CMS Bundled Payment Initiatives

1. CMS Bundled Payment Initiatives Potential Impact on Rural Patients and Communities Jim Mikes, ScD. MPH. Vice President for Rural Advocacy and Regulation

2. Alternative Payment Models

3. HEALTHIER PEOPLE BETTER CARE SMARTER SPENDING

4. A Little History • 1965 • President Johnson signs Medicare into law in Independence, MO

5. Title XVIII of the Social Security Act • Health Insurance for the Aged • Provides hospital, post-hospital extended care and home health coverage to almost all Americans aged 65 or older. • Payments based on “reasonable and necessary costs”. • Expanded to include disabled and ESRD (1972). • No incentives for efficiency or cost-control.

6. Medicare Spending Before 1984 Medicare & Medicaid Research Review/2013 Statistical Supplement

7. The Introduction of Prospective Payments • 1983 • Social Security Amendments of 1983 • Implemented a prospective payment system for hospitals • Reimbursement based on predicted resource utilization • Creation of Diagnosis Related Groups

8. Inpatient Prospective Payment System • Fixed payments based on the expected resource utilization of 468 DRGs • Adjustments made for urban/rural differences, medical education, area wage differences and statistical outliers • Excluded Long-Term Care Hospitals, Inpatient Rehabilitation Facilities, Psychiatric Hospitals, Children's Hospitals and Cancer Hospitals

9. IPPS (continued) • Four states received waivers to create their own alternative prospective payment system. • New York, New Jersey, Massachusetts and Maryland • Maryland is the only state that still operates on a waiver • Hospitals now have an incentive to discharge patients within the DRG payment window.

10. IPPS = A Form of Bundling • Inpatient stay results in an assigned DRG • DRG is associated with a defined payment • Payment intended to cover the hospital products and services provided during that stay • Hospital margin determined by relation of costs to payments

11. Transition from Cost-Based to PPS • 1983 – Hospitals • 1998 – Skilled Nursing Facilities • 2000 – Home Health Agencies • 2002 – Long-Term Care Hospitals • 2002 – Inpatient Rehabilitation Facilities • 2005 – Psychiatric Hospitals • CAHs, FQHCs & RHCs remain cost-based

12. Medicare Spending After 1984 Medicare & Medicaid Research Review/2013 Statistical Supplement

13. History of Medicare Spending Medicare & Medicaid Research Review/2013 Statistical Supplement

14. Center for Medicare & Medicaid Innovation • Concern about the quality of the product purchased • Created by the PPACA in 2010 • Designed to test new payment and service delivery models

15. CMMI - Models • Accountable Care Organizations • Episode Based Payment Initiatives • Primary Care Transformation • Initiatives Focused on the Medicaid & CHIP Population • Initiatives to Accelerate the Development & Testing of New Payment and Service Delivery Models • Initiatives to Speed the Adoption of Best Practices

16. Episode-Based Payment InitiativesBundled Payments • Testing feasibility of bundling payment for ALL Medicare A & B services within a defined episode of care • PPS ~ Bundled Part A payment within silos

17. Experience with Bundled Payments • 1991 – Bundled Payment Demonstration for CABG (7 hospitals, 5 years) • 2009 – Physician & Hospital Collaboration Demo (12 NJ hospitals, 3 years) • 2009 – Acute Care Episode Demo (5 hospitals, 3 years) • 2013 – Bundled Payment for Care Improvement (multiple hospitals & other providers, 3 years)

18. Results from BPCI Models • Comparison Hospitals • Baseline Payments • $30,057 • Model Period Payments • $27,938 • Decrease • $2,119 • BPCI Participants • Baseline Payments • $30,551 • Model Payments • $27,265 • Decrease • $3,286 • BPCI Savings • $1,167 JAMA.2016;316(12):1267-1278 September 27, 2016

19. 2016 - CMS Changes the Game • Comprehensive Care for Joint Replacement • MANDATORY for hospitals in 67 MSA’s • Episode = starts with admission for total hip and knee replacements and ends 90 days after discharge • Involves 789 hospitals, 5 years

20. Latest Proposed Bundle • Would cover cardiac care and extend CJR to other hip surgeries • Promotes increased utilization of cardiac rehab • Provides opportunity for physicians involved in bundles to qualify for incentives from Quality Payment Program (MACRA) • Hospitals in 98 selected MSA’s, 5 years

21. Format of the Bundled Payment Model • Define the Episode • Population • Initiation/Termination • Responsible Provider • Develop the Target Price • Historic cost data • Link Quality to Discount Rate • Determine any necessary adjustments

22. Examples Provided by CMS • The following examples consider bundles for coronary bypass surgery and all related care provided in the 90 days after hospital discharge. • The example uses a historical average of $50,000 per case, which includes post-hospital spending. • Target price reflects the historic average minus a discount rate based on quality performance and improvement.

