Managing Healthcare Payment Opportunity Fundamentals CENTER FOR INDUSTRY TRANSFORMATION

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Sarah Flowers
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1 Managing Healthcare Payment Opportunity Fundamentals

2 dhgllp.com/healthcare 4510 Cox Road, Suite 200 Glen Allen, VA Melinda Hancock PARTNER Michael Strilesky SENIOR MANAGER

Executive Summary As hospitals assess financial strategies and options to increase existing revenue or decrease costs to meet the value expectations of the reform era, there are four foundational

3 Executive Summary As hospitals assess financial strategies and options to increase existing revenue or decrease costs to meet the value expectations of the reform era, there are four foundational indicators that help predict the likelihood of future success. This article discusses these four indicators: 1) Value Based Purchasing 2) Readmission Reduction Program 3) Hospital Acquired Conditions 4) Physician/Hospital Alignment The first three indicators relate to how well hospitals understand and manage mandatory payment programs under the Affordable Care Act. Three programs - Value Based Purchasing ( VBP ), Readmission Reduction Program ( RRP ) and Hospital Acquired Conditions ( HAC ) - form a trio of indicators that incentivize hospitals to manage processes and outcomes in order to avoid penalties and maximize reimbursement. Failure to effectively manage these programs puts increasing levels of inpatient Medicare reimbursement at risk due to shifting annual performance thresholds. Hospitals should avoid managing to current year reimbursement expectations, but rather stay at least two years ahead of the current federal fiscal year in order to maximize reimbursement in future years. The fourth indicator relates to how effective the hospital is at engaging its physicians to understand these programs and assist the hospital with quality and cost saving initiatives. Softening inpatient demand requires hospitals to maximize fixed asset use while eliminating waste and unnecessary system costs. Actively engaged physicians can contribute meaningfully to these efforts. Hospital leadership, with physician support, must be able to perform effectively in order to move up the hierarchy of risk tactics as illustrated below: HIERARCHY OF RISK TACTICS Population Health Management with global risk or limited risk corridors, Global budgeting, Single Payer Bundled Payments, Shared Decision Making Shared Savings Programs, Payment for Coordination, Medical Home Value Based Purchasing, Readmission Reduction Program, Hospital Acquired Conditions, Physician/ Hospital Alignment Hierarchy of Risk foundational, entry-level advanced Effectively managing the mandatory programs will require foundational Risk Capable competencies to include business analytics, clinical integration and revenue capture structured to maximize hospital financial performance. These competencies must be in place before an organization can successfully advance along the hierarchy of risk to more sophisticated contracting models. page 3

