in the quality of care Primary Care Physicians (PCPs) and sub-specialists given the option to participate in multiple ACOs Payment changes to evolve in line with changes in health care and information systems Participant support for innovation to provide increased value to patients Voluntary physician and patient participation Clinically integrated information systems to assist in care coordination Primary care practices designated as patient-centered medical home (PCMH) and ACO-eligible for payments in both models Spending and quality benchmarks defined and agreed to by participants Partnership between physicians and participants to be led by physicians Monitoring the entire ACO system Recognition and rewards based on absolute standards, relative performance and improvement Page 13

14 Barriers to implementing ACOs Leadership, knowledge and management: the key Conflicting methods for defining ACOs, setting outcomes and spending benchmarks pose a major challenge to the successful implementation of ACOs. Barriers to the implementation of ACOs Text Setting spending benchmarks Care coordination Limited leadership, knowledge and management skills Lack of technical knowledge and trust by providers Acceptability for the changes in trend among payers Tracking performance Approaches to barriers Establish technical programs supporting the implementation of ACOs and the consistent monitoring of performance Introduce standardized tools for setting benchmarks and technical assistance to providers and payers regarding ACO features Develop educational and technical support programs to assist ACOs in specific quality-improvement activities Conduct regular quality and cost reporting to confirm that collaborations are improving on efficiency Develop trust among stakeholders and encourage more efficient utilization to reduce overall spending Page 14

15 Advantages of accountable care ACOs help deliver quality health care at reduced costs ACOs are expected to deliver advantages on all major parameters, from clinical care to financials. Financial High patient margins Medicare-shared savings Payer-incentive payments Clinical-financial alignment Clinical care High quality of care Patient-centered delivery Hospital-physician integration Positive quality reporting Benefits of accountable care Improved quality of care Superior patient outcomes High patient satisfaction Positive patient experience Strong market position Better payer bargaining Strong physician alignment Capacity realignment Patient experience Competitive advantage Page 15

16 Payment models Evolving to achieve flexibility to deliver high-quality services FFS pays based on care, and so it alone pays more for more care, which is the opposite of what ACOs try to accomplish. A single amount is paid for services provided to a patient during a single episode of care, rather than making either a single payment for all care during a year or separate payments for each individual service. This gives providers the incentive to coordinate activities, eliminate unnecessary services and avoid complications. A single price is paid for all health care services needed by the people, provided cared for by the ACO for a fixed period of time, with the amount of the payment adjusted based on the types and severity of the conditions and quality of care. FFS FFS plus shared savings Episode payment Partial comprehensive payment Comprehensive care (global) payment Capitation Bonuses/shared savings in addition to FFS provides efficient and quality care by making providers accountable for the type of care provided. ACO receives a single payment to cover all the costs associated with ambulatory care services, but not for inpatient services. This is a non-risk-adjusted payment system in which payers give health care providers a fixed amount of money for every patient, regardless of how healthy or sick each patient is. The risk is transferred to the providers in this system. Page 16

17 Models of delivery systems posing as potential ACOs Integrated delivery systems Characteristics Has own hospitals, physician practices and insurance plans Aligns financial incentives Utilizes e-health records, team-based care Physician hospital Characteristics Uses nonemployee medical staff Contracts with multiple health plans Reorganizes care delivery for cost effectiveness Potential ACOs Multi-specialty group practices Characteristics Usually own or have strong affiliation with a hospital Contract with multiple health plans Provide mechanisms for coordinated clinical care Independent practice associations Characteristics Independent physician practices that jointly contract with health plans Entities are active in practice redesign, quality improvement Virtual physician Characteristics Small, independent physician practices, often in rural areas Structure that provides leadership, infrastructure, resources to help coordinated care Page 17

18 CMS accountable care initiatives Current Centers for Medicare & Medicaid Services (CMS) accountable care initiatives Medicare Shared Savings Program (MSSP) Financial incentives to reduce costs and improve quality for a group of Medicare patients Pioneer ACO program Varying degrees of risk and reward for participants Bundled payments for care improvement Flat, all-inclusive rate for an episode of care (e.g., hip replacement) Partnership for Patients initiative: better care, lower cost Testing care models focused on reducing hospitalacquired conditions Page 18