23. Example 1 • Hospital A is assigned a 1.5 percent discount rate because it has achieved the highest level on quality measures. • The quality adjusted target price for Hospital A is: $50,000 – 1.5 percent ($750) = $49,250. • By avoiding readmissions and closely managing post-discharge spending, Hospital A is able to reduce average spending to $48,000 per case. • Hospital A will be paid an average savings of $1,250 per case.

24. Example 2 • Hospital B also reduces the average cost per case to $48,000. • Because it only receives an “acceptable” rating on quality scores, its discount is 3% and quality adjusted target price is $48,500. ($50,000-3 percent) • Hospital B will be paid the average savings of $500 per case.

25. Example 3 • Hospital C also has “acceptable” quality scores. • Its discount is 3 percent and quality adjusted target price is $48,500. • However, Hospital C has total average episode costs of $50,000. • Hospital C will have to repay Medicare an average of $1,500 ($50,000-$48,500) per case.

26. Example Summary • This example uses bypass surgery as the bundling diagnosis, but it could be orthopedic surgery, COPD, CHF or any other diagnosis determined by CMS. • Hospital A was able to achieve the highest savings while delivering the highest quality and received the highest reward.

27. Reducing Costs • Hospitals A & B were able to reduce the costs per episode. • This likely would require achieving savings during the inpatient stay, but also during the 90 day post-discharge period.

28. Hospital Costs • Staffing • Supplies • Efficiency • Volume

29. Post-Discharge Costs • Readmissions • Post-Acute Care • Skilled Nursing • Rehab • Home Health • “a substantial part of the variation across HRRs stems from spending on post-acute care” NEJM 368;16 4/18/2013

30. Reimbursement Methods in the Bundle • Reimbursement methods remain the same for all participants providing services within the bundled episode. • Doctors, therapists, home health, skilled nursing, swing beds • The hospital becomes responsible for all the Medicare spending attributed to the bundled case.

31. Challenges for Rural Stakeholders • How to participate and remain relevant in bundled episodic payment models. • How to make sure patients are able to receive quality care in their own communities. • Preserving access to local services • Current reimbursement methods create a disadvantage for some providers to participate. • Limited financial resources, limiting ability to bear risk

32. Challenges for Rural Stakeholders • Sixty percent of all rural hospitals are CAHs • Rural facilities may lack the electronic/information infrastructure to interconnect venues of care • The provider workforce is limited, especially behavioral health

33. New Opportunities • Better coordinated care for patients • Opportunity to form collaborative relationships • Mutual benefits through volume and gainsharing • Experience with alternative payment models • Program waivers • Three day hospital requirement for SNF • Home visits • Telehealth • Gainsharing

34. Strengths of Rural Providers • Integrated within communities • Smaller referral networks • Utilization of telehealth • Strong focus on primary care • Stronger relationships with local providers • Quality and satisfaction metrics better than urban counterparts

35. Rural Quality • MedPAC Report to the Congress, June 2012 • We do not find major differences in quality between urban and rural providers in most sectors. Patient satisfaction is similar, and quality measures for skilled nursing facilities, home health agencies, and outpatient dialysis facilities do not show major differences between urban and rural providers. Similarly, hospital readmission measures do not point to major differences based on rural or urban location. • The Center for Healthcare Outcomes and Policy, University of Michigan • Among Medicare beneficiaries undergoing common surgical procedures, patients admitted to critical access hospitals compared with non-critical access hospitals had no significant difference in 30-day mortality rates, decreased risk-adjusted serious complication rates, and lower-adjusted Medicare expenditures, but were less medically complex. JAMA. 2016;315(19):2095-2103.

36. Strategies for Success • Reduce hospital costs • Reduce post-discharge costs • Manage utilization • Seek out highest quality value options • Reduce variation • Collaborate for services not provided • Market quality • Engage the community

37. Address Obstacles to Transition • Allow rural providers to participate and compete • Create flexibility in payment and regulation • Provide access to beneficiary level data • Permit time to build capacity • Consider rural specific metrics of success

38. Designed to test new payment and service delivery models Hospitals tell CMS to slow flood of new alternative payment models Modern Healthcare October 5, 2016

39. Look for New Options • Cost-based reimbursement with bonus/penalty adjustments • Residence based adjustments for rural beneficiaries in bundled programs • Group participation/pooled risk

41. Don’t Be This Guy

42. Thank You