4 Medicare Reimbursement Programs The amount of Medicare inpatient reimbursement at risk will continue to increase annually with financial risk beginning in Five and a half percent of Medicare inpatient reimbursement will be at risk for VBP, RRP and HAC in 2015, and will increase to six percent in Related Medicare payment reductions for sequestration, productivity, coding and market basket updates put tremendous pressure on hospitals to reduce current spending levels. However, the pressure doesn t end there. Financial risk is one consideration, but performance risk, or how much a provider s Medicare revenue is at risk at any given time is even more important. Focus on both performance risk and financial risk is critical given that providers are within multiple performance periods at the same time. Mandatory performance periods overlap each other causing potential for lost reimbursement in years prior to the fully impacted reimbursement year. The DHG Healthcare Performance Period Tracking Tool shown below illustrates the financial risk in fiscal years based on current regulations and performance in 2013 and The vertical line, in this case May 8, 2014, intersects with the specific components of the above three conditions where lack of effective current performance will jeopardize reimbursement in future years. DHG Healthcare Timeline of Performance Reform FFY 2015: 10/1/14 Impact (1.5% VBP, 3% RRP, 1% HAC) All Measures Performance Period over 12/31/13 All Measures Performance Period over 12/31/13 Readmissions Performance Period over 6/30/ Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec May 2014 FFY 2016: 10/1/15 Impact (1.75% VBP, 3% RRP) Mortality 10/1/12-6/30/14 (baseline 10/1/10-6/30/11) Central Line-Associated Bloodstream Infection 1/1/14-12/31/14 (baseline 1/1/12-12/31/12) Catheter-Associated Urinary Tract Infection 1/1/14-12/31/14 (baseline 1/1/12-12/31/12) Surgical Site Infection 1/1/14-12/31/14 (baseline 1/1/12-12/31/12) Agency for Healthcare Research and Quality 10/15/12-6/30/14 (baseline 10/15/10-6/30/11) Core Measures 1/1/14-12/31/14 (baseline 1/1/12-12/31/12) Hospital Consumer Assessment of Healthcare Providers and Systems 1/1/14-12/31/14 (baseline 1/1/12-12/31/12) Efficiency (Per Beneficiary) 1/1/14-12/31/14 (baseline 1/1/12-12/31/12 Readmissions Performance Period 7/1/11-6/30/14 FFY 2017: 10/1/16 Impact (2% VBP, 3% Readmissions) Mortality 10/1/13-6/30/15 (baseline 10/1/10-6/30/12) Agency for Healthcare Research and Quality 10/1/13-6/30/15 (baseline 10/1/10-6/30/12) Readmissions Performance Period 7/1/12-6/30/15 FFY 2018: 10/1/17 Impact (2% VBP, 3% Readmissions) Mortality 10/1/13-6/30/16 (baseline 10/1/09-6/30/12) Agency for Healthcare Research and Quality 7/1/14-6/30/16 (baseline 7/1/10-6/30/12) Readmissions Performance Period 7/1/13-6/30/16 FFY 2019: 10/1/19 Impact (2% VBP, 3% Readmissions) Mortality 7/1/14-6/30/17 (baseline 7/1/09-6/30/12) Legend FFY VBP RRP HAC Federal Fiscal Year Value-Based Purchasing Readmission Reduction Program Hospital Acquired Conditions Mortality (VBP) Readmissions (RRP) HCAHPS (VBP) Core Measures, CLABSI, CAUTI, AHRQ PSIs (VBP) Hospital Acquired Conditions (HAC) Medicare Spend Per Beneficiary (VBP) dhgllp.com/healthcare dhghealthcare@dhgllp.com VALUE-BASED PURCHASING VBP is the only one of the three mandatory programs that offers providers an opportunity to gain bonuses based on performance. In 2014, 45 percent of hospitals participating in the program are expected to receive a bonus. Specifically, 1,231 hospitals participating in the program received incentive payments but 1,451 hospitals were paid less in 2014 than in One should ask what separated winners from losers? First, more successful organizations focused on the outcome domains which represented 25 percent of the total VBP score and was based solely on mortality for three diagnoses: Heart Failure, Pneumonia and Heart Attack. Second, the work initiated by successful providers on these domains resulted in an increase in performance scores across all domains. A key strategy for hospitals with good scores on these metrics focuses on constant performance improvement to keep pace with improving performance levels in the mandatory programs across the country. VBP is designed to be Medicare budget neutral each year. In 2014, the one and a quarter percent of Medicare reimbursement at risk for all participating hospitals totaled $1.1 billion in play for redistribution. A hospital should not count page 4