19 Feedback on early adopters of ACO models Page 19

20 Feedback on early adopters of ACO models More than 250 ACOs have contracted with CMS to cover more than four million Medicare beneficiaries as of January State Medicaid programs are implementing, or exploring implementing, ACO-like models, including three-way contracts for dual-eligible beneficiaries (e.g., Medicare and Medicaid). The number of private sector ACO arrangements is unknown and they may involve a health system s own employees, commercial health plans or some combination of arrangements. Source: S. Silow-Carroll and J.N. Edwards, Early Adopters of the Accountable Care Model: A Field Report on Improvements in Health Care Delivery, The Commonwealth Fund, March Page 20

21 Feedback on early adopters of ACO models 32 ACOs across the US originally participated in the Pioneer ACO Model. First year gross savings were $87.6m in All of them performed better than traditional FFS Medicare in 15 quality measures. Only 13 saved enough money to share those savings with Medicare. After 18 months, 2 dropped out and 7 switched to Medicare Shared Savings Program models, where the downside risk is less. The two that dropped out ended up owing $4m to Medicare. Source: 16.html. Page 21

22 Feedback on early adopters of ACO models 106 ACOs are now participating in the Medicare Shared Savings Program (MSSP) Model. 35 ACOs are now participating in the Advanced Payment Model. First-year results from the MSSP Model and Advanced Payment Model ACOs are not yet available. Source: 16.html. Page 22

23 Feedback on early adopters of ACO models Overall, the Medicare Trustees Report found that growth in Medicare spending has slowed and is projected to continue growing slowly over the next several years. From 2010 to 2012, Medicare spending per beneficiary grew at 1.7% annually, more slowly than the average rate of growth in the Consumer Price Index, and substantially more slowly than the per capita rate of growth in the economy. In 2012, readmissions for Medicare patients dropped significantly, with an estimated 70,000 readmissions avoided. There is a question of whether this trend is due to the new incentives for hospitals to keep patients well and avoid these costly events or is a function of the economy. Source: 16.html. Page 23

24 Tax considerations for exempt participants in ACOs Page 24

25 Choice of legal entity The Internal Revenue Service (IRS) and CMS do not dictate a particular structure. Single-member limited liability company (LLC) with exempt health system member Partnership with physician and exempt owners State law taxable nonprofit corporation Charitable organization under Internal Revenue Code (IRC) Section 501(c)(3) For-profit corporation Considerations Patient populations to be managed Control by physicians versus exempt (EOs) Shared savings distributions and other contracts Page 25

26 IRS guidance on Notice : general principles Participation in the MSSP through an ACO furthers taxexempt purposes by lessening the burdens of government. Control by EO partners is not required in order for an ACO that participates in the MSSP to further its charitable purposes. Shared savings income of EO participants from an ACO s participation in the MSSP will not be unrelated business income (UBI). Serving Medicaid or indigent populations through an ACO will further charitable purposes of relief for the poor and distressed. Page 26

27 IRS guidance on Notice : avoiding private benefit and private inurement The Notice identifies five factors to be considered: Terms of the EO s participation in the MSSP through the ACO must be set forth in advance in a written agreement negotiated at arm s length. The CMS has accepted the ACO into, and has not terminated the ACO from, the MSSP. The EO s share of economic benefits derived from the ACO is proportional to the benefits or contributions the EO provides to the ACO (including capital contributions). The EO s share of the ACO s losses does not exceed its share of the ACO s economic benefits. All contracts/transactions entered into by the EO with the ACO and the ACO s participants, and by the ACO with the ACO s participants and any other parties, are at fair market value. Page 27

28 Tax considerations for exempt participating in ACOs General principles applicable to other IRC Section 501(c)(3) apply to ACOs seeking tax exemption. Substantial nonexempt activities will jeopardize exemption UBI subject to taxation Services provided by an ACO to physicians/other taxable parties Services provided by exempt parent to a taxable ACO Section 512(b)(13) tax on interest, annuity, royalty or rent Prohibition on private benefit and private inurement Joint venture guidance in Rev. Ruls and Page 28

29 Case study: Montefiore Pioneer ACO Page 29

30 Questions? Page 30