5 on processes that simply produce current year spending levels if it wants to maximize performance and protect DRG payments in future years. For example, the care provided in federal fiscal year 2014, which started October 1, 2013, will impact the next four years of reimbursement for VBP as shown above in the DHG Healthcare Performance Period Tracking Tool. While providers should focus on current period performance metrics, they should also make sure leaders in their organization are aware of how significantly the care they are providing today will impact reimbursement in future years. In the summer of 2014, providers should be focused on 2016 performance periods for VBP and aware that parts of 2017 and 2018 are also in play, namely mortality and patient safety indicators. Even the 2019 mortality performance period begins in the summer of With new metrics being added each year, it is essential that hospital leadership stay abreast of the new indicators being published on Hospital Compare as they likely will end up a part of one of these mandatory programs. For example, late this winter, stroke and blood clot metrics were added to the Hospital Compare website. Hospitals not currently in the top performer group on these metrics should start now to improve performance on these indicators. READMISSION REDUCTION PROGRAM AND HOSPITAL-ACQUIRED CONDITION Unlike VBP which offers bonus potential, RRP and HAC are penalty-only programs with no upside potential. Beginning in 2013, the maximum penalty for Medicare inpatient reimbursement under RRP was one percent. In 2014, the penalty increased to two percent and in 2015, the penalty will increase to three percent. As shown in the DHG Healthcare Performance Period Tracking Tool, the three- year rolling performance periods are in advance of the actual financial risk year. As of the summer of 2014, there are three RRP performance periods in play for 2016 through 2018, all with a maximum penalty of 3%. Similar to VBP, RRP has moving pieces with respect to metrics. RRP started with three diagnoses: Heart Failure, Pneumonia and Heart Attack. In the summer of 2013, the final reimbursement rules added Hip and Knee and Chronic Obstructive Pulmonary Disease diagnoses retrospectively to the performance period for In addition, the Hospital Compare website has now added a variety of Stroke process and outcome measures. The 2013 Medicare Hospital Quality Chartbook provides a national analysis on the variations in stroke outcomes and presents opportunities to reduce the wide variation across the country. HAC, the latest of the three programs to go into effect in 2015, is the only one to have an all or nothing penalty. The lowest quartile performance in the country will be penalized the full one percent of Medicare inpatient reimbursement. Many of these metrics are duplicated in the VBP realm. This intensifies the need to have a strategic improvement plan around any under-performing facility metric. A facility can be penalized at least twice for poor performance and even more if this metric is included in any additional at-risk commercial contracts. As providers enter into programs such as global budgeting, bundled payments and shared savings programs, many of the metrics included in the mandatory programs will be key to success in these programs. One example from VBP is the Medicare Spend per Beneficiary that appeared for the first time in 2015 criteria and represents 20 percent of the total score. This metric is similar to the shared savings program where a provider is responsible for an adjusted spend for a beneficiary that is discharged from its facility beginning three days prior to admission and up to 30 days post discharge. Many of the metrics in the VBP programs, such as core measures and central line blood stream infection rates, are also appearing in commercial products. The impact is significant when these metrics are successful, and perhaps even more significant when they are not. An article entitled Medicare Payment Bundling: Insights from Claims Data and Policy Implications (Dobson & DaVanzo, 2012) highlights the impact of readmissions on the total episode of care and underscores that the critical work on readmission reduction is important to anyone currently in or planning to enter into a bundled payment or shared savings program. Value Incentive Programs to Align Cost and Quality Objectives Engaging physicians through disciplined programs designed to improve quality and reduce unnecessary hospital cost is an essential component for success in the mandatory programs and should be proven before taking on additional risk with payers. Value Incentive Programs can take the shape of co-management agreements focusing on unique service lines or departments with narrow targets. Hospital Efficiency Programs are another popular initiative that may engage entire medical staffs in broadbased hospital-wide goals and outcomes. These programs are designed to assist the hospital in meeting quality and performance targets that have a direct impact on the VBP and RRP metrics. For most medical staffs and emerging physician leaders, understanding the challenges facing hospitals can be difficult. The reimbursement risks mentioned earlier typically have not directly impacted physician reimbursement. This will change as the increasing costs associated with providing care continue to exceed the rate of reimbursement for most payers. This challenge will become common ground for page 5

6 health system leadership and physicians on the medical staff. Solutions that incentivize physicians to assist the hospital in efficiently managing costs by directly impacting physician preference or practice habits will gain medical staff support. FOUNDATIONAL ELEMENTS TO STRUCTURING VALUE INCENTIVE PROGRAMS There are several foundational elements that an organization should consider as it prepares to manage through the myriad reimbursement challenges, including: PHYSICIAN LEADERSHIP: Achieving improvement in cost and quality metrics will require active physician involvement to design and implement care processes that respond to the new metrics. Effective physician leaders must take an active role to champion quality initiatives and manage engagement and communication with the medical staff. One best practice in this area is the adoption of a formal process to identify, educate and then assist a group of physician leaders to organize a Physician Advisory Council. DEFINED SCOPE OF SERVICE: As with any major hospital project, providing clear objectives and identifying target areas for improvement are necessary to focus physician time and maximize outcomes. These could be department level, service line or broader scale initiatives that provide focus for the physician leader(s). Typically, agreements that aim to influence VBP and RRP scores will include goals for clinical outcomes; complication reduction; patient safety; process and efficiency of operations; and patient satisfaction. PHYSICIAN DUTIES: Once physician duties are defined, physician leadership must have authority to hold physicians accountable for metrics that are aligned with these duties designed to influence desired outcomes. Accountability coupled with agreed upon consequences is central to the success of this effort. Designing effective medical directorship positions and then selecting capable physicians who can provide the leadership necessary to assure duties are followed will be critical to future success. COMPENSATION STRUCTURE: Physicians will need to be compensated and incentivized to participate in management duties that are separate from their clinical practice. Most successful organizations allocate at least 60 percent of total Fair Market Value-approved compensation to performance metrics to create sufficient incentives for improvement. This provides a stable foundation of time-based payment and leaves room for incentive payment tied to the achievement of metrics and outcomes that are in the hospital s best interest. FINANCIAL SUSTAINABILITY: Value based incentive agreements that are financially aligned with hospital and physician goals will be critical. Physician incentive payments must be based on both outcomes and cost savings achieved on an annual basis. The impact of enhanced VBP, readmission and efficiency metrics should all be considered as part of the value of pursuing these agreements. PERFORMANCE TRACKING/DATA: Accurate and timely data reporting is critical to providing physicians with the basis for advancing and maintaining pressure on major change initiatives. Including both financial data from the hospital and department-level quality data will be necessary to adequately align the quality incentives with the financial realities of the organization. Cost per case, resource utilization, admitting and discharge efficiency should all be tracked against the major documentation and quality initiatives included as part of the agreement. PATHWAY TO RISK CAPABILITY Risk is defined as the possibility that something unpleasant (such as an injury or a loss) will happen. Capable means able to do something; having the qualities or abilities that are needed. Risk Capable then could be defined as the ability to prevent something unpleasant from happening. As the healthcare industry continues to change and as payers adopt principles associated with VBP, RRP and HAC programs, the acceleration of valuebased payments will intensify. To be successful, managing against these metrics will require a disciplined plan that incorporates business analytics, effective revenue management strategies and enhanced alignment with the medical staff. A recent report commissioned by the United States Department of Health and Human Services and published by the RAND Corporation in 2014 documented the impact of VBP programs over the last 10 years. Results from this report help us understand how to design, implement and monitor programs necessary for a value-based reimbursement environment to achieve greater success. Elements necessary to achieve future success in VBP programs include: page 6

7 Advancing the functional provider capacity to learn and improve, often against a moving target that when achieved can be maintained Improving communication and promoting innovation through utilization of integrated data systems to manage high-risk patient populations This article profiles successful VBP programs that were able to generate positive results and points out that programs with incentives large enough to compensate providers for their efforts were more successful. The article also highlights the importance of developing Value Incentive Programs that can adequately reward the physicians for their performance while creating a sustainable funding methodology for the hospital. Additionally, programs that established targets in advance and coordinated groups of providers to share in the success of achieving the targets were noted to achieve greater overall performance. Co-management models and Hospital Efficiency Programs structured to reward groups of physicians based on individual performance and cumulative ability to positively impact important hospital results have the highest correlation with successful value-based outcome delivery. The journey to risk capability very clearly will be different depending on the market and the organization. However, the common characteristics around existing performance and the ability to measure and align the medical staff around focused initiatives will remain foundational to future success. We should expect that future value-based reimbursement models will continue to evolve in their complexity in terms of both severity for poor performance and opportunity for success. In summary, implementing tactics to manage performance today, minimally around the mandatory components of the ACA, should be viewed as a critical part of the hospital strategic plan. 1 Measuring Success in Health Care Value-Based Purchasing Programs, Cheryl L. Damberg, Melony E. Sorbero, Susan L. Lovejoy, Grant Martsolf, Laura Raaen, Daniel Mandel page 7

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(202) or CMS Proposals to Improve Quality of Care during Hospital Inpatient Stays

(202) or CMS Proposals to Improve Quality of Care during Hospital Inpatient Stays DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services Room 352-G 200 Independence Avenue, SW Washington, DC 20201 FACT SHEET FOR IMMEDIATE RELEASE April 30, 2014 Contact: CMS Media